**U.S. SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-K**

 

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| **ý**                                        |   | **Annual Report under Section 13 or  15(d) of the Securities Exchange Act of 1934**           |
|---------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                              |   |                                                                                          |   |   |
| **For the fiscal year ended September 30,  2003** |
|                                              |   |                                                                                          |   |   |
| **o**                                             |   | **Transition Report Pursuant to Section  13 or 15(d) of the Securities Exchange Act of 1934** |

 

| **ENVIRONMENTAL REMEDIATION HOLDING CORPORATION**               |
|-----------------------------------------------------------------|
| (Exact name of registrant as  specified in its charter)         |
|                                                            |   |   |
|                                                            |   | Commission file number: **000-17325** |
|                                                            |   |   |
| **Colorado**                                                    |   | **88-0218499** |
| (State or Other Jurisdiction  of Incorporation or Organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |   |
| **5444  Westheimer Road, Suite 1570, Houston, Texas**           |   | **77056** |
| (Address of Principal  Executive Office)                        |   | (Zip Code) |
|                                                            |   |   |
| **713-626-4700**                                                |
| (Registrant’s Telephone  Number, Including Area Code)      |

 

Securities registered pursuant to Section12(b) of the Exchange Act:  None

 

Securities registered pursuant to Section12(g) of the Exchange Act: common stock

 

Check whether the issuer:  (1) filed all reports required to be filedby Section 13 or 15(d) of the Exchange Act during the past 12 months (or forsuch 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 ý No o

 

Check if there is no disclosure of delinquentfilers in response to Item 405 of Regulation S-K contained in this form, and nodisclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K. ý

The issuer had no revenues for the year endedSeptember 30, 2003.

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

 

The aggregate market value of the votingstock held by non-affiliates of the registrant, based on the last sales priceof $0.31 per share on the “over the counter bulletin board” on December 19,2003, was $97,263,587.

 

As of December 19, 2003 registrant had586,074,034 shares of common stock, par value $0.0001 per share, outstanding.

 

 

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**TABLEOF CONTENTS**

 
|                                         | ** **                                                                                                 |   |
|----------------------------------------------|------------------------------------------------------------------------------------------------------------|--------|
| ***PART I***                                 |                                                                                                       |
|                                         |                                                                                                       |   |
| Item 1.                                      | Description of Business                                                                                    |   |
| Item 2.                                      | Description of Property                                                                                    |   |
| Item 3.                                      | Legal Proceedings                                                                                          |   |
| Item 4.                                      | Submission of Matters to a Vote of Security  Holders                                                       |   |
|                                         |                                                                                                       |   |
| ***PART II***                                |                                                                                                       |
|                                         |                                                                                                       |   |
| Item 5.                                      | Market for Registrant’s common stock and  Related Shareholder Matters                                 |   |
| *Item 6.*                                    | *Selected Financial Data*                                                                                  |   |
| *Item  7.*                                   | *Management’s  Discussion and Analysis of Financial Condition and Plan of Operations*                 |   |
|                                         |                                                                                                       |   |
| Item 7a.                                     | Quantitative and Qualitative Disclosures  about Market Risk                                                |   |
| Item 8.                                      | Financial Statements and Supplementary Data  (See Index Below)                                             |   |
| Item 9.                                      | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosures                     |   |
| Item 9a.                                     | Controls and Procedures                                                                                    |   |
|                                         |                                                                                                       |   |
| **PART III**                                 |                                                                                                       |
|                                         |                                                                                                       |   |
| Item 10.                                     | Directors and Executive Officers of the  Registrant                                                        |   |
| Item 11.                                     | Executive Compensation                                                                                     |   |
| Item 12.                                     | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters            |   |
|                                         |                                                                                                       |   |
| Item 13.                                     | Certain Relationships and Related  Transactions                                                            |   |
|                                         |                                                                                                       |   |
| **PART IV**                                  |                                                                                                       |
|                                         |                                                                                                       |   |
| Item  14.                                    | Principal Accounting Fees and Services                                                                     |   |
| Item 15.                                     | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                            |   |
| Signatures                                   | Signatures                                                                                                 |   |
|                                         |                                                                                                       |   |
| Index to Financial  Statements and Schedules |
|                                         |                                                                                                       |   |
| Report of Independent Public Accountants     |                                                                                                       |
| Financial Statements:                        |                                                                                                       |
|                                         | Balance  Sheets as of September 30, 2003 and 2002                                                          |   |
|                                         | Statements of Operations for the Years  Ended

September 30, 2003, 2002 and 2001                           |   |
|                                         | Statements of Shareholders’ Equity  (Deficit)

for the Years Ended September 30, 2003,  2002 and 2001 |   |
|                                         | Statements of Cash Flows for the Years  Ended 

September 30, 2003, 2002 and 2001                          |   |
|                                         | Notes to Financial Statements                                                                              |   |

 

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This annual report contains forward-looking statements.  These statements relate to future events orEnvironmental Remediation Holding Corporation’s (“Company” or “ERHC”) futurefinancial performance and involve known and unknown risks, uncertainties andother factors that may cause ERHC or its industry’s actual results, levels ofactivity, performance or achievements to be materially different from anyfuture results, levels of activity, performance or achievements expressed orimplied by the forward-looking statements.

 

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

 

Although the Company believes that the expectations reflected in theforward-looking statements are reasonable, there can be no guarantee of futureresults, levels of activity, performance, or achievements.  Moreover, neither the Company nor any otherperson assumes responsibility for the accuracy and completeness of theseforward-looking statements.  The Companyis under no duty to update any of the forward- looking statements after thedate of this report to conform prior statements to actual results.

 

**PART I**

 

**Item 1.    Descriptionof Business**

 

***Overview***

 

ERHC is an independentoil and gas company.  The Company wasformed in 1986, as a Colorado corporation, and was engaged in a variety ofbusinesses until 1996, at which time it began its current operations as anindependent oil and gas company.  TheCompany’s goal is to maximize its value through profitable growth in oil andgas reserves and production in the Gulf of Guinea off the coast of central WestAfrica and to acquire interests in non-producing oil and gas properties,particularly high potential international prospects in known oil and naturalgas producing areas. The Company’s current focus is to exploit its only assets,which are agreements with the Democratic Republic of Sao Tome & Principe (“DRSTP”)concerning oil and natural gas exploration in the exclusive territorial watersof Sao Tome (the “Exclusive Economic Zone” or “EEZ”) and with the Nigeria-SaoTome and Principe Joint Development Authority (the “JDA”) and DRSTP in a JointDevelopment Zone (“JDZ”) between Sao Tome and the Federal Republic of Nigeria(“FRN”) (“JDZ/EEZ Concession”).  TheCompany intends to explore forming relationships with other oil and gascompanies having technical and financial capabilities to assist the Company inleveraging its interests in the EEZ and the JDZ. The Company currently has noother operations.

 

*Changein Control*

 

On February 15, 2001, pursuant to aPurchase Agreement dated December 31, 2000, as amended by a First Amendmentdated January 31, 2001 (as amended, the “Purchase Agreement”), between ChromeEnergy, L.L.C., a Delaware limited liability company (“Chrome”), TalismanCapital Opportunity Fund Ltd. (“Talisman”), and TC Hydro Carbon, Inc., aDelaware corporation (“TCHC” or “TC Hydro Carbon”  and, together with Talisman, the “Sellers”),Chrome purchased from the Sellers for $6,000,000 cash the following:  (a) 375,000,000 shares of Company commonstock, par value $0.0001 per share, owned of record by TC Hydro Carbon; (b)2,244,385 shares of common stock held and owned of record by Talisman; (c) aconvertible senior subordinated note from the Company due October 15, 2002, inthe principal amount of $750,000 owned and held by Talisman; (d) a convertiblenote from the Company due October 26, 2000, in the principal amount of$500,000, owned and held by Talisman; (e) a senior secured 8.0% exchangeablepromissory note, also referred to as the line of credit, from the Company dueSeptember 1, 2004, in the principal amount of $4,000,000 owned and held by TCHydro Carbon; (f) a warrant certificate dated October 26, 1998, owned and heldby Talisman providing the right to purchase 750,000 shares of common stockuntil October 26, 2008; (g) a warrant certificate dated as of October 26, 1998,owned and held by Talisman providing the right to purchase 750,000 shares of common stockuntil October 26, 2008; (h) a second warrant certificate dated October 15,1997, owned by Talisman providing the right to purchase 45,000 shares of common stockuntil October 15, 2002, which was not extended; and (i) a warrant certificatedated as of April 23, 1999 owned by Talisman providing the right to purchase1,000,000 shares of common stock until April 2009.  Subsequent to February 15, 2001, Chrome transferred to itsfinancial advisors an aggregate of 116,629,564 shares of common stockacquired in this transaction.

 

Chrome currently ownsdirectly 262,320,527 shares of common stock, of which 260,614,821 were acquiredas a result of the Purchase Agreement. Upon consummation of the purchase by Chrome of the securities of theCompany, the 

 

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Company’s threedirectors prior to the February 15, 2001 elected three new directors.  Immediately after the election of these newdirectors, the three prior directors resigned from the board of directors.  The new directors appointed the newexecutive officers of the Company.

 

# ***CorporateHistory; Former Operations***

 

The Companywas formed in 1986, as a Colorado corporation, and was engaged in a variety ofbusinesses until 1996, at which time it began its current operations as anindependent oil and gas company.  Sincethe commencement of its oil and gas operations, the Companyacquired interests in the Nueces River area of south Texas, which wereabandoned in 1999, and acquired interests on the Uintah and Ouray IndianReservations in Utah, which were sold in August 1999.  The Companyalso acquired a lease in oil fields located in Wichita County, Texas, which wassubsequently assigned to a former shareholder. However, in connection with the lease in Wichita County, the Companymay remain liable for certain plugging and abandonment costs, estimated to beapproximately $500,000, which have been accrued as of September 30, 2003 and2002.

 

# ***CurrentBusiness Operations***

 

In May 1997,the Company entered into an exclusive joint venture with the DRSTP (the “1997Agreement”). The 1997 Agreement required the Company to pay a $5,000,000concession fee to the Sao Tome government. In July 2002, the 1997 Agreement was replaced by a Memorandum ofAgreement (the “2001 Agreement”) which was embodied in a Consent Award issuedby the arbitrator as a result of the satisfaction of several conditions,including the ratification of a treaty between the FRN and the DRSTP.

 

The2001 Agreement gives the Company rights to participate in exploration andproduction activities in both the exclusive territorial waters of Sao Tomereferred to as the Exclusive Economic Zone and an area between Sao Tome and theFRN that the two nations have designated as a JDZ.

 

In April 2003,the Company and DRSTP entered into an Option Agreement (the “2003 OptionAgreement”) in which the Company relinquished certain financial interests inthe JDZ in exchange for exploration rights in the JDZ.  In April 2003, the Company additionallyentered into an Administration Agreement with the JDA.  The Administration Agreement is the formal agreement by the JDA that it willfully implement ERHC’s preferential rights to acreage interests in the JDZ asset forth in the 2003 Option Agreement and describes certain proceduresregarding the exercising of these rights. The Company retains exploration rights in the EEZ via the 2001Agreement and has acquired exploration rights in the JDZ via the 2003 OptionAgreement.

 

Under the 2003Option Agreement, ERHC may exercise options to acquire fractional workinginterests in six (6) of the nine (9) blocks that have been announced by the JDAwill be available for bidding in the JDZ. Ablock is an area designated as an individual unit for exploration or productionof crude oil and natural gas. These options must be exercised insequence and are subject to certain restrictions of choice.  Additionally, the amount of signature bonusthat is payable by ERHC to acquire these working interests is zero in four (4)blocks.  ERHC must pay its proportionateshare of any signature bonuses in two (2) blocks.  Specifically, the percentages and signature bonuses payable ineach option pick are as follows:

 

ERHC receivedthe following rights under the 2003 Option Agreement:

 
| **Option Pick** |   | **Working  Interest Percentage** |   | **Signature  Bonus Payable**             |   |
|-----------------|--------|----------------------------------|--------|------------------------------------------|--------|
| ERHC Choice 1   |   | 15%                              |   | $0                                       |   |
| ERHC Choice 2   |   | 15%                              |   | 100% of 15% of the total Signature Bonus |   |
| ERHC Choice 3   |   | 20%                              |   | $ 0                                      |   |
| ERHC Choice 4   |   | 30%                              |   | $ 0                                      |   |
| ERHC Choice 5   |   | 25%                              |   | $ 0                                      |   |
| ERHC Choice 6   |   | 20%                              |   | 100% of 20% of the total Signature Bonus |   |

 

Interpretation carried outby WesternGeco has enabled the identification of 56 prospective structureswithin Blocks 1 to 9, of which 17 were defined as prospects and 39 asleads.  Of particular interest to ERHC,however, is the recoverable reserve potential of Blocks 1, 2 and 4.  WesternGeco identified six High Confidenceprospects in these three blocks alone with estimated cumulative recoverablereserves potential of 4.5 billion barrels of oil.   WesternGeco used reservoir parameterssimilar to those known from nearby fields in Nigeria and EquatorialGuinea.  Combined recoverable

 

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reserves potential of the 17prospects was estimated by WesternGeco to be 14.4 billion barrels of oil.  WesternGeco partitioned these reserves on ablock-by-block basis for ERHC’s exclusive use in the bidding and optionselection process relating to the JDZ licensing round.

 

The scope ofthe WesternGeco report was to interpret and map seismic data, highlightprospectivity and calculate volumetrics. It did not include any attempt to comply with any SEC definition ofreserves.  The United States Securitiesand Exchange Commission permits oil and gas companies, in their filings withthe SEC, to disclose only proved reserves that a company has demonstrated byactual production or conclusive formation tests to be economically and legallyproducible under existing economic and operating conditions.

 

Pursuant tothe 2003 Option Agreement, ERHC agreed to relinquish the following rightspreviously granted under the 2001 Agreement:

 

•                  10% of the DRSTP share of all Profit Oil (as defined) received from operationsconducted in the JDZ.

•                  5% of the DRSTP share of all Signature Bonuses paid by contractors operatingwithin the JDZ.

•                  A 1.5% overriding royalty interest in all the production of crudeoil and natural gas in the JDZ.

•                  The option to acquire up to a 15% working interest in up to twoblocks of the Company’s choice in the JDZ.

 

However,ERHC retained under the 2001 Agreement the following rights to participate inexploration and production activities in the EEZ subject to certainrestrictions:  (a) right to receive up to two blocks of ERHC’s choice, and (b) theoption to acquire up to a 15% paid working interest in up to two blocks ofERHC’s choice in the EEZ.  The Companywould be required to pay its proportionate share of the signature bonus and allother costs related to the exploration and exploitation of the blocks in the EEZ.

 

The above is only a brief summary of theterms of the 2001 Agreement and the 2003 Option Agreement and such summarydoes not purport to be complete and is qualified in its entirety by referenceto the text of the 2001 Agreement and the 2003 Option Agreement (any and allrelated documents), which have been filed by the Company and which areavailable on the U.S. Securities and Exchange Commission’s (“SEC”) web site at www.sec.gov.

 

***Government Regulation***

 

Thedevelopment, production and sale of crude oil and natural gas is subject toextensive laws and regulations, including environmental laws and regulations.In the event the Company begins exploration and development of any oil andnatural gas properties, it may be required to make large expenditures to complywith environmental and other governmental regulations. Matters subject toregulation include:

 

•                  dischargepermits for drilling operations;

•                  bonds forownership, development and production of oil and natural gas properties;

•                  reportsconcerning operations; and

•                  taxation.

 

Underthese laws and regulations, the Company could be liable for personal injuries,property damage, oil spills, discharge of hazardous materials, remediation andclean-up costs and other environmental damages. If the Company failed to complywith these laws and regulations, it could result in the suspension ortermination of the Company’s operations and subject it to administrative, civiland criminal penalties.  Moreover, theselaws and regulations could change in ways that substantially increase theCompany’s costs.  Accordingly, any ofthese liabilities, penalties, suspensions, terminations or regulatory changescould have a materially adverse effect on the Company’s financial condition andresults of operations.

## *** ***

## ***Employees***

 

The Companycurrently has three officers and support staff that provide services to theCompany pursuant to a management services agreement between the Company and anoperating company affiliated with Chrome and Sir Emeka Offor, the chairman ofthe board of directors of the Company.

 

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***Risk factors thatmay affect the results of operations and financial condition of the Company***

 

You shouldcarefully consider the risks described below before making any investmentdecision related to the Company’s securities. The risks and uncertainties described below are not the only ones facingthe Company.  Additional risks anduncertainties not presently known or that the Company currently deemsimmaterial also may impair its business operations.  If any of the following risks actually occur, the Company’sbusiness could be harmed.

 

*No Business Operations*

 

The Company’sonly assets are agreements with DRSTP concerning oil and natural gasexploration in the EEZ and with the JDA in the JDZ between Sao Tome and theFRN.  The Company’s operations have beenlimited to sustaining and managing its rights under these agreements.

 

*Concentration of Risk*

 

The Company’s only 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 central West Africa.  This geographic area of interest is controlled by foreign governments that have historically experienced volatility, which is out of management’s control. The Company’s ability to exploit its interests in the agreements in this area may be impacted by this circumstance.

 

#### *Concentration of Control*

 

Chrome, whichappointed the Company’s board of directors, beneficially owns approximately50.33% of the outstanding common stock, including shares that Chrome mayacquire upon the conversion of convertible debt and the exercise of warrants asof December 19, 2003.  As a result,Chrome has the ability to substantially influence, and may effectively control,the outcome of corporate actions requiring stockholder approval, including theelection of directors.  Thisconcentration of ownership may have the effect of delaying or preventing afuture change in control of the Company.

 

*Going Concern Opinion; Lack of Liquidity*

 

Forthe year ended September 30, 2003, the Company’s independent auditors statedthat the Company’s financial condition raises substantial doubts about itsability to continue as a going concern. The Company has incurred net losses of $3,153,882, $4,084,210, and$6,394,810 in fiscal years 2003, 2002 and 2001, respectively, and has a workingcapital deficit of $16,226,762 as of September 30, 2003.  Since the Company currently has no businessoperations, it has no internal sources of funding.  The Company has been dependent on external sources of funding forits prior operations, and will continue to be dependent on such sources untilit is able to generate sufficient operating cash flow, which may not occur on atimely basis, if at all.  Although theCompany has received funding from its shareholders in the past, it should notbe assumed that such funds will be available in the future or that theshareholders are obligated to fund any amounts in excess of the committedlending obligations.

 

*Stock Price Volatility*

 

The market price of the Company’s common stock hasexperienced fluctuations that are unrelated to its operating performance andhave been dramatic.  The market price ofthe common stock has been highly volatile. The Company can provide no assurance that its current price will bemaintained.

#### * *

#### *Penny Stock Regulations*

 

The SEC hasadopted rules that regulate broker-dealer practices in connection withtransactions in “penny stocks.”  Pennystocks generally are equity securities with a share price of less than$5.00.  The penny stock rules require abroker-dealer, prior to a transaction in a penny stock not otherwise exemptfrom the rules, to deliver a standardized risk disclosure document prepared bythe SEC that provides information about penny stocks and the nature and levelof risks in the penny stock market. These disclosure requirements may have the effect of reducing the levelof trading activity in any secondary market for a stock that becomes subject tothe penny stock rules.  The Company’scommon 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 thefuture, if at all.

 

## ***Susceptibility to GeneralEconomic Conditions***

 

The Company’srevenues and results of operations will be subject to fluctuations based uponthe general 

 

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economic conditions both in theUnited States and internationally.  Ifthere were to be a general economic downturn or a recession in the oil and gasindustry, the Company’s future revenues and the value of its oil and naturalgas exploration concession could be materially adversely affected.  In the event of such an economic downturn,there can be no assurance that the Company’s business, operating results andfinancial condition would not be materially and adversely affected.

 

**Item 2.    Descriptionof Property**

 

The Company’soffice is located at 5444 Westheimer Road, Suite 1570, Houston, Texas77056.  These premises are leased byChrome Oil Services Ltd. or (“COS”), and pursuant to a management servicesagreement, COS provides the space to the Company. This lease for approximately1,900 sq. ft. of office space expires in February 2006.

 

### **Item 3.  Legal Proceedings**

 

Except as described below, the Company is notaware of any other material legal proceedings pending to which it is a party orits property is subject.  From time totime, the Company may be subject to proceedings, lawsuits and other claims inthe ordinary course of business, the resolution of which, in the opinion ofmanagement should not have a materially adverse effect on the Company’sfinancial position.  The Company isopposing vigorously each of the claims discussed below and intends to continueto do so unless an agreeable resolution may otherwise be secured with regard toeach such claim.

 

*Sam L. Bass, Jr. v. ERHC*.  U.S. District Court, Western District ofLouisiana, No. 6:99CV1668.  This casewas commenced in 1999 by a former officer and director of the Company,asserting claims for past due salaries, penalty wages and attorney’s fees.  The plaintiff is seeking damages ofapproximately $1.2 million in damages. The named plaintiff in the case has died and his widow and executrix,Sheila Bass, has substituted herself as plaintiff.  The trial is set for April 2004. The case is currently in the advanced stages of discovery.

 

*Charles Briley v.ERHC*. Fifteenth Judicial District Court, Lafayette Parish, Louisiana, No.2002-2016 (filed April 18, 2002).  CharlesBriley has filed this breach of contract action alleging that he is a formerconsultant to the Company, and that he is due unpaid consulting fees. He seeksrecovery of approximately $30,000, plus 125,000 shares of restricted commonstock.  The case is in the discoveryphase, and no trial date has been set.

 

*George LeBlanc v.ERHC*. Fifteenth Judicial District Court, Lafayette Parish, Louisiana, No.2002-2017 (filed April 18, 2002). George LeBlanc, a former ERHC consultant, has filed this breach of contractaction alleging that he is due unpaid consulting fees totaling $15,500, alongwith 125,000 shares of restricted common stock.  The case is in the discovery phase, and no trial date has beenset.

 

*Robert McKnight v.ERHC*. Fifteenth Judicial District Court, Lafayette Parish, Louisiana, No.2002-2018 (filed April 18, 2002). Robert McKnight, a former ERHC consultant, has filed this breach ofcontract action alleging that he is due unpaid consulting fees totaling $83,000,along with $8,619 in unpaid medical bills. The case is in the discovery phase, and no trial date has been set.

 

*Jerome Rappaport, etal  v. ERHC, et al*.  Supreme Court of the State of New York,County of Suffolk, New York, No. 03-15879 (filed July 17, 2003).  Seven New York residents filed suit againstERHC for breach of contract and breach of fiduciary duty alleging that theysubscribed to purchase shares of ERHC common stock in 1999 pursuant to stocksubscription agreements and that ERHC has not issued such shares of commonstock. The plaintiffs are seeking an aggregate of 543,500 shares of commonstock they allege were purchased, or alternatively, cash in an unspecifiedamount not to exceed $500,000 per plaintiff. Hearing is set for January 15, 2004.

 

 

### **Item 4.  Submission of Mattersto a Vote of Security Holders**

 

None.

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**PART II**

 

### **Item 5.  Market for Registrant’scommon stock and Related Shareholder Matters**

 

ERHC’s common stock is currently traded onthe OTC Bulletin Board under the symbol “ERHC”.  The market for the Company’s common stock is sporadic and highlyvolatile.  The following table setsforth the closing sales price per share of the common stock for the past twofiscal years.  These prices reflectinter-dealer prices, without retail mark-ups, mark-downs or commissions, andmay not necessarily represent actual transactions.

 
|                 |   | **High**        |   | **Low** |   |
|----------------------|--------|-----------------|--------|---------|--------|
|                 |   | **(per share)** |   |
| **Fiscal Year 2003** |   |            |   |    |   |
|                 |   |            |   |    |   |
| First Quarter        |   | $               | 0.12   |    | $      | 0.07 |   |
| Second Quarter       |   | $               | 0.19   |    | $      | 0.09 |   |
| Third Quarter        |   | $               | 0.42   |    | $      | 0.14 |   |
| Fourth Quarter       |   | $               | 0.39   |    | $      | 0.20 |   |
|                 |   |            |   |    |   |
| **Fiscal Year 2002** |   |            |   |    |   |
|                 |   |            |   |    |   |
| First Quarter        |   | $               | 0.29   |    | $      | 0.10 |   |
| Second Quarter       |   | $               | 0.28   |    | $      | 0.15 |   |
| Third Quarter        |   | $               | 0.22   |    | $      | 0.10 |   |
| Fourth Quarter       |   | $               | 0.19   |    | $      | 0.09 |   |

 

On December 19, 2003, the closing price ofthe common stock as reported on the “OTC Bulletin Board” was $0.31.  As of December 19, 2003, there wereapproximately 2,259 record owners of the common stock.  It is the Company’s present policy not topay cash dividends and to retain future earnings to support growth.  Any payment of cash dividends in the futurewill be dependent upon the amount of funds legally available, the Company’searnings, financial condition, capital requirements, and other factors that theboard of directors may deem relevant. The Company has not paid any dividends during the last two fiscal yearsand does not anticipate paying any cash dividends in the foreseeable future.

 

## ***RecentSales of Unregistered Securities***

 

Setforth below is certain information concerning all issuances of securities by usduring the fourth quarter ended September 30, 2003, that were not registeredunder the Securities Act and that have been previously reported.  All sales of the securities were made by ourofficers who received no commission or other remuneration for the solicitationof any person in connection with the respective sales of securities described.

 

InJuly and August 2003, the Company issued 4,133,725 shares of common stock toone creditor for the conversion of debt and payment of accrued interest in theaggregate amount of $826,735.

 

In June 2003, the Company issued1,000,000 shares of common stock to a resident of a non-U.S. jurisdictionpursuant to Regulation S of the Securities Act of 1933, as amended, inconnection with a stock subscription agreement entered into and collected inJune 2003 in the aggregate amount of $250,000. The Company incurred $6,250 of expenses in connection with thissale.  In conjunction with the sale ofthese shares the Company also issued 1,000,000 warrants with an exercise priceof $0.50 per share expiring in September 2007.

 

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The Company believes the above transactions were exempt from registrationpursuant to Section 4(2) of the Securities Act, as the recipients were allaccredited investors, and since the transactions were non-recurring andprivately negotiated.  There wereno underwritten offerings employed and no sales commissions were paid inconnection with the sales and issuances of the unregistered securities in anyof the transactions set forth above.

 

**Item 6. Selected Financial Data**

 

The selectedfinancial data of the Company presented below as of September 30, 2003, havebeen derived from the Financial Statements of the Company.  TheFinancial Statements have been audited by Pannell Kerr Forster of Texas, P.C.,independent public accountants, and such financial information for the threeyears ended September 30, 2003 is included elsewhere in this Form 10-K. Thedata set forth below should be read in conjunction with the Company’sFinancial  Statements, related  notes thereto and “Management’s Discussionand Analysis of Financial Condition and Plan of Operations.”

 
|                                |   | **Fiscal  Years ended September 30,** |        |
|-------------------------------------|--------|---------------------------------------|-------------|
| **Statements of   Operations Data** |   | **1999**                              |        | **2000** |   | **2001** |   | **2002** |   | **2003** |   |
|                                |   |                                  |        |   |   |   |   |   |   |   |   |
| Revenues                            |   | $                                     | —      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
|                                |   |                                  |        |   |   |   |   |   |   |   |   |
| Operating expenses                  |   | 19,727,835                            |        | 1,958,880 |   | 6,394,810 |   | 4,084,210 |   | 3,153,882 |   |
|                                |   |                                  |        |   |   |   |   |   |   |   |   |
| Net loss                            |   | $                                     | (19,727,835 | ) | $ | (1,958,880 | ) | $ | (6,394,810 | ) | $ | (4,084,210 | ) | $ | (3,153,882 | ) |
|                                |   |                                  |        |   |   |   |   |   |   |   |   |
| Net loss per share                  |   | $                                     | (0.16       | ) | $ | — |   | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) |
|                                |   |                                  |        |   |   |   |   |   |   |   |   |
| Weighted average                    |   |                                  |        |   |   |   |   |   |   |   |   |
| common stock                        |   |                                  |        |   |   |   |   |   |   |   |   |
| outstanding                         |   | 120,005,321                           |        | 493,581,196 |   | 516,136,369 |   | 542,680,423 |   | 566,566,330 |   |

 
| **Balance Sheet Data (as of September 30,)** |   |       |      |       |   |        |   |        |      |        |   |
|----------------------------------------------|--------|------------|-----------|------------|--------|-------------|--------|-------------|-----------|-------------|--------|
|                                         |   |       |      |       |   |        |   |        |      |        |   |
| DRSTP Concession fee                         |   | $          | 5,000,000 |       | $      | 5,000,000   |   | $           | 5,550,000 |        | $      | 5,630,000 |   | $ | 5,679,000 |   |
|                                         |   |       |      |       |   |        |   |        |      |        |   |
| Total assets                                 |   | 6,349,356  |      | 6,180,912  |   | 5,631,952   |   | 5,672,064   |      | 5,735,744   |   |
|                                         |   |       |      |       |   |        |   |        |      |        |   |
| Total liabilities                            |   | 11,945,660 |      | 13,440,215 |   | 17,436,065  |   | 17,739,198  |      | 16,283,506  |   |
|                                         |   |       |      |       |   |        |   |        |      |        |   |
| Stockholders’ deficit                   |   | (5,596,304 | )         | (7,259,303 | )      | (11,804,113 | )      | (12,067,134 | )         | (10,547,762 | )      |
|                                              |        |            |           |            |        |             |        |             |           |             |        |  |  |  |  |  |

 

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

 

You must readthe following discussion of the results of the operations and financialcondition of the Company in conjunction with its financial statements,including the notes included in this Form 10-K filing.  The Company’s historical results are notnecessarily an indication of trends in operating results for any future period.

 

## ***Overview***

 

ERHC is anindependent oil and gas company.  TheCompany was formed in 1986, as a Colorado corporation, and was engaged in avariety of businesses until 1996, at which time it began its current operationsas an independent oil and gas company. The Company’s goal is to maximize its value through profitable growth inoil and gas reserves and production in the Gulf of Guinea off the coast ofcentral West Africa and to acquire interests in non-producing oil and gasproperties, particularly high potential international prospects in known oiland natural gas producing areas. The Company’s current focus is to exploit itsonly assets, which are agreements with the Democratic Republic of Sao Tome& Principe (“DRSTP”) concerning oil and natural gas exploration in theexclusive territorial waters of Sao Tome (the “Exclusive Economic Zone” or“EEZ”) and with the Nigeria-Sao Tome and Principe Joint Development Authority(the “JDA”) and DRSTP in a Joint Development Zone (“JDZ”) between Sao Tome andthe Federal Republic of Nigeria (“FRN”) (“JDZ/EEZ Concession”).  The Company intends to explore formingrelationships with other oil and gas companies having technical and financialcapabilities to assist the Company in leveraging its interests in the EEZ andthe JDZ. The Company currently has no other operations.

 

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*Critical AccountingPolicies*

 

In December2001, the SEC requested that companies discuss their most “critical accountingpolicies” in the Management’s Discussion and Analysis section of theirreports.  The SEC indicated that a“critical accounting policy” is one that is important to the portrayal of acompany’s financial condition and operating results and requires management’smost difficult, subjective or complex judgments, often as a result of the needto make estimates about the effect of matters that are inherently uncertain.

 

The Companyhas identified the policies below as critical to its business operations andthe understanding of its results of operations.  The impact and any associated risks related to these policies onthe Company’s business operations is discussed throughout this section wheresuch policies affect our reported and expected financial results.  Our preparation of this Annual Report onForm 10-K requires us to make estimates and assumptions that affect thereported amount of assets and liabilities, and that effect the disclosure ofcontingent assets and liabilities. There is no assurance that actual results will not differ from thoseestimates and assumptions.

 

Concentration of risks 

The Company primarily transacts its businesswith one financial institution. From time to time the amount on deposit in thatone institution exceeds the $100,000 federally insured limit.  The balances are maintained in demandaccounts to minimize risk.

 

The Company’scurrent focus is to exploit its only assets, which are agreements with theDRSTP concerning oil and gas exploration in EEZ and with the JDA concerning oiland gas exploration in the JDZ.  TheCompany intends to explore forming relationships with other oil and gascompanies having technical and financial capabilities to assist the Company inleveraging its interests in the EEZ and the JDZ. Should circumstances impedethe Company from perfecting its interests in the 2001 Agreement with DRSTP, orthe 2003 Option Agreement the Company’s business would be materially affected.Should the Company perfect its interests in the 2001 Agreement and the 2003Option Agreement, there is no certainty that a joint venture partner will beidentified to develop the Company’s interests. The Company currently has no other operations.

 

Impairment of long-lived assets

The Company evaluates therecoverability of long-lived assets when events and circumstances indicate thatsuch assets might be impaired.  TheCompany determines impairment by comparing the undiscounted future cash flowsestimated to be generated by these assets to their respective carryingamounts.  Impairments are charged tooperations in the period to which events and circumstances indicate that suchassets might be impaired.  Management ofthe Company has evaluated its investment in its DRSTP concession fee andbelieves that there have been no events or circumstances that would indicatethat such asset might be impaired.

 

***Results ofOperations***

 

# *Year ended September 30,2003 Compared to Year Ended September 30, 2002*

 

During theyear ended September 30, 2003, the Company incurred a net loss of $3,153,882,compared to a net loss of $4,084,210 for the year ended September 30,2002.  A significant portion of thedecrease in net loss for the year ended September 30, 2003 was attributable toa $693,000 decrease in financial consulting expense in 2003.  During 2002 there were three consultantsthat comprised $680,000 of the overall decrease that were used general fund raisingefforts of which there was no such expense incurred during the currentyear.  Corporate legal expensesdecreased by approximately $78,000 due to the corporate structure being putinto place during 2002 and accounting expenses decreased by $91,000 due to lesscorporate tax consultation required. Overall business travel decrease by approximately $105,000 due to fewertrips required in 2003 compared to 2002 as the agreements with the DRSTP arenow in place and involvement by Chrome executives during 2003 and correspondingtravel from Nigeria to the United States was not as frequent.  These corresponding decreases in expensewere offset by approximately $37,000 of various expenses incurred in carryingout the ongoing activities of the Company, of which no one single amount wasdeemed to be significant.

 

DuringFebruary 2001, the Company negotiated a management services agreement by andbetween Chrome Oil Services Ltd. (“COS”) and the Company whereby the Companywould pay a monthly management fee of $68,000 for various services to beprovided by COS inclusive of all general office expenses. Total expensesincurred under this management services agreement were $816,000 for each of theyears ended September 30, 2003 and 2002. The Company’s 

 

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executive officers incurredsignificant travel expenses of approximately $434,000 and $407,000 for theyears ended September 30, 2003 and 2002, respectively, as they continuednegotiations with officials of the FRN and DRSTP as well as numerous trips tothe United States from Nigeria by several Chrome executives while managing theongoing affairs of the Company.  TheCompany anticipates travel related expenses to continue to be significant asthe Company further develops its business interests.  The net loss per common share was $0.01, basic and diluted, forthe year ended September 30, 2003 compared to a net loss per common share of$0.01, basic and diluted, for the year ended September 30, 2002.

 

During 2003and 2002, the Company had no revenues from which cash flows could be generatedto support operations and thus relied on borrowings funded from its line ofcredit provided by Chrome as well as the sale of common stock .

 

# *Year Ended September 30,2002 Compared to Year Ended September 30, 2001*

 

During theyear ended September 30, 2002, the Company incurred a net loss of $4,084,210,compared to a net loss of $6,394,810 for the year ended September 30,2001.  A significant portion of thedecrease in net loss for the year ended September 30, 2002 was attributable to $1,425,000of expense incurred in 2001 as a result of the issuance of common stock of theCompany to an entity controlled by an officer of the Company and a consultantas compensation for completing the Purchase Agreement by and between Chrome andTalisman of which there was no such expense incurred during fiscal 2002.  In addition, during the year ended September30, 2001, the Company abandoned its investment and a claim for reimbursementfrom STPetro totaling $1,125,557 due to developments regarding a proposedtreaty between the FRN and DRSTP which would result in STPetro beingdissolved.  Interest expense for theyear ended September 30, 2002 was $250,351 higher than the same period in 2001due to additional borrowings under the Company’s line of credit with Chrome.

 

Total expensesincurred under the Company’s management services agreement with COS were$816,000 for the year ended September 30, 2002 compared to approximately$505,000 for the year ended September 30, 2001. The increase in expense is dueto the COS management agreement being in place for the entire year in 2002compared to eight months in 2001. The Company’s executive officers incurredsignificant travel expenses of approximately $407,000 and $962,000 for theyears ended September 30, 2002 and 2001, respectively, as they continuednegotiations with officials of the FRN and DRSTP as well as numerous trips tothe United States from Nigeria by several Chrome executives while managing theongoing activities of the Company.  Thenet loss per common share was $0.01, basic and diluted, for the year endedSeptember 30, 2002 compared to a net loss per common share of $0.01, basic anddiluted, for the year ended September 30, 2001.

 

During 2002and 2001, the Company had no revenues from which cash flows could be generatedto support operations and thus relied on borrowings funded from its line ofcredit provided by Chrome in fiscal year 2002 and Chrome and TC Hydro Carbon infiscal 2001 as well as the sale of common stock in 2002.

 

***Going Concern***

 

For the year ended September 30, 2003, theCompany’s independent auditors stated that the Company’s financial conditionraises substantial doubts about its ability to continue as a goingconcern.  The Company’s current liabilitiesexceed its current assets by $16,226,762 at September 30, 2003.  The Company has incurred net losses of$3,153,882, $4,084,210 and $6,394,810 in fiscal years 2003, 2002 and 2001,respectively.  These conditions raisesubstantial doubt as to the ability of the Company to continue as a goingconcern.  The Company is in ongoingnegotiations to raise general operating funds and funds for specificprojects.  Management will be requiredto, and expects to, raise additional capital through the issuance of debtsecurities and offerings of equity securities to fund the Company’s operations,and will attempt to continue raising capital resources until such time as theCompany generates revenues sufficient to maintain itself as a viableentity.  However, there is no assurancethat such financing will be obtained.

 

The Company’scurrent focus is to exploit its only assets, which are agreements with theDRSTP and the JDA concerning oil and natural gas exploration in the EEZ and theJDZ.  The Company intends to exploreforming relationships with other oil and gas companies having technical andfinancial capabilities to assist the Company in leveraging its interests in theEEZ and the JDZ. Should circumstances impede the Company from perfecting itsinterests in the 2001 Agreement and the 2003 Option Agreement with DRSTP, theCompany’s business would be materially adversely affected.  Should the Company perfect its interests inthe 2001 Agreement and the 2003 Option Agreement, there is no certainty that ajoint venture partner will be identified to develop the Company’sinterests.  The Company currently has noother operations.

 

The Companyhas a total of $6.8 million available under debt agreements of $1,800,000 and$5,000,000, respectively, entered into by and between the Company and Chrome(its majority shareholder).  The Companyhas drawn the 

 

9

 

full amount available under its$1,800,000 agreement, and has drawn $3,210,155 from the $5,000,000 line ofcredit, for a total outstanding of $5,010,155 as of September 30, 2003.  It is expected that the Company willcontinue to borrow funds from Chrome in the future but there is no assurancethat funds will be made available or under similar terms.  Chrome is not obligated to provide futureborrowings in excess of its existing committed lending obligations.  In prior years, the Company was able toraise funds in a timely manner, but there is no assurance that they willcontinue to do so in the future.  Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern.  Ifthe Company is unable to continue as a going concern, the values realized fromthe Company’s assets may be less than the carrying amounts reported in itsfinancial statements.  The accompanyingfinancial statements do not include any adjustments relating to therecoverability and classification of asset carrying amounts or the amount andclassification of liabilities that might result should the Company be unable tocontinue as a going concern.

## *** ***

## ***Liquidityand Capital Resources***

 

Historically,the Company has financed its operations from the sale of its debt and equitysecurities (including the issuance of its securities in exchange for goods andservices) and bank and other debt.  TheCompany had expected to finance its operations and further development plansduring fiscal 2003 and 2002 in part through additional debt or equity capitaland in part through cash flow from operations. There have been no cash flows generated from operations in the past two yearsand the Company has been able to raise additional equity capital of $1,072,500and $643,500 in 2003 and 2002, respectively, from the sales of its common stockunder private placements.

 

Therefore,during 2003 the Company has relied primarily on (i) borrowings provided undervarious debt agreements entered into by and between the Company and itsmajority shareholder, Chrome, (ii) conversions of interest and principal due onits convertible notes by the issuance of common stock and (iii) proceeds generatedfrom the sale of its common stock under private placements.

 

The Companypresently intends to utilize any available sources of funds to provide forgeneral corporate overhead and to continue to pursue its interests in Sao Tomeand the JDZ/EEZ.

 

*FinancingArrangements*

 

Convertible Debt

During January 2001, Chrome entered intoescrow agreements with a financial institution for the benefit of the holdersof $6,178,750 or 83.2% of the aggregate principal amount of the Company’soutstanding convertible debt securities, which, together with the convertibledebt securities held by Chrome of $1,250,000 (excluding convertible lines ofcredit currently held by Chrome), constitutes 100% of all of the Company’soutstanding convertible debt securities at that date.  These escrow agreements provided for the amendment of theoutstanding convertible debt held by the parties to the escrow agreements sothat (i) the maturity date was extended to January 31, 2003, (ii) interest willbe payable by the Company on January 31, 2002 and at maturity, (iii) theconversion price is fixed at $0.20 per share, subject to standard anti-dilutionadjustments, and (iv) all prior defaults by the Company are waived.  Substantially all note holders agreed to theamended terms.  The original notes werecanceled and replaced with new debt instruments.  Additionally, accrued interest of $782,372 as of January 31, 2001relating to these convertible notes was converted into principal resulting inthe total of the new notes being $8,211,122, including $1,435,979 held byChrome.  During the quarter ending March31, 2003, the Company received approval from convertible noteholders to extendthe maturity of the principal due January 31, 2003 for one year to mature onJanuary 31, 2004.

 

During the year ended September 30, 2003, the Companyreceived notice of conversion of convertible debt of $2,722,499 and accruedinterest of $84,509 into 14,035,085 shares of common stock.  During the year ended September 30, 2002, theCompany received notice of conversion of convertible debt of $870,412 andaccrued interest of $56,526 into 4,634,688 shares of common stock.

 

On January 27,2003, the Company solicited the consent of non-affiliated convertiblenoteholders to pay interest due on January 31, 2003 with common stock of theCompany using the conversion price of $0.20 per share.  During the year ended September 30, 2003,the Company issued 2,197,311 shares of common stock to these non-affiliatedconvertible noteholders and 852,853 shares of common stock to Chrome forpayment of accrued interest in the aggregate amounts of $439,462 and $170,571,respectively.

 

OnJanuary 29, 2002, the Company solicited the consent of non-affiliatedconvertible noteholders to pay interest due on January 31, 2002 with commonstock of the Company using the conversion price of $0.20 per share.  During 

 

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theyear ended September 30, 2002, the Company issued 2,219,915 shares of commonstock to these non-affiliated convertible noteholders and 852,853 shares ofcommon stock to Chrome for payment of accrued interest in the aggregate amountsof $443,983 and $170,571, respectively.

 

As of September 30, 2003, if this debt wasconverted using the conversion price of $0.20 per share, the Company would berequired to issue 23,091,055 shares of common stock based on an outstandingprincipal amount of $4,618,211, of which 7,179,895 shares of common stock basedon an outstanding principal amount of $1,435,979 would be issued to Chrome.  Additionally, interest accrued and unpaid onthese notes as of September 30, 2003 is $248,130, of which $114,660 is owed toChrome.  At the option of thenoteholders, unpaid interest can be converted into common stock of the Company.  As of September 30, 2003, if this accruedinterest were converted using the conversion price of $0.20 per share, theCompany would be required to issue 1,240,650 shares of common stock, of which573,300 would be issued to Chrome.

 

Lines of Credit (Chrome)

In connection with the Purchase Agreementbetween Chrome and TCHC, the TCHC $4.0 million 8% convertible promissory note,referred to above, was acquired and assumed by Chrome.  Chrome and the Company subsequently agreedto amend and restate the promissory note into a $2.2 million note maturing inSeptember 2004 and Chrome has made available, a new working capital line ofcredit in the amount of $1.8 million maturing in September 2004 at termssimilar to the TCHC line of credit. These lines of credit are convertible at the lesser of $0.20 per shareor such price as shall be determined by the Board of Directors of ERHC based onan independent determination by a recognized investment banker.  In addition, as provided for by theDerivative Settlement on February 9, 2001, Chrome executed an additional $5.0million senior convertible promissory note (the “$5.0 Million Line of Credit”)bearing interest at a rate of 10% per annum, maturing in February 2003.  InFebruary 2003, the Company extended the maturity on the $5.0 million seniorconvertible promissory note with Chrome to February 15, 2004 under similarterms.  All principal and interest isdue at maturity.  The $5.0Million Line of Credit is convertible at the lesser of $0.20 per share or suchprice as shall be determined by the Board of Directors of ERHC based on anindependent determination by a recognized investment banker.  As of September 30, 2003 the totaloutstanding under these debt instruments was $7,613,799, of which $7,210,155 ofthe amount is convertible into shares of common stock of the Company.  As of September 30, 2003, if these debtinstruments were converted using the conversion price of $0.20 per share, theCompany would be required to issue 36,050,775 shares of common stock to Chrome.  Additionally, interest accrued and unpaid onthese notes as of September 30, 2003 is $1,712,620, of which $1,614,988 issubject to conversion.  As of September30, 2003, if this accrued interest was converted using the conversion price of$0.20 per share, the Company would be required to issue 8,074,940 shares ofcommon stock to Chrome.

 

The principal amounts of all long-term debtinstruments (convertible and non-convertible), of $11,828,366 (including$8,646,134 due to shareholders) is due in 2004.

 

As of December19, 2003, the Company has borrowed approximately $3,265,000 against a $5million working capital line of credit from Chrome.  It is expected that the Company will continue to borrow fundsfrom this shareholder in the future but there is no assurance that funds willbe made available or under similar terms even though the full amount of theline of credit has not been expended. Chrome is not obligated to provide future borrowings in excess of itsexisting committed lending obligations. In prior years, the Company was able to raise funds in a timely manner,but there is no evidence that it will continue to do so in the future.

 

*General Fund Raising Efforts*

 

The Company isin ongoing negotiations to raise general operating funds and funds for specificprojects.  Management will be requiredto, and expects to, raise additional capital through the issuance of debtsecurities and offerings of equity securities to fund the Company’s operations,and will attempt to continue raising capital resources until such time as theCompany generates revenues sufficient to maintain itself as a viableentity.  However, there is no assurancethat such financing will be obtained.

 

During March2002, the Company entered into an agreement with a consulting group to act as afinancial advisor and to provide investment banking services to the Company.

 

In May 2002,the Company entered into an agreement with a consulting group to advise theCompany in securing financing of up to $1,500,000 and in structuring a jointventure arrangement with a partner. During the year ended September 30, 2003, this consulting group assistedthe Company in selling 7,840,000 shares of common stock, of which 1,000,000shares were not issued until November 2003, at prices ranging from $0.10 to$0.30 per share resulting in net proceeds of $1,072,500. During the year endedSeptember 30, 2002, the consulting group assisted the Company in selling 

 

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6,600,000 shares of commonstock, of which 2,600,000 were not issued until December 2002, at $0.10 pershare resulting in net proceeds of $643,500.

 

In June 2002, the Company entered into an agreement with a consultantto assist the Company in securing an agreement with a strategic oil and gasindustry partner to prepare the Company for participation in the award oflicenses in Sao Tome.

 

## ***Working Capital***

 

As ofSeptember 30, 2003, the Company had negative working capital of $16,226,762 ofwhich $1,960,749 relates to accrued interest and $723,035 relates to accruedofficers salaries, both of which will most likely be settled by the issuance ofshares of common stock of the Company. As of September 30, 2003, the Company had drawn the full amountavailable of $1,800,000 under one note agreement and $3,210,155 had beenadvanced to the Company under another $5,000,000 line of credit, withChrome.  The Company expects to utilizethis line of credit in order to sustain minimum operations relative tocontinuing to develop and promote its interests in DRSTP.  Where possible, the Company may seek topreserve cash resources by settling obligations through the issuance of sharesof common stock or by the issuance of convertible debt instruments.

 

Pursuant to aPurchase Agreement entered into by and between Chrome and TCHC in February2001, Chrome assumed a $4.0 million line of credit.  Chrome and the Company amended and restated the line of creditinto a $2.2 million note and Chrome has made available, a new working capitalline of credit in the amount of $1.8 million both having terms similar to the$4.0 million line of credit.  TheCompany has borrowed the entire $1.8 million under that note agreement.  In addition, in February 2001 Chrome madeavailable to the Company, a two-year $5 Million Line of Credit, which accruesinterest at a rate of 10% per annum.  InFebruary 2003, this line of credit was extended until February 2004.  As of December 19, 2003, the Company hadborrowed approximately $3,265,000 under this line of credit.  This note is convertible into shares ofcommon stock at a rate of $0.20 per share.

 

*DRSTP GeologicalData*

 

In July 1997,the Company acquired substantial geologic data and other information from anindependent source in exchange for 1,000,000 shares of common stock. This datawas valued at $2,000,000 based on an agreement with the seller that the Companywould repurchase these shares for $2,000,000 at a rate of 25% per quartershould the seller so choose.  InDecember 1997, the Company repurchased 250,000 shares of its common stock for$500,000 in cash.  Due to unavailabilityof cash resources, the Company was unable to acquire the remaining shares whenpresented by the seller.  Accordingly,the seller sold those shares in the open market with the proceeds generatedfrom the sales offsetting the obligations owed by the Company. Under the agreement’sterms of default, the seller requested that the Company make whole the seller’sshortfall incurred from disposition of the stock at less than $2.00 pershare.  Accordingly, the Company issuedan additional 6,997,917 shares of common stock and paid cash of $222,500 duringfiscal year 1999 and $122,000 during fiscal year 2000, leaving a remainingobligation in accounts payable of approximately $246,000 at September 30, 2001.In April 2002 the Company issued 1,227,875 shares to settle this obligation.

 

In February,2002, ERHC entered into a license agreement for multiclient seismic data withWesternGeco Seismic Holdings Limited, a joint-venture between Schlumberger Ltd.(NYSE: SLB) and Baker Hughes Inc. (NYSE: BHI). This data was shot by WesternGeco in 1999.  It is comprised of in excess of 5,900 kilometers of 2-D seismicdata in an area that included the north-eastern half of the JDZ establishedbetween the FRN and the DRSTP as well as the northern portion of the EEZ ofDRSTP bordering on the waters of Nigeria. Several 2-D data lines also covered the eastern portion of the EEZbordering on the waters of Cameroon, Equatorial Guinea and Gabon.

 

In September,2003, the Company contracted with WesternGeco, at a cost of $49,000, for aninterpretation of this data. The scope of the WesternGeco report was tointerpret and map seismic data, highlight prospectivity and calculatevolumetrics.  It did not include anyattempt to comply with any SEC definition of reserves.

 

*New Accounting Standards*

 

In May 2003, the Financial Accounting Standards Board(the “FASB”) issued Statement of Financial Accounting Standard (“SFAS”)No. 150, *“Accounting for Certain Instruments with Characteristics of BothLiabilities and Equity.”* SFAS No. 150 clarifies the accountingfor certain financial instruments with characteristics of both liabilities andequity and requires that those instruments be classified as liabilities instatements of financial position. Previously, many of those financialinstruments were classified as equity. SFAS No. 150 is effective forfinancial instruments entered into or

 

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modified after May 31, 2003 and otherwise is effectiveat the beginning of the first interim period beginning after June 15,2003. The Company does not believe that the adoption of SFAS No. 150 didnot have a significant impact on the Company’s financial statements.

 

In April 2003, the FASB issued SFAS No. 149, *“Amendmentof Statement No. 133 on Derivative Instruments and Hedging Activities.”* SFAS No. 149 amends and clarifies financialaccounting and reporting for derivative instruments, including certainderivative instruments embedded in other contracts (collectively referred to asderivatives) and for hedging activities under SFAS No. 133, *“Accountingfor Derivative Instruments and Hedging Activities.”*  This Statement is effective for contractsentered into or modified after June 30, 2003. The Company did not participate in any applicable activities during theyear ended September 30, 2003.

 

In January 2003, the FASB issued FinancialInterpretation No. (“FIN”) 46, *“Consolidation of Variable Interest Entities.”*  In general, a variable interest entity is acorporation, partnership, trust, or any other legal entity used for businesspurposes that either (a) does not have equity investors with voting rightsor (b) has equity investors that do not provide sufficient financialresources for the entity to support its activities. FIN 46 requires certainvariable interest entities to be consolidated by the primary beneficiary of theentity if the investors in the entity do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties. The consolidation requirements of FIN 46 applyimmediately to variable interest entities created after January 31, 2003.The consolidation requirements apply to older entities in the first fiscal yearor interim period beginning after June 15, 2003. Certain of the disclosurerequirements apply to all financial statements issued after January 31,2003, regardless of when the variable interest entity was established. TheCompany did not participate in any applicable activities during the year endedSeptember 30, 2003.

 

In December 2002, the FASB issued SFAS No. 148, *“Accountingfor Stock-Based Compensation—Transition and Disclosure.”*  This standard amends SFAS No. 123 to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. Additionally,the standard also requires in both annual and interim financial statementsprominent disclosures in the Company’s financial statements about the method ofaccounting used for stock-based employee compensation, and the effect of themethod used when reporting financial results. The Company is required to follow the prescribed disclosure format andif required has provided the additional disclosures required by SFASNo. 148 for its quarterly periods during the year ended September 30,2003.

 

In June 2002, the FASB issued SFAS No. 146, “*Accountingfor Exit or Disposal Activities.”* SFAS No. 146 addresses significant issues regarding therecognition, measurement and reporting of disposal activities, includingrestructuring activities that are currently covered in EITF Issue No. 94-3, *“LiabilityRecognition for Certain Employee Termination Activity.”* Theprovisions of SFAS No. 146 are effective for exit or disposal activitiesinitiated after December 31, 2002.  TheCompany did not participate in any applicable activities during the year endedSeptember 30, 2003.

 

In April 2002, the FASB issued SFAS No. 145, *“Rescissionof FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, andTechnical Corrections.”* This statement rescinds SFAS No. 4,Reporting Gains and Losses from Extinguishment of Debt, which required allgains and losses from extinguishment of debt to be aggregated and, if material,classified as an extraordinary item, net of income taxes.  As a result, the criteria in AccountingPrinciples Board (“APB”) No. 30 will now be used to classify those gains andlosses. Any gain or loss on the extinguishment of debt that was classified as anextraordinary item in prior periods presented that does not meet the criteriain APB No. 30 for classification as an extraordinary item shall bereclassified. The provisions of this Statement are effective for fiscal yearsbeginning after January 1, 2003. The Company did not participate in anyapplicable activities during the year ended September 30, 2003.

 

In November 2002, the FASB issued FIN 45, *“Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others,”* an interpretation of FASBStatements No. 5, 57 and 107, and rescission of FASB InterpretationNo. 34, *“Disclosure of Indirect Guarantees of Indebtedness of Others.”*FIN45 elaborates on the disclosures to be made by the guarantor in its interim andannual financial statements about its obligations under certain guarantees thatit has issued. It also requires that a guarantor recognize, at the inception ofa guarantee, a liability for the fair value of the obligation undertaken inissuing the guarantee. The initial recognition and measurement provisions ofthis interpretation are applicable on a prospective basis to guarantees issuedor modified after December 31, 2002, while the provisions of thedisclosure requirements are effective for financial statements for interim orannual periods ending after December 15, 2002.  The Company did not participate in any applicable activitiesduring the year ended September 30, 2003.

 

13

 

 

The Company does not expect the adoption ofany of the above-mentioned standards to have a material impact on the Company’sfuture financial condition or results of operations.

 

**Item 7a.  Quantitativeand Qualitative Disclosures about Market Risk**

 

The Company’scurrent focus is to exploit its only assets, which are agreements with theDRSTP concerning oil and gas exploration in the EEZ, and with the JDA in theJDZ between Sao Tome and the FRN.  TheCompany intends to explore forming relationships with other oil and gas companieshaving technical and financial capabilities to assist the Company in leveragingits interests in the EEZ and the JDZ. Should circumstances impede the Companyfrom perfecting its interests in the 2001 Agreement with DRSTP or the 2003Option Agreement, the Company would cease to exist. Should the Company perfectits interests in the 2001 Agreement and the 2003 Option Agreement, there is nocertainty that a joint venture partner will be identified to develop theCompany’s interests.  The Companycurrently has no other operations.

 

Currently theCompany transacts business exclusively in the United States and all of theCompany’s contracts are denominated in $US. As a result, our financial statements results are unlikely to beeffected by factors such as changes in foreign currency exchange rates or weakeconomic conditions in foreign markets.

 

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

 

We do not holdderivative financial or commodity instruments, nor do we engage in any foreigncurrency denominated transactions.

 

**Item 8.    FinancialStatements and Supplementary Data**

 

See Index toFinancial Statements and Schedule at page F-1. The financial statements with the report of the independent accountantsare included on pages F-2 through F-23 of this document.  Financial statement schedules other thanthose included herein have been omitted because the required information iscontained in the financial statements or related notes, or such information isnot applicable.

 

**Item 9.    Changesin and Disagreements with Accountants on Accounting and Financial Disclosures**

 

Notapplicable.

 

**Item 9A. Controls and Procedures**

 

An evaluationwas performed under the supervision and the participation of the Company’smanagement including the Chairman, Chief Executive Officer (“CEO”) and ChiefFinancial Officer (“CFO”), of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures within 90 days of the filingdate of this Annual Report on Form 10-K. Based on that evaluation, the Company’s management, including theChairman, CEO and CFO concluded that the Company’s disclosure controls andprocedures were effective.  There havebeen no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these internal controls subsequent tothe date of their evaluation.

 

14

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**PART III**

 

**Item 10.****Directorsand Executive Officers of the Registrant**

 

Since February2001, the following directors and executive officers have served the Company.

 
| **Name**        |   | **Age** |   | **Position**                                    |   |
|-----------------|--------|---------|--------|-------------------------------------------------|--------|
| Sir Emeka Offor |   | 45      |   | Chairman of the board                           |   |
|            |   |    |   |                                            |   |
| Chude Mba       |   | 46      |   | Chief executive officer, president and director |   |
|            |   |    |   |                                            |   |
| Nicolae Luca    |   | 45      |   | Director                                        |   |
|            |   |    |   |                                            |   |
| Eze Echesi      |   | 48      |   | Chief financial officer                         |   |
|            |   |    |   |                                            |   |
| Peter C. Ntephe |   | 37      |   | Secretary                                       |   |

 

*Sir Emeka Offor* has served as the chairman of theboard of ERHC since February 2001. In addition to his duties as chairman, Sir Emeka Offor is currentlychairman of Chrome Consortium, chief executive officer of COS and vice chairmanof African Express Bank PLC, positions he has held at various times since1995.  Apart from owning majorityinterests in these companies, Sir Emeka Offor has majority interests in aviationand insurance companies. Sir Emeka Offor is the sole manager of Chrome, theCompany’s majority shareholder.  Inaddition, Sir Emeka Offor is a director and sole shareholder of COS, a companywhich provides management, administrative and consulting services to theCompany.

 

*Chude Mba*has servedas chief executive officer, president and director of ERHC since February2001.  From February 2001 toSeptember 2003, Mr. Mba served as president of Chrome.  From February 1999 to October 2002, Mr. Mbaserved as group financial advisor of COS and Chrome Consortium (Nigeria) and anadvisor to the board of directors of African Express Bank PLC.   From June 1993 to February 1999, Mr. Mbawas the principal of MBA & Co (Chartered Accountants), a financial andbanking consulting firm with operations in Lagos, Nigeria and London, UK.  Mr. Mba resumed the role of principal of MBA& Co from October 2002.  Mr. Mba hasmanagement experience spanning two decades in the financial services andbanking industries.  Mr. Mba is a charteredaccountant and spends approximately 75% of his working time on ERHC companybusiness.

 

*Nicolae Luca*has served as a director sinceFebruary 2001.  Since April 1998,Mr. Luca has also served as the technical director for COS.  From January 1995 to April 1998, Mr. Lucawas a technical specialist for Comrint Ltd., a Nigeria-based petrochemicalplant maintenance and engineering company. Mr. Luca has a bachelor of science in mechanical engineering.  Mr. Luca spends approximately 10% of hisworking time on ERHC company business.

 

*Eze Echesi* hasserved as chief financial officer of ERHC since February 2001.  Since December 2000, Mr. Echesi hasserved as a financial advisor to Nimek Investments, a Nigeria-based investmentholding company with interests in banking, insurance, energy and aviation.  From January 1996 to December 2000, Mr.Echesi was the chief operating officer of operations in Africa for MinajSystems Ltd., an international private broadcasting organization.  Mr. Echesi spends approximately 10% of hisworking time on ERHC company business.

 

*Peter C. Ntephe* hasserved as secretary of ERHC since February 2001.  Since June 1999, Mr. Ntephe has served as the seniorspecial assistant to the chairman of the Nigerian Senate committee on judicialand legal matters.  Between 1987 and May1999, Mr. Ntephe was a partner of Ntephe, Smith and Wills, a Lagos-based lawfirm.  Mr. Ntephe spends approximately20% of his working time on ERHC company business.

 

All officers serve at the discretion of the board ofdirectors.  There are no family relationships between or among anyexecutive officers and directors.

 

The Company entered into a managementservices agreement with COS in February 2001. Pursuant to that agreement, COS provides the Company with management andbusiness development services, in addition to making available specializedservices in the areas of refinery maintenance, engineering design, and upstreamoil industry services.  COS provides theCompany with such services for a management fee of $68,000 per month. Messrs.Mba, Echesi, and Ntephe are consultants to COS and receive fees and overheadexpense reimbursement from COS, not from the Company. Expenses 

 

15

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not covered under the management servicesagreement are borne by the Company. Total management fees incurred during eachof the years ended September 30, 2003 and September 30, 2002 were$816,000.  The Company’s executiveofficers incurred significant direct expense for travel and related expenses ofapproximately $434,000 and $407,000 during the years ended September 30, 2003and 2002, respectively, which were reimbursed by the Company to COS or directlyto the officers.  At September 30, 2003and 2002, accounts payable and other accrued liabilities included approximately$8,690 and $52,000 owed to one officer for direct travel expenses.  Other than the management servicesagreement, the Company does not have employment agreements with any of itsofficers.

 

***Compliancewith Section 16(a) of the Exchange Act***

 

Section 16(a) of the Exchange Act requires theCompany’s directors and executive officers, and persons who ownbeneficially more than ten percent (10%) of the common stock, to file reportsof ownership and changes of ownership with the Securities and ExchangeCommission.  Copies of all filed reports are required to be furnished to theCompany pursuant to Section 16(a).  The Company is unableto determine whether its officers and directors prior to February 2001 havecomplied with their filing requirements.

 

Based solely on the reports received and therepresentations of the reporting person, the Company believes that thesepersons have complied with all applicable filing requirements during the fiscalyears ended September 30, 2003 and 2002.

 

***Codeof Ethics for the CEO, CFO and Senior Financial Officers***

 

In December 2003, in accordance with SEC Rules, theAudit Committee and the Board adopted the CEO, CFO and Senior FinancialOfficers Code of Ethical Conduct.  TheBoard believes that these individuals must set an exemplary standard ofconduct, particularly in the areas of accounting, internal accounting control,auditing and finance.  This code setsforth ethical standards the designated officers must adhere to and otheraspects of accounting, auditing and financial compliance.  The full text of the Code of Ethics for theCEO, CFO and Senior Financial Officers has been posted to the Company’s websiteat http://www.erhc.com.

 

***AuditCommittee Matters***

 

The Company’s Audit Committee is comprised of allthree members of the Board of Directors: Sir Emeka Offor, Chude Mba and NicolaeLuca.  The Audit Committee isresponsible for, among other things, overseeing the Company’s accounting andfinancial reporting processes and audits of the Company’s financialstatements.  There are currently nomembers of the Audit Committee who qualify as an “audit committee financialexpert.”  There are currently no membersof the Audit Committee who are “independent” as defined in federal securitieslaws.  The Company intends to addadditional members to the Board of Directors, and the Audit Committee, thatwould qualify as a financial expert and as independent.  However, the Company cannot assure you as towhether, or when, they will succeed in recruiting an acceptable director

 

**Item 11.Executive Compensation**

 

The following table sets forth certain informationregarding compensation paid by the Company to its chief executive officer andother executive officers who received total annual salary and bonus thatexceeded $100,000 during the periods involved.

 

16

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*Summary Compensation Table*

* *
|                                      |   | ***Annual Compensation*** |       | ***Long Term Compensation*** |   |
|-------------------------------------------|--------|---------------------------|------------|------------------------------|--------|
| ***Name and   Principal Positions*** |   | ***Fiscal  Year***        |       |                         |   | ***Awards*** |   |
|                                      |   |                      |       |                         |   |   |   | **Restricted  stock award(s) ($)** |   | **Securities Underlying  Options/SARs** |   |
|                                      |   | ** **                | ** ** | **Salary ($)**               |   | **Bonus ($)** |   |   |   |   |   |
| Chude Mba                                 |   |                      |       |                         |   |   |   |   |   |   |   |
|  Chief Executive Officer             |   | 2003                      |       | $                            | 84,000 | (1) | — |   | — |   | — |   |
|                                      |   |                      |       |                         |   |   |   |   |   |   |   |
|                                      |   | 2002                      |       | $                            | 84,000 | (1) | — |   | — |   | — |   |
|                                      |   |                      |       |                         |   |   |   |   |   |   |   |
|                                      |   | 2001                      |       | $                            | 52,500 | (1) | — |   | $ | 500,000 |   | — |   |
|                                           |        |                           |            |                              |        |  |  |  |  |  |  |  |  |

# * *

----

*(1)**      *The Company does notpay any officers of the Company directly but does pay a management services feeof $68,000 per month to COS, a component of which is an amount representingcompensation to this officer for services provided under the managementservices agreement.

# * *

# *Option Grants in Fiscal 2003, 2002 and 2001*

 

There were no options to acquire commonstock of the Company granted to any employee, officer or director of theCompany during the years ended September 30, 2003 and 2002.

 

***Aggregated Option Exercises in 2003, 2002 and 2001 andYear-End Option Values***

 

There were no common stock options heldby executive officers or Directors to acquire common stock of the Company.

 

*Compensation ofDirectors*

 

Directors do not receive any compensation for attending meetings.

 

*Long Term IncentivePlan Awards and Benefit Plans*

 

No executive officer received any long term incentive plan awardsduring the fiscal year ended September 30, 2003.  The Company has not established any defined plan or actuarialplan under which benefits are provided to its executive officers.

 

*SecuritiesAuthorized for Issuance Under Equity Compensation Plans*

 

The Company maintains no equity compensation plans.

 

***CompensationCommittee Report***

 

The Board of Directors supervises our executive compensation, as wehave not established a Compensation Committee. We seek to provide executive compensation that will support theachievement of our financial goals while attracting and retaining talentedexecutives and rewarding superior performance. In performing this function, the Board of Directors may review executivecompensation surveys and other available information.

 

We seek to provide an overall level of compensation to our executivesthat is competitive within our industry and other companies of comparable sizeand complexity.  Compensation in anyparticular case may vary from any industry average on the basis of annual andlong-term performance as well as individual performance.  The Board of Directors will exercise itsdiscretion to set compensation where in its judgment external, internal orindividual circumstances warrant it.  Wecompensate our executive officers pursuant to a management service agreementthat pays our officers cash only.

 

Salary levels for our executive officers are set generally to becompetitive in relation to the salary levels of executive officers in othercompanies within our industry or other companies of comparable size, takinginto consideration the position’s complexity, responsibility and need forspecial expertise.  In reviewingsalaries in individual cases the Board of Directors also takes into accountindividual experience and performance.

 

17

----

 

The overall goal of the Compensation Committee is to insure thatcompensation policies are established that are consistent with our strategicbusiness objectives and that provide incentives for the attainment of thoseobjectives.

 

*Chief ExecutiveOfficer Compensation*

 

Mr. Chude Mba was elected to the position of chief executive officer in2001.  For the fiscal years endedSeptember 30, 2003 and 2002, Mr. Mba was paid $84,000 and during 2001 he waspaid $52,500.  Mr. Mba received nobonuses or other equity compensation during the fiscal year ended September 30,2003 and 2002.  He received 10,000,000shares of restricted stock during the year ended September 30, 2001 valued at$500,000.

 

*CompensationCommittee Interlocks Insider Participation*

 

As the Company does not maintain a Compensation Committee, the Board ofDirectors comprised of Sir Emeka Offer, Chude Mba and Nicolae Luca served asthe Compensation Committee during the fiscal year ended September 30,2003.  Mr. Mba is the chief executiveofficer and president of the Company. None of the Company’s executive officers or Board members has served ona compensation committee for any other company.  No other officer or employee of the Company has participated indeliberations with the Board of Directors concerning executive officercompensation.

 

*Stock Price PerformanceGraph*

 

This section includes a line graph comparing the cumulative totalshareholder return on the Company’s common stock against the cumulative totalreturn of the NASDAQ Market Index and the SIC Code Index for the periodcommencing December 26, 2001 (commencement of trading of our stock under newmanagement) and ending September 30, 2003. The graph and table assume that $100 was invested on December 26, 2001in each of the Company’s common stock, the NASDAQ Market Index and the SIC CodeIndex, and that all dividends were reinvested. The Company’s SIC Code Index consists of companies that it believes areengaged in the same or similar business as ERHC.  The comparisons shown in the graph below are based uponhistorical data.  The stock price performanceshown in the graph below is not necessarily indicative of, nor intended toforecast, the potential future performance of the Company’s common stock.

 

 

18

----

 

**Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

 

The following table and notes thereto set forthcertain information regarding beneficial ownership of the commonstock as of December 19, 2003 by (i) each person known by the Company to beneficiallyown more than five percent of the common stock, (ii) eachdirector (iii) each named executive officer and (iv) all directors and officersof the Company as a group.

 
| **Name and Address**                                       |   | **Shares of common stock****Beneficially Owned** |   | **Percentage of VotingPower** |   |
|------------------------------------------------------------|--------|--------------------------------------------------|--------|-------------------------------|--------|
|                                                       |   |                                             |   |                          |   |
| Sir Emeka Offor                                            |   | 317,902,973                                      |   | 50.33%(1                      | )      |
|                                                       |   |                                             |   |                          |   |
| Eze Echesi                                                 |   | 0                                                |   |                          |   |
|                                                       |   |                                             |   |                          |   |
| Chude Mba                                                  |   | 10,000,000                                       |   | 1.71%(2                       | )      |
|                                                       |   |                                             |   |                          |   |
| Chrome Energy, LLC                                         |   | 317,902,973                                      |   | 50.33%(1                      | )      |
|                                                       |   |                                             |   |                          |   |
| All executive officers and directorsas a group (4 persons) |   | 327,902,973                                      |   | 51.91%(1                      | )      |

 

The address ofeach beneficial owner is c/o Environmental Remediation Holding Corporation,5444 Westheimer Road, Suite 1570, Houston, Texas 77056.

 

Beneficialownership is determined in accordance with rules of the SEC and generally includesvoting or dispositive power with respect to such shares.

 

(1)                                  Sharesbeneficially owned and percentage of ownership are based on 586,074,034 sharesof common stock outstanding as of December 19, 2003 and 52,807,766 shares whichmay be acquired through the exercise of certain convertible debt by ChromeEnergy LLC and 2,500,000 immediately exercisable warrants.

 

(2)                                  Sharesbeneficially owned and percentage of ownership are based on 586,074,034 sharesof common stock outstanding as of December 19, 2003.

 

COS is thesole member of Chrome.  Sir Emeka Offoris the sole manager of Chrome and the sole shareholder and director ofCOS.  Mr. Mba was the president ofChrome until September 2003, and disclaims all beneficial ownership in theshares owned by Chrome.

 

The317,902,973 shares beneficially owned by Chrome includes: (a) 262,320,527shares of common stock owned of record; (b) 11,000,000 shares of common stockto be issued due to the conversion of the 8.0% note in the principal amount of$2,200,000; (c) 9,000,000 shares of common stock assuming the conversion of a10.0% note in the principal amount of $1,800,000; (d) 16,050,775 shares ofcommon stock assuming the conversion of a 10.0% $5 million line of credit withan outstanding principal amount of $3,365,091; (e) 3,158,330 shares of commonstock assuming the conversion of a 20.0% note in the principal amount of$631,666; (f) 4,021,565 shares of common stock assuming the conversion of a5.5% note in the principal amount of $804,313; (g) 9,577,101 shares of commonstock assuming the conversion of accrued interest owed as of December 19, 2003in the amount of $1,915,420; and (h) 750,000, 750,000, and 1,000,000 shares ofcommon stock underlying three warrants, which have expiration dates rangingfrom October 2008 to April 2009, an exercise price of $0.25 per share, and eachof which is currently exercisable.  Thenumber of shares of common stock that the above-described notes and accruedinterest are convertible into, includes only shares of common stock that mayissued upon the conversion of the principal amounts and accrued interestamounts owed as of and through December 19, 2003.

 

**Item 13. CertainRelationships and Related Transactions**

 

Please see the discussion in Item 1 above fora detailed discussion of Chrome’s February 2001 acquisition of a controllinginterest in the Company.  Also, pleasesee Item 12 for a description of the shares of common stock and securitiesconvertible into common stock that Chrome retained in the transaction.

 

As more fully described in Item 10 above, theCompany has entered into a management services agreement with COS. COS is theparent company of Chrome, the Company’s largest shareholder.  Sir Emeka Offor, the chairman of the boardof directors, is the sole director and shareholder of COS.  As such, COS is an affiliate of Sir EmekaOffor and Chrome.

 

In February 2001, pursuant to the change ofcontrol transaction, Chrome assumed from Talisman a working capital 

 

19

----

 

lineof credit made available to the Company which provided for borrowings of up to$4.0 million, of which approximately $2.6 million was then outstanding.  That note was amended and restated inFebruary 2001 to provide that $2.2 million of the total of $2.6 million of principalshall accrue interest at a rate of 8% per annum, and shall be convertible intoshares of common stock at a conversion price of $0.20 per share and shallexpire in September 2004.  Additionallyduring February 2001, the remaining principal of approximately $400,000 shallaccrue interest at a rate of 8%, will not be convertible and shall expire inSeptember 2004.  Chrome has also madeavailable a new working capital line of credit in the amount of $1.8 million.  As of September 30, 2003, the Company hadborrowed $1.8 million from this new line of credit.  Borrowings under this new line of credit, which expires inSeptember 2004, bear interest at 8% per annum and may be converted into sharesof common stock at a conversion price of $0.20 per share.

 

In addition, pursuant to the February 2001 change of controltransaction and a derivative settlement agreement, Chrome made available to theCompany, a two-year $5 Million Line of Credit, which accrues interest at a rateof 10% per annum.  In February 2003, thisline of credit was extended until February 2004.  As of December 19, 2003, the Company has borrowed approximately$3,265,000 under this line of credit. This note is convertible into shares of common stock at rate of $0.20per share.

 

**Item 14. PrincipalAccounting Fees and Services**

 

Aggregate fees for professional services rendered by Pannell KerrForster of Texas P.C. (“PKF”) for the fiscal year ended September 30, 2003 andSeptember 30, 2002, were as follows:

 
|                |   | **2003** |   | **2002** |   |
|---------------------|--------|----------|--------|----------|--------|
|                |   |     |   |     |   |
| Audit fee           |   | $        | 43,463 |     | $      | 28,071 |   |
| Audit-related  fees |   | $        | 1,888  |     | $      | 23,522 |   |
| Tax fees            |   | $        | 4,754  |     | $      | 55,732 |   |
| All other fees      |   | $        | 41,111 |     | $      | 10,893 |   |

 

*Audit fees* for the fiscal years ended September 30, 2003 and2002 represent the aggregate fees billed for professional services rendered byPKF for the audit of our annual financial statements and review of financialstatements included in our quarterly reports on Form 10-Q or services that arenormally provided in connection with statutory and regulatory filings orengagements for those fiscal years.

 

*Audit-relatedfees* for the fiscalyears ended September 30, 2003 and 2002 represents the aggregate fees billedfor assurance and related services by PKF that are reasonably related to theperformance of the audit or review of our financial statements and are notreported under Audit Fees.

 

*Tax-relatedfees* for the fiscalyear ended September 30, 2003 and 2002, represents the aggregate fees billedfor professional services rendered by PKF for tax compliance, tax advice, andtax planning.

 

*All other fees* for the fiscal year ended September 30, 2003 and2002, represents the aggregate fees billed for products and services providedby PKF, other than the services reported in the other categories.  All other fees generally relate to tax feesassessed for corporate tax restructuring and other general corporate taxrelated matters.

 

***AuditCommittee Pre-Approval Policies and Procedures***

 

A representative of the independent auditors normally attends eachmeeting of the Audit Committee.  The AuditCommittee on an annual basis reviews audit and non-audit services performed bythe independent auditor.  All audit andnon-audit services are pre-approved by the Audit Committee, which considers,among other things, the possible effect of the performance of such services onthe auditors’ independence.  The AuditCommittee has considered the role of Pannell Kerr Forster in providing servicesto us for the fiscal year ended September 30, 2003 and has concluded that suchservices are compatible with Pannell Kerr Forster’s independence as theCompany’s auditors.

 

20

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**PART IV**

 

**Item 15****.  Exhibits, Financial Statement Schedules andReports on Form 8-K**

 

(a)                                  Financial Statementsand Schedules:

 

1)        Financial Statements:  See Index to Financial Statements immediately following thesignature pages of this report.

 

2)        Financial Statement Schedule: See Index toFinancial Statements immediately following the signature pages of this report.

 

3)        The following documents are filed as exhibits tothis report:

 
| **EXHIBIT NO.** |   | **IDENTIFICATION  OF EXHIBIT**                                                                                                                                                                                              |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                        |
| Exhibit 10.1*   |   | Purchase Agreement dated as of December 31,  2000, among Talisman Capital Opportunity Fund, Ltd., TC Hydro Carbon, Inc.  and Chrome Energy, LLC. (Incorporated by reference to Exhibit 1 of Form 8-K  filed March 2, 2001). |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 10.2*   |   | First Amendment Agreement between Kevin  Bartley et al., and Chrome Energy, LLC dated February 9, 2001. (Incorporated  by reference to Exhibit 2 of Form 8-K filed March 2, 2001).                                          |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 10.3*   |   | Memorandum of Agreement dated as of May 21,  2001, among The Government of the Democratic Republic of Sao Tome and  Principe and the Company. (Incorporated by reference to Exhibit 1 of Form 8-K  filed June 5, 2001).     |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 10.4*   |   | Management and Administrative Services  Agreement by and between Chrome Oil Services, Ltd. and the Company.  (Incorporated by reference to Form 10-KSB filed September 24, 2001).                                           |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 10.5*   |   | $5,000,000 Term Loan Agreement by and  between Chrome Energy, LLC and the Company dated February 15, 2001.  (Incorporated by reference to Form 10-KSB filed September 24, 2001).                                            |
|            |   |                                                                                                                                                                                                                        |
| Exhibit  10.6*  |   | Audit committee charter                                                                                                                                                                                                     |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 31.1    |   | Certification Pursuant to 18 U.S.C Section  1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                      |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 31.2    |   | Certification Pursuant to 18 U.S.C Section  1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                      |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 31.3    |   | Certification Pursuant to 18 U.S.C Section  1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                      |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 32.1    |   | Certification Pursuant to 18 U.S.C Section  1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                      |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 32.2    |   | Certification Pursuant to 18 U.S.C Section  1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                      |
|            |   |                                                                                                                                                                                                                        |
| Exhibit 32.3    |   | Certification Pursuant to 18 U.S.C Section  1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                      |
|            |   |                                                                                                                                                                                                                        |
| (b)             |   | Form 8-K Filings                                                                                                                                                                                                            |
|            |   |                                                                                                                                                                                                                        |
|            |   | None                                                                                                                                                                                                                        |

 

----

* Previously filed

 

21

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**SIGNATURES**

 

 

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

 
|   |   |   |   | Environmental Remediation Holding Corporation |
|--------|--------|--------|--------|-----------------------------------------------|
|   |   |   |   |                                          |
|   |   |   |   |                                          |
|   |   |   |   | By:                                           | //s//Chude Mba |   |
|   |   |   |   |                                          | Chude  Mba, Chief Executive Officer and President |
|        |        |        |        |                                               |  |  |  |

 

In accordance with the Exchange Act, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

 

 
| **Signature**         |            | **Title**                |                   | **Date**          |
|-----------------------|-----------------|--------------------------|------------------------|-------------------|
|                  |            |                     |                   |              |
| //s// Sir Emeka Offor |            | Chairman of the Board    |                   | December 29, 2003 |
|                  | Sir Emeka Offor |                     |                   |              |   |
|                  |            |                     |                   |              |
| //s// Chude Mba       |            | Chief Executive Officer, |                   | December 29, 2003 |
|                  | Chude Mba       |                     | President and Director |              |   |
|                  |            |                     |                   |              |
| //s// Nicolae Luca    |            | Director                 |                   | December 29, 2003 |
|                  | Nicolae Luca    |                     |                   |              |   |
|                  |            |                     |                   |              |
| //s// Eze Echesi      |            | Chief Financial Officer  |                   | December 29, 2003 |
|                  | Eze Echesi      |                     |                   |              |   |
|                  |            |                     |                   |              |
| //s// Peter C. Ntephe |            | Secretary                |                   | December 29, 2003 |
|                  | Peter C. Ntephe |                     |                   |              |   |

 

22

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**ENVIRONMENTALREMEDIATION HOLDING CORPORATION**

 

INDEX TO FINANCIAL STATEMENTS

 

 
| REPORT OF  INDEPENDENT PUBLIC ACCOUNTANTS                                                                |   |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                     |   |   |
| FINANCIAL STATEMENTS                                                                                     |   |   |
|                                                                                                     |   |   |
| Balance Sheets as  of September 30, 2003 and 2002                                                        |   |   |
|                                                                                                     |   |   |
| Statements of Operations for the Years  Ended September 30, 2003, 2002 and 2001                          |   |   |
|                                                                                                     |   |   |
| Statements of Shareholders’ Equity  (Deficit) for the Years Ended September 30, 2003, 2002 and 2001 |   |   |
|                                                                                                     |   |   |
| Statements of Cash Flows for the Years  Ended September 30, 2003, 2002 and 2001                          |   |   |
|                                                                                                     |   |   |
| Notes to Financial Statements                                                                            |   |   |

 

FINANCIAL STATEMENT SCHEDULE

 

None

 

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

 

F-1

----

##  

## ***REPORT OFINDEPENDENT PUBLIC ACCOUNTANTS***

 

Board of Directors and Shareholders

Environmental Remediation Holding Corporation

 

We have audited the accompanying balance sheets of EnvironmentalRemediation Holding Corporation (the “Company”) as of September 30, 2003 and2002, and the related statements of operations, cash flows, and shareholders’equity (deficit) for each of the three years in the period ended September 30,2003.  These financial statements arethe responsibility of the Company’s management.  Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the financialposition of Environmental Remediation Holding Corporation as of September 30, 2003 and 2002, and the results of its operations and its cash flowsfor each of the three years in the period ended September 30, 2003 inconformity with accounting principles generally accepted in the United Statesof America.

 

The accompanying financial statements have been prepared assuming thatthe Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company hasincurred net losses of $3,153,882, $4,084,210 and $6,394,810 in fiscal years2003, 2002 and 2001, respectively, and had a working capital deficit andstockholders’ deficit of $16,226,762 and $10,547,762, respectively, atSeptember 30, 2003.  These conditionsand other factors discussed in Note 2 raise substantial doubt about theCompany’s ability to continue as a going concern.  Management’s plans regarding the resolution of these issues arealso discussed in Note 2.  The financialstatements do not include any adjustments that might result from the outcome ofthese uncertainties.

 

 
| /s/ Pannell  Kerr Forster of Texas, P.C. |                                 |
|-----------------------------------------------|--------------------------------------|
|                                          | Pannell Kerr  Forster of Texas, P.C. |   |
|                                          |                                 |
| Houston, Texas                                |                                 |
| December 12, 2003                             |                                 |
|                                               |                                      |  |

 

F-2

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###  

### **ENVIRONMENTAL REMEDIATIONHOLDING CORPORATION**

 

**Balance Sheets**

 
|                                                                                                                                                                    |   | **September 30,** |         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------------|
|                                                                                                                                                                    |   | **2003**          |         | **2002** |   |
| ***ASSETS***                                                                                                                                                            |   |              | *** *** |   | *** *** |
|                                                                                                                                                                    |   |              | * *     |   | * * |
| CURRENT ASSETS                                                                                                                                                          |   |              |         |   |   |
| Cash                                                                                                                                                                    |   | $                 | 23,336       |   | $ | 2,240 |   |
| Restricted cash                                                                                                                                                         |   | 18,343            |         | 18,074 |   |
| Prepaid expenses and other current assets                                                                                                                               |   | 15,065            |         | 21,750 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| Total current assets                                                                                                                                                    |   | 56,744            |         | 42,064 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| DRSTP concession fee                                                                                                                                                    |   | 5,679,000         |         | 5,630,000 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| Total assets                                                                                                                                                            |   | $                 | 5,735,744    |   | $ | 5,672,064 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY  (DEFICIT)**                                                                                                                |   |              | ** **   |   | ** ** |
|                                                                                                                                                                    |   |              |         |   |   |
| CURRENT LIABILITIES                                                                                                                                                     |   |              |         |   |   |
| Accounts payable and other accrued  liabilities                                                                                                                         |   | $                 | 1,367,712    |   | $ | 1,435,284 |   |
| Accrued officers salaries                                                                                                                                               |   | 723,035           |         | 723,035 |   |
| Accrued interest                                                                                                                                                        |   | 133,470           |         | 295,353 |   |
| Accrued interest, shareholder                                                                                                                                           |   | 1,827,279         |         | 1,156,609 |   |
| Current portion of nonconvertible debt,  shareholder                                                                                                                    |   | 403,644           |         | — |   |
| Current portion of convertible debt,  shareholder                                                                                                                       |   | 8,646,134         |         | 3,820,542 |   |
| Current portion of convertible debt                                                                                                                                     |   | 3,182,232         |         | 5,904,731 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| Total current liabilities                                                                                                                                               |   | 16,283,506        |         | 13,335,554 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| LONG TERM LIABILITIES                                                                                                                                                   |   |              |         |   |   |
| Nonconvertible debt, shareholder                                                                                                                                        |   | —            |         | 403,644 |   |
| Convertible debt, shareholder                                                                                                                                           |   | —            |         | 4,000,000 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| Total long term liabilities                                                                                                                                             |   | —            |         | 4,403,644 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| Total liabilities                                                                                                                                                       |   | 16,283,506        |         | 17,739,198 |   |
|                                                                                                                                                                    |   |              |         |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                           |   |              |         |   |   |
|                                                                                                                                                                    |   |              |         |   |   |
| SHAREHOLDERS’ EQUITY (DEFICIT)                                                                                                                                     |   |              |         |   |   |
| Preferred stock, $0.0001 par value;  authorized 10,000,000 shares; none issued and outstanding                                                                          |   | —            |         | — |   |
| Common stock, $0.0001 par value; authorized  950,000,000 shares; issued and outstanding 582,829,594 and  554,746,868 at September 30, 2003 and  2002, respectively |   | 58,283            |         | 55,475 |   |
| Additional paid-in capital                                                                                                                                              |   | 53,937,800        |         | 49,267,354 |   |
| Accumulated deficit                                                                                                                                                     |   | (64,543,845       | )            | (61,389,963 | ) |
|                                                                                                                                                                    |   |              |         |   |   |
| Total shareholders’ deficit                                                                                                                                        |   | (10,547,762       | )            | (12,067,134 | ) |
| Total liabilities and shareholders’ deficit                                                                                                                        |   | $                 | 5,735,744    |   | $ | 5,672,064 |   |

 

See accompanying notes to financial statements.

 

F-3

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**ENVIRONMENTALREMEDIATION HOLDING CORPORATION**

 

**Statements of Operations**

 
|                                                                    |   | **Year Ended September 30,** |             |
|-------------------------------------------------------------------------|--------|------------------------------|------------------|
|                                                                    |   | **2003**                     |             | **2002** |   | **2001** |   |
|                                                                    |   |                         | ** **       |   | ** ** |   | ** ** |
| COSTS AND EXPENSES                                                      |   |                         |             |   |   |   |   |
| General and administrative                                              |   | $                            |  1,944,655  |   | $ |  2,883,099 |   | $ |  4,318,493 |   |
| Interest expense                                                        |   | 1,209,227                    |             | 1,201,111 |   | 950,760 |   |
| Write offs and abandonments                                             |   | —                       |             | — |   | 1,125,557 |   |
|                                                                    |   |                         |             |   |   |   |   |
| Net loss                                                                |   | $                            |  (3,153,882 | ) | $ |  (4,084,210 | ) | $ |  (6,394,810 | ) |
|                                                                    |   |                         |             |   |   |   |   |
| Net loss per common share - basic and  diluted                          |   | $                            |  (0.01      | ) | $ |  (0.01 | ) | $ |  (0.01 | ) |
|                                                                    |   |                         |             |   |   |   |   |
| Basic and diluted weighted average number  of common shares outstanding |   | 566,566,330                  |             | 542,680,423 |   | 516,136,369 |   |

 

F-4

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#### ***ENVIRONMENTALREMEDIATION HOLDING CORPORATION***

 

**Statement of Shareholders’ Equity (Deficit)**

**For the years endedSeptember 30, 2003, 2002 and 2001**

 
|                                                                        |   |             |   |        |   | **Additional**  |   |                   |   | **Total**   |        |
|-----------------------------------------------------------------------------|--------|------------------|--------|-------------|--------|-----------------|--------|------------------------|--------|-------------|-------------|
|                                                                        |   | **Common Stock** |   | **Paid-In** |   | **Accumulated** |   | **Shareholders’** |   |
|                                                                        |   | **Shares**       |   | **Amounts** |   | **Capital**     |   | **Deficit**            |   | **Deficit** |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Balance at September 30, 2000                                               |   | 495,456,917      |   | $           | 49,546 |            | $      | 43,602,094             |   | $           | (50,910,943 | ) | $ | (7,259,303 | ) |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for  services                                           |   | 37,000,000       |   | 3,700       |   | 1,846,300       |   | —                 |   | 1,850,000   |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Net loss                                                                    |   | —           |   | —      |   | —          |   | (6,394,810             | )      | (6,394,810  | )           |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Balance at September 30, 2001                                               |   | 532,456,917      |   | 53,246      |   | 45,448,394      |   | (57,305,753            | )      | (11,804,113 | )           |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for cash,  net of expenses                              |   | 4,000,000        |   | 400         |   | 643,100         |   | —                 |   | 643,500     |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for  services                                           |   | 3,475,000        |   | 348         |   | 527,652         |   | —                 |   | 528,000     |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for  accounts payable                                   |   | 4,407,495        |   | 440         |   | 817,757         |   | —                 |   | 818,197     |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for  accrued officers salaries                          |   | 2,700,000        |   | 270         |   | 289,730         |   | —                 |   | 290,000     |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for  conversion of debt and payment of accrued interest |   | 7,707,456        |   | 771         |   | 1,540,721       |   | —                 |   | 1,541,492   |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Net loss                                                                    |   | —           |   | —      |   | —          |   | (4,084,210             | )      | (4,084,210  | )           |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Balance at September 30, 2002                                               |   | 554,746,868      |   | 55,475      |   | 49,267,354      |   | (61,389,963            | )      | (12,067,134 | )           |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for cash,  net of expenses                              |   | 9,440,000        |   | 944         |   | 1,071,556       |   | —                 |   | 1,072,500   |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for  accounts payable                                   |   | 1,527,986        |   | 153         |   | 177,663         |   | —                 |   | 177,816     |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Common stock issued for  conversion of debt and payment of accrued interest |   | 17,114,740       |   | 1,711       |   | 3,421,227       |   | —                 |   | 3,422,938   |        |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Net loss                                                                    |   | —           |   | —      |   | —          |   | (3,153,882             | )      | (3,153,882  | )           |
|                                                                        |   |             |   |        |   |            |   |                   |   |        |        |
| Balance at September 30, 2003                                               |   | 582,829,594      |   | $           | 58,283 |            | $      | 53,937,800             |   | $           | (64,543,845 | ) | $ | (10,547,762 | ) |

 

Seeaccompanying notes to financial statements.

 

F-5

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**ENVIRONMENTALREMEDIATION HOLDING CORPORATION**

 

**Statements of Cash Flows**

 
|                                                                         |   | **Year Ended September 30,** |       |
|------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                         |   | **2003**                     |       | **2002** |   | **2001** |   |
|                                                                         |   |                         |       |   |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                        |   |                         |       |   |   |   |   |
| Net loss                                                                     |   | $                            | (3,153,882 | ) | $ | (4,084,210 | ) | $ | (6,394,810 | ) |
| Adjustments to reconcile net loss to net  cash used by operating activities: |   |                         |       |   |   |   |   |
| Stock issued for services                                                    |   | —                       |       | 528,000 |   | 1,850,000 |   |
| Write-offs and abandonments                                                  |   | —                       |       | — |   | 1,125,557 |   |
| Changes in operating assets and liabilities:                                 |   |                         |       |   |   |   |   |
| Restricted cash                                                              |   | (269                         | )          | (545 | ) | (1,718 | ) |
| Prepaid expenses and other current assets                                    |   | 6,685                        |       | 32,069 |   | (29,608 | ) |
| Accounts payable and other accrued  liabilities                              |   | 110,244                      |       | 197,029 |   | 256,507 |   |
| Accrued interest                                                             |   | 1,209,226                    |       | 1,201,113 |   | 950,760 |   |
|                                                                         |   |                         |       |   |   |   |   |
| Net cash used in operating activities                                        |   | (1,827,996                   | )          | (2,126,544 | ) | (2,243,312 | ) |
|                                                                         |   |                         |       |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                        |   |                         |       |   |   |   |   |
| Investments in DRSTP concession                                              |   | (49,000                      | )          | (80,000 | ) | (550,000 | ) |
|                                                                         |   |                         |       |   |   |   |   |
| Net cash used in investing activities                                        |   | (49,000                      | )          | (80,000 | ) | (550,000 | ) |
|                                                                         |   |                         |       |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                        |   |                         |       |   |   |   |   |
| Proceeds from common stock, net of expenses                                  |   | 1,072,500                    |       | 643,500 |   | — |   |
| Proceeds from non-convertible debt,  shareholder                             |   | —                       |       | — |   | 158,700 |   |
| Proceeds from convertible debt, shareholder                                  |   | 825,592                      |       | 1,554,680 |   | 2,629,883 |   |
|                                                                         |   |                         |       |   |   |   |   |
| Net cash provided by financing activities                                    |   | 1,898,092                    |       | 2,198,180 |   | 2,788,583 |   |
|                                                                         |   |                         |       |   |   |   |   |
| Net increase (decrease) in cash                                              |   | 21,096                       |       | (8,364 | ) | (4,729 | ) |
|                                                                         |   |                         |       |   |   |   |   |
| Cash, beginning of year                                                      |   | 2,240                        |       | 10,604 |   | 15,333 |   |
|                                                                         |   |                         |       |   |   |   |   |
| Cash, end of year                                                            |   | $                            | 23,336     |   | $ | 2,240 |   | $ | 10,604 |   |
|                                                                         |   |                         |       |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:                           |   |                         |       |   |   |   |   |
|                                                                         |   |                         |       |   |   |   |   |
| Noncash operating and financing activities:                                  |   |                         |       |   |   |   |   |
| Stock issued in exchange for:                                                |   |                         |       |   |   |   |   |
| Services                                                                     |   | $                            | —     |   | $ | 528,000 |   | $ | 1,850,000 |   |
| Accounts payable                                                             |   | $                            | 177,816    |   | $ | 818,197 |   | $ | — |   |
| Accrued officers salaries                                                    |   | $                            | —     |   | $ | 290,000 |   | $ | — |   |
| Accrued interest                                                             |   | $                            | 700,439    |   | $ | 671,080 |   | $ | — |   |
| Convertible debt                                                             |   | $                            | 2,722,499  |   | $ | 870,412 |   | $ | — |   |
| Interest converted to principal upon  amendment of debt instruments          |   | $                            | —     |   | $ | — |   | $ | 782,372 |   |

 

 

Seeaccompanying notes to financial statements.

 

F-6

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**EnvironmentalRemediation Holding Corporation**

**Notesto the Financial Statements**

 

 

**Note 1 -  Summaryof Significant Accounting Policies**

 

##### **General Business and Nature of Operations**

 

ERHC is an independent oiland gas company.  The Company was formedin 1986, as a Colorado corporation, and was engaged in a variety of businessesuntil 1996, at which time it began its current operations as an independent oiland gas company.  The Company’s goal isto maximize its value through profitable growth in oil and gas reserves andproduction in the Gulf of Guinea off the coast of central West Africa and toacquire interests in non-producing oil and gas properties, particularly highpotential international prospects in known oil and natural gas producing areas.The Company’s current focus is to exploit its only assets, which are agreementswith the Democratic Republic of Sao Tome & Principe (“DRSTP”) concerningoil and natural gas exploration in the exclusive territorial waters of Sao Tome(the “Exclusive Economic Zone” or “EEZ”) and with the Nigeria-Sao Tome and PrincipeJoint Development Authority (the “JDA”) and DRSTP in a Joint Development Zone(“JDZ”) between Sao Tome and the Federal Republic of Nigeria (“FRN”) (“JDZ/EEZConcession”).  The Company intends toexplore forming relationships with other oil and gas companies having technicaland financial capabilities to assist the Company in leveraging its interests inthe EEZ and the JDZ.

 

In May 1997, the Companyentered into an exclusive joint venture with the DRSTP (the “1997 Agreement”).The 1997 Agreement required the Company to pay a $5,000,000 concession fee tothe Sao Tome government.  In July 2002,the 1997 Agreement was replaced by a Memorandum of Agreement (the “2001Agreement”) which was embodied in a Consent Award issued by the arbitrator as aresult of the satisfaction of several conditions, including the ratification ofa treaty between the FRN and the DRSTP.

 

The 2001 Agreement givesthe Company rights to participate in exploration and production activities inboth the exclusive territorial waters of Sao Tome referred to as the ExclusiveEconomic Zone (“EEZ”) and an area between Sao Tome and the FRN that the twonations have designated as a JDZ.

 

During April 2003, theCompany entered into an option agreement under which the Company relinquishedcertain financial interests originally provided for by the 2001 Agreement. (SeeNote 3). The Company currently has no other operations.

 

***Change in Control***

On February 15, 2001,pursuant to a Purchase Agreement dated December 31, 2000, as amended by a FirstAmendment thereto dated January 31, 2001 (as amended, the “PurchaseAgreement”), between Chrome Energy, L.L.C., a Delaware limited liabilitycompany (“Chrome”), Talisman Capital Opportunity Fund Ltd. (“Talisman”), and TCHydro Carbon, Inc., a Delaware corporation (“TCHC” or “TC Hydro Carbon” and,together with Talisman, the “Sellers”), Chrome purchased from the Sellers for$6,000,000 cash the following: (a) 375,000,000 shares of Company common stock,par value $.0001 per share, owned of record by TC Hydro Carbon; (b) 2,244,385shares of common stock held and owned of record by Talisman; (c) a convertiblesenior subordinated note from the Company due October 15, 2002, in theprincipal amount of $750,000 owned and held by Talisman; (d) a convertible notefrom the Company due October 26, 2000, in the principal amount of $500,000,owned and held by Talisman; (e) a senior secured 8.00% exchangeable promissorynote from the Company due September 1, 2004, in the principal amount of$4,000,000 owned and held by TC Hydro Carbon; (f) a warrant certificate datedas of October 26, 1998, owned and held by Talisman providing the right topurchase 750,000 shares of common stock until October 26, 2008; (g) a secondwarrant certificate dated as of October 26, 1998, owned and held by Talismanproviding the right to purchase 750,000 shares of common stock until October26, 2008; (h) a

 

F-7

----

 

warrant certificate datedas of October 15, 1997, owned by Talisman providing the right to purchase45,000 shares of the common stock until October 15, 2002, which was notextended; and (i) a warrant certificate dated as of April 23, 1999 owned byTalisman providing the right to purchase 1,000,000 shares of common stock untilApril 22, 2009.  Subsequent to February15, 2001, Chrome transferred to its financial advisors an aggregate of116,629,564 shares of common stock acquired in this transaction.

 

## ***Change of Company Management***

Uponconsummation of the purchase by Chrome of the foregoing securities of theCompany, the Company’s three directors prior to February 15, 2001 elected threenew directors.  Immediately after theelection of these new directors, the three prior directors resigned from theboard of directors.  The new directorsappointed the new executive officers of the Company.

 

Chrome currently owns directly 262,320,527 shares of the Company’scommon stock, of which 260,614,821 were acquired as a result of the PurchaseAgreement.

 

## ***Settlement Agreement – DerivativeLawsuit***

In connection with the transactions contemplated by the PurchaseAgreement, Chrome is a party to a First Amended Agreement dated February 9,2001 (the “Derivative Settlement”), whereby the parties thereto have agreed todismiss with prejudice a derivative lawsuit (styled *ENVIRONMENTAL REMEDIATION HOLDINGCORPORATION, DERIVATIVELY BY AND THROUGH KEVIN BARTLEY ET AL V. TALISMANCAPITAL OPPORTUNITY FUND L.P. ET AL*) previously filed by certain ofthe Company’s shareholders against several of the Company’s former directorsand controlling shareholders.  Thisagreement was executed prior to the Purchase Agreement noted above.  Pursuant to the Derivative Settlement, thefollowing actions were consummated:

 

(a)  under the terms of the lineof credit and the Derivative Settlement, the Company executed a new note withChrome maturing in September 2004 for $2,200,000 of the advances made by TCHydro Carbon outstanding for more than 180 days as of January 31, 2001 bearinginterest at a rate of 8%.  Such note andthe accrued interest thereon is convertible at any time at a conversion priceof $0.20 per share;

 

(b)  the Company executed a new convertible notefor $1,800,000 bearing interest at a rate of 10% per annum maturing September2004.  Such note and the accruedinterest thereon is convertible at any time at a conversion price of $0.20 pershare;

 

(c)  the 5.5% Note was cancelled and the Companyexecuted a new convertible note payable to Chrome for $804,313, representingthe outstanding principal balance of the 5.5% Note and all accrued interestthereon as of January 31, 2001. Such note is convertible, at Chrome’s option,into shares of common stock at $0.20 per share;

 

(d)  the 20% Note was cancelled and the Companyexecuted a new convertible note payable to Chrome for $631,667 representing theoutstanding principal balance of the 20% Note and all accrued interest thereon,as of January 31, 2001.  Such note isconvertible, at Chrome’s option, into shares of common stock at $0.20 pershare;

 

(e)  the Company executed an additional $5.0 millionsenior convertible promissory note bearing interest at a rate of 10% annummaturing February 2003 convertible at the lesser of $0.20 per share or suchprice as shall be determined by the board of ERHC based on an independentdetermination by a recognized investment banker; in February 2003, the Companyextended the maturity of this note to February 2004 under similar terms.

 

F-8

----

 

(f)  the Company issued 8,500,000 shares ofcommon stock to an attorney to settle certain legal obligations of theplaintiffs involved in this settlement.

 

Use of estimates 

The financial statementshave been prepared in conformity with accounting principles generally acceptedin the United States of America. In preparing the financial statements,management is required to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and revenues and expensesduring the reporting period for the years then ended. Actual results coulddiffer significantly from those estimates.

 

## ***Cash equivalents***

The Company considers allhighly liquid debt instruments with an original maturity of three months orless to be cash equivalents.

 

Concentration of risks 

The Company primarily transacts its business with onefinancial institution. From time to time the amount on deposit in that oneinstitution exceeds the $100,000 federally insured limit.  The balances are maintained in demandaccounts to minimize risk.

 

The Company’s currentfocus is to exploit its only assets, which are agreements with the DRSTPconcerning oil and natural gas exploration in Sao Tome, an island nationlocated in the Gulf of Guinea off the coast of central West Africa, and in aJDZ between Sao Tome and the FRN.  TheCompany intends to explore forming relationships with other oil and gascompanies having technical and financial capabilities to assist the Company in leveragingits interests in Sao Tome and the JDZ. Should circumstances impede the Companyfrom perfecting its interests in the 2001 Agreement and the 2003 OptionAgreement with DRSTP, the Company would cease to exist. Should the Companyperfect its interests in the 2001 Agreement and the 2003 Option Agreement,there is no certainty that a joint venture partner will be identified todevelop the Company’s interests.  TheCompany currently has no other operations.

 

Impairment of long-lived assets

The Company evaluates therecoverability of long-lived assets when events and circumstances indicate thatsuch assets might be impaired.  TheCompany determines impairment by comparing the undiscounted future cash flowsestimated to be generated by these assets to their respective carryingamounts.  Impairments are charged tooperations in the period to which events and circumstances indicate that suchassets might be impaired.  Management ofthe Company has evaluated its investment in its DRSTP concession fee in light ofits 2003 Option Agreement (see Note 3) and believes that there have been noevents or circumstances that would indicate that such asset might be impaired.

 

Income taxes 

The Company accounts for income taxes under theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 109 - “*Accountingfor Income Taxes,*” which provides for an asset and liabilityapproach in accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognizedbased on anticipated future tax consequences, using currently enacted tax laws,attributable to differences between financial statement carrying amounts ofassets and liabilities and their respective tax bases.

 

Common stock issued for goods received and servicesrendered 

The Company has issued shares of common stock for goodsreceived and services rendered. The costs of the goods or services are valuedaccording to the terms of relative agreements or

 

F-9

----

 

market value on the date of obligation. The cost ofthe goods or services has been charged to operations.

 

Net loss per share

Net loss per common share - basic is computed bydividing the net loss by the weighted average number of shares of common stockoutstanding during the period. Due to the Company having a net loss for each ofthe three years ended September 30, 2003, 2002 and 2001, the inclusion ofcommon share equivalents would be anti-dilutive, thus basic and diluted lossper share are the same.

 

New Accounting Standards

In May 2003, the FinancialAccounting Standards Board (the “FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 150, *“Accounting for Certain Instruments withCharacteristics of Both Liabilities and Equity.”* SFAS No. 150clarifies the accounting for certain financial instruments with characteristicsof both liabilities and equity and requires that those instruments beclassified as liabilities in statements of financial position. Previously, manyof those financial instruments were classified as equity. SFAS No. 150 iseffective for financial instruments entered into or modified after May 31,2003 and otherwise is effective at the beginning of the first interim periodbeginning after June 15, 2003. The Company does not believe that theadoption of SFAS No. 150 did not have a significant impact on theCompany’s financial statements.

 

In April 2003, the FASB issued SFAS No. 149, *“Amendmentof Statement No. 133 on Derivative Instruments and Hedging Activities.”* SFAS No. 149 amends and clarifies financialaccounting and reporting for derivative instruments, including certainderivative instruments embedded in other contracts (collectively referred to asderivatives) and for hedging activities under SFAS No. 133, *“Accountingfor Derivative Instruments and Hedging Activities.”*  This Statement is effective for contractsentered into or modified after June 30, 2003. The Company did not participate in any applicable activities during theyear ended September 30, 2003.

 

In January 2003, the FASBissued Financial Interpretation No. (“FIN”) 46, *“Consolidation of Variable InterestEntities.”*  In general, avariable interest entity is a corporation, partnership, trust, or any otherlegal entity used for business purposes that either (a) does not haveequity investors with voting rights or (b) has equity investors that donot provide sufficient financial resources for the entity to support itsactivities. FIN 46 requires certain variable interest entities to beconsolidated by the primary beneficiary of the entity if the investors in theentity do not have the characteristics of a controlling financial interest ordo not have sufficient equity at risk for the entity to finance its activitieswithout additional subordinated financial support from other parties. Theconsolidation requirements of FIN 46 apply immediately to variable interestentities created after January 31, 2003. The consolidation requirementsapply to older entities in the first fiscal year or interim period beginningafter June 15, 2003. Certain of the disclosure requirements apply to allfinancial statements issued after January 31, 2003, regardless of when thevariable interest entity was established. The Company did not participate inany applicable activities during the year ended September 30, 2003.

 

In December 2002, the FASBissued SFAS No. 148, *“Accounting for Stock-Based Compensation—Transitionand Disclosure.”*  Thisstandard amends SFAS No. 123 to provide alternative methods of transition for avoluntary change to the fair value based method of accounting for stock-basedemployee compensation. Additionally, the standard also requires in both annualand interim financial statements prominent disclosures in the Company’sfinancial statements about the method of accounting used for stock-basedemployee compensation, and the effect of the method used when reportingfinancial results.  The Company isrequired to follow the prescribed disclosure format and if required hasprovided the additional

 

F-10

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disclosures required bySFAS No. 148 for its quarterly periods during the year endedSeptember 30, 2003.

 

In June 2002, the FASB issued SFAS No. 146, “*Accountingfor Exit or Disposal Activities.”* SFAS No. 146 addresses significant issues regarding therecognition, measurement and reporting of disposal activities, includingrestructuring activities that are currently covered in EITF Issue No. 94-3, *“LiabilityRecognition for Certain Employee Termination Activity.”* Theprovisions of SFAS No. 146 are effective for exit or disposal activitiesinitiated after December 31, 2002.  TheCompany did not participate in any applicable activities during the year endedSeptember 30, 2003.

 

In April 2002, the FASB issued SFAS No. 145, *“Rescissionof FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, andTechnical Corrections.”* This statement rescinds SFAS No. 4,Reporting Gains and Losses from Extinguishment of Debt, which required allgains and losses from extinguishment of debt to be aggregated and, if material,classified as an extraordinary item, net of income taxes.  As a result, the criteria in AccountingPrinciples Board (“APB”) No. 30 will now be used to classify those gains andlosses. Any gain or loss on the extinguishment of debt that was classified asan extraordinary item in prior periods presented that does not meet thecriteria in APB No. 30 for classification as an extraordinary item shall bereclassified. The provisions of this Statement are effective for fiscal yearsbeginning after January 1, 2003. The Company did not participate in anyapplicable activities during the year ended September 30, 2003.

 

In November 2002, the FASB issued FIN 45, *“Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others,”* an interpretation of FASBStatements No. 5, 57 and 107, and rescission of FASB InterpretationNo. 34, *“Disclosure of Indirect Guarantees of Indebtedness of Others.”*FIN45 elaborates on the disclosures to be made by the guarantor in its interim andannual financial statements about its obligations under certain guarantees thatit has issued. It also requires that a guarantor recognize, at the inception ofa guarantee, a liability for the fair value of the obligation undertaken inissuing the guarantee. The initial recognition and measurement provisions ofthis interpretation are applicable on a prospective basis to guarantees issuedor modified after December 31, 2002, while the provisions of thedisclosure requirements are effective for financial statements for interim orannual periods ending after December 15, 2002.  The Company did not participate in any applicable activitiesduring the year ended September 30, 2003.

 

The Company does not expect the adoption of any of theabove-mentioned standards to have a material impact on the Company’s futurefinancial condition or results of operations.

 

##### **Note2 -  Going Concern**

 

The Company’s current liabilities exceed its currentassets by $16,226,762 at September 30, 2003. The Company has incurred netlosses of $3,153,882, $4,084,210 and $6,394,810 in fiscal years 2003, 2002 and2001, respectively. These conditions raise substantial doubt as to the abilityof the Company to continue as a going concern. The Company is in ongoingnegotiations to raise general operating funds and funds for specific projects.Management will be required to, and expects to, raise additional capitalthrough the issuance of debt securities and offerings of equity securities tofund the Company’s operations, and will attempt to continue raising capitalresources until such time as the Company generates revenues sufficient tomaintain itself as aviable entity. However, there is no assurance that such financing will beobtained.

 

F-11

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The Company’s currentfocus is to exploit its only assets, which are agreements with the DRSTPconcerning oil and natural gas exploration in Sao Tome, an island nationlocated in the Gulf of Guinea off the coast of central West Africa, and in aJDZ between Sao Tome and the FRN.  TheCompany intends to explore forming relationships with other oil and gascompanies having technical and financial capabilities to assist the Company inleveraging its interests in Sao Tome and the JDZ. Should circumstances impedethe Company from perfecting its interests in the 2001 Agreement and the 2003Option Agreement with DRSTP, the Company would cease to exist. Should theCompany perfect its interests in the 2001 Agreement and the 2003 OptionAgreement, there is no certainty that a joint venture partner will beidentified to develop the Company’s interests. The Company currently has no other operations.

 

The Company has a total of $6.8 million availableunder debt agreements of $1,800,000 and $5,000,000, respectively, entered intoby and between the Company and Chrome (its majority shareholder). The Companyhas drawn the full amount of the $1,800,000, and $3,210,155 from the$5,000,000, for a total outstanding of $5,010,155 as of September 30,2003.  It is expected that the Companywill continue to borrow funds from Chrome in the future but there is noassurance that funds will be made available or under similar terms. In prioryears, the Company was able to raise funds in a timely manner, but there is noassurance that they will continue to do so in the future.  The accompanying financial statements havebeen prepared assuming that the Company will continue as a going concern. Ifthe Company is unable to continue as a going concern, the values realized fromthe Company’s assets may be less than the carrying amounts reported in itsfinancial statements. The accompanying financial statements do not include anyadjustments relating to the recoverability and classification of asset carryingamounts or the amount and classification of liabilities that might resultshould the Company be unable to continue as a going concern.

 

##### **Note3 -  Sao Tome Concession**

 

Concession fee payment

 

The 1997 Agreementrequired the Company to pay a $5,000,000 concession fee to the DRSTP.

 

In October 1999, the DRSTPclaimed that the Company had breached certain terms of the 1997 Agreement andannounced a termination of the Agreement. The Company immediately exercised its rights to have the matter settledvia international arbitration in accordance with the terms of the 1997Agreement.

 

Concession Fee Agreement

After the acquisition byChrome in February 2001, the Company initiated negotiations with the DRSTPconcurrent with the arbitration process. On May 21, 2001, the Company and the DRSTP reached a Memorandum of Agreement,(the “2001 Agreement”), witnessed by the FRN which replaced the 1997 Agreementand suspended the arbitration process. In July 2002, the 2001 Agreement was embodied in a Consent Award issuedby the Arbitrator as a result of the satisfaction of several conditions,including the ratification of a treaty between the FRN and the DRSTP relativeto the JDZ between the countries, and will remain in effect through September30, 2024.

 

The 2001 Agreement givesERHC rights to participate in exploration and production activities in both theEEZ of the DRSTP and an area between DRSTP and the FRN that the two nationshave designated as a JDZ.  Since the2001 Agreement replaces the 1997 Agreement, it requires the Company torelinquish its rights arising under the 1997 Agreement including any interestit had in STPetro.

 

F-12

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In April 2003, the Companyand DRSTP entered into an Option Agreement (the “2003 Option Agreement”) inwhich the Company relinquished certain financial interests in the JDZ inexchange for exploration rights in the JDZ. In April 2003, the Company additionally entered into an AdministrationAgreement with The Nigeria-Sao Tome and Principe Joint Development Authority(the “JDA”).  The AdministrationAgreement is the formal agreement bythe JDA that it will fully implement the ERHC preferential rights to acreageinterests in the JDZ as set forth in the 2003 Option Agreement and describescertain procedures regarding the exercising of these rights.  (See JDZ/EEZ Concession below).  The Company retains exploration rights inthe EEZ via the 2001 Agreement and has acquired exploration rights in the JDZvia the 2003 Option Agreement.

 

ERHC may exercise optionsto acquire fractional working interests in six (6) of the nine (9) blocks thathave been announced by the JDA will be available for bidding in the JDZ.  A block is an area designated as anindividual unit for exploration or production of crude oil and natural gas. These options must be exercised insequence and are subject to certain restrictions of choice.  Additionally, the amount of signature bonusthat is payable by ERHC to acquire these working interests is zero in four (4)blocks.  ERHC must pay its proportionateshare of any signature bonuses in two (2) blocks.  Specifically, the percentages and signature bonuses payable ineach option pick are as follows:

 

ERHC received thefollowing rights under the 2003 Option Agreement:

 
| **Option Pick** |   | **Working  Interest********Percentage** |   | **Signature Bonus Payable**               |   |
|-----------------|--------|-----------------------------------------|--------|-------------------------------------------|--------|
| ERHC Choice 1   |   | 15%                                     |   |                                      | $0     |   |
| ERHC Choice 2   |   | 15%                                     |   | 100% of 15% of the total  Signature Bonus |   |
| ERHC Choice 3   |   | 20%                                     |   |                                      | $0     |   |
| ERHC Choice 4   |   | 30%                                     |   |                                      | $0     |   |
| ERHC Choice 5   |   | 25%                                     |   |                                      | $0     |   |
| ERHC Choice 6   |   | 20%                                     |   | 100% of 20% of the total  Signature Bonus |   |

 

Pursuant to the 2003Option Agreement, ERHC agreed to relinquish the following rights previouslygranted under the 2001 Agreement:

 

•                       10% of the DRSTP share of all Profit Oil (asdefined) received from operations conducted in the JDZ.

•                       5% of the DRSTP share of all Signature Bonusespaid by contractors operating within the JDZ.

•                       A 1.5% overriding royalty interestin all the production of crude oil and natural gas in the JDZ.

•                       The option to acquire up to a 15%working interest in up to two blocks of the Company’s choice in the JDZ.

 

However, ERHC retained thefollowing rights under the 2001 Agreement to participate in exploration andproduction activities in the EEZ subject to certain restrictions:  (a) right to receive up to two blocks ofERHC’s choice, and (b) the option to acquire up to a 15% paid working interestin up to two blocks of ERHC’s choice in the EEZ.  The Company would be required to pay its proportionate share ofthe signature bonus and all other costs related to the exploration andexploitation of the blocks in the EEZ.

 

F-13

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Advances to DRSTP 

In May 2002, the Company paid $80,000 to thearbitrator on behalf of and with the agreement of DRSTP.

 

Settlement Agreement (Procura)

On February 10, 2001,Chrome entered into an Assignment and Settlement Agreement with ProcuraFinancial Consultants, C.C., a South African closely-held corporation(“Procura”), and STP Energy Corporation, a British Virgin Islands internationalbusiness company (“STP”). Procura and STP had asserted claims and rightsagainst the Company’s business opportunities and contractual relationships withthe DRSTP claiming, among other things, to be a joint venture partner of theCompany in such relationship and also an indirect participant in STPetro, S.A.,the national petroleum company of the DRSTP in which the Company owned a 49%equity interest. Under the Assignment and Settlement Agreement, Procura and STPassigned all such claims and rights to Chrome in exchange for $550,000 cashpaid by Chrome. To the extent that any such claims were not assigned or notassignable to Chrome, Procura and STP released and covenanted not to sue theCompany and the DRSTP. Subsequently, Chrome assigned the Procura and STP claimsand rights to the Company, subject to repayment of the cash consideration itpaid to acquire such claims and rights.

 

Investment in and advances to STPetro, S.A. 

In July 1998, the DRSTP established the Sao Tome andPrincipe National Petroleum Company, SA (“STPetro”) as the national petroleumcompany. The charter established the initial ownership of STPetro as 51% byDRSTP and 49% by ERHC in exchange for $51,000 and $49,000, respectively.Through June 30, 2001, the Company expended $1,076,557 on behalf of STPetro.  As a condition of the 2001 agreementreferred to above, the Company would no longer pursue collection of itsinvestment or the amounts expended on behalf of STPetro. Accordingly, duringJuly 2001 management elected to write off its investment in STPetro as well asthe amounts expended on behalf of STPetro resulting in $1,125,557 beingrecorded as write-offs and abandonments during the year ended September 30,2001.

 

##### **Note4 -  Restricted Cash**

 

At September 30, 2003 and 2002, the Company hasrestricted cash of $18,343 and $18,074, respectively, which is invested in aninterest-bearing certificate of deposit, pledged as collateral for aperformance bond covering certain oil and gas properties in Wichita Falls,Texas.  These oil and gas properties wereabandoned and written off during the year ended September 30, 1999 and theCompany is currently investigating the release of the performance bond.

 

##### **Note5 -   Notes payable**

 

Convertible Debt

During January 2001,Chrome entered into escrow agreements with a financial institution for thebenefit of the holders of $6,178,750 or 83.2% of the aggregate principal amountof the Company’s then outstanding convertible debt securities, which, togetherwith the convertible debt securities held by Chrome of $1,250,000 (excludingconvertible lines of credit currently held by Chrome), constitutes 100% of allof the Company’s outstanding convertible debt securities at that date.  These escrow agreements provided for theamendment of the outstanding convertible debt held by the parties to the escrowagreements so that (i) the maturity date was extended to January 31, 2003, (ii)interest will be payable by the Company on January 31, 2002 and at maturity,(iii) the conversion price is fixed at $0.20 per share, subject to standardanti-dilution adjustments, and (iv) all prior defaults by the Company arewaived.  Substantially all note holdersagreed to the amended terms.  Theoriginal notes were

 

F-14

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canceled and replaced withnew debt instruments.  Additionally,accrued interest of $782,372 as of January 31, 2001 relating to theseconvertible notes was converted into principal resulting in the total of thenew notes being $8,211,122, including $1,435,979 held by Chrome.  During the quarter ended March 31, 2003, theCompany received approval from convertible noteholders to extend the maturityof the principal due January 31, 2003 for one year to mature on January 31,2004.

 

Duringthe year ended September 30, 2003, the Company received notice of conversion ofconvertible debt of $2,722,499 and accrued interest of $84,509 into 14,035,085shares of common stock.  During the yearended September 30, 2002, the Company received notice of conversion of $870,412of convertible debt and accrued interest of $56,526, which were converted into4,634,688 shares of common stock.

 

As of September 30, 2003,if the outstanding convertible debt was converted using the conversion price of$0.20 per share, the Company would be required to issue 23,091,055 shares ofcommon stock based on an outstanding principal amount of $4,618,211, of which7,179,895 shares of common stock based on an outstanding principal amount of$1,435,979 would be issued to Chrome. Additionally, interest accrued and unpaid on these notes as of September30, 2003 is $248,130, of which $114,660 is owed to Chrome.  At the option of the noteholders, unpaidinterest can be converted into common stock of the Company.  As of September 30, 2003, if this accruedinterest were converted using the conversion price of $0.20 per share, theCompany would be required to issue 1,240,650 shares of common stock, of which573,300 would be issued to Chrome.

 

Lines of Credit (Chrome)

In connection with thePurchase Agreement between Chrome and TCHC, the TCHC $4.0 million 8% exchangeablepromissory note, referred to above, was acquired and assumed by Chrome.  Chrome and the Company subsequently agreedto amend and restate the promissory note into a $2.2 million note maturing inSeptember 2004 and Chrome has made available, a new working capital line ofcredit in the amount of $1.8 million maturing in September 2004 at termssimilar to the TCHC line of credit. These lines of credit are convertible at the lesser of $0.20 per shareor such price as shall be determined by the Board of Directors of ERHC based onan independent determination by a recognized investment banker.  In addition, as provided for by theDerivative Settlement on February 9, 2001, Chrome executed an additional $5.0million senior convertible promissory note (the “$5.0 Million Line of Credit”)bearing interest at a rate of 10% per annum, maturing in February 2003.  InFebruary 2003, the Company extended the maturity on the $5.0 million seniorconvertible promissory note with Chrome to February 15, 2004 under similar terms.  All principal and interest is due atmaturity.  The $5.0 Million Lineof Credit is convertible at the lesser of $0.20 per share or such price asshall be determined by the Board of Directors of ERHC based on an independentdetermination by a recognized investment banker.  As of September 30, 2003 the total outstanding under these debtinstruments was $7,613,799, of which $7,210,155 of the amount is convertibleinto shares of common stock of the Company. As of September 30, 2003, if thesedebt instruments were converted using the conversion price of $0.20 per share,the Company would be required to issue 36,050,775 shares of common stock toChrome.  Additionally, interest accruedand unpaid on these notes as of September 30, 2003 is $1,712,620, of which $1,614,988is subject to conversion.  As ofSeptember 30, 2003, if this accrued interest was converted using the conversionprice of $0.20 per share, the Company would be required to issue 8,074,940shares of common stock to Chrome.

 

The principal amounts ofall long-term debt instruments (convertible and non-convertible), of$11,828,336 (including $8,646,134 due to shareholders) is due in 2004.

 

F-15

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##### **Note6 -  Accrued** Salaries

 

At September 30, 2003 and 2002, the Company hasaccrued salaries of $723,035 owed to former officers of the Company. Theamounts and rights claimed by these officers are subject to lawsuits in whichthe Company is negotiating a final settlement. As of September 30, 2003 noagreement has been reached, but the Company expects that a negotiatedsettlement may result in the issuance of additional shares of common stock ofthe Company (See Note 10).

 

##### **Note7 -  Accrued Interest**

 

Accrued interest consists of the following:

 
|                                                      |   | **September 30,** |      |
|-----------------------------------------------------------|--------|-------------------|-----------|
|                                                      |   | **2003**          |      | **2002** |   |
|                                                      |   |              |      |   |   |
| Accrued interest – non-convertible  shareholder loan |   | $                 | 97,632    |   | $ | 65,340 |   |
| Accrued interest – convertible shareholder  loans    |   | 1,729,647         |      | 1,091,269 |   |
| Accrued interest – convertible debt                  |   | 133,470           |      | 295,353 |   |
|                                                      |   |              |      |   |   |
| Total                                                     |   | $                 | 1,960,749 |   | $ | 1,451,962 |   |

 

As referred to in Note 5,effective January 31, 2001, Chrome entered into escrow agreements with afinancial institution for the benefit of the holders of all of the Company’soutstanding convertible debt securities at that date. As a condition of theescrow agreements all accrued interest through January 31, 2001, totaling$782,372 was capitalized as part of the amended note agreements.

 

In January 2003, theCompany solicited the consent of non-affiliated convertible noteholders to payinterest due on January 31, 2003 with common stock of the Company having avalue equal to $0.20 per share.  Duringthe year ended September 30, 2003, the Company issued 2,197,311 shares ofcommon stock to these non-affiliated convertible noteholders and 852,853 sharesof common stock to Chrome for payment of accrued interest in the aggregateamounts of $439,462 and $170,571, respectively.

 

In January 2002, theCompany solicited the consent of non-affiliated convertible noteholders to payinterest due on January 31, 2002 with common stock of the Company having avalue equal to $0.20 per share. During the year ended September 30, 2002, theCompany issued 2,219,915 shares of common stock to these non-affiliatedconvertible noteholders and 852,853 shares of common stock to Chrome forpayment of accrued interest in the aggregate amounts of $443,983 and $170,571,respectively.

 

##### **Note8 -  Income Taxes**

 

At September 30, 2003 the Company has a consolidatednet operating loss carry-forward (“NOL”) of approximately $64.8 millionexpiring through 2022. The Company has a deferred tax asset of approximately$22 million resulting from this NOL. The loss carryforwards are subject to certain limitations under theInternal Revenue Code including Section 382 of the Tax Reform Act of 1986. ERHCbelieves that the utilization of these net operating loss carryforwards couldbe significantly limited due to the changes in ownership and control. Theultimate realization of the resulting net deferred tax asset is dependent upongenerating sufficient taxable income prior to expiration of the NOLs.  Due to the nature of these NOLs and sincerealization is not assured, management has established a valuation allowance

 

F-16

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relating to the deferred tax asset for both 2003 and2002 in an amount equal to the deferred tax asset.

 

##### **Note9 -  Shareholders’ Equity (Deficit)**

 

The Company has authorized 950,000,000 shares of$0.0001 par value common stock and 10,000,000 shares of $0.0001 par valuepreferred stock.

 

From time to time, in order to fund operatingactivities of the Company, common stock is issued for cash or in exchange forgoods or services.  Generally, offeringsof the Company’s common stock include warrants to acquire common stock of theCompany at fixed exercise prices. Occasionally, depending on the nature of the offering and restrictionsimposed on the shares being acquired, the exercise price of the warrant may bebelow the fair market value of the underlying common stock on the date ofissuance.

 

During the year endedSeptember 30, 2003, the Company issued 16,261,887 shares of common stock tonon-affiliated convertible noteholders and 852,853 shares of common stock toChrome for the conversion of debt and settlement of accrued interest (see Note7).  The details of these transactionsare summarized below.

 

During December 2002, theCompany issued 2,600,000 shares of common stock for which the Company hadpreviously received proceeds of $260,000 in August and September of 2002.

 

During January 2003, theCompany issued 937,500 shares of common stock valued at $75,000, based on afair market value of $0.08 per share, to a consultant for general legalservices in satisfaction of an accounts payable balance.

 

During January 2003, the Companyissued 286,200 shares of common stock valued at $25,758, based on a fair marketvalue of $0.09 per share, to a consultant for general legal services insatisfaction of an accounts payable balance.

 

During March 2003, theCompany issued 6,000,000 shares of common stock at $0.10 per share for totalnet proceeds of $585,000, after expenses of $15,000.  In connection with the sale of stock, 6,000,000 warrants wereissued with a weighted average exercise price of $0.20 per share expiring inFebruary and March 2007.

 

During March 2003, theCompany issued 3,789,343 shares of common stock to various creditors for theconversion of debt and payment of accrued interest in the aggregate amount of$757,868.  Also, during March 2003, theCompany issued 852,853 shares of common stock to Chrome for the settlement ofaccrued interest valued at $170,571.

 

During June 2003, theCompany issued 840,000 shares of common stock at $0.30 per share for total netproceeds of $243,750, after expenses of $6,250.  In connection with the sale of stock, 840,000 warrants wereissued with a weighted average exercise price of $0.50 per share expiring inJune 2007.

 

F-17

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During July 2003, theCompany issued 1,536,895 shares of common stock to one creditor for theconversion of debt and payment of accrued interest in the aggregate amount of$307,379.

 

During July 2003, theCompany issued 190,000 shares of common stock to one creditor for an accountspayable balance in the aggregate amount of $51,300.

 

During August 2003, theCompany issued 2,596,830 shares of common stock to one creditor for theconversion of debt and payment of accrued interest in the aggregate amount of$519,356.

 

During August 2003, theCompany issued 114,286 shares of common stock to one creditor for an accountspayable balance in the aggregate amount of $25,758.

 

During September 2003, theCompany entered into a stock subscription agreement to issue 1,000,000 sharesof common stock at $0.25 per share generating and receiving total proceeds of$250,000 as of September 30, 2003. However, the shares were not issued until November 2003.  The total proceeds received of $250,000 wasrecorded in additional paid-in capital at September 30, 2003 and the Companyhas excluded these shares in its calculation of weighted average number ofbasic and diluted common stock shares outstanding for the year ended September30, 2003.  In connection with the saleof stock, 1,000,000 warrants were issued with a weighted average exercise priceof $0.50 per warrant expiring in September 2007.

 

During the year endedSeptember 30, 2002, the Company issued 6,854,603 shares of common stock tonon-affiliated convertible noteholders and 852,853 shares of common stock toChrome for the conversion of debt and settlement of accrued interest (see Note7).

 

During December 2001, theCompany issued 2,500,000 shares of common stock valued at $250,000, based on afair market value of $0.10 per share, to a former officer in settlement of alawsuit relating to prior salaries not paid and other amounts. The Company hadpreviously accrued the entire amount owed under this claim as accrued officers’salaries.

 

During January 2002, theCompany issued 200,000 shares of common stock valued at $40,000, based on a fairmarket value of $0.20 per share, to a former director and consultant insettlement of a lawsuit relating to prior salary not paid and other amounts.The Company had previously accrued the entire amount owed under this claim asaccrued officers’ salaries.

 

During January 2002, theCompany issued 324,620 shares of common stock valued at $64,924, based on afair market value of $0.20 per share, to a previous convertible noteholder insettlement of interest and penalties related to debt originally converted infiscal year 1999.  The Company hadpreviously accrued the entire amount owed under this claim in accounts payableand accrued liabilities.

 

During March 2002, theCompany issued 750,000 shares of common stock valued at $127,500, based on afair value of $0.17 per share, to a consulting group to act as a financialadvisor and provide investment banking services to the Company.  The agreement has a term of one year fromDecember 2001 but expires immediately upon written notice of termination byeither party, without penalty to either party. This amount has been recorded within general and administrative expensesduring the year ended September 30, 2002.

 

During April 2002, theCompany issued to two creditors 1,467,875 shares of common stock valued at$257,873, based on previously recorded accounts payable balances.  The Company had previously accrued theentire amount owed under these claims in accounts payable and accruedliabilities.

 

F-18

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During April 2002, theCompany issued 2,000,000 shares of common stock valued at $400,000, based on afair market value of $0.20 per share, to a creditor in settlement of aclaim.  The Company had previouslyaccrued the entire amount owed under this claim in accounts payable and accruedliabilities.

 

During May 2002, theCompany entered into a stock subscription agreement to issue 3,600,000 sharesof common stock at $0.10 per share for a total value of $360,000.  The Company received such proceeds in May2002 but the shares were not issued until August, 2002.

 

During June 2002, theCompany issued 125,000 shares of common stock valued at $22,500, based on afair market value of $0.18 per share, to a former employee in settlement of alawsuit relating to prior salary not paid and other amounts. This amount hasbeen recorded within general and administrative expenses during the year endedSeptember 30, 2002.

 

During July 2002, theCompany entered into an agreement with a consulting group to provide governmentaffairs representation and lobbying services before the United States federalgovernment on behalf of the Company. The Company is required to pay an initialfee of 400,000 shares of common stock as well as to reimburse the consultinggroup for out of pocket expenses.  Inaddition, the Company is obligated to pay a minimum additional fee of 500,000shares of common stock contingent upon the sale of a minimum of 5% ownership toa non-affiliated entity engaged in oil and gas exploration activities. Theagreement has a term of one year from July 2002 but expires upon 30-day writtennotice of termination by either party, without penalty to either party.  During August 2002, the Company issued400,000 shares of common stock valued at $60,000, based on a fair value of$0.15 per share, to this consulting group. The Company recorded total expenses under this agreement of $65,000within general and administrative expenses during the year ended September 30,2002.

 

During July 2002, theCompany entered into a stock subscription agreement to issue 400,000 shares ofcommon stock at $0.10 per share for a total value of $40,000, which the Companyreceived in July.

 

During July 2002, theCompany issued 200,000 shares of common stock valued at $18,000, based on afair value of $0.09 per share, to a consultant for general legal servicesprovided to the Company.  This amounthas been recorded within general and administrative expenses during the yearended September 30, 2002.

 

During August 2002, theCompany issued 300,000 shares of common stock valued at $45,000 to a creditor,based on a previously recorded accounts payable balance.  The Company had previously accrued theentire amount owed under this claim in accounts payable and accruedliabilities.

 

During August 2002, theCompany issued 315,000 shares of common stock valued at $50,400, based on afair value of $0.11 per share, to a consultant for general legal services insatisfaction of an accounts payable balance.

 

During August 2002, theCompany issued 1,000,000 shares of common stock valued at $150,000, based on afair value of $0.15 per share, to a consulting group to advise the Company insecuring financing of up to $1,500,000 and in structuring a joint venturearrangement with a partner.  The Companyrecorded total expenses under this agreement of $168,516 within general andadministrative expenses during the year ended September 30, 2002.

 

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During August 2002, theCompany issued 1,000,000 shares of common stock valued at $150,000, based on afair value of $0.15 per share, to a consulting group to assist the Company insecuring an agreement with a strategic oil and gas industry partner to preparethe Company to participate in the award of licenses in Sao Tome.  The Company recorded total expenses underthis agreement of $153,800 within general and administrative expenses duringthe year ended September 30, 2002.

 

During August and September 2002, the Company enteredinto stock subscription agreements to issue 2,600,000 shares of common stock at$0.10 per share generating and receiving total proceeds of $260,000 as ofSeptember 30, 2002.  However, the shareswere not issued until December 2002. The total proceeds received of $260,000 was recorded in additional paidin capital at September 30, 2002 and the Company has excluded these shares inits calculation of weighted average number of basic and diluted common stockshares outstanding for the year ended September 30, 2002.

 

During the year endedSeptember 30, 2001, the Company issued 8,500,000 shares of common stock to anattorney to settle certain legal obligations of the plaintiffs involved in theDerivative Settlement referred to in Note 1. The fair value of these shares upon issuance was $425,000 based on a$0.05 per share price determined from quoted market prices of the Company’scommon stock on the date of issuance. This amount has been recorded within general and administrative expensesduring the year ended September 30, 2001.

 

During March 2001, theCompany issued 10,000,000 shares of common stock to an entity controlled by anofficer and 18,500,000 million shares of common stock to a consultant forservices rendered in connection with the February 15, 2001 change of controltransaction referred to in Note 1.  Thefair value of these shares upon issuance was $1,425,000 based on a $0.05 pershare price determined from quoted market prices of the Company’s common stockon the date of issuance.  This amounthas been recorded within general and administrative expenses during the yearended September 30, 2001.

 

## ***Warrants***

From time to time, inorder to fund operating activities of the Company, common stock and convertibledebt are issued for cash and common stock is issued in exchange for goods orservices.  Generally, offerings of theCompany’s common stock and convertible debt include warrants to acquire commonstock of the Company at fixed exercise prices. Occasionally, depending on the nature of the offerings (common stock ordebt) and restrictions imposed, the exercise price of the warrant may be belowthe fair market value of the underlying common stock on the date ofissuance.  As of September 30, 2003 and2002 the Company has 13,430,000 and 8,780,575, respectively, of warrantsoutstanding to acquire the Company’s common stock at exercise prices range from$0.20 to $3.17 per share.  During theyear ended September 30, 2003, 7,840,000 warrants were issued in connectionwith the sale of common stock having a weighted average exercise price of $0.27per warrant and 3,190,575 warrants expired unexercised having a weightedaverage exercise price of $1.99 per warrant. As of September 30, 2003 total cash proceeds to the Company would be$4,312,500 with an average exercise price of approximately $0.32 if all of theoutstanding warrants are exercised. These warrants expire on various dates throughout the period October 15,2003 to April 22, 2009.

 

##### **Note10 - Commitments and Contingencies**

 

Pending Litigation and Other Contingencies

During August 1999 and February 2001, the Companyunderwent changes of control.  Followingthe changes of control of the Company, new management and the new board of

 

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directors were required to expend significant Companyresources to settle claims and expenses arising out of the conduct of priormanagement. In addition, the Company faces additional unresolved claims anddisputes, including suits seeking recoveries in excess of $1.0 million broughtby former employees and officers for back salary and other amounts.  The Company is defending its positionvigorously, but there is no certainty that the Company will prevail.  The Company is proceeding in the hope that asettlement can be reached.  As ofSeptember 30, 2003 and 2002, officers’ salaries of $723,035 have been accruedand management believes this amount will be sufficient to settle any amountsthat may be due.  The Company is subjectto other legal proceedings which have arisen in the ordinary course of businessand have not been fully adjudicated.  Although there can be no assurance as to the ultimate dispositionof these matters and the proceedings disclosed above, in the opinion ofmanagement, based upon information available at this time, the cost of defenseor settlement of these actions, individually or in the aggregate, will not havea materially adverse effect on the financial position, results of operations,or cash flows of the Company.

 

Additionally, from time to time, certain potentialobligations are presented to the Company that may have originated duringperiods not under existing management’s control.  These alleged obligations are generally for goods and servicesfor which the Company has no record. The Company actively investigates these claims as they arise.  All known material obligations of theCompany have been recorded and reflected in the financial statements, but thereis no certainty that all material claims have been presented to the Company norhave the benefits of available statutes of limitations been considered, should theyapply.

 

Commitments

The Company entered into a management servicesagreement with Chrome Oil Services, Ltd. (“COS”) in February 2001.  Pursuant to that agreement, COS provides theCompany with management and business development services in addition to providingspecified services in the areas of refinery maintenance, engineering design,and upstream oil industry services. COS provides these services to the Companyfor a management fee of $68,000 per month. Messrs. Mba, Echesi, and Ntephe are employees of COS that providesservices to the Company and these persons receive salaries and overhead expensereimbursement from COS, not from the Company. Expenses not covered under themanagement services agreement are paid by the Company which includes primarilygeneral office supplies. This agreement has no expiration date but does expire30 days following the delivery of a written notice of termination by eitherparty. During each ofthe years ended September 30, 2003 and 2002 total expenses incurred under thismanagement services agreement were $816,000. The Company’s executive officers incurred significant direct expense fortravel and related expenses of approximately $434,000 and $407,000 during theyears ended September 30, 2003 and 2002, respectively, which were reimbursed bythe Company to COS or directly to the officers.  At September 30, 2003 and 2002 accounts payable and other accruedliabilities included approximately $8,690 and $52,000, respectively, owed to oneofficer for direct travel expenses.

 

The Company’s Houston, Texas office is leased by COS,pursuant to the management services agreement, and is provided for the Companypursuant to such agreement.  This leasefor approximately 1,900 sq. ft. of office space expires February 2006.

 

The Company has not entered into any employmentagreements directly with its officers and directors.  To date, members of the board of directors have not received anycompensation, but have been reimbursed for expenses incurred in the performanceof their duties.  In the future, theCompany may decide to pay its directors.

 

The Company currently has three officers and supportstaff that provide services to the

 

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Company pursuant to the management services agreementwith COS.

 

In October 2001, theCompany entered into an agreement with a consulting group to represent ERHC incommercial negotiations with potential oil and gas industry partners toparticipate in the award of licenses in Sao Tome and to assist with otherfinancial related services as deemed necessary.  The Company is required to pay an initial fee of $150,000 for theperiod October 2001 through January 31, 2002 and $30,000 per month thereafteras well as to reimburse the consulting group for out of pocket expenses.   In addition, the Company is obligated topay a minimum additional fee of $500,000 contingent upon the successful firstclosing of a Transaction.  During the yearended September 30, 2002, total expenses incurred under this consulting agreementwere $356,058.  The agreement has a termof one year but expires immediately upon written notice of termination byeither party, without penalty to either party. In July, 2002 the Companyentered into a revised agreement with this consulting group which reduces themonthly fee to $12,500 beginning June 1, 2002, provides for the issuance of300,000 shares of common stock in settlement of $45,000 in accounts payableoutstanding at June 30, 2002 and allows the Company the option of settling the$500,000 minimum additional fee above in cash or 2,500,000 shares of commonstock.  The Company is also obligated topay in cash or in common stock a success fee of 2% - 4%, as defined, of thetotal cash proceeds received from a partner should the sale of new equityoccur.  An additional success fee equalto 1,500,000 shares of common stock is also payable upon the execution of atransaction, as defined.

 

In May 2002, the Companyentered into an agreement with a consulting group to advise the Company insecuring financing of up to $1,500,000 and in structuring a joint venturearrangement with a partner. The Company is required to pay an initial fee of1,000,000 shares of common stock as well as to reimburse the consultant for outof pocket expenses. In addition, the Company is obligated to pay a 2.5% fee ofthe amount of capital raised and an additional fee of 2,000,000 shares ofcommon stock contingent upon the successful first closing of a joint venturetransaction. During the year ended September 30, 2003, this consulting groupassisted the Company in selling 7,840,000 shares of common stock at pricesranging from $0.10 to $0.30 per share resulting in net proceeds of$1,072,500.  During the year endedSeptember 30, 2002, this consulting group assisted the Company in selling6,600,000 shares of common stock at $0.10 per share resulting in net proceedsof $643,500. During the year ended September 30, 2003, total expenses incurredunder this consulting agreement were $27,500, all of which was charged againstadditional paid-in capital as an offset to proceeds received in theoffering.  During the year endedSeptember 30, 2002, total expenses incurred under this consulting agreementwere $168,516, of which $16,500 was charged against additional paid in capitalas an offset to proceeds received in the offering. The agreement has anindefinite term extending through the successful first closing of a jointventure transaction but expiring upon seven-day written notice of terminationby either party, without penalty to either party.

 

In June 2002, the Companyentered into an agreement with a consultant to assist the Company in securingan agreement with a strategic oil and gas industry partner to prepare theCompany for participation in the award of licenses in Sao Tome.  The Company is required to pay an initialfee of 1,000,000 shares of common stock as well as to reimburse the consultantfor out of pocket expenses.  Inaddition, the Company is obligated to pay a 2% fee of the cash proceedsreceived by the Company from a partner, a 1% fee of future carried costs paidby the partner and 3,000,000 shares of common stock contingent upon thesuccessful first closing of a transaction. During the years ended September 30,2003 and 2002, total expenses incurred under this consulting agreement were$2,600 and $153,800, respectively. The agreement, which had an initial term ofone year, has been extended until March 31, 2004 but expires immediately uponwritten notice of termination by either party, 

 

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without penalty to eitherparty.

 

During May 2003, the Company entered into an agreementwith a consultant to provide general consulting services to the Companyincluding transaction support, evaluation of geological and seismic data,preparation of valuations and participation in meetings with potential partnersor purchasers of the Company in connection with its oil and gas interests inthe JDZ and the EEZ.  The terms of theagreement provide for monthly payments of $10,000 for twelve months beginningSeptember 2003.  In addition, theagreement provides for a success fee of $50,000 should the Company close atransaction for the sale of its interest in the JDZ or the EEZ.

 

##### **Note11 - Subsequent Events**

 

During September 2003, theCompany received proceeds of $250,000 from a stock subscription agreement for1,000,000 shares of common stock (see Note 9). These shares were physically issued during November 2003.

 

In October 2003, theCompany issued 5,240,895 shares of common stock to one creditor for theconversion of debt and payment of accrued interest in the aggregate amount of$1,048,179.

 

In October 2003, theCompany issued 187,500 shares of common stock to one creditor for an accountspayable balance in the aggregate amount of $73,125

 

During October 2003, theCompany received proceeds of $250,000 from stock subscription agreements for1,000,000 shares of common stock including 1,000,000 warrants with an exerciseprice of $0.50 per share expiring in October 2007.  These shares have not been issued.

 

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