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EX-32.2 - EXHIBIT 32.2 - ERHC Energy Incex32_2.htm
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EX-31.2 - EXHIBIT 31.2 - ERHC Energy Incex31_2.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-K
 
o
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2010
 
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 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.   Yeso No x

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

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.  Yeso     No x

The aggregate market value of the voting stock held by non-affiliates of the registrant on March 31, 2010 was $249,152,406.

On November 30, 2010, the registrant had 737,518,835 shares of common stock issued and outstanding.
 


 
 

 

TABLE OF CONTENTS


 
 
PART I
 
PAGE
 
 
 
 
 
Item 1.
 
 
4
Item 1A.
 
 
11
Item 1B.
 
 
15
Item 2.
 
 
16
Item 3.
 
 
17
Item 4.
 
 
17
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
Item 5.
 
 
18
Item 6.
 
 
19
Item 7.
 
 
20
Item 7A.
 
 
29
Item 8.
 
 
30
Item 9.
 
 
54
Item 9A.
 
 
54
Item 9B.
 
 
54
 
 
 
 
 
 
 
PART III
 
 
 
 
 
 
 
Item 10.
 
 
55
Item 11.
 
 
58
Item 12.
 
 
66
Item 13.
 
 
67
Item 14.
 
 
67
 
 
 
 
 
 
 
PART IV
 
 
 
 
 
 
 
Item 15.
 
 
68
 
 
 
69


Forward-Looking Statements

ERHC Energy Inc. (the “Company”) or its representatives may, from time to time, make or incorporate by reference certain written or oral statements  which include, but are not limited to, information concerning the Company’s possible or assumed future business activities and results of operations and statements about the following subjects:
 
 
business strategy;
 
growth opportunities;
 
future development of concessions, exploitation of assets and other business operations;
 
future market conditions and the effect of such conditions on the Company’s future activities or results of operations;
 
future uses of and requirements for financial resources;
 
interest rate and foreign exchange risk;
 
future contractual obligations;
 
outcomes of legal proceedings 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 our statements concerning future intent.   Company’s statements included in this report speak only as of the date of this report.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any of our statements to reflect any change in its expectations with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is based.


PART I

Item 1 – Business

Overview

ERHC Energy Inc., a Colorado corporation, (“ERHC” or the “Company”) was incorporated in 1986 and 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 including its 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”). ERHC does not directly carry out the exploration and production operations in the JDZ but is relying on reputable technical operators with whom the Company has entered into partnership relationships, such as Addax Petroleum Inc. and Sinopec Corporation to carry out those operations. The Company has formed relationships with these 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 oil and gas industry, including supply and trading.

The Company’s business strategy includes but is not limited to farm out its rights to working interests in the JDZ and EEZ to entities which we believe are established, well capitalized oil and gas operators for upfront cash payments and negotiate contracts with them to carry our share of the capital costs.  This has been done successfully on Blocks 2, 3 and 4. The Company will attempt to adopt a similar approach for JDZ Blocks 5, 6 and 9 as well as the EEZ.  ERHC is also pursuing other business development activities in the broad petroleum and related industries.

General Development of the Business

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 the following rights to participate in exploration and production activities in the EEZ subject to certain restrictions:  (a) the right to receive 100% working interest free signature bonus for two blocks of ERHC’s choice and (b) the option to acquire up to a 15% of additional paid working interest in up to two blocks of ERHC’s choice in EEZ.  The Company would be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.

This exercise of ERHC’s rights in the JDZ is 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 is entitled to receive its working interest in that block in a future license awarded for that block.

ERHC entered into a series of negotiations and agreements that positioned the Company to enter into a Participation Agreement dated November 17, 2005 (the “Participation Agreement”) with Addax Petroleum (Nigeria Offshore 2) Limited (“Addax”). Under the Participation Agreement, as amended, Addax ultimately paid ERHC $18 million in February and March 2006 in exchange for the sale of a 40.5% participating interest (the “Assigned Interest”) in Block 4 while ERHC retained a 19.5% interest   (“Retained Interest”).   Under the Participation Agreement, as amended, Addax currently serves as operator and pays all of ERHC’s current and future costs in respect of all petroleum operations in Block 4 subject to reimbursement upon production. Addax is to receive 100% of ERHC’s allocation of costs plus up to 50% of ERHC’s allocation of profit until Addax recovers all costs advanced on behalf of ERHC.

In February 2006, ERHC assigned a 15% participating interest in Block 3 of the JDZ to Addax Petroleum Resources Nigeria Limited (“Addax Sub”) for $7.5 million which was paid in the second quarter of fiscal 2006. ERHC retained a 10% interest in Block 3. Under the participation agreement between ERHC and Addax Sub, Addax Sub is currently “carrying” all of ERHC’s current and future costs in respect of petroleum operations in Block 3. Addax Sub is to receive 100% of ERHC’s allocation of costs oil plus up to 50% of ERHC’s allocation of profit until Addax Sub recovers all costs advanced on behalf of ERHC.

In March 2006, ERHC assigned 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 to Addax Energy Nigeria Limited (“Addax Ltd.”). ERHC retained a 22% participating interest in Block 2. In connection with these sales, 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 currently serves as operator, and Sinopec and Addax Ltd. pay all of ERHC’s current and future costs in respect of petroleum operations in Block 2. Sinopec and Addax Ltd. are to receive to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s allocation of profit until they recover all costs advanced on behalf of ERHC. Additionally, Sinopec is to receive 6% interest on its current and future costs, up to $35 million, but only to the extent that those interest costs are recoupable out of production.


Related to the assignment of the participating interest in Block 2 to Sinopec, ERHC paid a $3 million in cash success fee to a British Virgin Island company (“Feltang”), $1.5 million was paid to Feltang in March 2006 and the remaining $1.5 million was paid in March 2007.  In August 2010, ERHC issued 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 payment and issuance of stock and warrants were made to Feltang pursuant to an agreement made in January 2006 between the Company and Feltang whereby the Company contracted Feltang to seek and introduce potential partners to ERHC as a replacement operator for the Company’s previous operating partner in Block 2. The Company’s obligation to pay Feltang arose under the agreement as a result of the former operating partner’s withdrawal from Block 2, the execution of a participation agreement between the Company and Sinopec  (introduced to the Company by Feltang), and the execution of a PSC covering Block 2 with Sinopec as operator.
 
Current Business Operations

ERHC’s operations are currently focused in the Gulf of Guinea, off the coast of central West Africa. ERHC believes this region has the possibility of significant oil and gas reserves. ERHC has worked to realize the value of the assets it has acquired in this region.  The Company’s current holdings include those below, details of which can be found at the link: http://www.erhc.com
 
 
JDZ – ERHC has interests in six of the nine Blocks in the JDZ, a 34,548 square kilometer area approximately 200 kilometers off the coastline of Nigeria and Săo Tomé & Principe that is adjacent to several large petroleum discovery areas.

EEZ – The government of Săo Tomé & Principe has awarded ERHC rights to participate in exploration and production activities in the EEZ, which encompasses an area of approximately 160,000 square kilometers. These rights were granted in a May 21, 2001 Memorandum of Agreement between the DRSTP and the Company. The Company’s rights in the EEZ expire on October 1, 2024 or, if the company has a producing working interest in any Block(s) at October 1, 2024, the Company’s rights extend in such Block(s), as long as the Block(s) remains in production.

In 2009, the National Petroleum Agency of São Tomé & Príncipe (“ANP-STP”) delineated the EEZ into 19 Blocks and, accordingly, ERHC exercised its preferential rights arising from prior agreements between ERHC and São Tomé & Príncipe. In February 2010, the ANP-STP confirmed the award to ERHC of 100 percent working interests in Blocks 4 and 11, signature bonus free.  The ANP-STP has indicated that it expects to invite ERHC to negotiate Production Sharing Contracts on the two Blocks in due course.

ERHC has been active in the EEZ, which is situated southeast of the JDZ, since 1997.  ERHC was one of the first companies to identify the possibility of significant oil and gas reserves in the offshore of Sao Tome and Principe. The two Blocks selected and awarded to ERHC in the EEZ sit directly to the east of the islands of Sao Tome and Principe.  EEZ Block 4 is directly to the east of the island of Principe, which is at the very top of an exceptional steep volcanic structure where water depths drop precipitously.

EEZ Block 11 is directly to the east of the island of Sao Tome. This Block is also situated on a volcanic structure that juts up from the floor of the Gulf of Guinea. There has been less seismic imaging conducted in this area. As we have experienced with the JDZ, oil and gas exploration can be a long process. The next step will be to open discussions with potential technical partners to farm into Blocks 4 and 11 to assume operatorship and compensate ERHC for percentage ownership in the Blocks.

In addition to the two Blocks already awarded, ERHC has rights to acquire up to a 15 percent paid working interest in two additional Blocks of its choice in the EEZ. The ANP-STP has informed the Company that selection of these other Blocks will take place at a later date.


Although ERHC is working toward realizing the value of its oil and gas assets in the Gulf of Guinea, it is still a long way away from the point at which any of these potential oil and gas assets can begin to produce revenues. ERHC therefore seeks to identify and acquire assets with a shorter time horizon for revenue generation.

ERHC has identified and examined potential acquisition prospects and is holding discussions regarding a number of potential exploration and production opportunities in West Africa. Ultimately, ERHC seeks a diverse portfolio of assets and companies from which it can derive significant strategic value. The success of potential acquisitions depends on the availability of adequate financing.  ERHC’s principal assets remain its interests in the JDZ and the EEZ.

Operations in the JDZ

ERHC has working interests in six of the nine Blocks in the JDZ, as follow:

 
JDZ Block 2:  22.0%
 
JDZ Block 3:  10.0%
 
JDZ Block 4:  19.5%
 
JDZ Block 5:  15.0% (in Arbitration)
 
JDZ Block 6:  15.0% (in Arbitration)
 
JDZ Block 9:  20.0%

The working interest percentages represents ERHC’s share of all the potential hydrocarbon production from the blocks and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating the blocks. These costs in blocks 2, 3 and 4 are currently being carried by the operators until production, whereupon the operators will recover their costs from the production revenues.

ERHC’s interests in JDZ Blocks are in various stages of exploration. JDZ Blocks 2, 3 and 4 were the focus of an exploratory drilling campaign that concluded in January 2010. To date, no Production Sharing Contracts have been signed in either JDZ Block 5 or 6, and no operatorship has been awarded yet in JDZ Block 9.

In 2009, Sinopec and Addax, our technical partners and operators in Blocks 2, 3 and 4 undertook an exploratory drilling campaign across the three blocks that was completed in January 2010. That drilling campaign was a coordinated effort made possible by two important transactions undertaken by Addax and Sinopec during 2009: 1) Sinopec’s acquisition of Addax and 2) Addax’s acquisition of Anadarko Petroleum’s interest in Block 3, allowing Addax to become the operator in the Block 3.
 
The drilling campaign was completed in January 2010 with five wells drilled in the following locations and order:

 
The Kina-1 well in JDZ Block 4

 
The Bomu-1 well in JDZ Block 2

 
The Lemba-1 well in JDZ Block 3

 
The Malanza-1 well and Oki East-1 well in Block 4

The following is an analysis of activity that took place in each

JDZ Block
 
Operator
 
Name of Well
 
Date Drilling Began
 
Date Well Completed
 
Rig/Drillship Used
                     
2
 
Sinopec
 
Bomu-1
 
August 2009
 
October 2009
 
SEDCO 702
                     
3
 
Addax Sub
 
Lemba-1
 
October 2009
 
November 2009
 
Deepwater Pathfinder
                     
4
 
Addax
 
Kina-1
 
August 2009
 
October 2009
 
Deepwater Pathfinder
                     
4
 
Addax
 
Malanza 1
 
November 2009
 
December 2009
 
Deepwater Pathfinder
                     
4
 
Addax
 
Oki East-1
 
December 2009
 
January 2010
 
Deepwater Pathfinder


The following is a summary of results of the drilling campaign:

JDZ Block
 
Results of Drilling Released by Operators
     
2
 
The Bomu-1 well was drilled on time and within budget to a total depth of 3,580 meters resulting in the discovery of biogenic methane gas.  As of the 2010 fiscal year-end, the operator has not made any declaration of commerciality.
     
3
 
The Lemba-1 well was drilled on time and below budget to a total depth of 3,758 meters, with biogenic methane gas discovered in two sands.  As of 2010 fiscal year-end, the operator has not made any declaration of commerciality.
     
4
 
All wells were drilled on time and within budget to the planned depth. Biogenic methane gas was discovered in multiple sands in both the Kina well and the Oki East well. As of 2010 fiscal year-end, the operator has not made any declaration of commerciality.

General Information on Current Operations in Blocks 2, 3 and 4

Currently, the analysis of the information gathered during drilling is ongoing.  The Joint Development Authority {JDA} has granted an extension of Exploration Phase 1 until March 2011 to enable contracting parties complete the analysis.

No guarantees can be given at this stage that there will be any commercial discovery or production in commercial quantities or at all.

As has been the practice in the JDZ, accurate, material information on the progress in the JDZ Blocks will emanate from the operators or the JDA.  ERHC will publish such information in a timely manner in accordance with our contractual and regulatory obligations.

Background of the JDZ

In the spring of 2001, the governments of Săo Tomé & Principe and Nigeria reached an agreement over a long-standing maritime border dispute. Under the terms of the agreement, the two countries established the JDZ to govern commercial activities within the disputed boundaries. The JDZ is administered by the JDA which oversees all future exploration and development activities in the JDZ. Revenues derived from the JDZ will be shared 60/40 between the governments of Nigeria and Săo Tomé & Principe, respectively.

Background of the EEZ

The government of Săo Tomé & Principe has awarded ERHC rights to participate in exploration and production activities in Săo Tomé & Principe’s EEZ. ERHC’s rights include the following:

 
The right to receive 100% working interest free signature bonus of two blocks of ERHC’s choice; and
 
The option to acquire up to a 15 percent paid working interest in additional 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 waters of Săo Tomé 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. Oil and gas are produced in the neighboring countries of Nigeria, Equatorial Guinea, Gabon and Congo.

 
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) Assigned
 
Current ERHC Retained Participating Interest
                 
2
 
30.00%
 
35.00%
 
43.00%
 
22.00%
3
 
20.00%
 
5.00%
 
15.00%
 
10.00%
4
 
25.00%
 
35.00%
 
40.50%
 
19.50%
5
 
15.00%
 
 -
 
 -
 
15.00%
6
 
15.00%
 
 -
 
 -
 
15.00%
9
 
20.00%
 
 -
 
 -
 
20.00%

 
(1)
The Original Participating Interest was the interest granted pursuant to the Option Agreement, dated April 2, 2003, between DRSTP and ERHC (the “2003 Option Agreement”).

The following is an analysis of the participation agreements under which the company assigned participating interests in Blocks 2, 3 and 4.

Particulars of Participating Agreements

Date of Participation Agreement
 
Party(ies) to the Participation Agreement
 
Participating Interest(s) Assigned
   
Participating Interest Assigned Price
 
                 
JDZ Block 2 - Participation Agreement - ERHC Retained Interest of 22.00%
       
                 
March 2, 2006
 
Sinopec International Petroleum Exploration Production Co. Nigeria Ltd - a subsidiary of Sinopec International Petroleum and Production Corporation
  28.67%     $ 13,600,000  
                   
   
Addax Energy Nigeria Limited - a subsidiary of Addax Petroleum Corporation
  14.33%     $ 6,800,000  
           
JDZ Block 3 - Participation Agreement - ERHC Retained Interest of 10.00%
         
                   
February 15, 2006
 
Addax Petroleum Resources Nigeria Limited - a subsidiary of Addax Petroleum Corporation
  15.00%     $ 7,500,000  
                   
JDZ Block 4 - Participation Agreement - ERHC Retained Interest of 19.50%
         
                   
November 15, 2005
 
Addax Petroleum  Nigeria (Offshore 2) Limited - a subsidiary of Addax Petroleum Corporation
  40.50%     $ 18,000,000  

Under the terms each of the Participation Agreements Sinopec and Addax agreed to pay all of ERHC’s future costs for petroleum operations (“the carried costs”) in respect of ERHC's retained interests in the blocks. Additionally, Sinopec and Addax are entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit oil from the retained interests on individual blocks until Sinopec and Addax Sub recover 100% of ERHC’s carried costs

On October 2, 2009, Sinopec International Petroleum Exploration and Production Corporation acquired all of the outstanding shares of Addax Petroleum Corporation.


Current Plans for Operations

The Company is currently focused on exploiting its interests in Blocks 2, 3 and 4 but it has no current sources of income from operations other than interest income from cash generated from sale of participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The Company believes that the participation agreements that it has entered into will be its primary source of future cash flow; however, the Company is exploring plans to generate operating income from new sources.  The Company plans to diversify its business activity by pursuing other growth opportunities possibly including acquiring revenue-producing assets in diverse geographical areas and forging new strategic business partnerships and alliances. To expand operations, ERHC is currently in negotiations for potential investments that would increase the Company’s presence in the West African oil and gas industry.

ERHC cannot currently predict the outcome of negotiations for acquisitions in West Africa, or, if successful, their impact on the Company's operations, or future revenue generations.

Plans for Funding of Potential Acquisitions

ERHC's future plans may be dependent on the Company's ability to attract new funding.

On July 7, 2010, the Company filed a registration statement on Form S-3 with the US Securities and Exchange Commission (“ SEC”), utilizing a “shelf” registration process or continuous offering process. Under this shelf registration process, the Company may, from time to time, sell up to $50,000,000 of the securities described in the prospectus in one or more offerings.  Each time the Company offers securities, it will provide stockholders with a prospectus supplement that will describe, among other things, the specific amounts and prices of the securities being offered and the terms of the offering.

Unless otherwise provided in the applicable prospectus supplement, the Company intends to use the net proceeds from the sale of securities under the shelf registration to acquire or invest in working interests and other oil and natural gas businesses that are complementary to the Company's operations, although the Company has no such transactions currently in place.  Additionally, the Company may use a portion of net proceeds from time to time for general corporate purposes, including exploration and development activities, regulatory affairs expenses, capital expenditures, additions to working capital and general and administrative expenses.

Government Regulation

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

The oil and gas industry is subject to various types of regulations throughout the world. Legislation affecting the oil and gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous government agencies have enacted extensive laws and regulations binding on the oil and gas industry and companies engaged in this industry, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas exploration, production and marketing and midstream activities. These laws and regulations increase the cost of doing business and, consequently, will affect results of operations. In as much as new legislation affecting the oil and gas industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, the Company is unable to predict the future cost or the impact of complying with such laws and regulations. However, the Company does not expect that any of these laws and regulations will affect its operations in a manner materially different than they would affect other oil and gas companies of similar size and scope of operations.


Having interest outside the United States requires the Company to comply with United States laws and other foreign jurisdiction laws related to pursuing, owing, and exploiting foreign investments, agreements and other relationships. The Company is subject to all such laws, including, but not limited to, the Foreign Corrupt Practices Act of 1977 (“FCPA”).

Competition

Significant competition exists in all sectors of the oil and gas industry. ERHC competes with other oil and gas companies for equipment and personnel required to explore, develop and operate properties as well as marketing of oil, gas and natural gas liquids. Commodity price increases have raised the costs of potential acquisition properties and we compete with a number of companies to pursue acquisition opportunities. Many of the Company’s competitors have substantially larger financial and other resources than ours, and they have also established strategic long-term positions and maintain strong relationships in countries in which the Company may seek entry. As a consequence, ERHC may be at a competitive disadvantage in bidding for exploration rights. In addition, many of the Company’s larger competitors 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, 2010, the Company and its subsidiaries had 8 (eight) employees.  From time to time, however, the Company utilizes the services of specialized consultants on an adhoc basis, to supplement the activities of its employee in the execution of the Company’s work.

Availability of Information

The Company files 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 the Company files 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 hhttp://www.sec.gov after we electronically file such material with, or furnish it to, the SEC.

The Company provides free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable.


Item 1A.  Risk Factors

You should carefully consider the risks described below before making any investment decision related to the Company’s securities.  The risks and uncertainties described below are not the only ones facing the Company.   Additional risks and uncertainties not presently known or that the Company currently deems immaterial also may impair its business operations.  If any of the following risks actually occur, the Company’s business could be affected.

The Company has no sources of revenue and a history of losses from operations

The Company’s business is in an early stage of development.  The Company has not generated any operating revenue since its entry into the oil and gas industry and has incurred significant operating losses.   The Company expects to incur additional operating losses for the foreseeable future.

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

The Company’s operations have consisted solely of acquiring rights to working interests in 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 if or when the production sharing contracts will result in future wells being drilled or if drilled, whether oil and/or gas will be discovered in commercial quantities.

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

While the Company is not required to fund any financial commitments pursuant to current production sharing contracts, it is likely that project financing will be required to fund other exploration activities.  The Company’s failure or the failure of our venture partners to provide or obtain the necessary financing will preclude the continuation 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 discover 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 and its partners will have future success in drilling productive wells.

The Company’s non-operator status limits its control over oil and gas projects in the JDZ and 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 and EEZ.  As a result, the Company will have only a limited ability to exercise control over a significant portion of a project’s operations and the associated costs of those operations in the JDZ or EEZ.  The success of a future project is dependent upon a number of factors that are outside the Company’s control. These factors include:

 
the availability of future capital resources to the Company and the other participants for drilling additional wells;
 
the approval of other participants for determining well locations and drilling time-tables;
 
the economic conditions at the time of drilling, including the prevailing and anticipated price of oil and gas; and
 
the availability and cost of deep water drilling rigs and the availability of operating personnel

The Company’s reliance on its consortium partners and its limited ability to directly control future project costs could have a material adverse effect on its future rates of return.

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

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

The Company’s competition includes oil and gas conglomerates that have significant advantages over it
 
 The oil and gas industry is highly competitive. Many companies are engaged in exploring for crude oil and natural gas and acquiring crude oil and natural gas properties, resulting in significant competition for desirable exploratory and producing properties.  The companies with which the Company competes are much larger and have greater financial resources and technical expertise than the Company.

 
Various factors beyond the Company’s control will affect prices of oil and gas

The availability of a ready market for the Company’s future crude oil and natural gas production if any depends on numerous factors beyond its control, including the level of consumer demand, the extent of worldwide crude oil and natural gas production, the costs and availability of alternative fuels, the costs and proximity of transportation facilities, regulation by authorities and the costs of complying with applicable environmental and other regulations.

The Company’s business interests are located outside of the United States which subjects it to risks associated with international activities beyond its control.

At September 30, 2010, the Company’s major assets are located outside the United States.  The Company’s primary assets are cash in various financial institutions and agreements with 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.  Production is subject to political risks which are inherent in all foreign operations. The Company’s ability to exploit its interests in this area pursuant to such agreements may be adversely impacted by these circumstance.

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

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

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

The 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’s business interests are located in the Gulf of Guinea offshore of central West Africa and are subject to the volatility of foreign governments

All of our primary assets are located in the Gulf of Guinea offshore of central West Africa. The governments of Nigeria and the island nation of Sao Tome and Principe granted our participation interests in various concessions in their offshore waters. The governments of Nigeria and Sao Tome and Principe exist in a volatile political and economic environment and the Company is subject to all the risks associated with those governments. These risks include, but are not limited to:


 
Loss of future revenue and concessions as a result of hazards such as war, acts of terrorism, insurrection and other political risks
 
Increases in taxes and governmental interests
 
Unilateral renegotiation of contracts by government entities
 
Difficulties in enforcing our rights against a governmental agency because of the doctrine of sovereign immunity and foreign sovereignty over international operations
 
Changes in laws and policies governing operations of foreign-based companies, and
 
Currency restrictions and exchange rate fluctuations

Our foreign operations may also be adversely affected by laws and policies of the United States affecting foreign trade and taxation. Realization of any of these factors could materially and adversely affect our financial position, results of operations and cash flows.

The Company has filed suit to prevent tampering with its interest and any adverse ruling related to JDZ Blocks 5 and 6. This action could have a material adverse effect on ERHC’s business, prospects, operations, financial condition and cash flow.

On November 3, 2008, the Company filed a suit in Nigeria to prevent any tampering with its rights in JDZ Blocks 5 and 6 pending the outcome of arbitration over those rights. The lawsuit comes after the JDA and the Joint Ministerial Council (JMC) of the Nigeria-Săo Tomé and Príncipe JDZ failed to give a satisfactory response to the Company’s letters seeking clarification of the Company’s rights in JDZ Blocks 5 and 6 following media reports stating that the JMC had approved of the Company’s removal from the Blocks. The Company was awarded a 15 percent working interest in each of the Blocks in a 2005 bid/licensing round conducted by the JDA, following the exercise by ERHC of preferential rights in the Blocks as guaranteed by contract and treaty. The dispute is entirely contractual. The JDA and the Government of DRSTP contend that certain correspondence issued by a previous CEO/President of the Company in 2006 amount to a relinquishment of the Company’s rights in Blocks 5 & 6 under the Company’s contracts with DRSTP which provide for the rights.  The Company contends that no such relinquishment has occurred and has sought recourse to arbitration accordingly.  In November 2008, the Company dispatched notices of arbitration for service on the JDA and the governments of Nigeria and Sao Tome & Principe to commence arbitration in London. ERHC wants the London Court of International Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain intact. If the Company fails to prevail in its lawsuit or arbitration proceedings, there could be significant adverse effects on the Company’s future planned operations in JDZ Blocks 5 and 6. These adverse effects could include but not be limited to a loss of ERHC’s rights JDZ Block 5 and 6.  At this time, ERHC is unable to reasonably estimate the economic impact if the Company fails to prevail in its suit and arbitration.
 
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 Săo 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 requested 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.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, assisted ERHC in responding to the 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, assisted ERHC in responding to the subpoena.   Please see “Legal Proceedings” for more information.


These investigations could also result in:

 
third party claims against the Company, 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 commercial  value;
 
adverse consequences on the Company’s 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 from these investigations could also adversely affect the Company’s business and prospects in the commercial market.  In addition, these investigations have resulted in significant 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.

Through September 30, 2010, ERHC has incurred substantial costs in responding to the investigations by the DOJ, SEC and Senate Subcommittee. Those costs consist primarily of legal fees paid to the Company’s legal counsel, Akin Gump Strauss Hauer & Feld LLP and document reproduction costs. These costs have had a significant negative impact on the Company’s cash flows from operations.  ERHC anticipates the use of even more of its cash reserves to address the investigations and that could have a serious negative impact on the Company’s liquidity. Neither management nor its legal counsel can assess the magnitude of future cash requirements that could result from prolonged investigations or any negative findings that might arise from the investigations. In a worst case scenario, the Company’s cash resources could be exhausted and the Company’s status as a going concern could also be brought into question.
 
The Company has limited sources of working capital

The Company believes that its working capital requirements for 2011 will be approximately $4,800,000 based on maintaining operations at their current level and the generation of interest income at levels similar to 2010. Our consortium partners will pay all of ERHC’s future costs in respect of all operations in JDZ Blocks 2, 3 and 4 subject to total reimbursement upon production.

The Company is currently focused on exploiting its interests in JDZ Blocks 2, 3, 4, 5, 6 and 9 but has no current source of income other than interest income from cash investments generated from the sale of participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The Company hopes to enter into participation agreements in JDZ Blocks 5, 6 and 9 and also in the EEZ, but the timing or likelihood of such transactions cannot be predicted.  The Company might be required to exercise further  rights in EEZ in 2011.  In that event the Company may be required to incur significant capital cost in exercise of those rights.

The Company’s results of operations are susceptible to general economic conditions

The Company’s revenues and results of operations will be subject to fluctuations based upon the general economic conditions both in the United States and internationally.   A general economic downturn or a recession in the industry, will adversely impact the Company’s prospective future revenues, the value of its oil and natural gas exploration concession, as well as its ability to exploit its assets.

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

Chrome Oil Services (“Chrome”) beneficially owns approximately 43% of the Company’s 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 (OTC) Bulletin Board. The market price of the Company’s common stock has experienced fluctuations that are unrelated to its operating performance.  The market price of the common stock has been highly volatile over the last several years.  The Company can provide no assurance regarding its stock price.


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

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

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

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

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

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

Item 1B.  Unresolved Staff Comments

None


Item 2.  Properties

Substantially all of the Company’s properties are in the form of working interest which represents ERHC’s share of all the potential hydrocarbon production from the blocks awarded and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating these blocks.  These costs in Blocks 2, 3 and 4 are currently being carried by the operators until production, whereupon the operators will recover their costs from production revenues. ERHC has working interests in Blocks 2, 3, 4, 5, 6, and 9 in the offshore JDZ and in addition has interests in the EEZ. The subsistence of the company’s interests in JDZ Blocks 5 and 6, are currently the subject of arbitration between the Company, the JDA and the governments of Nigeria and DRSTP.

Joint Development Zone
 
 ERHC has interests in six of the nine Blocks in the Joint Development Zone (JDZ), a 34,548 sq km area approximately 200 km off the coast of Nigeria and Sao Tome and Principe that is adjacent to several large petroleum discovery areas. ERHC’s rights in the JDZ include:
 
 
 
JDZ Block 2:  22.0%
 
JDZ Block 3:  10.0%
 
JDZ Block 4:  19.5%
 
JDZ Block 5:  15.0% (in Arbitration)
 
JDZ Block 6:  15.0% (in Arbitration)
 
JDZ Block 9:  20.0%

Sao Tome and Principe Exclusive Economic Zone
 
The government of Sao Tome and Principe awarded ERHC rights to participate in exploration and production activities in Sao Tome and Principe’s EEZ. ERHC’s rights include the following:

 
EEZ Block 4: 100% and no signature bonus
 
EEZ Block 11: 100% and no signature bonus
 
The option to acquire up to a 15% paid working interest in additional two blocks of ERHC’s choice.

ERHC will be responsible for its proportionate share of exploration and exploitation costs in the EEZ blocks.

The EEZ describes 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.
Corporate Office

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

 
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 ERHC seeking various records including, among others, documents, if any, related to correspondence with foreign governmental officials or entities in Sao Tome 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.

A related SEC subpoena was issued on May 9, 2006, and a second related subpoena issued on August 29, 2006.  The subpoenas requested 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.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, assisted ERHC in responding to all subpoenas. On July 5, 2007, the U.S. Senate Committee on 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, sought 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, assisted ERHC in responding to all subpoenas.

In January 2010, all the documents taken by federal investigators from the Company’s corporate headquarters in May 2006 were returned to the Company. A total of 106 boxes containing original archival records from the Company’s inception until 2006 were returned. As of September 30, 2010, the Company does not have any reason to believe that the investigations by the Department of Justice (DOJ) and the U.S. Senate Committee on Governmental Affairs’ Permanent Subcommittee Investigations are active. The Company has not received any formal communication of conclusion of the investigations however, if any of the investigations were to proceed, the Company anticipates that these investigations may be lengthy and does not know when they will conclude.  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 flows.

On November 3, 2008, the Company filed a suit at the Federal High Court in Nigeria to prevent any tampering with its rights in JDZ Blocks 5 and 6. The suit comes after the JDA and Joint Ministerial Council (JMC) of the Nigeria-Sao Tome and Principe JDZ failed to give a satisfactory response to the Company’s letters seeking clarification on the Company’s rights in JDZ Blocks 5 and 6 following media reports stating that the JMC had approved of the Company’s removal from the Blocks. The Company was awarded a 15 percent working interest in each of the Blocks in a 2005 bid/licensing round conducted by the JDA following the exercise by ERHC of preferential rights in the Blocks as guaranteed by contract and treaty.  The dispute is entirely contractual. The JDA and the Government of DRSTP contend that certain correspondence issued by a previous CEO/President of the Company in 2006 amount to a relinquishment of the Company’s rights in Blocks 5 and 6 under the Company’s contracts with DRSTP which provide for the rights.  The Company contends that no such relinquishment has occurred and has sought recourse to arbitration accordingly.
 
In November 2008, the Company dispatched notices of arbitration for service on the JDA and the governments of Nigeria and Sao Tome & Principe to commence arbitration in London. ERHC wants the London Court of International Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain intact.  The arbitration  has been currently suspended while the Company pursues amicable settlement with the governments of Nigeria and Sao Tome Principe.

Mr. Angelo de Jesus Bomfim, a Sao Tome licensed attorney is claiming against ERHC the sum of twenty six thousand ($26,000) US dollars plus interest. The claim stems from an alleged retainer owed to Mr. Bomfim by the Company under an alleged retainer agreement entered into in 1998 between the Company and Mr. Bomfim, and alleged retainer services rendered thereafter between 1998 and 1999.  The Company’s lawyers are handling the claim on behalf of the Company. The Company has instructed its lawyers to arrange for the vigorous defense of the case if it proceeds to litigation as Mr. Bomfim has threatened.  However, the Company has also instructed its lawyers attempt to negotiate an amicable settlement with Mr. Bomfim to avoid incurring exorbitant litigation cost.

From time to time, ERHC may be subject to routine litigation, claims, or disputes in the ordinary course of business.  ERHC intends to defend these matters vigorously; the Company cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims.  There can be no assurance as to the ultimate outcome of these lawsuits and investigations.

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

None.


PART II

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

Market and Related Information

ERHC’s common stock is currently traded on the OTC Bulletin Board under the symbol “ERHE.”  The market for the Company’s common stock is unpredictable and highly volatile.  The following table sets forth the closing sales price per share of the common stock for the past three fiscal years.  These prices reflect inter-dealer prices, without retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.

Stock Price Highs & Lows

   
High
   
Low
 
   
(Price per share)
 
Fiscal Year 2008
 
 
   
 
 
First Quarter
  $ 0.30     $ 0.19  
Second Quarter
    0.54       0.18  
Third Quarter
    0.60       0.40  
Fourth Quarter
    0.42       0.28  
                 
Fiscal Year 2009
               
First Quarter
  $ 0.30     $ 0.11  
Second Quarter
    0.36       0.10  
Third Quarter
    0.72       0.29  
Fourth Quarter
    0.90       0.60  
                 
Fiscal Year 2010
               
First Quarter
  $ 0.73     $ 0.44  
Second Quarter
    0.75       0.35  
Third Quarter
    0.62       0.20  
Fourth Quarter
    0.42       0.20  

As of November 30, 2010, there were approximately 2,532 stockholders of record.  The closing price of the common stock as reported on the OTC Bulletin Board on November 30, 2010 was $0.22. The Company has not paid any dividends during the last three fiscal years and does not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

In November 2004, the Board of Directors adopted a 2004 Compensatory Stock Option Plan pursuant to which it reserved 20,000,000 shares for issuance.  This plan was approved at a special meeting of the stockholders of the Company in February 2005.  Under this plan, 8,026,756 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       10,973,244  
Equity compensation plans not approved by security holders
    -       -       -  


Recent Sales of Unregistered Securities

The Company has issued the following unregistered securities:

 
During the first quarter of fiscal 2008, the Company issued an aggregate of 300,000 shares of common stock to the Company’s directors for services rendered in 2007.

 
During the second quarter of fiscal 2009, the Company issued an aggregate of 450,000 shares of common stock to the Company’s directors for services rendered in 2005 and 2008.

 
During the fourth quarter of fiscal 2009, the Company approved the issuance of an aggregate of 361,875 shares of common stock to the Company’s directors and non-management staff for services rendered in 2009.

 
During the third and fourth quarter of 2010, we issued 1,017,500 shares for 2010 to employees and directors, for services rendered in 2010.

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, 2010, has been derived from the audited financial statements of the Company.  The financial statements as of and for the years ended September 30, 2009, 2008, 2007, 2006 and 2005 have been audited by MaloneBailey, LLP, an independent registered public accounting firm.  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.

Statements of Operations Data
 
   
For the Years Ended September 30,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
                               
Operating expenses
  $ 5,188,495     $ 4,239,706     $ 4,280,143     $ 4,976,765     $ (24,113,494 )
Interest expense
    (1,843 )     (1,843 )     (1,843 )     (1,843 )     (2,099 )
Other Income (expense)
    (1,040,473 )     (3,447,588 )     1,241,189       1,498,704       1,123,141  
Benefit (provision) for taxes
            -       (30,360 )     1,723,000       (2,063,000 )
Net income (loss)
    (6,230,811 )     (7,689,137 )     (3,071,157 )     (1,756,904 )     23,171,536  
                                         
Net income (loss) per share -
                                       
basic and diluted
    (0.01 )     (0.01 )     (0.00 )     (0.00 )     0.03  
Weighted average shares of
                                       
common stock outstanding
    723,439,691       722,794,828       722,182,831       720,966,165       712,063,980  

Balance Sheets Data
 
 
As of September 30,
 
 
2010
 
2009
 
2008
 
2007
 
2006
 
                               
DRSTP Concession fee
  $ 2,839,500     $ 2,839,500     $ 2,839,500     $ 2,839,500     $ 2,839,500  
Total assets
    23,007,470       28,859,825       36,880,422       39,854,641       45,878,249  
Total liabilities
    517,425       5,209,900       5,907,960       5,947,982       10,390,126  
Shareholders’ equity
    22,490,045       23,649,925       30,972,462       33,906,659       35,488,123  


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

Introduction

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

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

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements.  Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts.  Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitations, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished.  In addition to other factors and matters discussed elsewhere herein and the risks discussed in Item 1A.  Risk Factors, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: geopolitical instability where we operate; our ability to meet our capital needs; our ability to raise sufficient capital and/or enter into one or more strategic relationships with one or more industry partners to execute our business plan; our ability and success in finding, developing and acquiring oil and gas reserves; our ability to respond to changes in the oil exploration and production environment, competition, and the availability of personnel in the future to support our activities.

Overview

ERHC Energy Inc., a Colorado corporation, (“ERHC” or the “Company”) was incorporated in 1986 and 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 including its 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”). ERHC does not directly carry out the exploration and production operations in the JDZ but is relying on reputable technical operators with whom the Company has entered into partnership relationships, such as Addax Petroleum Inc. and Sinopec Corporation to carry out those operations. The Company has formed relationships with these 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 Oil and Gas industry, including supply and trading.

The Company’s business strategy is to farm out its rights to working interests in the JDZ and EEZ to entities which we believe are established, well capitalized oil and gas operators for upfront cash payments and negotiate contracts with them to carry our share of the capital costs.  This has been done successfully on Blocks 2, 3 and 4. ERHC will attempt to adopt a similar approach for JDZ Blocks 5, 6 and 9 as well as the EEZ. ERHC is also pursuing other business development activities in the broad petroleum and related industries.

General Development of the Business

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 the following rights to participate in exploration and production activities in the EEZ subject to certain restrictions:  (a) the right to receive 100% working interest signature free bonus of two blocks of ERHC’s choice and (b) the option to acquire up to a 15% paid working interest in additional  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 ERHC’s rights is 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 is entitled to receive its working interest in that block in a future license awarded for that block.

ERHC entered into a series of negotiations and agreements that positioned the Company to enter into a Participation Agreement dated November 17, 2005 (the “Participation Agreement”) with Addax Petroleum (Nigeria Offshore 2) Limited (“Addax”). Under the Participation Agreement, as amended, Addax ultimately paid ERHC $18 million in February and March 2006 in exchange for the assignment of a 40.5% participating interest (the “Assigned Interest”) in Block 4 while ERHC retained a 19.5% interest   (“Retained Interest”).   Under the Participation Agreement, as amended, Addax currently serves as operator and pays all of ERHC’s current and future costs in respect of all petroleum operations in Block 4 subject to reimbursement upon production. Addax is to receive 100% of ERHC’s allocation of costs plus up to 50% of ERHC’s allocation of profit until Addax recovers all costs advanced on behalf of ERHC.

In February 2006, ERHC assigned a 15% participating interest in Block 3 of the JDZ to Addax Petroleum Resources Nigeria Limited (“Addax Sub”) for $7.5 million which was paid in the second quarter of fiscal 2006. ERHC retained a 10% interest in Block 3. Under the participation agreement between ERHC and Addax Sub, Addax Sub is currently “carrying” all of ERHC’s current and future costs in respect of petroleum operations in Block 3. Addax Sub is to receive to 100% of ERHC’s allocation of costs plus up to 50% of ERHC’s allocation of profit until Addax Sub recovers all costs advanced on behalf of ERHC.

In March 2006, ERHC assigned 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 to Addax Energy Nigeria Limited (“Addax Ltd.”). ERHC retained a 22% participating interest in Block 2. In connection with these assignments, 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 between ERHC, Sinopec and Addax Ltd., Sinopec currently serves as operator, and Sinopec and Addax Ltd. pay all of ERHC’s current and future costs in respect of petroleum operations in Block 2. Sinopec and Addax Ltd. are to receive to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit until they recover all costs advanced on behalf of ERHC.

Related to the assignment of the participating interest in Block 2 to Sinopec, ERHC paid a $3 million in cash success fee to a British Virgin Island company (“Feltang”). $1.5 million was paid to Feltang in March 2006 and the remaining $1.5 million was paid in March 2007.  In August 2010, ERHC issued 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 payment and issuance of stock and warrants were made to Feltang pursuant to an agreement made in January 2006 between the Company and Feltang whereby the Company contracted Feltang to seek and introduce potential partners to ERHC as a replacement operator for the Company’s previous operating partner in Block 2. The company’s obligation to pay Feltang arose under the agreement as a result of the former operating partner’s withdrawal from Block 2, the execution of a participation agreement between the Company and Sinopec  (introduced to the Company by Feltang), and the execution of a PSC covering Block 2 with Sinopec as operator. Without the quick finding of a replacement for the Company’s former operating partner in Block 2, the Company’s ability to proceed to the execution of a Production Sharing Contract and therefore the maintenance or retention of its interests in JDZ Block 2 would have been put in serious jeopardy.
 
On June 24, 2009, Addax Petroleum Corporation announced that it had entered into a definitive agreement with Sinopec pursuant to which Sinopec had agreed, subject to the terms of the Support Agreement, to make an offer to acquire all of the outstanding common shares of Addax Petroleum.  On August 24, 2009, the sale of Addax Petroleum Corporation to Sinopec was finalized.

Current Business Operations

ERHC’s operations are currently focused in the Gulf of Guinea, off the coast of central West Africa. ERHC believes this region has potentially significant oil and gas reserves. ERHC has worked to realize the value of the assets it has acquired in this region.  The Company’s current holdings include those below, details of which can be found at the link: http://www.erhc.com
 
 
JDZ – ERHC has interests in six of the nine Blocks in the JDZ, a 34,548 square kilometer area approximately 200 kilometers off the coastline of Nigeria and Săo Tomé & Principe that is adjacent to several large petroleum discovery areas.
 

EEZ – The government of Săo Tomé & Principe has awarded ERHC rights to participate in exploration and production activities in the EEZ, which encompasses an area of approximately 160,000 square kilometers. These rights were granted in a May 21, 2001 Memorandum of Agreement made between the DRSTP and the Company. The Company’s rights in the EEZ expire on October 1, 2024 or, if the company has a producing working interest in any Block(s) at October 1, 2024, the Company’s rights extend in such Block(s), as long as the Block(s) remains in production.
 
In 2009, the National Petroleum Agency of São Tomé & Príncipe (“ANP-STP”) delineated the EEZ into 19 Blocks and, accordingly, ERHC exercised its preferential rights arising from prior agreements between ERHC and São Tomé & Príncipe. In February, the ANP-STP confirmed the award to ERHC of 100 percent working interests in Blocks 4 and 11, signature bonus free.  The ANP-STP has indicated that it expects to invite ERHC to negotiate Production Sharing Contracts on the two Blocks in due course.

ERHC has been active in the EEZ, which is situated southeast of the JDZ, since 1997.  ERHC was one of the first companies to identify the possibility of significant oil and gas reserves in the offshore of Sao Tome and Principe. The two Blocks selected and awarded to ERHC in the EEZ sit directly to the east of the islands of Sao Tome and Principe.

 EEZ Block 4 is directly to the east of the island of Principe.EEZ Block 11 is directly to the east of the island of Sao Tome. There has been less seismic imaging conducted in this area. As we have experienced with the JDZ, oil and gas exploration can be a long process. The next step will be to open discussions with potential technical partners to farm into Blocks 4 and 11 to assume operatorship and compensate ERHC for percentage ownership in the Blocks.

In addition to the two Blocks already awarded, ERHC has rights to acquire up to a 15 percent paid working interest in two additional Blocks of its choice in the EEZ. The ANP-STP has informed the Company that selection of these other Blocks will take place at a later date.

Although ERHC is making considerable progress toward realizing the value of the Company’s oil and gas assets in the Gulf of Guinea, it is still a long way away from the point at which any of these oil and gas assets can begin to produce revenues. ERHC therefore seeks to identify and acquire assets with a shorter time horizon for revenue generation.

ERHC has identified and examined potential acquisition prospects and is holding discussions regarding a number of potential exploration and production opportunities in West Africa. Ultimately, ERHC seeks a diverse portfolio of assets from which it can derive significant strategic value. The success of potential acquisitions depends on the availability of adequate financing.  ERHC’s principal assets remain its interests in the JDZ and the EEZ.

Operations in the JDZ

ERHC has working interests in six of the nine Blocks in the JDZ, as follow:

 
JDZ Block 2:  22.0%
 
JDZ Block 3:  10.0%
 
JDZ Block 4:  19.5%
 
JDZ Block 5:  15.0% (in Arbitration)
 
JDZ Block 6:  15.0% (in Arbitration)
 
JDZ Block 9:  20.0%

The working interest percentages represents ERHC’s share of all the potential hydrocarbon production from the blocks and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating the blocks. These costs in blocks 2, 3 and 4 are currently being carried by the operators until production, whereupon the operators will recover their costs from the production revenues.

ERHC’s interests in JDZ Blocks are in various stages of exploration. JDZ Blocks 2, 3 and 4 were the focus of an exploratory drilling campaign that concluded in January 2010. To date, no Production Sharing Contracts have been signed in either JDZ Block 5 or 6, and no operatorship has been awarded yet in JDZ Block 9.

In 2009, Sinopec and Addax, our technical partners and operators in Blocks 2, 3 and 4 undertook an exploratory drilling campaign across the three blocks that was completed in January 2010. That drilling campaign was a coordinated effort made possible by two important transactions undertaken by Addax and Sinopec during 2009: 1) Sinopec’s acquisition of Addax and 2) Addax’s acquisition of Anadarko Petroleum’s interest in Block 3, allowing Addax to become the operator in the Block 3.


The drilling campaign was completed in January 2010 with five wells drilled in the following locations and order:

 
The Kina-1 well in JDZ Block 4

 
The Bomu-1 well in JDZ Block 2

 
The Lemba-1 well in JDZ Block 3

 
The Malanza-1 well and Oki East-1 well in Block 4

The following is an analysis of activity that took place in each block in connection with the drilling campaign:

JDZ Block
 
Operator
 
Name of Well
 
Date Drilling Began
 
Date Well Completed
 
Rig/Drillship Used
                     
2
 
Sinopec
 
Bomu-1
 
August 2009
 
October 2009
 
SEDCO 702
                     
3
 
Addax Sub
 
Lemba-1
 
October 2009
 
November 2009
 
Deepwater Pathfinder
                     
4
 
Addax
 
Kina-1
 
August 2009
 
October 2009
 
Deepwater Pathfinder
                     
4
 
Addax
 
Malanza 1
 
November 2009
 
December 2009
 
Deepwater Pathfinder
                     
4
 
Addax
 
Oki East-1
 
December 2009
 
January 2010
 
Deepwater Pathfinder

The following is a summary of results of the drilling campaign:

JDZ Block
 
Results of Drilling Released by Operators
     
2
 
The Bomu-1 well was drilled on time and within budget to a total depth of 3,580 meters resulting in the discovery of biogenic methane gas. As of the 2010 fiscal year-end, the operator has not made any declaration of commerciality.
     
3
 
The Lemba-1 well was drilled on time and below budget to a total depth of 3,758 meters, biogenic methane gas was discovered in two sands. As of the 2010 fiscal year-end, the operator has not made any declaration of commerciality.
     
4
 
All wells were drilled on time and within budget to the planned depth.  Biogenic was discovered in multiple sands in both Kina well and Oki East well. As of the 2010 fiscal year-end, the operator has not made any declaration of commerciality

General Information on Current Operations in Blocks 2, 3 and 4

Currently, the analysis of the information gathered during drilling is ongoing. The Joint Development Authority {JDA} has granted an extension of Exploration Phase 1 until March 2011 to enable contracting parties complete the analysis.

No guarantees can be given at this stage that there will be any commercial discovery or production in commercial quantities or at all.

As has been the practice in the JDZ, accurate, material information on the progress in the JDZ Blocks will emanate from the operators or the JDA.  ERHC will publish such information in a timely manner in accordance with our contractual and regulatory obligations.

Management understands that each stage in the process requires considerable expertise and any resulting production, if in commercial quantities, may considerably enhance shareholder value. No guarantees can be given at this stage that there will be production in commercial quantities.


Management also understands that analyzing drilling results and incorporating them into the relevant geologic and fluid models takes time. Further, moving from field appraisal and development onto production takes time. As has been the practice in the JDZ, accurate, material information on the progress in the JDZ Blocks will emanate from the operators or the JDA.  ERHC will publish such information in a timely manner in accordance with our contractual and regulatory obligations.

Background of the JDZ

In the spring of 2001, the governments of Săo Tomé & Principe and Nigeria reached an agreement over a long-standing maritime border dispute. Under the terms of the agreement, the two countries established the JDZ to govern commercial activities within the disputed boundaries. The JDZ is administered by the JDA which oversees all future exploration and development activities in the JDZ. The Revenues derived from the JDZ will be shared 60/40 between the governments of Nigeria and Săo Tomé & Principe, respectively.

Background of the EEZ

The government of Săo Tomé & Principe has awarded ERHC rights to participate in exploration and production activities in Săo Tomé & Principe’s EEZ. ERHC’s rights in the EEZ include the following:

 
100 percent working interests free signature bonus in Blocks 4 and 11, and
 
The option to acquire up to a 15 percent paid working interest in additional 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 waters offshore Săo Tomé 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: Oil and gas are produced in the neighboring countries of Nigeria, Equatorial Guinea, Gabon and Congo.

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) Assigned
 
Current ERHC Retained Participating Interest
                 
2
 
30.00%
 
35.00%
 
43.00%
 
22.00%
3
 
20.00%
 
5.00%
 
15.00%
 
10.00%
4
 
25.00%
 
35.00%
 
40.50%
 
19.50%
5
 
15.00%
 
 -
 
 -
 
15.00%
6
 
15.00%
 
 -
 
 -
 
15.00%
9
 
20.00%
 
 -
 
 -
 
20.00%

 
(1)
The Original Participating Interest granted pursuant to the Option Agreement, dated April 2, 2003, between DRSTP and ERHC (the “2003 Option Agreement”).

Following is an analysis of the participation agreements under which the company sold participating interests in Blocks 2, 3 and 4. No participating interests have been sold related to Blocks 5, 6 or 9.


Particulars of Participating Agreements

Date of Participation Agreement
 
Party(ies) to the  Participation Agreement
 
Participating Interest(s) Assigned
   
Participating Interest Assigned Price
 
                 
JDZ Block 2 - Participation Agreement - ERHC Retained Interest of 22.00%
       
                 
March 2, 2006
 
Sinopec International Petroleum Exploration Production Co. Nigeria Ltd - a subsidiary of Sinopec International Petroleum and  Production Corporation
    28.67 %   $ 13,600,000  
                     
   
Addax Energy Nigeria Limited - a of Addax Petroleum Corporation subsidiary
    14.33 %   $ 6,800,000  
                     
JDZ Block 3 - Participation Agreement - ERHC Retained Interest of 10.00%
         
                     
February 15, 2006
 
Addax Petroleum Resources Nigeria Limited - a subsidiary of Addax Petroleum Corporation
    15.00 %   $ 7,500,000  
                     
JDZ Block 4 - Participation Agreement - ERHC Retained Interest of 19.50%
         
                     
November 15, 2005
 
Addax Petroleum  Nigeria (Offshore 2) Limited  - a subsidiary of Addax Petroleum Corporation
    40.50 %   $ 18,000,000  

Under the terms each of the Participation Agreements Sinopec and Addax agreed to pay all of ERHC’s future costs for petroleum operations (“the carried costs”) in respect of ERHC's retained interests in the blocks. Additionally, Sinopec and Addax are entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of ERHC’s allocation of profit oil from the retained interests on individual blocks until Sinopec and Addax Sub recover 100% of ERHC’s carried costs

On October 2, 2009, Sinopec International Petroleum Exploration and Production Corporation acquired all of the outstanding shares of Addax Petroleum Corporation.


Current Plans for Operations

The Company is currently focused on exploiting its interests in Blocks 2, 3 and 4 but it has no current sources of income from operations other than interest income from cash generated from sale of participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The Company hopes to enter into Participation Agreements in Blocks 5, 6 and 9, but the timing or likelihood of such transactions cannot be predicted.  The Company believes that the participation agreements that it has entered into will be its primary source of future cash flow; however, the Company is exploring plans to generate operating income from new sources.  The Company plans to diversify its business activity by pursuing other growth opportunities possibly including acquiring revenue-producing assets in diverse geographical areas and forging new strategic business partnerships and alliances. To expand operations, ERHC is currently in negotiations for potential investments that would increase the Company’s presence in the West African oil and gas industry.

ERHC cannot currently predict the outcome of negotiations for acquisitions in West Africa, or, if successful, their impact on the Company's operations.

Plans for Funding of Potential Acquisitions

ERHC's future plans may be dependent on the Company's ability to attract new funding. On July 7, 2010, the Company filed a registration statement on Form S-3 with the US Securities and Exchange Commission, or SEC, utilizing a “shelf” registration process or continuous offering process. Under this shelf registration process, the Company may, from time to time, sell up to $50,000,000 of the securities described in the prospectus in one or more offerings.  Each time the Company offers securities, it will provide stockholders with a prospectus supplement that will describe, among other things, the specific amounts and prices of the securities being offered and the terms of the offering.

Unless otherwise provided in the applicable prospectus supplement, the Company intends to use the net proceeds from the sale of securities under the shelf registration to acquire or invest in working interests and other oil and natural gas businesses that are complementary to the Company's operations, although the Company has no such transactions currently in place.  Additionally, the Company may use a portion of net proceeds from time to time for general corporate purposes, including exploration and development activities, regulatory affairs expenses, capital expenditures, additions to working capital and general and administrative expenses.

Under the shelf registration, in October 2010, ERHC entered into a definitive agreement with institutional investors for a registered direct placement of approximately $2.0 million shares of common stock at a price of $0.22 per share, for a total of 9,090,910 shares. In addition, the Company issued the investors warrants to purchase shares of common stock, which, if fully exercised, would provide an additional $1.9 million in gross proceeds to the Company. The warrants have an exercise price of $0.28 per share and are exercisable over a five (5) year period.

Critical Accounting Policies

The Company has identified the policies below as critical to its business operations and the understanding of its results of operations.  The impact and any associated risks related to these policies on the Company’s business operations are discussed throughout this section where such policies affect the Company’s reported and expected financial results.  Management’s preparation of this Annual Report on Form 10-K requires it to make estimates and assumptions that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities.  There is no assurance that actual results will not differ from those estimates and assumptions.

 
Concentration of Risks

The Company’s current focus is to exploit assets consisting of agreements with the DRSTP concerning oil and gas exploration in its 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.

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  and there have been no events or circumstances that would indicate that such asset might be impaired.

Recent Accounting Pronouncements

In January 2010, the FASB issued authoritative guidance on Fair Value Measurements and Disclosures — Improving Disclosures About Fair Value Measurements. The new guidance requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures was effective in the Company’s second quarter of fiscal year 2010, except for the disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which are effective for the Company’s first quarter of fiscal year 2011. Other than requiring additional disclosures, the adoption of this standard will not have a material impact on the Company’s consolidated financial position and results of operations.
.
Former Operations – Asset Retirement Obligation

For several years 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.    The Company uses ASC Topic 410 to account for this obligation.  These properties were abandoned and written off during the year ended September 30, 1999. During the year ended September 30, 2009, the Company reached a settlement with the state of Texas under which the Company paid $120,000 to fully satisfy its obligation for plugging and abandonment of the properties and recognized a gain of $365,000 on settlement of the obligation.

 Results of Operations

 Year Ended September 30, 2010 Compared with Year Ended September 30, 2009

General and administrative expenses increased from $4,202,809 in the year ended September 30, 2009 to $5,156,778 in the year ended September 30, 2010.  This increase came despite an ongoing effort to reduce operating expenses and was due primarily to the following:

 
Expenses related to the Company's proposed listing on the Alternative Investment Market ("AIM") of the London Stock Exchange.

 
General increase in expenses related to evaluation of new acquisition opportunities.

During the year ended September 30, 2010, the Company had a net loss of $6,230,811 compared with a net loss of $7,689,137 for the year ended September 30, 2009.  The reduction was due to the following:

In 2009, the Company recognized a provision for loss of $4,234,317 when certain restrictions were placed on a financial institution where the Company had investments in Certificate of Deposit.  An additional provision of $1,058, 579 was made during the year ended September 30, 2010. However the resulting reduction in loss during the year ended September 30, 2010 as compared to the year ended September 30, 2009 was partially offset by:


 
An increase in expenses related to evaluation of new acquisition opportunities during the year ended September 30, 2010

 
And a decrease in interest income from $421,729 in the year ended September 30, 2009 to $18,106 in the year ended September 30, 2010, due to a loss of interest income as the Company switched from interest bearing but not guaranteed deposit accounts to non-interest bearing accounts by the Federal Deposit Insurance Corporation.

Year ended September 30, 2009 Compared to Year Ended September 30, 2008

During 2009, the Company had general and administrative expenses of $4,202,809 compared with $4,249,572 in fiscal 2008.  This decrease of $46,763 reflects the fact that the Company’s operations and expenditures were tightly maintained.

During 2009, the Company had a net loss of $7,689,137, compared to a net loss of $3,071,157 for fiscal 2008.  The three primary reasons for the $4,617,980 increase in net loss for the year ended September 30, 2009 were: (i) a $4,234,317 provision for loss on certificates of deposits in a financial institution where certain restrictions were placed on the investment and a receiver was appointed to takeover the institution.  (ii) a $819,460 decline in interest income as management moved deposits to non-interest bearing accounts that provided greater security from loss; and (iii) partially offset by a $365,000 gain from settlement of an asset retirement obligation with the State of Texas.

During fiscal 2009 and 2008, the Company had no revenues from which cash flows could be generated to support operations.  In fiscal 2009, the Company continued to rely on cash generated from the 2006 sale of participation interests in the three JDZ Blocks under production sharing contracts with various joint venture partners to fund operations.
 
 Liquidity and Capital Resources

As of September 30, 2010, the Company had $17,914,207 in cash and cash equivalents and US Treasury Bills and positive working capital of $17,596,590.   Management believes that this cash position should be sufficient to support the Company’s working capital requirements for more than 12 months.

Off-Balance Sheet Arrangements

At September 30, 2010, the Company had no off-balance sheet arrangements.

Short –Term Obligations

 As of September 30, 2010, the Company had a total of $517,425 in short-term obligations; it includes $83,938 in accrued Directors’ compensation.
 
Contractual Obligations and Commercial Commitments

The following table provides information at September 30, 2010, 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)
    133,800       26,760       107,040       -       -  
                                         
Total
  $ 167,313     $ 60,273     $ 107,040     $ -     $ -  

 
(1)
This represents a convertible note to Joseph Charles and Associates. However, 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 respectively.  The Company intends to continue to form relationships with other oil and gas companies with operational, 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, 2010, all of the Company’s operations were located outside the United States.  The Company’s primary assets 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 West Africa.  This geographic area of interest is controlled by foreign governments that have historically experienced volatility, which is out of management’s control. The Company’s ability to exploit its interests in the agreements in this area may be impacted by this circumstance.

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

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

The Company holds no derivative financial or commodity instruments.


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, 2010
 
31
   
 
Report of Independent Registered Public Accounting Firm on the Financial Statements for the Years ended September 30, 2010, 2009  and 2008
 
32
     
Consolidated Financial Statements:
 
 
   
 
Consolidated Balance Sheets as of September 30, 2010 and 2009
 
33
   
 
Consolidated Statements of Operations for the Years Ended September 30,2010, 2009 and 2008, and for the period from inception, September 5, 1995,to September 30, 2010
 
34
     
Consolidated Statements of Shareholders’ Equity for the period from inception, September 5, 1995, to September 30, 2010
 
35
   
 
Consolidated Statements of Cash Flows for the Years Ended September 30, 2010, 2009 and 2008, and for the period from inception, September 5, 1995,to September 30, 2010
 
39
   
 
Notes to Consolidated Financial Statements
 
41
   
 
Financial Statement Schedules
 
 

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


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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


We have audited the internal control of ERHC Energy Inc. over its financial reporting as of September 30, 2010 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, 2010, based on criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years ended September 30, 2010, 2009 and 2008 and our report dated December 14, 2010 expressed an unqualified opinion on those consolidated financial statements.


Malone  Bailey,LLP
www.malone-bailey.com
Houston, Texas

December 14, 2010


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 development stage corporation, as of September 30, 2010 and 2009 and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years ended September 30, 2010, 2009 and 2008.  These financial statements are the responsibility of ERHC’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ERHC as of September 30, 2010 and 2009, and the results of its operations and its cash flows for each of the three years ended September 30, 2010, 2009 and 2008 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, 2010, 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 14, 2010 expressed an unqualified opinion.


MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas

December 14, 2010

 
ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED BALANCE SHEETS
September 30, 2010 and 2009

 
   
2010
   
2009
 
             
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 12,913,249     $ 22,428,728  
Marketable securities
    5,000,958       -  
Prepaid expenses and other
    199,808       447,345  
                 
Total current assets
    18,114,015       22,876,073  
                 
DRSTP concession fee
    2,839,500       2,839,500  
Furniture and equipment, net of accumulated depreciation of $136,804 and $105,087 at September 30, 2010 and 2009,respectively
    35,557       67,275  
Certificate of deposit
    -       1,058,579  
Deferred tax asset
    2,018,398       2,018,398  
                 
Total assets
  $ 23,007,470     $ 28,859,825  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 471,506     $ 5,050,590  
Accounts payable and accrued liabilities, related party
    -       115,236  
Accrued interest
    12,406       10,561  
Current portion of convertible debt
    33,513       33,513  
                 
Total current liabilities
    517,425       5,209,900  
                 
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 950,000,000shares; issued and outstanding 729,317,944 and 723,050,444 shares at December 31, 2010 and 2009,respectively
    72,932       72,305  
Additional paid-in capital
    97,401,297       92,330,993  
Accumulated deficit
    (74,984,184 )     (68,753,373 )
                 
Total shareholders’ equity
    22,490,045       23,649,925  
                 
Total liabilities and shareholders' equity
  $ 23,007,470     $ 28,859,825  

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


ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 2010, 2009, and 2008 and for the Period
From Inception, September 5, 1995, to September 30, 2010


   
2008
   
2009
   
2010
   
“Unaudited” Inception to September 30, 2010
 
                         
Costs and expenses:
                       
General and administrative
  $ 4,249,572     $ 4,202,809     $ 5,156,778     $ 77,702,269  
Depreciation and depletion
    30,571       36,897       31,717       1,485,115  
Gain on sale of partial interest in DRSTP concession
    -       -       -       (30,102,250 )
Write-offs and abandonments
    -       -       -       7,742,128  
                                 
Total costs and expenses
    (4,280,143 )     (4,239,706 )     (5,188,495 )     (56,827,262 )
                                 
Other income and (expenses):
                               
Interest income
    1,241,189       421,729       18,106       4,829,363  
Gain (loss) from settlements
    -       365,000       -       117,310  
Other income
    -       -       -       439,827  
Interest expense
    (1,843 )     (1,843 )     (1,843 )     (12,130,591 )
Provision for loss on deposits
    -       (4,234,317 )     (1,058,579 )     (5,292,896 )
Loss on extinguishment of debt
    -       -       -       (5,749,575 )
                                 
Total other income and (expenses), net
    1,239,346       (3,449,431 )     (1,042,316 )     (17,786,562 )
 
                               
Loss before benefit (provision) for income taxes
    (3,040,797 )     (7,689,137 )     (6,230,811 )     (74,613,824 )
                                 
Benefit (provision) for income taxes:
                               
Current
    449,640       -       -       (1,330,360 )
Deferred
    (480,000 )     -       -       960,000  
                                 
Total benefit (provision) for income taxes
    (30,360 )     -       -       (370,360 )
                                 
Net loss
  $ (3,071,157 )   $ (7,689,137 )   $ (6,230,811 )   $ (74,984,184 )
                                 
Net loss per common share - basic and diluted
  $ (0.00 )   $ (0.01 )   $ (0.01 )        
 
                               
Weighted average number shares of common shares outstanding:
                               
Basic and diluted
    722,182,831       722,794,828       723,439,691          

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


ERHC ENERGY INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Period from Inception, September 5, 1995, to September 30, 2010, (Unaudited for the
Period from Inception to September 30, 1998)


   
Common Stock
   
Additional 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 deferredcompensation     -       -       -       -       -       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  
                                                         
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 andgas leases and properties     500,000       50       515,575       -       -       -       515,625  
Common stock issued forChevron contract     3,000,000       300       -       -       -       -       300  
Common stock issued forBAPCO acquisition     4,000,000       400       499,600       -       -       -       500,000  
Contributed
    (100,000 )     (10 )     (99,990 )     -       -       -       (100,000 )
Amortization of deferredcompensation     -       -       -       -       -       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  
                                                         
Common stock and warrantsissued 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 Uintaacquisition     1,000,000       100       1,999,900       -       -       -       2,000,000  
Common stock issued forNueces acquisition     50,000       5       148,745       -       -       -       148,750  
Common stock issued foraccounts payable     491,646       49       337,958       -       -       -       338,007  
Beneficial conversion feature  associated with convertibledebt     -       -       1,387,500       -       -       -       1,387,500  
Receipt of subscriptionreceivable     -       -       -       -       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 deferredcompensation     -       -       -       -       -       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 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Period from Inception, September 5, 1995, to September 30, 2010, (Unaudited for the
Period from Inception to September 30, 1998)


   
Common Stock
   
Additional 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 inBAPCO settlement     (7,744,000 )     (774 )     (2,709,626 )     -       -       -       (2,710,400 )
Common stock issued foraccounts payable     10,843,917       1,084       769,139       -       -       -       770,223  
Common stock issued for  conversion of debt andpayment of accruedinterest and penalties     31,490,850       3,149       5,998,915       -       -       -       6,002,064  
Common stock issued for  officers' 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