U.S.
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 
 FORM
10-K/A
 
  x
              Annual
      Report under Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
fiscal year ended September 30, 2009
 
 OR
 
  ̈
              Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
transition period ended: __________________
 
 Commission
file number: 000-17325
 
 
 (Exact
name of registrant as specified in its charter)
 
 Colorado
              
              88-0218499(State
      or Other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
      Employer Identification No.)5444
      Westheimer Road, Suite 1440, Houston, Texas
              
              77056(Address
      of Principal Executive Office)
              
              (Zip
      Code)
 
 713-626-4700
 (Registrant’s
Telephone Number, Including Area Code)
 
 Securities
registered pursuant to Section 12(b) of the Exchange
Act:  None
 
 Securities
registered pursuant to Section 12(g) of the Exchange Act: common
stock
 
 Check if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.   Yes  ̈No x
 
 Check if
the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Act.  Yes  ̈No x
 
 Check if
the registrant:  (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
xNo  ̈
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   ̈
 
 Check if
the registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer.
 Large
Accelerated Filer  ̈Accelerated Filer xNon-Accelerated Filer  ̈
 
 Check if
the registrant is a shell company.  Yes  ̈No x
 
 The
aggregate market value of the voting stock held by non-affiliates of the
registrant on March 31, 2009 was $128,313,100.
 
 On
November 30, 2009, the registrant had 722,688,569 shares of common stock issued
and outstanding.
 
 DOCUMENTS INCORPORATED BY
REFERENCE
 Portions
of the Definitive Proxy Statement to be delivered to shareholders in connection
with the Annual Meeting of Shareholders to be held in 2010 are incorporated by
reference into Part III.
  
 
  EXPLANATORY
NOTE
  We
filed our Annual Report on Form 10-K for the year ended September 30, 2009 on
December 14, 2009 (the “Original Report”). We are filing Amendment No. 1 on Form
10-K/A (“Amendment 1”) solely to disclose Part III Information which was
incorporated by reference to the Original Report.   No other
changes to the Original Report are included in this Amendment other than to
disclose the Part III Information.
  We have made no attempt in this Amendment to modify
or update the disclosures presented in the Original Report other than as noted
in the previous paragraph. Also, this Amendment does not reflect events
occurring after the filing of the Original Report. Accordingly, this Amendment
should be read in conjunction with the Original Report and our other filings
with the SEC subsequent to the filing of the Original
Report.
 
 
 TABLEOF CONTENTS
 
 
 PART
      I
              
              PAGEItem
      1.
              
              Business
              
              5Item
      1A.
              
              Risk
    Factors
              
              13Item
      1B.
              
              Unresolved Staff
      Comments
              
              17Item
      2.
              
              Properties
              
              18Item
      3.
              
              Legal
      Proceedings
              
              19Item
      4.
              
              Submission of Matters to a Vote of
      Security Holders
              
              20PART
      IIItem
      5.
              
              Market for
      Registrant’s Common Equity, Related Shareholder Matters, and Issuer
      Purchases ofEquity
      Securities
              
              21Item
      6.
              
              Selected Financial
      Data
              
              22Item
      7.
              
              Management’s Discussion and Analysis
      of Financial Condition and Plan of Operations
              
              23Item
      7A.
              
              Quantitative and Qualitative
      Disclosures about Market Risk
              
              30Item
      8.
              
              Financial Statements and
      Supplementary Data
              
              31Item
      9.
              
              Changes in and Disagreements with
      Accountants on Accounting and Financial
    Disclosures
              
              56Item
      9A.
              
              Controls and
      Procedures
              
              56Item
      9B.
              
              Other
      Information
              
              56PART
      IIIItem
      10.
              
              Directors and Executive Officers of
      the Registrant
              
              57Item
      11.
              
              Executive
      Compensation
              
              60Item
      12.
              
              Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters
              
              70Item
      13.
              
              Certain Relationships and Related
      Transactions
              
              71Item
      14.
              
              Principal Accounting Fees and
      Services
              
              72PART
      IVItem
      15.
              
              Exhibits and Financial Statement
      Schedules
              
              74Signatures
              
              75
  1
 Table of Contents
  Forward-Looking
Statements
 
 ERHC
Energy Inc. (the “Company”) or its representatives may, from time to time, make
or incorporate by reference certain written or oral statements  which
include, but are not limited to, information concerning the Company’s possible
or assumed future business activities and results of operations and statements
about the following subjects:
 
 ·
              business
      strategy;
 
 ·
              growth
      opportunities;
 
 ·
              future
      development of concessions, exploitation of assets and other business
      operations;
 
 ·
              future
      market conditions and the effect of such conditions on the Company’s
      future activities or results of
operations;
 
 ·
              future
      uses of and requirements for financial
  resources;
 
 ·
              interest
      rate and foreign exchange risk;
 
 ·
              future
      contractual obligations;
 
 ·
              outcomes
      of legal proceedings including, without limitation, the ongoing
      investigations of the Company;
 
 ·
              future
      operations outside the United
States;
 
 ·
              competitive
      position;
 
 ·
              expected
      financial position;
 
 ·
              future
      cash flows;
 
 ·
              future
      liquidity and sufficiency of capital
resources;
 
 ·
              future
      dividends;
 
 ·
              financing
      plans;
 
 ·
              tax
      planning;
 
 ·
              budgets
      for capital and other expenditures;
 
 ·
              plans
      and objectives of management;
 
 ·
              compliance
      with applicable laws; and
 
 ·
              adequacy
      of insurance or
indemnification.
  2
 Table of Contents
  These
types of statements and other forward-looking statements inherently are subject
to a variety of assumptions, risks and uncertainties that could cause actual
results, levels of activity, performance or achievements to differ materially
from those expected, projected or expressed in forward-looking
statements.  These risks and uncertainties include, among others, the
following:
 
 ·
              general
      economic and business conditions;
 
 ·
              worldwide
      demand for oil and natural gas;
 
 ·
              changes
      in foreign and domestic oil and gas exploration, development and
      production activity;
 
 ·
              oil
      and natural gas price fluctuations and related market
      expectations;
 
 ·
              termination,
      renegotiation or modification of existing
  contracts;
 
 ·
              the
      ability of the Organization of Petroleum Exporting Countries, commonly
      called OPEC, to set and maintain production levels and pricing, and the
      level of production in non-OPEC
countries;
 
 ·
              policies
      of the various governments regarding exploration and development of oil
      and gas reserves;
 
 ·
              advances
      in exploration and development
technology;
 
 ·
              the
      political environment of oil-producing
regions;
 
 ·
              political
      instability in the Democratic Republic of Sao Tome and Principe and the
      Federal Republic of Nigeria;
 
 casualty
losses;
 
 ·
              competition;
 
 ·
              changes
      in foreign, political, social and economic
  conditions;
 
 ·
              risks
      of international operations, compliance with foreign laws and taxation
      policies and expropriation or nationalization of equipment and
      assets;
 
 ·
              risks
      of potential contractual
liabilities;
 
 ·
              foreign
      exchange and currency fluctuations and regulations, and the inability to
      repatriate income or capital;
 
 ·
              risks
      of war, military operations, other armed hostilities, terrorist acts and
      embargoes;
 
 ·
              regulatory
      initiatives and compliance with governmental
  regulations;
 
 ·
              compliance
      with environmental laws and
regulations;
 
 ·
              compliance
      with tax laws and regulations;
 
 ·
              customer
      preferences;
 
 ·
              effects
      of litigation and governmental
proceedings;
  3
 Table of Contents
  ·
              cost,
      availability and adequacy of
insurance;
 
 ·
              adequacy
      of the Company’s sources of
liquidity;
 
 ·
              labor
      conditions and the availability of qualified personnel;
  and
 
 ·
              various
      other matters, many of which are beyond the Company’s
    control.
 
 The risks
and uncertainties included here are not exhaustive.  Other sections of
this report and the Company’s other filings with the U.S. Securities and
Exchange Commission (“SEC”) include additional factors that could adversely
affect the Company’s business, results of operations and financial
performance.  Given these risks and uncertainties, investors should
not place undue reliance on our statements concerning future
intent.   Our statements included in this report speak only as of
the date of this report.  The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any of
our statements to reflect any change in its expectations with regard to the
statement or any change in events, conditions or circumstances on which any
forward-looking statement is based.
  4
 Table of Contents
  PART
I
 
 Item1 – Business
 
 Overview
 
 ERHC
Energy Inc., a Colorado corporation, (“ERHC” or the “Company”) was incorporated
in 1986 and was engaged in a variety of businesses until 1996, when it began its
current operations.  The Company’s goal is to maximize its value
through exploration and exploitation of oil and gas reserves in the Gulf of
Guinea offshore of central West Africa including its rights to working interests
in exploration acreage in the Joint Development Zone (“JDZ”) between the
Democratic Republic of Sao Tome and Principe (“DRSTP or “Tome”) and the Federal
Republic of Nigeria (“FRN or “Nigeria”) and in the exclusive territorial waters
of Sao Tome (the “Exclusive Economic Zone” or “EEZ”). ERHC does not directly
carry out the exploration and production operations in the JDZ  but is
relying on reputable technical operators with whom the Company has entered into
partnership relationships, such as Addax Petroleum Inc. and Sinopec Corporation
to carry out those operations. The Company has formed relationships with these
upstream oil and gas companies to assist the Company in exploiting its assets in
the JDZ. The Company currently has no other operations but is exploring
opportunities in other areas of the Oil and Gas industry, including supply and
trading.
 
 Our
business strategy is to farm out our rights to working interests in the JDZ and
EEZ to entities which we believe are established, well capitalized Oil and
Gas  operators for upfront cash payments and negotiate contracts with
them to carry our share of the capital costs.  This has been done
successfully on Blocks 2, 3 and 4 and resulted in cash proceeds of $45.9
million.  We will continue this approach for JDZ Blocks 5, 6 and 9 as
well as the EEZ. We are also pursuing other business development activities in
the broad petroleum and related industries.
 
 General
Development of the Business
 
 In April
2003, the Company and the DRSTP entered into an Option Agreement (the “2003
Option Agreement”) in which the Company relinquished certain financial interests
in the JDZ in exchange for exploration rights in the JDZ.  The Company
additionally entered into an Administration Agreement with the Nigeria-Sao Tome
and Principe Joint Development Authority (“JDA”).  The Administration
Agreement is the formal agreement by the JDA that it will fully implement ERHC’s
preferential rights to working interests in the JDZ acreage as set forth in the
2003 Option Agreement and describes certain procedures regarding the exercising
of these rights.  However, ERHC retained the following rights to
participate in exploration and production activities in the EEZ subject to
certain restrictions:  (a) the right to receive up to two blocks of
ERHC’s choice and (b) the option to acquire up to a 15% paid working interest in
up to two blocks of ERHC’s choice in the EEZ.  The Company would be
responsible for its proportionate share of exploration and exploitation costs in
the EEZ blocks.
 
 This
exercise of ERHC’s rights was subject to the condition that if no license is
awarded or a license is awarded and subsequently withdrawn by the JDA prior to
the commencement of operations, ERHC shall be entitled to receive its working
interest in that block in a future license awarded for that block.
 
 On April
28, 2005, ERHC and its then consortium partner Noble Energy International, Ltd.
(“Noble”) entered into a Memorandum of Understanding with Godsonic Oil Company
Limited (“Godsonic”), an independent bidder for interest in Block 4. The
Memorandum of Understanding stated that if ERHC and Noble (“ERHC/Noble”)
received less than a 26% bid-interest award in Block 4 in the JDZ, Godsonic
would transfer its entire bid interest award in Block 4 to ERHC/Noble; on the
other hand, if ERHC/Noble received more than a 26% bid-interest award in Block 4
from the JDA, ERHC/Noble would transfer the excess over 26% to Godsonic. In June
2005, the JDA awarded ERHC and its then consortium partner Noble a 35% bid
interest in Block 4 of the JDZ, in addition to the option interest of 25% which
ERHC had exercised in the Block.  In October 2005, Noble withdrew from
participation in Block 4 and Addax Petroleum (Nigeria Offshore 2) Limited
(“Addax”) replaced Noble as ERHC’s consortium partner. By a Letter Agreement
dated October 24, 2005 (the “Letter Agreement”), ERHC and Addax undertook to
transfer a 9% interest of the 35% bid interest to Godsonic subject to Godsonic
meeting financial and other conditions.
 
 ERHC and
Addax entered into a Participation Agreement dated November 17, 2005 (the
“Participation Agreement”) whereby ERHC undertook to assign a 42.3% interest
(the “Assigned Interest”) in Block 4 to Addax and retained an interest of
17.7%   (the “Retained Interest”) .  The Participation
Agreement stated Addax’s cash payment obligations to ERHC would be $18 million,
which was paid in February and March 2006.  Pursuant to the
Participation Agreement between ERHC and Addax, as amended, Addax will serve as
operator and pay all of ERHC’s future costs in respect of all petroleum
operations in Block 4 subject to reimbursement upon production. Addax is
entitled to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s
allocation of profit until Addax recovers all costs advanced on behalf of
ERHC.
 
 In an
amendment to the Participation Agreement dated February 23, 2006, Addax’s
amended interest in Block 4 was changed to 33.3% while ERHC’s retained interest
remained at 17.7%. On March 24, 2006, the Participation Agreement was further
amended to change ERHC’s interest to 26.7%.
  5
 Table of Contents
  On March
15, 2006, Godsonic and ERHC (on behalf of the ERHC/Addax consortium) entered
into an agreement wherein ERHC agreed to assign 9% of its interest in Block 4 to
Godsonic subject to certain stipulated financial and other conditions to be
fulfilled by Godsonic. On April 11, 2006, ERHC and Addax entered by an
amendment  to the Participation Agreement, agreed that Addax would
acquire 7.2% of the 9% interest in the event that Godsonic failed to meet agreed
upon conditions and foreclosed from the claims to the 9% interest. This would
give Addax a total of 40.5% interest and ERHC 19% in Block 4.
 
 In July
2007, Godsonic failed to meet the stipulated conditions and ERHC reclaimed the
9% interest. Addax claimed entitlement under the existing agreements to 7.2% out
of the recovered 9%, without payment of any further consideration to
ERHC.  In July 2008, the London Court of International Arbitration
(LCIA) confirmed that under the Participation Agreement between the parties no
further consideration was payable by Addax Petroleum to ERHC for Addax
Petroleum’s 7.2% share of the 9%.
 
 In
February 2006, ERHC sold 15% of its 25% participating interest in Block 3 of the
JDZ to Addax Petroleum Resources Nigeria Limited (“Addax Sub”) for $7.5 million
which was paid in the second quarter of fiscal 2006. Under the participation
agreement between ERHC and Addax Sub, Addax Sub agreed to “carry” all of ERHC’s
future costs in respect of petroleum operations in Block 3. Upon production
Addax Sub is entitled to 100% of ERHC’s allocation of cost plus up to 50% of
ERHC’s allocation of profit until Addax Sub recovers 100% of the costs advanced
on behalf of ERHC.
 
 In March
2006, ERHC sold a 28.67% participating interest in Block 2 of the JDZ to Sinopec
International Petroleum Exploration and Production Corporation Nigeria
(“Sinopec”), and a 14.33% participating interest in Block 2 of the JDZ to Addax
Energy Nigeria Limited (“Addax Ltd.”) leaving a 22% participating interest in
Block 2 to the Company. In exchange, Sinopec paid ERHC $13.6 million and Addax
Ltd. paid ERHC $6.8 million in the second quarter of fiscal 2006. Under the
participation agreement among ERHC, Sinopec and Addax Ltd., Sinopec will serve
as operator, and Sinopec and Addax Ltd. will pay all of ERHC’s future costs in
respect of petroleum operations in Block 2. Sinopec and Addax Ltd. are entitled
to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s allocation of
profit until they recover 100% of the cost they advanced on behalf of ERHC and
Sinopec is to receive 6% interest on its future costs, up to $35 million, but
only to the extent that those interest costs are recoupable out of
production.
 
 Related
to the sale of the participating interest in Block 2 to Sinopec, ERHC agreed to
pay a $3 million cash success fee ($1.5 million was paid in March 2006 and the
remaining $1.5 million was paid in March 2007) to Feltang International Inc., a
British Virgin Island company (“Feltang”) that was responsible for obtaining
Sinopec’s participation in Block 2. ERHC will issue to Feltang 5,250,000 shares
of common stock and warrants to purchase 6,500,000 shares at a fixed exercise
price of $0.355 per share. The common stock was valued at $4,803,750 based on
the quoted market value of the common stock on the date Sinopec signed the
production sharing agreement.
 
 On June
24, 2009, Addax Petroleum Corporation announced that it has entered into a
definitive agreement with Sinopec pursuant to which Sinopec had agreed, subject
to the terms of the Support Agreement, to make an offer to acquire all of the
outstanding common shares of Addax Petroleum.  On August 24, 2009, the
sale of Addax Petroleum Corporation to Sinopec was finalized.
 
 Current
Business Operations
 
 ERHC’s
operations are currently focused in the Gulf of Guinea, off the coast of central
West Africa. ERHC believes this region has the possibility of significant oil
reserves. ERHC has worked to realize the value of the assets it has acquired in
this region.  The Company’s current holdings include those below,
details of which can be found at the link: http://www.erhc.com
 
 
 
 JDZ
– ERHC has interests in six of the nine Blocks in the JDZ, a 34,548
square kilometer area approximately 200 kilometers off the coastline of Nigeria
and Săo Tomé & Principe that is adjacent to several large petroleum
discovery
areas.
  6
 Table of Contents
  EEZ –The government of Săo
Tomé & Principe has awarded ERHC rights to participate in exploration and
production activities in the EEZ, which encompasses an area of approximately
160,000 square kilometers. These rights were granted in a May 21, 2001
Memorandum of Agreement made between the DRSTP and the Company. The Company’s
rights in the EEZ expire on October 1, 2024 or, if the company has a producing
working interest in any Block(s) at October 1, 2024, the Company’s rights extend
in such Block(s), as long as the Block(s) remains in production.
 
 Operations
in the JDZ
 
 ERHC has
interests in six of the nine Blocks in the JDZ, as follow
 
 ·
              JDZ
      Block 2:  22.0% Working interest
  percentage
 
 ·
              JDZ
      Block 3:  10.0% Working interest
  percentage
 
 ·
              JDZ
      Block 4:  19.5% Working interest
  percentage
 
 ·
              JDZ
      Block 5:  15.0% Working interest
  percentage
 
 ·
              JDZ
      Block 6:  15.0% Working interest
  percentage
 
 ·
              JDZ
      Block 9:  20.0% Working interest
  percentage
 
 The
working interest represents ERHC’s share of all the hydrocarbon production from
the blocks and obligates ERHC to pay a corresponding percentage of the costs of
drilling, production and operating the blocks. These costs in blocks 2, 3 and 4
are currently being carried by the operators until production, whereupon the
operators will recover their costs from the production revenues.
 
 In early
2008, Addax Petroleum, an experienced exploration and production company that
has participation agreements with ERHC in JDZ Blocks 2, 3 and 4, publicly
disclosed seismic images and maps showcasing the prospectivity of its JDZ
interests.  This seismic was compiled by Geco-Prakla (now WesternGeco)
in 1999 when WesternGeco shot a 2D seismic survey of approximately 5,900km
covering the major part of the JDZ. Interpretation carried out by WesternGeco
has led to the identification of 56 prospective structures within Blocks 1 to 9
in the JDZ, of which 17 were defined as prospects and 39 as leads. WesternGeco
used reservoir parameters similar to those known from nearby fields in Nigeria
and Equatorial Guinea. Combined recoverable reserves potential of the 17
prospects was estimated by WesternGeco. The scope of the WesternGeco report was
to interpret and map seismic data, highlight prospectivity, and calculate
volumetrics.
 
 The
estimate of “recoverable reserves potential” based on WesternGeco’s report,
which interpreted and mapped seismic data, highlighted prospectivity and
calculated volumetrics, was not based on any attempt to comply with the SEC
definition of reserves and, accordingly the estimate of recoverable reserves
potential is not presented. ERHC Energy has access to the data compiled by
WesternGeco under the terms of a data use license with WesternGeco, and even
when properly interpreted, seismic data and visualization techniques are not
conclusive in determining if hydrocarbons are present in economically producible
amounts.
 
 Operations
in JDZ Block 4
 
 ERHC’s
consortium partner Addax Petroleum is the operator of JDZ Block 4. WesternGeco’s
interpretation of seismic data indicates significant recoverable reserves in JDZ
Block 4; however, even when properly interpreted, seismic data and visualization
techniques are not conclusive in determining if hydrocarbons are present in
economically producible amounts. On August 26, 2009, the Company announced that
exploratory drilling was underway in Block 4 and that Addax Petroleum
Corporation had spudded  the Kina Prospect. The drilling campaign is
being conducted by Addax using Transocean’s Deepwater Pathfinder, a fifth
generation dynamically positioned deepwater drilling rig capable of drilling in
water depths up to 3,048 meters.
 
 On
November 9, 2009 the Company announced commencement of exploratory drilling at
the Malanza 1X well in Block 4. It is the second well drilled in JDZ Block 4 in
the comprehensive drilling campaign that began in August.
  7
 Table of Contents
  Operations
in JDZ Block 3
 
 Anadarko
Petroleum was originally the operator of JDZ Block 3. In 2009, Addax acquired
Anadarko’s stake in JDZ Block 3 from Anadarko and became the operator of the
Block.
 
 Following
the initial drilling operation in Block 4 of the Kina Prospect, Addax moved the
Deepwater Pathfinder to the Lemba 1X well location in JDZ Block 3 in which ERHC
has a 10 percent interest. Exploratory drilling at Lemba 1X commenced October
2009 and was completed in early November.  A comprehensive analysis
that incorporates the drilling results into relevant geologic and fluid models
is being carried out. The information from these wells is helping the
exploration team understand the geology and hydrocarbon potential of the various
prospects being drilled and provides valuable insight into the prospectively of
the entire area.
 
 Operations
in JDZ Block 2
  On August
19, 2009, ERHC announced that its technical partner, Sinopec Corp., was taking
possession of the SEDCO 702 semi-submersible drilling rig to drill the Bomu-1
Prospect in Block 2. The Bomu-1 prospect is one of several prospects in JDZ
Block 2 identified from 3-D seismic analysis and interpretation
 
 The
Bomu-1 was spudded by Sinopec at the end of August and in October 2009 the
Company announced that Sinopec had completed exploratory drilling at the Bomu-1
well location. A comprehensive analysis that incorporates the drilling results
into relevant geologic and fluid models is being carried out. The information
from these wells is helping the exploration team understand the geology and
hydrocarbon potential of the various prospects being drilled and provides
valuable insight into the prospectivity of the entire area.
 
 General
Information on Current Operations in Blocks 2, 3 and 4
 
 Exploration
in the JDZ is currently being driven by our technical partners, Addax and
Sinopec.  In addition, ERHC has interests in more JDZ Blocks than any other
company.  Management believes that the start of exploratory drilling in the
Blocks is the third step in a five step process towards realizing the Company’s
assets in those Blocks.
 Management
understands that each step in the  process takes considerable
expertise and any resulting production, if in commercial quantities, may
considerably enhance shareholder value. No guarantees can be given at this stage
that there will be production in commercial quantities.
 
 Management
also understands that analyzing drilling results and incorporating them into the
relevant geologic and fluid models takes time. Further, moving from field
appraisal and development onto production takes time. As has been the practice
in the JDZ, accurate, material information on the progress in the JDZ Blocks
will emanate from the operators or the JDA.  ERHC will publish such
information in a timely manner in accordance with our contractual and regulatory
obligations.
  8
 Table of Contents
  Background
of the JDZ
 
 In the
spring of 2001, the governments of Săo Tomé & Principe and Nigeria reached
an agreement over a long-standing maritime border dispute. Under the terms of
the agreement, the two established the JDZ to govern commercial
activities within the disputed boundaries. The JDZ is administered by the
JDA which oversees all future exploration and development activities in
the JDZ. The remaining claimed territorial waters of Săo Tomé & Principe are
known as the EEZ. Revenues derived from the JDZ will be shared 60/40 between the
governments of Nigeria and Săo Tomé & Principe, respectively.
 
 Background
of the EEZ
 
 The
government of Săo Tomé & Principe has awarded ERHC rights to participate in
exploration and production activities in Săo Tomé & Principe’s EEZ.
ERHC’s rights
include the following:
 
 ·
              The
      right to receive up to two blocks of ERHC’s choice;
  and
 
 ·
              The
      option to acquire up to a 15 percent paid working interest in another two
      blocks of ERHC’s choice.
 
 ERHC
would be responsible for its proportionate share of exploration and exploitation
costs in the EEZ blocks.
 
 The EEZ
describes  waters of Săo Tomé that encompasses an area of
approximately 160,000 square km. It is measured from claimed archipelagic
baselines — territorial sea: 12 nautical miles, exclusive economic zone: 200
nautical miles. It is the largest such area in the Gulf of Guinea. Ocean water
depths around the two islands exceed 5,000 feet, depths that have only become
feasible for oil production in the past few years; however, oil and gas are
produced in the neighboring countries of Nigeria, Equatorial Guinea, Gabon and
Angola.  The African coast is less than 400 nautical miles offshore,
which means the Exclusive Economic Zones of the concerned countries
overlap.
 
 The
following chart represents ERHC’s current rights in the JDZ blocks.
 
 JDZ
      Block #
              ERHC
                Original
                Participating
                Interest
    (1)
              ERHC
                Joint
      Bid
                Participating
                Interest
              Participating
                Interest(s)
      Sold
              Current
      ERHC
                Retained
                Participating
                Interest2
              30%
              35%
              43%
      (2)
              22%3
              20%
              5%
              15%
      (3)
              10%4
              25%
              35%
              40.5%
      (4)
              19.5%  (6)5
              15%
              (5)
              (5)
              15%6
              15%
              (5)
              (5)
              15%9
              20%
              (5)
              (5)
              20%
 
 (1)
              Original
      Participating Interest granted pursuant to the Option Agreement, dated
      April 2, 2003, between DRSTP and ERHC (the “2003 Option
      Agreement”).
 
 (2)
              In
      March 2006, ERHC sold an aggregate 28.67% participating interest to
      Sinopec and an aggregate 14.33% participating interest to Addax
      Ltd.
 
 (3)
              In
      February 2006, ERHC sold a 15% participating interest to Addax
      Sub.
 
 (4)
              By
      a Participation Agreement made in November 2005 and subsequently amended,
      ERHC sold 40.5% participating interest to Addax. Includes 9% distributed
      between Addax (7.2%) and ERHC (1.8%) reclaimed from Godsonic by ERHC on
      behalf of the ERHC/Addax consortium following Godsonic’s inability to
      fulfill financial and other conditions upon which the 9% was to have been
      assigned to Godsonic.
  9
 Table of Contents
  (5)
              No
      contracts have been entered into as of the date
  hereof.
 
 (6)
              Includes
      the 9% distributed between ERHC (1.8%) and Addax (7.2%) reclaimed from
      Godsonic by ERHC on behalf of the ERHC/Addax consortium following
      Godsonic’s inability to fulfill financial and other conditions upon which
      the 9% was to have been assigned to
Godsonic.
  Particulars
of Participating Agreements
 
 JDZ
Block 2 Participation Agreement
 
 Date
      of Participation Agreement
              
              Parties
              
              Key
      Terms2
      March 2006
              
              1.
      Sinopec International Petroleum Exploration and Production Co. Nigeria
      Ltd
              
              ERHC
      assigns 28.67% of participating interest to Sinopec International
      Petroleum Exploration and Production Co Nigeria Ltd (“Sinopec”) and a
      14.33% participating interest to Addax Energy Nigeria Limited (“Addax”)
      leaving ERHC with a 22% participating interest.1b.
      Sinopec International Petroleum and Production Corporation
              
              Consideration
      from Sinopec to ERHC for the 28.67% interest (the “SINOPEC assigned
      interest”) is $13.6 million.2a.
      Addax Energy Nigeria Limited (Note 2)
              
              Consideration
      from Addax to ERHC for the 14.33% interest (the “Addax assigned interest”)
      is $6.8 million2b.
      Addax Petroleum Corporation (Note 2)
              
              In
      addition, Sinopec and  Addax to pay all of ERHC’s future
      costs  for petroleum operations (“the carried costs”) in respect
      of the 22% interest retained by ERHC (the “retained interest”) in Block
      2.3.
      ERHC Energy Inc
              
              Sinopec
      and Addax are entitled to 100% of ERHC’s allocation of cost oil plus up to
      50% of ERHC’s allocation of profit oil from the retained interest on Block
      2 until Sinopec and Addax Sub recover 100%
      of  ERHC’s  carried costsJDZ
      Block 3 Participation AgreementDate
      of Participation Agreement
              
              Parties
              
              Key
      Terms15
      February 2006
              1.
      ERHC Energy Inc
              
              ERHC
      assigns 15% of participating interest to Addax Petroleum Resources Nigeria
      Limited (“Addax Sub”) leaving ERHC with a 10% participating
      interest.2a.Addax
      Petroleum Resources Nigeria Limited (Note 2)
              
              Consideration
      from Addax Sub to ERHC for the 15% acquired interest is
      $7.5 million.2b.Addax
      Petroleum Corporation (Note 2)
              
              In
      addition, Addax to pay all of ERHC’s future costs for petroleum operations
      as in respect of the 10% interest retained by ERHC in Block
    3.Addax
      Sub is entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of
      ERHC’s allocation of profit oil until Addax Sub recovers 100% of the
      carried costs
  10
 Table of Contents
  Particulars
of Participating Agreements
 
 JDZ
      Block 4 Participation AgreementDate
              
              Parties
              
              Key
      Terms17
      November 2005(Note1)
              
              1.
      ERHC Energy Inc
              
              ERHC
      shall assign 33.3%(Note) of participating interest to Addax Petroleum Nigeria
      (Offshore 2) Limited (“Addax”) (leaving ERHC with a 26.7% participating
      interest).2a.
      Addax Petroleum  Nigeria (Offshore 2) Limited (Note 2)
              
              Consideration
      from Addax Sub to ERHC for the interest to be acquired by Addax is fixed
      at $18 million.2b.
      Addax Petroleum NV (Note
      2)
              
              In
      addition, Addax to pay all of ERHC’s future costs for petroleum operations
      (“the carried costs”) in respect of ERHC’s retained interest in Block
      4.Addax
      is entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of
      ERHC’s allocation of profit oil until Addax recovers 100% of ERHC’s
      carried costs.
 
 Note 1 – By an Amendment to
the Participation Agreement dated February 23 2006, ERHC and Addax amended the
Participation Agreement so that the assigned interest to Addax would be changed
to 33.3%.  By a second Amendment to the Participation Agreement,
entered into on March 14 2006, ERHC and Addax amended the Participation
Agreement so that the assigned interest to Addax would be 33.3% and ERHC’s
participating interest would be 26.7%.  By a third Amendment to the
Participation Agreement dated April 11 2006, ERHC and Addax agreed that if
Godsonic, a third party, did not meet financial and other obligations for the
transfer of 9% of ERHC’s participating interest to Godsonic (and was foreclosed
from all claims to the 9%), ERHC would transfer 7.2% out of the 9% interest to
Addax so that Addax’s participating interest would be 40.5% in aggregate and
ERHC’s participating interest would be 19.5% in aggregate.  The amount
of fresh consideration to accrue from Addax to ERHC for the transfer of the 7.2%
is not stated in the third Amendment to the Participation
Agreement.  On July 15, 2008, The London Court of International
Arbitration (LCIA) confirmed that under the Participation Agreement between
parties no further consideration is payable by Addax Petroleum to ERHC for Addax
Petroleum’s 7.2 percent share of the 9 percent. ERHC is entitled to the
remaining 1.8 percent out of the nine percent.  The combine share of
JDZ Block 4 held by ERHC and Addax Petroleum under the Participation Agreement
is 60 percent. Following the ruling by the LCIA, ERHC’s share of JDZ Block 4
increased from 17.7 percent to 19.5 percent and Addax Petroleum’s share
increased to 40.5 percent.
 
 Note 2 - On June 24, 2009,
Addax Petroleum Corporation announced that it has entered into a definitive
agreement with Sinopec pursuant to which Sinopec had agreed, subject to the
terms of the Support Agreement, to make an offer to acquire all of the
outstanding common shares of Addax Petroleum.  On August 24, 2009, the
sale of Addax Petroleum Corporation to Sinopec was finalized.
 
 Current
Plans for Operations
 
 The
Company is currently focused on exploiting its interests in Blocks 2, 3 and
4.  It has no current sources of income from operations other than
interest income from cash generated from sale of participation interests in
Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The Company hopes to enter into
Participation Agreements in Blocks 5, 6 and 9, but the timing or likelihood of
such transactions cannot be predicted.  The Company believes that the
participation agreements that it has entered into will be its primary source of
future cash flow; however, the Company is exploring plans to generate operating
income from new sources.  The Company plans to diversify its business
activity by pursuing other growth opportunities possibly including acquiring
revenue-producing assets in diverse geographical areas and forging new strategic
business partnerships and alliances. To expand operations, ERHC is currently in
negotiations for potential investments that would increase the Company’s
presence in Nigeria’s oil and gas industry.
 
 In
December 2009 ERHC signed a non-binding Memorandum of Understanding (MOU) with
Circle Ltd. and Excel Exploration and Production Ltd. to negotiate investment in
and acquisition of working interests in the Eremor Marginal Field (OML 46). The
Eremor Field, which is located in shallow water off-shore Nigeria, was
discovered in 1978. The discovery well, Eremor-1, encountered three oil and gas
zones, the most prominent of which is the D-03 reservoir with 43 feet of net oil
sand. It was re-entered for testing in 2005 with the D-03 reservoir testing
2,200 barrels per day of oil with API gravity of 22.0, a low gas to oil ratio
and no water. Excel was awarded a 100 percent interest and operatorship of
Eremor in 2003.
  11
 Table of Contents
  ERHC,
through its locally incorporated subsidiary, ERHC Energy Nigeria Ltd., has also
entered into a non-binding MOU with WellTest Integrated Services Ltd. to
negotiate the acquisition of a controlling equity interest in WellTest. The
company provides well testing, production engineering and procurement services
to Nigeria’s oil and gas industry. To coordinate the Company’s business
development in the Nigerian and West African oil and gas industry, ERHC has
opened its Nigeria liaison office at Oguda Close, Maitama, Abuja Nigeria. The
Company’s wholly owned subsidiary ERHC Energy Nigeria Ltd. operates the liaison
office.
 
 ERHC
cannot currently predict the outcome of negotiations for acquisitions in
Nigeria, or, if successful, the impact on the Company's operations.
 
 Government
Regulation
 
 In the
event the Company begins direct exploration and exploitation of hydrocarbons, it
will be required to make necessary expenditures to comply with applicable health
and safety, environmental and other regulations.
 
 The oil
and gas industry is subject to various types of regulation throughout the world.
Legislation affecting the oil and gas industry has been pervasive and is under
constant review for amendment or expansion. Pursuant to such legislation,
numerous government agencies have enacted extensive laws and regulations binding
on the oil and gas industry and companies engaged in this industry, some of
which carry substantial penalties for failure to comply. Such laws and
regulations have a significant impact on oil and gas exploration, production and
marketing and midstream activities. These laws and regulations increase the cost
of doing business and, consequently, will affect results of operations. In as
much as new legislation affecting the oil and gas industry is commonplace and
existing laws and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or the impact of complying with
such laws and regulations. However, the Company does not expect that any of
these laws and regulations will affect its operations in a manner materially
different than they would affect other oil and gas companies of similar size and
scope of operations.
 
 Having
interest outside the United States requires the Company to comply with United
States laws and other foreign jurisdiction laws related to pursuing, owing, and
exploiting foreign investments, agreements and other relationships. The Company
is subject to all such laws, including, but not limited to, the Foreign Corrupt
Practices Act of 1977 (“FCPA”).
 
 Competition
 
 Significant
competition exists in all sectors of the oil and gas industry. ERHC competes
with other oil and gas companies for equipment and personnel required to
explore, develop and operate properties as well as marketing of oil, gas and
natural gas liquids. Commodity price increases have raised the costs of
potential acquisition properties and we compete with a number of companies to
pursue acquisition opportunities. Many of the Company’s competitors have
substantially larger financial and other resources than ours, and they have also
established strategic long-term positions and maintain
strong  relationships in countries in which the Company may seek
entry. As a consequence, ERHC may be at a competitive disadvantage in bidding
for exploration rights. In addition, many of the Company’s larger competitors
have a competitive advantage when responding to factors that affect demand for
oil and natural gas production, such as changing worldwide prices and levels of
production, the cost and availability of alternative fuels and the application
of government regulations.
 
 Employees
 
 As of
September 30, 2009, the Company had six (6) employees.
 
 Availability
of Information
 
 We file
annual, quarterly and current reports, proxy statements and other documents with
the Securities and Exchange Commission (“SEC”) under the Securities Act of 1934.
The public may read and copy any materials that we file with the SEC at the
SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that
contains reports, proxy and information statements, and other information
regarding issuers, including us, that file electronically with the SEC. The
public can obtain any documents that we file with the SEC at
http://www.sec.gov
 
 We also
make available, free of charge on or through our Internet website
(http://www.erhc.com), our Annual Report on Form 10-K or 10K/A, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments
to those reports filed or furnished pursuant to Section 13(a) of the Exchange
Act as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC.
  12
 Table of Contents
  Item1A.  Risk Factors
 
 You
should carefully consider the risks described below before making any investment
decision related to the Company’s securities.  The risks and
uncertainties described below are not the only ones facing the
Company.   Additional risks and uncertainties not presently known
or that the Company currently deems immaterial also may impair its business
operations.  If any of the following risks actually occur, the
Company’s business could be affected.
 
 The
Company has no sources of revenue and a history of losses from
operations
 
 The
Company’s business is in an early stage of development.  The Company
has not generated any operating revenue since its entry into the oil and gas
industry and has incurred significant operating losses.   The Company
expects to incur additional operating losses for the foreseeable
future.
 
 The
Company has a limited operating history in the oil and gas industry
 
 The
Company’s operations have consisted solely of acquiring rights to working
interests in the JDZ and EEZ and entering into production sharing
contracts.  The Company will not be the operator with respect to these
contracts.  The Company’s future financial results depend primarily on
(1) the ability of the Company’s venture partners to provide or obtain
sufficient financing to meet their financial commitments in the production
sharing contracts, (2) the ability to discover commercial quantities of oil and
gas, and (3) the market price for oil and gas. Management cannot predict if
or  when the production sharing contracts will result in wells being
drilled or if drilled, whether oil and/or gas will be discovered in commercial
quantities.
 
 Financing
may be needed to fund the financial commitments of the production sharing
contracts
 
 While the
Company is not required to fund any financial commitments pursuant to
current  production sharing contracts, its is likely that project
financing will be required to fund exploration activities.  Failure of
our venture partners to provide or obtain the necessary financing will preclude
the continuation of exploration activities.
 
 The
Company may not discover commercially productive reserves in the JDZ or
EEZ
 
 The
Company’s future success depends on its ability to economically discover oil and
gas reserves in commercial quantities in the JDZ and EEZ. There can be no
assurance that the Company’s planned projects in the JDZ or EEZ will result in
significant, if any, reserves or that the Company and its partners will have
future success in drilling productive wells.
 
 The
Company’s non-operator status limits its control over  oil and gas
projects in the JDZ and EEZ
 
 The
Company will focus primarily on creating exploration opportunities and forming
relationships with oil and gas companies to develop those opportunities in the
JDZ and EEZ.  As a result, the Company will have only a limited
ability to exercise control over a significant portion of a project’s operations
or the associated costs of those operations in the JDZ or EEZ.  The
success of a future project is dependent upon a number of factors that are
outside the Company’s control. These factors include:
 
 •
              the
      availability of future capital resources to the Company and the other
      participants for drilling wells;
 
 •
              the
      approval of other participants for determining well locations and drilling
      time-tables ;
 
 •
              the
      economic conditions at the time of drilling, including the prevailing and
      anticipated price of  oil and gas;
and
 
 •
              the
      availability and cost of deep water drilling rigs and the availability
      of  operating personnel
 
 
 The
Company’s reliance on its consortium partners and its limited ability to
directly control future project costs could have a material adverse effect on
its future expected rates of return.
  13
 Table of Contents
  The
Company’s success depends on its ability to exploit its limited
assets
 
 The
Company’s primary assets are rights to working interests in exploration acreage
in the JDZ and EEZ under agreements with the JDA and DRSTP.  The
Company’s operations have been limited to managing and sustaining its rights
under these agreements.  The Company’s viability depends on its
ability to exploit these assets, of which there is no assurance that it will be
successful.
 
 The
Company’s competition includes oil and gas conglomerates that have significant
advantages over it
 
 The oil
and gas industry is highly competitive. Many companies are engaged in exploring
for crude oil and natural gas and acquiring crude oil and natural gas
properties, resulting in a high degree of competition for desirable exploratory
and producing properties.  The companies with which the Company
competes are much larger and have greater financial resources than the
Company.
 
 Various
factors beyond the Company’s control will affect prices of oil and
gas
 
 The
availability of a ready market for the Company’s future crude oil and natural
gas production depends on numerous factors beyond its control, including the
level of consumer demand, the extent of worldwide crude oil and natural gas
production, the costs and availability of alternative fuels, the costs and
proximity of transportation facilities, regulation by authorities and the costs
of complying with applicable environmental regulations.
 
 The
Company’s business interests are located outside of the United States which
subjects it to risks associated with international activities beyond its
control.
 
 At
September 30, 2009, the Company’s major assets are located outside the United
States.  The Company’s primary assets are cash in various financial
institutions and agreements with DRSTP and the JDA, which
provide  ERHC with rights to participate in exploration and production
activities in the Gulf of Guinea off the coast of central West
Africa.  Production is subject to political risks which is inherent in
all foreign operations. The Company’s ability to exploit its interests in this
area pursuant to such agreements may be adversely impacted by this
circumstance.
 
 The
future success of the Company’s international operations may also be adversely
affected by risks associated with international activities, including economic
and labor conditions, political instability, risk of war, expropriation,
termination, renegotiation or modification of existing contracts, tax laws
(including host-country import-export, excise and income taxes and United States
taxes
on  foreign  subsidiaries)  and  changes  in
the value of the U.S. dollar versus the local currencies in which future oil and
gas producing activities may be  denominated.  Changes in
exchange rates may also adversely affect the Company’s future results of
operations and financial condition.
 
 In
addition, to the extent the Company engages in operations and activities outside
the United States, it is subject to the Foreign Corrupt Practices Act (the
“FCPA”) which, among other restrictions, prohibits U.S. companies and their
intermediaries from making payments to foreign officials for the purpose of
obtaining or keeping business or otherwise obtaining favorable treatment, and
requires companies to maintain adequate record-keeping and internal accounting
practices to accurately reflect their financial and other transactions with
foreign officials.  The FCPA applies to companies, individual
directors, officers, employees and agents.  The FCPA also applies to
foreign companies and persons taking any action in furtherance of such payments
while in the United States.  Under the FCPA, U.S. companies may also
be held liable for actions taken by strategic or local partners or
representatives.
 
 The FCPA
imposes civil and criminal penalties for violations of its
provisions.  Civil penalties may include fines of up to $500,000 per
violation, and equitable remedies such as disgorgement of profits causally
connected to the violation (including prejudgment interest on such profits) and
injunctive relief.  Criminal penalties for violations of the payments
provisions could range up to the greater of $2 million per violation or twice
the gross pecuniary gain sought by making the payment, and/or incarceration for
up to 5 years per violation.  Moreover, if a director, officer or
employee of a company is found to have willfully violated the FCPA books and
records provisions, the maximum penalty would be imprisonment for 20 years per
violation.  Maximum fines of up to $25 million may also be imposed for
willful violations of the books and records provisions by a
company.
 
 The SEC
and/or the Department of Justice (“DOJ”) could assert that there have been
multiple violations of the FCPA, which could lead to multiple
fines.  The amount of any fines or monetary penalties which could be
assessed would depend on, among other factors, findings regarding the amount,
timing, nature and scope of any improper payments, whether any such payments
were authorized by or made with knowledge of ERHC or its affiliates, the amount
of gross pecuniary gain or loss involved, and the level of cooperation provided
to the government authorities during the investigations.  Negotiated
dispositions of these types of violations also frequently result in an
acknowledgement of wrongdoing by the entity and the appointment of a monitor on
terms agreed upon with the SEC and DOJ to review and monitor current and future
business practices, including the retention of agents, with the goal of assuring
future FCPA compliance.  Other potential consequences could be
significant and include suspension or debarment of ERHC’s ability to contract
with governmental agencies of the United States and of foreign
countries.  Any determination that ERHC has violated the FCPA could
result in sanctions that could have a material adverse effect on the Company’s
business, prospects, operations, financial condition and cash
flow.
  14
 Table of Contents
  The
Company’s business interests are located in the Gulf of Guinea offshore of
central West Africa and are subject to the volatility of foreign
governments
 
 All of
our primary assets are located the in the Gulf of Guinea offshore of central
West Africa. The governments of Nigeria and the island nation of Sao Tome and
Principe granted our participation interests in various concessions in their
offshore waters. The governments of Nigeria and Sao Tome and Principe exist in a
volatile political and economic environment and the Company is subject to all
the risks associated with those governments. These risks include, but are not
limited to:
 
 ·
              Loss
      of future revenue and our concessions as a result of hazards such as war,
      acts of terrorism, insurrection and other political
  risks
 
 ·
              Increases
      in taxes and governmental interests
 
 ·
              Unilateral
      renegotiation of contracts by government
  entities
 
 ·
              Difficulties
      in enforcing our rights against a governmental agency because of the
      doctrine of sovereign immunity and foreign sovereignty over international
      operations
 
 ·
              Changes
      in laws and policies governing operations of foreign-based companies,
      and
 
 ·
              Currency
      restrictions and exchange rate
fluctuations
 
 Our
foreign operations may also be adversely affected by laws and policies of the
United States affecting foreign trade and taxation. Realization of any of these
factors could materially and adversely affect our financial position, results of
operations and cash flows.
 
 The
Company has filed suit to prevent tampering with its interest and any adverse
ruling related to JDZ Blocks 5 and 6 could have a material adverse effect on its
business, prospects, operations, financial condition and cash flow.
 
 On November 3, 2008, the
Company filed a suit in Nigeria to prevent any tampering with its rights in JDZ
Blocks 5 and 6. The lawsuit comes after the JDA and the Joint Ministerial
Counsel (JMC) of the Nigeria-Săo Tomé and Príncipe JDZ failed to give a
satisfactory response to the Company’s letters seeking clarification of the
Company’s rights in JDZ Blocks 5 and 6 following media reports stating that the
JMC had approved of the Company’s removal from the Blocks. The Company was
awarded a 15 percent working interest in each of the Blocks in a 2005
bid/licensing round conducted by the JDA, following the exercise by ERHC of
preferential rights in the Blocks as guaranteed by contract and treaty. In
November 2008, the Company dispatched notices of arbitration for service on the
JDA and the governments of Nigeria and Sao Tome & Principe to commence
arbitration in London. ERHC wants the London Court of International
Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain
intact. If the Company fails to prevail in its lawsuit or arbitration
proceedings, there could be significant adverse effects on the Company’s future
planned operations in JDZ Blocks 5 & 6. These adverse effects could range
from loss of potential future revenue to a threat to the Company’s other
interests in Blocks 2, 3, 4 and 9.  At this time, ERHC is unable to
reasonably estimate the economic impact if the Company fails to prevail in its
suit.
 
 The
Company is under investigation by the SEC, the DOJ and a U.S. Senate
Subcommittee, and the results of these investigations could have a material
adverse effect on its business, prospects, operations, financial condition and
cash flow.
 
 On May 4,
2006, a search warrant issued by the U.S. District Court of the Southern
District of Texas, Houston Division, was executed on ERHC seeking various records including, among
others, documents, if any, related to correspondence with foreign governmental
officials or entities in Săo Tomé and Nigeria.  The search warrant
cited, among other things, possible violations of the FCPA, Section 10(b) of the
Exchange Act, Rule 10b-5 under the Exchange Act and criminal conspiracy
and wire fraud statutes.  ERHC filed suit in federal district court in
Texas in June 2006 seeking to protect the Company’s attorney-client privileged
documents and to allow its counsel to determine the factual basis for the DOJ’s
search warrant affidavit, which is currently under seal.
 
 A related
SEC subpoena was issued on May 9, 2006, and a second related subpoena issued on
August 29, 2006.  The subpoenas requested from ERHC a range of
documents including all documents related to correspondence with foreign
governmental officials or entities in Sao Tome and Nigeria, personnel records
(specifically, those regarding the Company’s former Chief Financial Officer,
Franklin Ihekwoaba) and other corporate records.  The Company has been
actively responding to both subpoenas.
  15
 Table of Contents
  On July
5, 2007, the U.S. Senate Committee on Homeland Security and Governmental
Affairs’ Permanent Subcommittee on Investigations served ERHC with a subpoena,
in connection with its review of matters relating to the potential abuse of
payments made to foreign governments. The subpoena, as amended on July 18, 2007,
seeks documents and information regarding ERHC’s activities, particularly those
related to the acquisition of ERHC’s interests in the Gulf of
Guinea.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are
assisting ERHC in responding to the subpoena.   Please see “Legal
Proceedings” for more information.
 
 The
investigations by the DOJ, SEC and Senate Subcommittee are
continuing.  The Company anticipates that these investigations will be
lengthy and does not expect these investigations to be concluded in the
immediate future.  If violations are found, the Company may be subject
to criminal, civil and/or administrative sanctions, including substantial fines,
and the resolution or disposition of these matters could have a material adverse
effect on ERHC’s business, prospects, operations, financial condition and cash
flow.
 
 These
investigations could also result in:
 
 ·
              third
      party claims against us, which may include claims for special, indirect,
      derivative or consequential
damages;
 
 ·
              damage
      to our  business, operations and
  reputation;
 
 ·
              loss
      of, or adverse effect on, cash flow, assets, goodwill, operations and
      financial condition, business, prospects, profits or
      commercial  value;
 
 ·
              adverse
      consequences on our  ability to obtain or continue financing for
      current or future projects; and/or
 
 ·
              claims
      by directors, officers, employees, affiliates, advisors, attorneys,
      agents, debt holders or other interest holders or constituents of
      ERHC.
 
 Continuing
negative publicity arising from these investigations could also adversely affect
our business and prospects in the commercial market.  In addition,
these investigations have resulted in significant expenses to ERHC, including
substantial legal fees and the diversion of management’s attention from its
operations and other activities.  If the Company incurs costs or
losses as a result of these matters, it may not have the liquidity or funds to
address those costs or losses, in which case such costs or losses could have a
material adverse effect on its business, prospects, operations, financial
condition and cash flow.
 
 Through
September 30, 2009, ERHC has incurred substantial costs in responding to the
investigations by the DOJ, SEC and Senate Subcommittee. Those costs consist
primarily of legal fees paid to the Company’s legal counsel, Akin Gump Strauss
Hauer & Feld LLP and document reproduction costs. These costs have had a
significant negative impact on the Company’s cash flows from
operations.  ERHC anticipates the use of even more of its cash
reserves to address these ongoing investigations. If continued at current levels
this could have a serious negative impact on the Company’s liquidity. Neither
management nor its legal counsel can assess the magnitude of future cash
requirements that could result from prolonged investigations or any negative
findings that might arise from the investigations. In a worst case scenario, the
Company’s cash resources could be exhausted and the Company’s status as a going
concern could also be brought into question.
 
 The
Company has limited sources of working capital
 
 The
Company believes that its working capital requirements for 2010 will be
approximately $4,000,000 based on maintaining operations at their current level
and the generation of interest income at levels similar to 2009. Our consortium
partners will pay all of ERHC’s future costs in respect of all operations in JDZ
Blocks 2,3 and 4 subject to total reimbursement upon production. Accordingly,
the commencement of drilling operations is not expected to have a significant
impact on our working capital requirements. Management believes that our current
cash resources will be adequate to maintain our planned operations throughout
the drilling and exploration phase of existing participation
agreements.
 
 The
Company is currently focused on exploiting its interests in Blocks 2, 3, 4, 5, 6
and 9 but has no current source of income other than interest income from cash
investments generated from the sale of participation interests in Blocks 2, 3
and 4 to Sinopec and Addax Ltd. The Company hopes to enter into participation
agreements in JDZ Blocks 5, 6 and 9 and also in the EEZ, but the timing or
likelihood of such transactions cannot be predicted.  The Company
might be required to exercise its rights in EEZ in 2010, in that event the
Company maybe required to incur significant capital cost in exercise of those
rights.
  16
 Table of Contents
  The
Company’s results of operations are susceptible to general economic
conditions
 
 The
Company’s revenues and results of operations will be subject to fluctuations
based upon the general economic conditions both in the United States and
internationally.   A general economic downturn or a recession in the
industry, will adversely impact the Company’s future revenues, the value of its
oil and natural gas exploration concession, as well as its ability to exploit
its assets.
 
 One
shareholder controls approximately 43% of the Company’s outstanding common
stock
 
 Chrome
Oil Services (“Chrome”) beneficially owns approximately 43% of the Company’s
outstanding common stock.  As a result, Chrome has the ability to
substantially influence, and may effectively control the outcome of corporate
actions that require stockholder approval, including the election of
directors.  This concentration of ownership may have the effect of
delaying or preventing a future change in control of the Company or a liquidity
event.
 
 The
Company’s stock price is highly volatile
 
 The
Company’s common stock is currently traded on the Over-the-Counter (OTC)
Bulletin Board. The market price of the Company’s common stock has experienced
fluctuations that are unrelated to its operating performance.  The
market price of the common stock has been highly volatile over the last several
years.  The Company can provide no assurance regarding
its  stock price.
 
 The
Company does not currently pay dividends on its common stock and does not
anticipate doing so in the near future
 
 The
Company has paid no cash dividends on its common stock, and there is no
assurance that the Company will achieve sufficient earnings to pay cash
dividends on its common stock in the foreseeable future. The Company intends to
retain any earnings to fund its future operations.
 
 The
Company’s stock is considered a “penny stock”
 
 The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in “penny stocks.”  Penny stocks generally are equity
securities with a share price of less than $5.00.  The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market.  These
disclosure requirements may have the effect of reducing the level of trading
activity in any secondary market for a stock that becomes subject to the penny
stock rules.  The Company’s common stock may be subject to the penny
stock rules, and accordingly, investors in the common stock may find it
difficult to sell their shares in the future, if at all.
 
 The
Internal Revenue Service is currently conducting an examination of the Company’s
tax returns.
 
 The
Internal Revenue Service is currently examining the tax returns for the
Company’s 2005 and 2006 tax years.The Company
anticipates that this examination will conclude in the next few
months.  If adjustments are required, the Company may be subject to
taxes, penalties and interest and these could have a material adverse effect on
ERHC’s operations, financial condition and cash flow.
 
 Item1B.  Unresolved Staff Comments
 
 None
  17
 Table of Contents
  Item2.  Properties
 
 Substantially
all of the Company’s properties are in the form of working interest which
represents ERHC’s share of all the hydrocarbon production from the blocks
awarded and obligates ERHC to pay a corresponding percentage of the costs of
drilling, production and operating these blocks.  These costs in
Blocks 2, 3 and 4 are currently being carried by the operators until production,
whereupon the operators will recover their costs from production revenues. ERHC
has working interests in Blocks 2, 3, 4, 5, 6, and 9 in the offshore JDZ and in
addition has interests in the EEZ.
 
 Joint
Development Zone
 
 ERHC
      has interests in six of the nine Blocks in the Joint Development Zone
      (JDZ), a 34,548 sq km area approximately 200 km off the coast of Nigeria
      and Sao Tome and Principe that is adjacent to several large petroleum
      discovery areas. ERHC’s rights in the JDZ include:
 
 ·
              JDZ
      Block 2:  22.0% Working
interest
 
 ·
              JDZ
      Block 3:  10.0% Working
interest
 
 ·
              JDZ
      Block 4:  19.5% Working
interest
 
 ·
              JDZ
      Block 5:  15.0% Working
interest
 
 ·
              JDZ
      Block 6:  15.0% Working
interest
 
 ·
              JDZ
      Block 9:  20.0% Working
interest
 
 Sao
Tome and Principe Exclusive Economic Zone
 
 The
government of Sao Tome and Principe awarded ERHC rights to participate in
exploration and production activities in Sao Tome and Principe’s EEZ. ERHC’s
rights include the following:
 
 ·
              The
      right to receive up to two blocks of ERHC’s choice;
  and
 
 ·
              The
      option to acquire up to a 15% paid working interest in another two blocks
      of ERHC’s choice.
 
 ERHC will
be responsible for its proportionate share of exploration and exploitation costs
in the EEZ blocks.
 
 The EEZ
describes waters of Sao Tome that encompasses an area of approximately 160,000
square km. It is measured from claimed archipelagic baselines — territorial sea:
12 nautical miles, exclusive economic zone: 200 nautical miles. It is the
largest in the Gulf of Guinea.
  18
 Table of Contents
  Corporate
Office
 
 The
Company’s corporate office is located at 5444 Westheimer Road, Suite 1440,
Houston, Texas 77056 pursuant to a lease that expires in December
2011.
 
 Item3.  Legal Proceedings
 
 Subpoenas.  On
May 4, 2006, a federal court search warrant initiated by DOJ was executed on the
Company.  The DOJ sought various records including, among others,
documents, if any, related to correspondence with foreign governmental officials
or entities in Sao Tome and Nigeria.  Related SEC subpoenas issued on
May 9, 2006 and August 29, 2006 also requested a range of documents. ERHC
continues to interface with both the DOJ and SEC investigators to respond to the
SEC subpoenas and any additional requests for information from the DOJ or
SEC.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are
assisting ERHC in responding to the subpoena
 
 On July
5, 2007, the U.S. Senate Committee on Homeland Security and Governmental
Affairs’ Permanent Subcommittee on Investigations served ERHC with a subpoena in
connection with its review of matters relating to the potential abuse of
payments made to foreign governments. The subpoena, as amended on July 18, 2007,
seeks documents and information regarding ERHC’s activities, particularly those
related to the acquisition of ERHC’s interests in the Gulf of
Guinea.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are
assisting ERHC in responding to the subpoena.
 
 The
Company anticipates that these investigations may be lengthy and does not know
when they will conclude.  If violations are found, the Company may be
subject to criminal, civil and/or administrative sanctions, including
substantial fines, and the resolution or disposition of these matters could have
a material adverse effect on ERHC business, prospects, operations, financial
condition and cash flows.
 
 Godsonic
Negotiations.  In July 2007, ERHC and Godsonic commenced negotiations
to have Godsonic relinquish all of its claims to a 9% interest in Block
4.  The parties reached a settlement in August 2007 which resulted in
Godsonic’s relinquishment of all claims to the 9% interest in Block
4.
 
 ERHC/Addax
Arbitration.  Addax, our consortium partner in JDZ Block 4, claimed
entitlement under our existing agreements to 7.2% out of the recovered 9%
without the payment of any further consideration to ERHC.   In
July 15, 2008, The London Court of International Arbitration (LCIA) confirmed
that under the participation agreement between parties no further consideration
is payable by Addax Petroleum to ERHC for Addax Petroleum’s 7.2 percent share of
the 9 percent. The LCIA also confirmed that ERHC was entitled to the remaining
1.8 percent out of the nine percent.  The combine share of JDZ Block 4
held by ERHC and Addax Petroleum under the Participation Agreement is 60
percent. Following the ruling by the LCIA, ERHC’s share of JDZ Block 4 increased
from 17.7 percent to 19.5 percent and Addax Petroleum’s share increased to 40.5
percent.
 
 Lakeshore
Arbitration.  In October 2006, Lakeshore Capital Limited (“Lakeshore”)
filed an arbitration claim against ERHC seeking $4,400,000 for the alleged value
of 4,500,000 shares of ERHC common stock and for a warrant to purchase an
additional 1,500,000 shares of common stock at an exercise price of $.20 per
share, including interest and costs, as compensation for financial consultancy
and related services rendered under a contract with ERHC dated May 20,
2002.  The claim was resolved in mediation conducted by the American
Arbitration Association by the payment by ERHC of $250,000 to
Lakeshore.  Pursuant to the Settlement Agreement dated May 16, 2007,
the arbitration was discontinued with prejudice.
 
 On
November 3, 2008, the Company filed a suit at the Federal High Court in Nigeria
to prevent any tampering with its rights in JDZ Blocks 5 and 6. The suit comes
after the JDA and Joint Ministerial Counsel (JMC) of the Nigeria-Sao Tome and
Principe JDZ failed to give a satisfactory response to the Company’s letters
seeking clarification on the Company’s rights in JDZ Blocks 5 and 6 following
media reports stating that the JMC had approved of the Company’s removal from
the Blocks. The Company was awarded a 15 percent working interest in each of the
Blocks in a 2005 bid/licensing round conducted by the JDA following the exercise
by ERHC of preferential rights in the Blocks as guaranteed by contract and
treaty. If the Company fails to prevail in its lawsuit, there could be
significant adverse affects on the Company’s future planned operations in JDZ
Blocks 5 and 6.
 
 In
November 2008, the Company dispatched notices of arbitration for service on the
JDA and the governments of Nigeria and Sao Tome & Principe to commence
arbitration in London. ERHC wants the London Court of International
Arbitration to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain
intact.
  19
 Table of Contents
  From time
to time, ERHC may be subject to routine litigation, claims, or disputes in the
ordinary course of business.  ERHC intends to defend these matters
vigorously; the Company cannot predict with certainty, however, the outcome or
effect of any of the litigation or investigatory matters specifically described
above or any other pending litigation or claims.  There can be no
assurance as to the ultimate outcome of these lawsuits and
investigations.
 
 Item4.  Submission of Matters to a Vote of Security
Holders
 
 None.
  20
 Table of Contents
  PART
II
 
 Item5.  Market for Registrant’s Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities
 
 Market
and Related Information
 
 ERHC’s
common stock is currently traded on the OTC Bulletin Board under the symbol
“ERHE.”  The market for the Company’s common stock is unpredictable
and highly volatile.  The following table sets forth the closing sales
price per share of the common stock for the past three fiscal
years.  These prices reflect inter-dealer prices, without retail
mark-ups, markdowns or commissions, and may not necessarily represent actual
transactions.
 
 Stock
Price Highs & Lows
 
 High
              
              
              Low(per
      share)Fiscal
      Year 2007First
      Quarter
              
              $
              0.51
              
              
              $
              0.31Second
      Quarter
              
              $
              0.48
              
              
              $
              0.33Third
      Quarter
              
              $
              0.42
              
              
              $
              0.24Fourth
      Quarter
              
              $
              0.34
              
              
              $
              0.20Fiscal
      Year 2008First
      Quarter
              
              $
              0.30
              
              
              $
              0.19Second
      Quarter
              
              $
              0.54
              
              
              $
              0.18Third
      Quarter
              
              $
              0.60
              
              
              $
              0.40Fourth
      Quarter
              
              $
              0.42
              
              
              $
              0.28Fiscal
      Year 2009First
      Quarter
              
              $
              0.30
              
              
              $
              0.11Second
      Quarter
              
              $
              0.36
              
              
              $
              0.10Third
      Quarter
              
              $
              0.72
              
              
              $
              0.29Fourth
      Quarter
              
              $
              0.90
              
              
              $
              0.60
 
 As of
November 30, 2009, there were approximately 2217 stockholders of
record.  The closing price of the common stock as reported on the OTC
Bulletin Board on November 30, 2009 was $0.47  The Company has not
paid any dividends during the last three fiscal years and does not anticipate
paying any cash dividends in the foreseeable future.
 
 Securities
Authorized for Issuance Under Equity Compensation Plans
 
 In
November 2004, the Board of Directors adopted a 2004 Compensatory Stock Option
Plan pursuant to which it reserved 20,000,000 shares for
issuance.  This plan was approved at a special meeting of the
stockholders of the Company in February 2005.  Under this plan,
8,026,756 shares have been issued.
 
 Plan
      Category
              
              Number
      of securities to be
                issued
      upon exercise of
                outstanding
      options,
                warrants
      and rights
              
              
              Weighted-average
      exercise
                price
      of outstanding
                options,
      warrants and
                rights
              
              
              Number
      of securities
                remaining
      available for
                future
      issuance under equity compensation plans
                (excluding
      securities
                reflected
      in column (a))(a)
              
              
              (b)
              
              
              (c)Equity
      compensation plans approved by security holders
              
              
              1,000,000
              
              
              $
              0.43
              
              
              
              10,973,244Equity
      compensation plans not approved by security holders
              
              
              -
              
              
              
              -
              
              
              
              -
 
 Recent
Sales of Unregistered Securities
 
 The
Company has issued  the following unregistered
securities:
  21
 Table of Contents
  ·
              During
      the second quarter of fiscal 2007, warrants issued in 2003, with an
      exercise price of $0.20, were exercised on a cashless basis, which
      exercise resulted in the issuance of an aggregate of 2,949,587 shares of
      common stock.
 
 ·
              During
      the first quarter of fiscal 2008, we issued an aggregate of 300,000 shares
      of common stock to the Company’s directors for services rendered in
      2007.
 
 ·
              During
      the second quarter of fiscal 2009, we issued an aggregate of 450,000
      shares of common stock to the Company’s directors for services rendered in
      2005 and 2008.
 
 ·
              During
      the fourth quarter of fiscal 2009, we approved the issuance of an
      aggregate of 361,875 shares of common stock to the Company’s directors and
      non-management staff for services rendered in
  2009.
 
 With
respect to the sale of the unregistered securities referenced above, all
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended.  No sales commissions were paid in
connection with these transactions.
 
 Issuer
Purchases of Equity Securities
 
 The
Company has not repurchased any of its Common Stock.
 
 Item6. Selected Financial Data
 
 The
selected financial data of the Company presented below as of and for each of the
five years in the period ended September 30, 2009, has been derived from the
audited financial statements of the Company.  The financial statements
as of and for the years ended September 30, 2009, 2008, 2007, 2006 and 2005 have
been audited by Malone & Bailey, PC, an independent registered public
accounting firm.  The data set forth below should be read in conjunction
with the Company’s financial statements, related notes thereto and Management’s
Discussion and Analysis of Financial Condition and Plan of Operations, contained
elsewhere herein.
 
 
 For
      the Years Ended September 30,Statements
      of Operations Data
              
              2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Operating
      expenses
              
              $
              4,239,706
              
              
              $
              4,280,143
              
              
              $
              4,976,765
              
              
              $
              (24,113,494
              )
              
              $
              4,652,459Interest
      expense
              
              
              (1,843
              )
              
              
              (1,843
              )
              
              
              1,843
              )
              
              
              (2,099
              )
              
              
              (1,147,248
              )Other
      Income (expense)
              
              
              (3,447,588
              )
              
              
              1,241,189
              
              
              
              1,498,704
              
              
              
              1,123,141
              
              
              
              278,804Loss
      on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,749,575
              )Provision
      for taxes
              
              
              -
              
              
              
              (30,360
              )
              
              
              (1,723,000
              )
              
              
              2,063,000
              
              
              
              -Net
      income (loss)
              
              
              (7,689,137
              )
              
              
              (3,071,157
              )
              
              
              (1,756,904
              )
              
              
              23,171,536
              
              
              
              (11,270,478
              )Net
      income (loss) per share – basicand diluted
              
              
              (0.01
              )
              
              
              0.00
              
              
              
              0.00
              
              
              
              0.03
              
              
              
              (0.02
              )Weighted
      average shares of commonstock outstanding
              
              
              722,549,254
              
              
              
              722,182,831
              
              
              
              720,966,165
              
              
              
              712,063,980
              
              
              
              671,164,058
 
 As
      of September 30,Balance
      Sheets Data
              
              2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005DRSTP
      Concession fee
              
              $
              2,839,500
              
              
              $
              2,839,500
              
              
              $
              2,839,500
              
              
              $
              2,839,500
              
              
              $
              5,679,000Total
      assets
              
              
              28,859,825
              
              
              
              36,880,422
              
              
              
              39,854,641
              
              
              
              45,878,249
              
              
              
              6,720,210Total
      liabilities
              
              
              5,470,450
              
              
              
              5,907,960
              
              
              
              5,947,982
              
              
              
              10,390,126
              
              
              
              2,799,011Shareholders’
      equity
              
              
              23,389,375,
              
              
              
              30,972,462
              
              
              
              33,906,659
              
              
              
              35,488,123
              
              
              
              3,921,199
  22
 Table of Contents
  Item7.  Management’s Discussion and Analysis of Financial
Condition and Plan of Operations
 
 Introduction
 
 The
following discussion and analysis presents management’s perspective of ours
business and, financial condition and its overall performance. This information
is intended to provide investors with an understanding of our past performance,
current financial condition and outlook for the future. You must read the
following discussion of the results of the operations and financial condition of
the Company in conjunction with its financial statements, including the notes
thereto included in this Form 10-K filing.  The Company’s historical
results are not necessarily an indication of trends in operating results for any
future period.
 
 Reference
is made to “Item 6. Selected Financial Data” and “Item 8. Financial Statements
and Supplementary Data.”
 
 Overview
of Business
 
 ERHC
reports as a development stage enterprise as there are currently no significant
operations and no revenue has been generated from business
activities.  The Company was incorporated in 1986 as a Colorado
corporation, and was engaged in a variety of businesses until 1996, when it
began its current operations as an independent oil and gas
company.  The Company’s goal is to maximize its value through
exploration and exploitation of potential oil and gas reserves in the Gulf of
Guinea offshore of central West Africa.  The Company’s current focus
is to exploit its primary assets, which are rights to working interests in
exploration acreage in the JDZ and the EEZ.  The Company has entered
into production sharing contracts with upstream oil and gas companies in its JDZ
Blocks to assist the Company in exploring and developing its assets in the
JDZ.  The technical and operational expertise in conducting
exploration and development of these JDZ Blocks will be provided by partner oil
and gas companies in exchange for participating in the Company’s interest in the
JDZ..  The Company is also exploring opportunities in other areas of
the oil and gas industry.
 
 State
of Participation Interests
 
 The
following represents ERHC’s current rights in the JDZ blocks.
 
 JDZ
      Block #
              ERHC
                Original
                Participating
                Interest
    (1)
              ERHC
                Joint
      Bid
                Participating
                Interest
              Participating
                Interest(s)
      Sold
              Current
      ERHC
                Retained
                Participating
                Interest2
              30%
              35%
              43%
      (2)
              22%3
              20%
              5%
              15%
      (3)
              10%4
              25%
              35%
              40.5%
      (4)
              19.5%5
              15%
              (5)
              (5)
              15%6
              15%
              (5)
              (5)
              15%9
              20%
              (5)
              (5)
              20%
 
 (1)
              Original
      Participating Interest granted pursuant to the Option Agreement, dated
      April 2, 2003, between DRSTP and ERHC (the “2003 Option
      Agreement”).
 
 (2)
              In
      March 2006, ERHC sold an aggregate 28.67% participating interest to
      Sinopec and an aggregate 14.33% participating interest to Addax
      Ltd.
 
 (3)
              In
      February 2006, ERHC sold a 15% participating interest to Addax
      Sub.
 
 (4)
              By
      a Participation Agreement made in November 2005 and subsequently amended,
      ERHC sold 40.5 participating interest to
Addax.
 
 (5)
              No
      contracts have been entered into as of the date
  hereof.
  23
 Table of Contents
  Particulars
of Participating Agreements
 
 JDZ Block
2 Participation Agreement
 
 Date
      of Participation Agreement
              
              Parties
              
              Key
      Terms2
      March 2006
              
              1.
      Sinopec International Petroleum Exploration and Production Co. Nigeria
      Ltd
              
              ERHC
      assigns 28.6% of participating interest to Sinopec International Petroleum
      Exploration and Production Co Nigeria Ltd (“Sinopec”) and a 14.33%
      participating interest to Addax Energy Nigeria Limited (“Addax”) leaving
      ERHC with a 22% participating interest.1b.
      Sinopec International Petroleum and Production Corporation
              
              Consideration
      from Sinopec to ERHC for the 28.67% interest is
      $13.6 million.2a.
      Addax Energy Nigeria Limited (Note 2)
              
              Consideration
      from Addax to ERHC for the 14.33% interest  is $6.8
      million2b.
      Addax Petroleum Corporation (Note 2)
              
              In
      addition, Sinopec and Addax to pay all of ERHC’s future costs for
      petroleum operations in respect of the 22% interest retained by ERHC in
      Block 2.3.
      ERHC Energy Inc
              
              Sinopec
      and Addax are entitled to 100% of ERHC’s allocation of cost
      reimbursement  plus up to 50% of ERHC’s allocation of profit oil
      from revenue generated by the retained interest on Block 2 until Sinopec
      and Addax recover 100% of the carried costsJDZ
      Block 3 Participation AgreementDate
      of Participation Agreement
              
              Parties
              
              Key
      Terms15
      February 2006
              
              1.
      ERHC Energy Inc
              
              ERHC
      assigns 15% of participating interest to Addax Petroleum Resources Nigeria
      Limited (“Addax Sub”) leaving ERHC with a 10% participating
      interest.Consideration
      from Addax Sub to ERHC for the 15% interest is
      $7.5 million.2a.
      Addax Petroleum Resources Nigeria Limited (Note 2)
              
              In
      addition, Addax Sub to pay all of ERHC’s future costs  for
      petroleum operations (“the carried costs”) in respect of the 10% interest
      retained by ERHC (the “retained interest”) in Block 3.2b.
      Addax Petroleum Corporation(Note 2)
              
              Addax
      Sub is entitled to 100% of ERHC’s future costs in respect of petroleum
      operations.Addax
      is entitled to 100% of ERHC’s allocation of cost
      reimbursement  plus up to 50% of ERHC’s allocation of profit oil
      until Addax Sub recovers 100% of the carried
  costs
  24
 Table of Contents
 
 JDZ
      Block 4 Participation AgreementDate
              
              Parties
              
              Key
      Terms17
      November 2005(Note1)
              
              1.
      ERHC Energy Inc
              
              ERHC
      shall assign 33.3%(Note1) of participating interest to Addax Petroleum Nigeria
      (Offshore 2) Limited (“Addax”) (leaving ERHC with a 26.7% participating
      interest).2a.
      Addax Petroleum  Nigeria (Offshore 2) Limited (Note 2)
              
              Consideration
      from Addax Sub to ERHC for the interest to be acquired by Addax (the
      “acquired interest”) is fixed at $18 million.2b.
      Addax Petroleum NV(Note
      2)
              
              In
      addition, Addax to pay all of ERHC’s future costs for petroleum operations
      (“the carried costs”) in respect of ERHC’s retained interest in Block
      4.Addax
      is entitled to 100% of ERHC’s allocation of cost oil plus up to 50% of
      ERHC’s allocation of profit oil until Addax  recovers 100% of
      the carried costs
 
 Note 1 – By an Amendment to
the Participation Agreement dated February 23 2006, ERHC and Addax amended the
Participation Agreement so that the assigned interest to Addax would be changed
to 33.3%.  By a second Amendment to the Participation Agreement,
entered into on March 14 2006, ERHC and Addax amended the Participation
Agreement so that the assigned interest to Addax would be 33.3% and ERHC’s
participating interest would be 26.7%.  By a third Amendment to the
Participation Agreement dated April 11 2006, ERHC and Addax agreed that if
Godsonic, a third party, did not meet financial and other obligations for the
transfer of 9% of ERHC’s participating interest to Godsonic (and was foreclosed
from all claims to the 9%), ERHC would transfer 7.2% out of the 9% interest to
Addax so that Addax’s participating interest would be 40.5% in aggregate and
ERHC’s participating interest would be 19.5% in aggregate.  The amount
of fresh consideration to accrue from Addax to ERHC for the transfer of the 7.2%
is not stated in the third Amendment to the Participation Agreement. On July 15,
2008, The London Court of International Arbitration (LCIA) confirmed that under
the participation agreement between parties no further consideration is payable
by Addax Petroleum to ERHC for Addax Petroleum’s 7.2 percent share of the 9
percent. ERHC is entitled to the remaining 1.8 percent out of the nine
percent.  The combined share of JDZ Block 4 held by ERHC and Addax
Petroleum under the Participation Agreement is 60 percent. Following the ruling
by the LCIA, ERHC’s share of JDZ Block 4 increased from 17.7 percent to 19.5
percent and Addax Petroleum’s share increased to 40.5 percent.
 
 Note 2 - On June 24, 2009,
Addax Petroleum Corporation announced that it has entered into a definitive
agreement with Sinopec pursuant to which Sinopec had agreed, subject to the
terms of the Support Agreement, to make an offer to acquire all of the
outstanding common shares of Addax Petroleum.  On August 24, 2009, the
sale of Addax Petroleum Corporation to Sinopec was finalized.
 
 Current
Plans for Income Generation
 
 The
Company is currently focused on exploiting its interests in JDZ Blocks 2, 3, 4,
5, 6 and 9 and its interests in the EEZ. However, it has no current income other
than interest income from cash investments generated from the sale of
participation interests in Blocks 2, 3 and 4 to Sinopec and Addax Ltd. The
Company hopes to enter into participation agreements in JDZ Blocks 5, 6 and 9
and its to be awarded EEZ blocks, but the timing or likelihood of such
transactions cannot be predicted.  The Company believes that the
Participation Agreements that it has entered into will be its primary source of
future revenue.   However, to expand operations, ERHC is
currently in negotiations for potential investments that would increase the
Company’s presence in Nigeria’s oil and gas industry.  In December
2009, the Company signed a non-binding Memorandum of Understanding (MOU) with
Circle Ltd. and Excel Exploration and Production Ltd. to negotiate investment in
and acquisition of working interests in the Eremor Marginal Field (OML 46). The
Eremor Field, which is located in shallow water off-shore Nigeria, was
discovered in 1978.
 
 ERHC,
through its locally incorporated subsidiary, ERHC Energy Nigeria Ltd., has also
entered into a non-binding MOU with WellTest Integrated Services Ltd. to
negotiate the acquisition of a controlling equity interest in WellTest. The
company provides well testing, production engineering and procurement services
to Nigeria’s oil and gas industry. To coordinate the Company’s business
development in the Nigerian and West African oil and gas industry, ERHC has
opened its Nigeria liaison office at Oguda Close, Maitama, Abuja, Nigeria. The
Company’s wholly owned subsidiary ERHC Energy Nigeria Ltd. operates the liaison
office.
 
 ERHC
cannot currently predict the outcome of negotiations for acquisitions in
Nigeria, or, if successful, the impact on the Company's
operations.
  25
 Table of Contents
  Critical
Accounting Policies
 
 The
Company has identified the policies below as critical to its business operations
and the understanding of its results of operations.  The impact and
any associated risks related to these policies on the Company’s business
operations are discussed throughout this section where such policies affect the
Company’s reported and expected financial results.  Management’s
preparation of this Annual Report on Form 10-K requires it to make estimates and
assumptions that affect the reported amount of assets and liabilities, and the
disclosure of contingent assets and liabilities.  There is no
assurance that actual results will not differ from those estimates and
assumptions.
 
 Concentration
of Risks
 
 The
Company’s current focus is to exploit assets consisting of agreements with the
DRSTP concerning oil and gas exploration in its EEZ and with the JDA concerning
oil and gas exploration in the JDZ.  The Company has formed
relationships with other oil and gas companies with the technical and financial
capabilities to assist the Company in leveraging its interests in the EEZ and
the JDZ.  The Company currently has no other operations.
 
 Asset
Retirement Obligation
 
 ERHC’s
asset retirement obligation relates to the plugging and abandonment of certain
oil and gas properties in Wichita Falls, Texas. The provisions of SFAS No. 143
require the fair value of a liability for an asset retirement obligation to be
recorded and a corresponding increase in the carrying amount of the associated
asset.  The cost of the tangible asset, including the initially
recognized asset retirement cost is depleted over the useful life of the
asset.  If the fair value of the estimated asset retirement obligation
changes, an adjustment is recorded to the retirement obligation and the asset
retirement cost. The offsetting ARO liability is recorded at fair value, and
accretion expense recognized as the discounted liability is accreted to its
expected settlement value.  The fair value of the ARO asset and
liability is measured using expected future cash out flows discounted at the
Company’s credit adjusted risk free interestrate. These oil and gas properties
were abandoned and written off during the year ended September 30, 1999 and the
current liability is fully accreted and represents management’s best estimate of
the fair value of the outstanding obligation.
 
 Impairment
of Long-lived Assets
 
 ERHC
evaluates the recoverability of long-lived assets when events and circumstances
indicate that such assets might be impaired.  ERHC determines
impairment by comparing the undiscounted future cash flows estimated to be
generated by these assets to their respective carrying
amounts.  Impairments are charged to operations in the period to which
events and circumstances indicate that such assets might be
impaired.  ERHC has evaluated its investment in its DRSTP concession
fee in light of its 2003 Option Agreement (see Note 4) and there have been no
events or circumstances that would indicate that such asset might be
impaired.
 
 Recent
Accounting Pronouncements
 
 Effective
July, 1, 2009, the Company adopted the Accounting Standards Codification (ASC)
issued by the Financial Accounting Standards Board (FASB). The ASC does not
change generally accepted accounting principles in the United States of America
(GAAP), but instead takes the numerous individual accounting pronouncements that
previously constituted GAAP and reorganizes them into approximately 90
accounting topics, which are then broken down into subtopics, sections and
paragraphs. The intent is to simplify user access to authoritative GAAP by
providing all of the guidance related to a particular topic in one place. The
ASC supersedes all previously existing non-SEC or non-grandfathered accounting
and reporting standards. The adoption of the ASC did not have any impact on the
Company’s consolidated financial statements.
 
 In
December 2007, the FASB issued authoritative guidance which establishes
principles and requirements for determining how an enterprise recognizes and
measures the fair value of certain assets and liabilities acquired in a business
combination, including non-controlling interests, contingent consideration, and
certain acquired contingencies. The guidance also requires acquisition-related
transaction expenses and restructuring costs be expensed as incurred rather than
capitalized as a component of the business combination. The guidance will be
applicable prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The adoption of this guidance did not have any
impact on the Company’s consolidated financial statements.
 
 In
December 2007, the FASB issued authoritative guidance which establishes
accounting and reporting standards for the non-controlling interest in a
subsidiary (previously referred to as minority interests). The guidance also
requires that a retained non-controlling interest upon the deconsolidation of a
subsidiary be initially measured at its fair value. Upon adoption this guidance,
the Company would be required to report any non-controlling interests as a
separate component of stockholders’ equity. The Company would also be required
to present any net income allocable to non-controlling interests and net income
attributable to the stockholders of the Company separately in its consolidated
statements of operations. The guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. The guidance requires retroactive adoption of the presentation and
disclosure requirements for existing minority interests, however, all other
requirements shall be applied prospectively. This guidance will not have a
material effect on the Company’s consolidated financial statements since the
Company does not have existing minority interests.
  26
 Table of Contents
  In March
2008, the FASB issued authoritative guidance intended to provide users of
employers’ financial statements with more informative disclosures about the
nature and valuation of postretirement benefit plan assets. The disclosures on
plan assets are effective for fiscal years ending after December 15,
2009.
 
 In April
2008, the FASB issued authoritative guidance that amends the factors that should
be considered in developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. The guidance also
requires expanded disclosure regarding the determination of intangible asset
useful lives. The guidance is effective for fiscal years beginning after
December 15, 2008. This guidance will not have a material impact on the
Company’s consolidated financial statements.
 
 In June
2009, the FASB issued authoritative guidance which requires additional
information regarding transfers of financial assets, including securitization
transactions, and where companies have continuing exposure to the risks related
to transferred financial assets. The guidance eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets, and requires additional disclosures. It is effective for
fiscal years beginning after November 15, 2009. The Company is currently
evaluating the impact that the adoption of this guidance will have on its
consolidated financial statements and disclosures.
 
 In June
2009, the FASB issued authoritative guidance which amends certain requirements
to improve financial reporting by enterprises involved with variable interest
entities and to provide more relevant and reliable information to users of
financial statements. The guidance will be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The Company is currently
evaluating the impact, if any, that this guidance will have on its consolidated
financial statements.
  27
 Table of Contents
  Former
Operations – Asset Retirement Obligation
 
 The
Company has accrued $485,000 as a liability on the balance sheet relating to the
estimated costs on plugging and abandonment of certain oil and gas properties in
Wichita Falls, Texas.  The Company acquired a lease in oil fields
located in Wichita County, Texas.    The Company uses SFAS
No. 143 to account for this obligation.  These properties were
abandoned and written off during the year ended September 30, 1999. During the
year ended September 30, 2009, the Company reached a settlement with the state
of Texas under which the Company paid $120,000 to fully satisfy its obligation
for plugging and abandonment of the properties and recognized a gain of $365,000
on settlement of the obligation.
 
 Results
of Operations
 
 Year
ended September 30, 2009 Compared to Year Ended September 30, 2008
 
 During
2009, the Company had general and administrative expenses of $4,202,809 compared
with $4,249,572 in fiscal 2008.  This decrease of $46,763 reflects the
fact that the Company’s operations and expenditures were tightly
maintained.
 
 During
2009, the Company had a net loss of $7,689,137, compared to a net loss of
$3,071,157 for fiscal 2008.  The three primary reasons for the
$4,617,980 increase in net loss for the year ended September 30, 2009 were: (i)
a $4,234,317 provision for loss on certificates of deposits in a financial
institution where certain restrictions were placed on the investment and a
receiver was appointed to takeover the institution.  (ii) a $819,460
decline in interest income as management moved deposits to non-interest bearing
accounts that provided greater security from loss; and (iii) partially offset by
a $365,000 gain from settlement of an asset retirement obligation with the State
of Texas.
 
 During
fiscal 2009 and 2008, the Company had no revenues from which cash flows could be
generated to support operations.  In fiscal 2009, the Company
continued to rely on cash generated from the 2006 sale of participation
interests in the three JDZ Blocks under production sharing contracts with
various joint venture partners to fund operations.
 
 Year
ended September 30, 2008 Compared to Year Ended September 30, 2007
 
 During
fiscal 2008, the Company had general and administrative expenses totaling
$4,249,572 compared with $4,954,848 in fiscal 2007. The primary reason for the
decrease in general and administrative expenses is a reduction in
legal and professional fees due to lower legal expenses in connection with all
the governmental agencies investigations of the Company. (See Item 3, Legal
Proceedings).
 
 During
2008, the Company had a net loss of $3,071,157, compared to a net loss of
$1,756,904 for fiscal 2007.  The primary reason for the increase in
net loss is due to the fact that the Company has no remaining tax benefits from
utilization of tax losses in 2008 because the Company is in a loss carry forward
position. In 2007, the Company generated tax benefits of $1,723,000 from
utilization of net operating losses.
 
 During
fiscal 2008 and 2007, the Company had no revenues from which cash flows could be
generated to support operations.  In fiscal 2008 and 2007, the Company
relied primarily upon cash generated from the 2006 sale of interests to fund
operations.
 
 Year
ended September 30, 2007 Compared to Year Ended September 30, 2006
 
 During
fiscal 2007, the Company had general and administrative expenses of $4,954,848
compared with $5,979,609 in fiscal 2006.  The decrease results
primarily from the grant of stock warrants for our outside consultants valued at
$1,145,000 in fiscal 2006 versus employee compensatory stock option expense of
$175,440 in fiscal 2007.
 
 During
2007, the Company had a net loss of $1,756,904, compared to a net income of
$23,171,536 for fiscal 2006.  The primary reason for the $24,928,440
decrease in net income for the year ended September 30, 2007 was due to a
$30,102,250 net gain in fiscal 2006 from the sale of participation interests in
the three JDZ Blocks under production sharing contracts with joint venture
partners.
 
 During
fiscal 2007 and 2006, the Company had no revenues from which cash flows could be
generated to support operations.  In fiscal 2007 and 2006, the Company
relied primarily upon cash generated from the 2006 sale of interests to fund
operations.
 
 Liquidity
and Capital Resources
 
 As of
September 30, 2009, the Company had working capital of
$19,424,021.  The Company believes that it has sufficient liquidity to
meet working capital requirements for the next twelve months.
  28
 Table of Contents
  The
Company believes that its working capital requirements for 2010 will be
approximately $4,000,000 based on maintaining operations at their current level.
Our consortium partners will pay all of ERHC’s future costs in respect of all
petroleum operations subject to total reimbursement upon production.
Accordingly, the commencement of drilling operations is not expected to have a
significant impact on our working capital requirements. Management believes that
our current cash resources will be adequate to maintain our planned operations
throughout the drilling and exploration phase of existing participation
agreements.
 
 Through
September 30, 2009, ERHC has incurred substantial costs in responding to the
investigations by the DOJ, SEC and Senate Subcommittee. Those costs consist
primarily of legal fees paid to the Company’s legal counsel, Akin Gump Strauss
Hauer & Feld LLP and document reproduction costs. These costs have had a
significant negative impact on the Company’s cash flows from
operations. ERHC is now involved in proceedings to protect its interests in
the JDZ and the EEZ.  ERHC anticipates the continued use of its cash
reserves to address ongoing investigations and protect its assets in the JDZ and
EEZ.. If continued at current levels this could have a serious negative impact
on the Company’s liquidity. Neither management nor its legal counsel can assess
the magnitude of future cash requirements that could result from prolonged
investigations or any negative findings that might arise from the
investigations. In a worst case scenario, the Company’s cash resources could be
exhausted and the Company’s status as a going concern could be brought into
question.
 
 Off-Balance
Sheet Arrangements
 
 As of
September 30, 2009, the Company does not have any off-balance sheet
arrangements.
 
 Contractual
Obligations and Commercial Commitments
 
 The
following table provides information at September 30, 2009, about the Company’s
contractual obligations and commercial commitments.  The table
presents contractual obligation by due dates and related contractual commitments
by expiration dates.
 
 Contractual
      Obligations
              
              Total
              
              
              Less
      than
                1
      year
              
              
              1
      – 3 Years
              
              
              3
      – 5 Years
              
              
              More
      than
                5
      YearsConvertible
      debt (1)
              
              $
              33,513
              
              
              $
              33,513
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Operating
      lease   (2)
              
              
              240,840
              
              
              
              107,040
              
              
              
              133,800
              
              
              
              -
              
              
              
              -Total
              
              $
              274,353
              
              
              $
              140,553
              
              
              $
              133,800
              
              
              $
              -
              
              
              $
              -
 
 (1)
              This
      represents a convertible note to Joseph Charles and Associates. However,
      the Company has been unable to locate the
payee.
 
 (2)
              Lease
      obligations consist of operating lease for office space. Office lease
      represent non-cancelable leases for office space used in our daily
      operations.
 
 Contingencies
and Legal Matters
 
 For a
detailed discussion of contingencies and legal matters, see “Item 3. Legal
Proceedings”.
  29
 Table of Contents
  Item7A.  Quantitative and Qualitative Disclosures about
Market Risk
 
 The
Company’s current focus is to exploit its primary assets, which are rights to
working interest in the JDZ and EEZ under agreements with the JDA and
DRSTP.  The Company intends to continue to form relationships with
other oil and gas companies with operational, technical and financial
capabilities to assist the Company in leveraging its interests in the EEZ and
the JDZ.  The Company currently has no other operations.
 
 At
September 30, 2009, all of the Company’s operations were located outside the
United States.  The Company’s primary assets are agreements with DRSTP
and the JDA, which provide ERHC with rights to participate in exploration and
production activities in the Gulf of Guinea off the coast of central West
Africa.  This geographic area of interest is controlled by foreign
governments that have historically experienced volatility, which is out of
management’s control. The Company’s ability to exploit its interests in the
agreements in this area may be impacted by this circumstance.
 
 The
future success of the Company’s international operations may also be adversely
affected by risks associated with international activities, including financial,
economic and labor conditions, political instability, risk of war,
expropriation, renegotiation or modification of existing contracts, tax laws
(including host-country import-export, excise and income taxes and United States
taxes on foreign subsidiaries) and changes in the value of the U.S. dollar
versus the local currencies in which future oil and gas producing activities may
be denominated.  Furthermore, changes in exchange rates may adversely
affect the Company’s future results of operations and financial
condition.
 
 Market
risks relating to the Company’s operations result primarily from changes in
interest rates as well as credit risk concentrations.  The Company’s
interest expense is generally not sensitive to changes in the general level of
interest rates in the United States, particularly because a substantial majority
of its indebtedness is at fixed rates.
 
 The
Company holds no derivative financial or commodity instruments.
  30
 Table of Contents
  Item8.  Financial Statements and Supplementary
Data
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGEINDEX
      TO CONSOLIDATED FINANCIAL STATEMENTSPage(s)Reports
      of Independent Public Accounting Firm:Report
      of Independent Registered Public Accounting Firm on Internal Control Over
      Financial Reporting as of September 30, 2009
              
              31Report
      of Independent Registered Public Accounting Firm on the Financial
      Statements for the Years ended September 30, 2009 and 2008
              
              32Consolidated
      Financial Statements:Consolidated
      Balance Sheets as of September 30, 2009 and 2008
              
              33Consolidated
      Statements of Operations for the Years Ended September 30, 2009, 2008 and
      2007, and for the period from inception, September 5, 1995, to September
      30, 2009
              
              34Consolidated
      Statements of Shareholders’ Equity (Deficit) for the period from
      inception, September 5, 1995, to September 30, 2009
              
              35Consolidated
      Statements of Cash Flows for the Years Ended September 30, 2009, 2008 and
      2007, and for the period from inception, September 5, 1995, to September
      30, 2009
              
              39Notes
      to Consolidated Financial Statements
              
              41Financial
      Statement Schedules:None
 
 
 All
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under instructions or
are inapplicable and therefore have been omitted.
  31
 Table of Contents
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Stockholders of
 ERHC
Energy Inc.
 Houston,
Texas
 
 
 We have
audited the internal control of ERHC Energy Inc. over its financial reporting as
of September 30, 2009 based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying “Management’s Annual Report on Internal Control
over Financial Reporting.” Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, ERHC Energy Inc. maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2009, based on
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of ERHC Energy
Inc. as of September 30, 2009 and 2008, and the related consolidated statements
of operations, shareholders’ equity and cash flows for the three years ended
September 30, 2009, and our reports dated December 11, 2009 expressed an
unqualified opinion on those consolidated financial statements.
 
 
 Malone
& Bailey, PC
 www.malone-bailey.com
 Houston,
Texas
 
 December
11, 2009
  32
 Table of Contents
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Stockholders of
 ERHC
Energy Inc.
 Houston,
Texas
 
 
 We have
audited the accompanying consolidated balance sheets of ERHC Energy Inc., a
corporation in the development stage, as of September 30, 2009 and 2008 and the
related consolidated statements of operations, shareholders’ equity and cash
flows for the three years ended September 30, 2007, 2008 and
2009.  These financial statements are the responsibility of ERHC’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ERHC as of September 30,
2009 and 2008, and the results of its operations and its cash flows for the
three years ended September 30, 2007, 2008 and 2009, in conformity with
accounting principles generally accepted in the United States of
America.
 
 We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of ERHC’s internal control
over financial reporting as of September 30, 2009, based on criteria established
inInternal Control –
Integrated Framework   issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
December 11, 2009 expressed an unqualified opinion on management’s assessment of
internal control over financial reporting and an unqualified opinion on the
effectiveness of internal control over financial reporting.
 
 
 Malone
& Bailey, PC
 www.malone-bailey.com
 Houston,
Texas
 
 December
11, 2009
  33
 Table of Contents
  ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      BALANCE SHEETSSeptember
      30, 2009 and 20082009
                    
                    
                    2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    22,428,728
                    
                    
                    $
                    31,757,012Prepaid
      expenses and other
                    
                    
                    447,345
                    
                    
                    
                    199,419Total
      current assets
                    
                    
                    22,876,073
                    
                    
                    
                    33,974,829DRSTP
      concession fee
                    
                    
                    2,839,500
                    
                    
                    
                    2,839,500Furniture
      and equipment, net
                    
                    
                    67,275
                    
                    
                    
                    66,093Certificate
      of deposit
                    
                    
                    1,058,579
                    
                    
                    
                    -Deferred
      tax asset
                    
                    
                    2,018,398
                    
                    
                    
                    2,018,398Total
      assets
                    
                    $
                    28,859,828
                    
                    
                    $
                    36,880,422LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
                    
                    $
                    5,050,590
                    
                    
                    $
                    5,025,794Accounts
      payable and accrued liabilities, related party
                    
                    
                    115,236
                    
                    
                    
                    354,934Accrued
      interest
                    
                    
                    10,561
                    
                    
                    
                    8,719Asset
      retirement obligation
                    
                    
                    -
                    
                    
                    
                    485,000Current
      portion of convertible debt
                    
                    
                    33,513
                    
                    
                    
                    33,513Total
      current liabilities
                    
                    
                    5,209,900
                    
                    
                    
                    5,907,960Commitments
      and contingencies:Shareholders'
      equity:Preferred
      stock, par value $0.0001; authorized 10,000,000; none issued and
      outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, par value $0.0001; authorized 950,000,000 shares; issued and
      outstanding 723,030,444 and 721,938,569at September 30, 2009 and September
      30, 2008, respectively
                    
                    
                    72,308
                    
                    
                    
                    72,224Additional
      paid-in capital
                    
                    
                    92,330,993
                    
                    
                    
                    91,964,474Accumulated
      deficit
                    
                    
                    (68,753,373
                    )
                    
                    
                    (61,064,236
                    )Total
      shareholders’ equity
                    
                    
                    23,649,925
                    
                    
                    
                    30,972,462Total
      liabilities and shareholders' equity
                    
                    $
                    28,859,825
                    
                    
                    $
                    36,880,422
 The
accompanying notes are an integral part of these financial
statements
  34
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the Years Ended September 30, 2007, 2008 and 2009 and for the
      PeriodFrom
      Inception, September 5, 1995, to September 30, 2009Inception
      to September 30,2007
              
              
              2008
              
              
              2009
              
              
              2009Costs
      and expenses:General
      and administrative
              
              $
              4,954,848
              
              
              $
              4,249,572
              
              
              $
              4,202,809
              
              
              $
              72,545,491Depreciation
      and depletion
              
              
              21,917
              
              
              
              30,571
              
              
              
              36,897
              
              
              
              1,453,398Gain
      on sale of partial interest in DRSTP concession
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (30,102,250
              )Write-offs
      and abandonments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              7,742,128Total
      costs and expenses
              
              
              (4,976,765
              )
              
              
              (4,280,143
              )
              
              
              (4,239,706
              )
              
              
              (51,638,767
              )Other
      income and (expenses):Interest
      income
              
              
              1,998,704
              
              
              
              1,241,189
              
              
              
              421,729
              
              
              
              4,811,257Gain
      (loss) from settlements
              
              
              (500,000
              )
              
              
              -
              
              
              
              365,000
              
              
              
              117,310Other
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              439,827Interest
      expense
              
              
              (1,843
              )
              
              
              (1,843
              )
              
              
              (1,843
              )
              
              
              (12,128,748
              )Provision
      for loss on deposits
              
              
              -
              
              
              
              -
              
              
              
              (4,234,317
              )
              
              
              (4,234,317
              )Loss
      on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,749,575
              )Total
      other income and (expenses), net
              
              
              1,496,861
              
              
              
              1,239,346
              
              
              
              (3,449,431
              )
              
              
              (16,744,246
              )Income
      (loss) before benefit (provision) for income taxes
              
              
              (3,479,904
              )
              
              
              (3,040,797
              )
              
              
              (7,689,137
              )
              
              
              (68,383,013
              )Benefit
      (provision) for income taxes:Current
              
              
              1,243,000
              
              
              
              449,640
              
              
              
              -
              
              
              
              (1,330,360
              )Deferred
              
              
              480,000
              
              
              
              (480,000
              )
              
              
              -
              
              
              
              960,000Total
      benefit (provision) for income taxes
              
              
              1,723,000
              
              
              
              (30,360
              )
              
              
              -
              
              
              
              (370,360
              )Net
      income (loss)
              
              $
              (1,756,904
              )
              
              $
              (3,071,157
              )
              
              $
              (7,689,137
              )
              
              $
              (68,753,373
              )Net
      loss per common share -basic and diluted
              
              $
              (0.00
              )
              
              $
              (0.00
              )
              
              $
              (0.01
              )Weighted
      average number of shares of common shares outstanding:Basic
              
              
              720,966,165
              
              
              
              722,182,831
              
              
              
              722,794,828Diluted
              
              
              720,966,165
              
              
              
              722,182,831
              
              
              
              722,794,828
 
 
 The
accompanying notes are an integral part of these financial
statements
  35
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFor
      the Period from Inception, September 5, 1995, to September 30, 2009,
      (Unaudited for thePeriod
      from Inception to September 30, 1998)Common
      Stock
              
              
              Additional
      Paid-In
              
              
              Accumulated
              
              
              Subscription
              
              
              DeferredShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Receivable
              
              
              Compensation
              
              
              TotalBalance
      at September 5, 1995
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Common
      stock issued for cash
              
              
              884,407
              
              
              
              88
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              88Common
      stock issued for services
              
              
              755,043
              
              
              
              76
              
              
              
              499,924
              
              
              
              -
              
              
              
              -
              
              
              
              (500,000
              )
              
              
              -Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,404
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,404
              )Balance
      at September 30, 1995
              
              
              1,639,450
              
              
              
              164
              
              
              
              499,924
              
              
              
              (3,404
              )
              
              
              -
              
              
              
              (500,000
              )
              
              
              (3,316
              )Common
      stock issued for cash, net of expenses
              
              
              361,330
              
              
              
              36
              
              
              
              124,851
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              124,887Common
      stock issued for services
              
              
              138,277
              
              
              
              14
              
              
              
              528,263
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              528,277Common
      stock issued for equipment
              
              
              744,000
              
              
              
              74
              
              
              
              3,719,926
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,720,000Effect
      of reverse merger
              
              
              1,578,470
              
              
              
              158
              
              
              
              (243,488
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (243,330
              )Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              72,500
              
              
              
              72,500Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (728,748
              )
              
              
              -
              
              
              
              -
              
              
              
              (728,748
              )Balance
      at September 30, 1996
              
              
              4,461,527
              
              
              
              446
              
              
              
              4,629,476
              
              
              
              (732,152
              )
              
              
              -
              
              
              
              (427,500
              )
              
              
              3,470,270Common
      stock issued for cash
              
              
              2,222,171
              
              
              
              222
              
              
              
              1,977,357
              
              
              
              -
              
              
              
              (913,300
              )
              
              
              -
              
              
              
              1,064,279Common
      stock issued for services
              
              
              9,127,981
              
              
              
              913
              
              
              
              12,430,725
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              12,431,638Common
      stock issued for oil and gas leases and properties
              
              
              500,000
              
              
              
              50
              
              
              
              515,575
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              515,625Common
      stock issued forChevron
      contract
              
              
              3,000,000
              
              
              
              300
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              300Common
      stock issued forBAPCO
      acquisition
              
              
              4,000,000
              
              
              
              400
              
              
              
              499,600
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              500,000Contributed
              
              
              (100,000
              )
              
              
              (10
              )
              
              
              (99,990
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (100,000
              )Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              177,500
              
              
              
              177,500Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (16,913,052
              )
              
              
              -
              
              
              
              -
              
              
              
              (16,913,052
              )Balance
      at September 30, 1997
              
              
              23,211,679
              
              
              
              2,321
              
              
              
              19,952,743
              
              
              
              (17,645,204
              )
              
              
              (913,300
              )
              
              
              (250,000
              )
              
              
              1,146,560Common
      stock and warrants issued for cash
              
              
              1,124,872
              
              
              
              113
              
              
              
              972,682
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              972,795Common
      stock issued for services
              
              
              1,020,320
              
              
              
              102
              
              
              
              1,526,878
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,526,980Common
      stock issued for Uinta acquisition
              
              
              1,000,000
              
              
              
              100
              
              
              
              1,999,900
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,000,000Common
      stock issued forNueces
      acquisition
              
              
              50,000
              
              
              
              5
              
              
              
              148,745
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              148,750Common
      stock issued for accounts payable
              
              
              491,646
              
              
              
              49
              
              
              
              337,958
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              338,007Beneficial
      conversion feature associated with convertible debt
              
              
              -
              
              
              
              -
              
              
              
              1,387,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,387,500Receipt
      of subscription receivable
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              913,300
              
              
              
              -
              
              
              
              913,300Option
      fee and penalty
              
              
              299,536
              
              
              
              30
              
              
              
              219,193
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              219,223Common
      stock issued for building equity
              
              
              24,000
              
              
              
              2
              
              
              
              69,998
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              70,000Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              125,000
              
              
              
              125,000Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (11,579,024
              )
              
              
              -
              
              
              
              -
              
              
              
              (11,579,024
              )Balance
      at September 30, 1998
              
              
              27,222,053
              
              
              $
              2,722
              
              
              $
              26,615,597
              
              
              $
              (29,224,228
              )
              
              $
              -
              
              
              $
              (125,000
              )
              
              $
              (2,730,909
              )
 
 
 The
accompanying notes are an integral part of these financial
statements
  36
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFor
      the Period from Inception, September 5, 1995, to September 30, 2009,
      (Unaudited for thePeriod
      from Inception to September 30, 1998)Common
      Stock
              
              
              Additional
      Paid-In
              
              
              Accumulated
              
              
              Subscription
              
              
              DeferredShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Receivable
              
              
              Compensation
              
              
              TotalBalance
      at September 30, 1998
              
              
              27,222,053
              
              
              $
              2,722
              
              
              $
              26,615,597
              
              
              $
              (29,224,228
              )
              
              $
              -
              
              
              $
              (125,000
              )
              
              $
              (2,730,909
              )Common
      stock issued for cash
              
              
              397,040,000
              
              
              
              39,704
              
              
              
              2,062,296
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,102,000Common
      stock issued for services
              
              
              7,169,000
              
              
              
              717
              
              
              
              1,034,185
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,034,902Common
      stock issued for Uinta settlement
              
              
              7,780,653
              
              
              
              778
              
              
              
              2,541,161
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,541,939Common
      stock surrendered inBAPCO
      settlement
              
              
              7,744,000
              )
              
              
              (774
              )
              
              
              (2,709,626
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,710,400
              )Common
      stock issued for accounts payable
              
              
              10,843,917
              
              
              
              1,084
              
              
              
              769,139
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              770,223Common
      stock issued for conversion of debt and payment of accrued interest and
      penalties
              
              
              31,490,850
              
              
              
              3,149
              
              
              
              5,998,915
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,002,064Common
      stock issued for officers' salary and bonuses
              
              
              10,580,000
              
              
              
              1,058
              
              
              
              4,723,942
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,725,000Common
      stock issued for shareholder loans and accrued interest
      payable
              
              
              3,939,505
              
              
              
              394
              
              
              
              771,318
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              771,712Reclassification
      of common stock previously presented as a liability
              
              
              750,000
              
              
              
              75
              
              
              
              1,499,925
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,500,000Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              125,000
              
              
              
              125,000Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (19,727,835
              )
              
              
              -
              
              
              
              -
              
              
              
              (19,727,835
              )Balance
      at September 30, 1999
              
              
              489,071,978
              
              
              
              48,907
              
              
              
              43,306,852
              
              
              
              (48,952,063
              )
              
              
              -
              
              
              
              -
              
              
              
              (5,596,304
              )Common
      stock issued for conversion of debt and payment of accrued interest and
      penalties
              
              
              7,607,092
              
              
              
              761
              
              
              
              295,120
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              295,881Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,958,880
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,958,880
              )Balance
      at September 30, 2000
              
              
              496,679,070
              
              
              
              49,668
              
              
              
              43,601,972
              
              
              
              (50,910,943
              )
              
              
              -
              
              
              
              -
              
              
              
              (7,259,303
              )Common
      stock issued for services
              
              
              37,000,000
              
              
              
              3,700
              
              
              
              1,846,300
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,850,000Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (6,394,810
              )
              
              
              -
              
              
              
              -
              
              
              
              (6,394,810
              )Balance
      at September 30, 2001
              
              
              533,679,070
              
              
              
              53,368
              
              
              
              45,448,272
              
              
              
              (57,305,753
              )
              
              
              -
              
              
              
              -
              
              
              
              (11,804,113
              )Common
      stock issued for cash net of expenses
              
              
              4,000,000
              
              
              
              400
              
              
              
              643,100
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              643,500Common
      stock issued for services
              
              
              3,475,000
              
              
              
              348
              
              
              
              527,652
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              528,000Common
      stock issued for accounts payable
              
              
              4,407,495
              
              
              
              440
              
              
              
              817,757
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              818,197Common
      stock issued for con -version of debt and pay-ment of accrued interest and
      penalties
              
              
              7,707,456
              
              
              
              771
              
              
              
              1,540,721
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,541,492Common
      stock issued for officer's salary and bonuses
              
              
              2,700,000
              
              
              
              270
              
              
              
              289,730
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              290,000Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,084,210
              )
              
              
              -
              
              
              
              -
              
              
              
              (4,084,210
              )Balance
      at September 30, 2002
              
              
              555,969,021
              
              
              $
              55,597
              
              
              $
              49,267,232
              
              
              $
              (61,389,963
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              (12,067,134
              )
 
 
 The
accompanying notes are an integral part of these financial
statements
  37
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFor
      the Period from Inception, September 5, 1995, to September 30, 2009,
      (Unaudited for thePeriod
      from Inception to September 30, 1998)Common
      Stock
              
              
              Additional
      Paid-In
              
              
              Accumulated
              
              
              Subscription
              
              
              DeferredShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Receivable
              
              
              Compensation
              
              
              TotalBalance
      at September 30, 2002
              
              
              555,969,021
              
              
              $
              55,597
              
              
              $
              49,267,232
              
              
              $
              (61,389,963
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              (12,067,134
              )Common
      stock issued for cash, net of expenses
              
              
              9,440,000
              
              
              
              944
              
              
              
              1,071,556
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,072,500Common
      stock issued for accounts payable
              
              
              1,527,986
              
              
              
              153
              
              
              
              177,663
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              177,816Common
      stock issued for con -version of debt and payment of accrued
      interest
              
              
              17,114,740
              
              
              
              1,711
              
              
              
              3,421,227
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,422,938Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,153,882
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,153,882
              )Balance
      at September 30, 2003
              
              
              584,051,747
              
              
              
              58,405
              
              
              
              53,937,678
              
              
              
              (64,543,845
              )
              
              
              -
              
              
              
              -
              
              
              
              (10,547,762
              )Common
      stock issued for cash,  net of expenses
              
              
              3,231,940
              
              
              
              323
              
              
              
              974,677
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              975,000Common
      stock issued for accounts payable
              
              
              1,458,514
              
              
              
              146
              
              
              
              533,102
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              533,248Common
      stock issued for con -version of debt and payment of accrued
      interest
              
              
              11,185,052
              
              
              
              1,119
              
              
              
              2,236,093
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,237,212Common
      stock issued for Proceeds received in 2003
              
              
              1,000,000
              
              
              
              100
              
              
              
              (100
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Beneficial
      conversion feature associated with the con-vertible line of
      credit
              
              
              -
              
              
              
              -
              
              
              
              1,058,912
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,058,912Options
      issued to employee
              
              
              -
              
              
              
              -
              
              
              
              765,000
              
              
              
              -
              
              
              
              -
              
              
              
              (765,000
              )
              
              
              -Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              308,126
              
              
              
              308,126Common
      stock issued for cash-less exercise of options and/or
    warrants
              
              
              247,882
              
              
              
              25
              
              
              
              (25
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,593,388
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,593,388
              )Balance
      at September 30, 2004
              
              
              601,175,135
              
              
              
              60,118
              
              
              
              59,505,337
              
              
              
              (68,137,233
              )
              
              
              -
              
              
              
              (456,874
              )
              
              
              (9,028,652
              )Common
      stock issued for accounts payable
              
              
              735,000
              
              
              
              73
              
              
              
              359,716
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              359,789Common
      stock issued for con -version of debt and payment of accrued
      interest
              
              
              107,819,727
              
              
              
              10,782
              
              
              
              22,678,054
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              22,688,836Common
      stock issued in settle-ment of lawsuits
              
              
              595,000
              
              
              
              59
              
              
              
              394,391
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              394,450Variable
      accounting for repriced employee stock options
              
              
              -
              
              
              
              -
              
              
              
              300,000
              
              
              
              -
              
              
              
              -
              
              
              
              (300,000
              )
              
              
              -Beneficial
      conversion feature associated with the con-vertible line of
      credit
              
              
              -
              
              
              
              -
              
              
              
              347,517
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              347,517Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              449,737
              
              
              
              449,737Common
      stock issued for cash-less exercise of options and/or
    warrants
              
              
              587,364
              
              
              
              59
              
              
              
              (59
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (11,270,478
              )
              
              
              -
              
              
              
              -
              
              
              
              (11,270,478
              )Balance
      at September 30, 2005
              
              
              710,912,226
              
              
              $
              71,091
              
              
              $
              83,584,956
              
              
              $
              (79,407,711
              )
              
              $
              -
              
              
              $
              (307,137
              )
              
              $
              3,941,199
 
 
 The
accompanying notes are an integral part of these financial
statements
  38
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFor
      the Period from Inception, September 5, 1995, to September 30, 2009,
      (Unaudited for thePeriod
      from Inception to September 30, 1998)Common
      Stock
              
              
              Additional
      Paid-In
              
              
              Accumulated
              
              
              Subscription
              
              
              DeferredShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Receivable
              
              
              Compensation
              
              
              TotalBalance
      at September 30, 2005
              
              
              710,912,226
              
              
              $
              71,091
              
              
              $
              83,584,956
              
              
              $
              (79,407,711
              )
              
              $
              -
              
              
              $
              (307,137
              )
              
              $
              3,941,199Common
      stock issued for services
              
              
              4,665,000
              
              
              
              467
              
              
              
              1,976,081
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,976,548Variable
      accounting for repriced employee stock options
              
              
              -
              
              
              
              -
              
              
              
              (60,660
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (60,660
              )Issuance
      of warrants for success fee
              
              
              -
              
              
              
              -
              
              
              
              5,154,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,154,500Issuance
      of options as comp-ensation to consultants
              
              
              -
              
              
              
              -
              
              
              
              1,145,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,145,000Common
      stock issued upon exercise of warrants
              
              
              800,000
              
              
              
              80
              
              
              
              159,920
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              160,000Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              (307,137
              )
              
              
              -
              
              
              
              -
              
              
              
              307,137
              
              
              
              -Common
      stock issued for cash-less exercise of options and/or
    warrants
              
              
              2,611,756
              
              
              
              261
              
              
              
              261
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              23,171,536
              
              
              
              -
              
              
              
              -
              
              
              
              23,171,536Balance
      at September 30, 2006
              
              
              718,988,982
              
              
              
              71,899
              
              
              
              91,652,399
              
              
              
              (56,236,175
              )
              
              
              -
              
              
              
              -
              
              
              
              35,488,123Accounting
      for employee stock options
              
              
              -
              
              
              
              -
              
              
              
              175,440
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              175,440Common
      stock issued upon exercise of warrants
              
              
              2,949,587
              
              
              
              294
              
              
              
              (294
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,756,904
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,756,904
              )Balance
      at September 30, 2007
              
              
              721,938,569
              
              
              
              72,193
              
              
              
              91,827,545
              
              
              
              (57,993,079
              )
              
              
              -
              
              
              
              -
              
              
              
              33,906,659Common
      stock issued for services
              
              
              300,000
              
              
              
              31
              
              
              
              88,469
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              88,500Accounting
      for employee stock options
              
              
              -
              
              
              
              -
              
              
              
              48,460
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              48,460Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,071,157
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,071,157
              )Balance
      at September 30, 2008
              
              
              722,238,569
              
              
              
              72,224
              
              
              
              91,964,474
              
              
              $
              (61,064,236
              )
              
              
              -
              
              
              
              -
              
              
              
              30,972,462Common
      stock issued for services
              
              
              811,875
              
              
              
              81
              
              
              
              366,519
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              366,600Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (7,689,137
              )
              
              
              -
              
              
              
              -
              
              
              
              (7,689,137
              )Balance
      at September 30, 2009
              
              
              723,050,444
              
              
              $
              72,305
              
              
              $
              92,332,543
              
              
              $
              (68,753,373
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              23,649,925
 
 
 The
accompanying notes are an integral part of these financial
statements
  39
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Years Ended September 30, 2007, 2008 and 2009 and for the Period
      FromInception,
      September 5, 1995 to September 30, 2009"Unaudited"
      Inception to September 30,2007
              
              
              2008
              
              
              2009
              
              
              2009Cash
      Flows From Operating ActivitiesNet
      income (loss)
              
              $
              (1,756,904
              )
              
              $
              (3,071,157
              )
              
              $
              (7,689,137
              )
              
              $
              (68,753,373
              )Adjustments
      to reconcile net income (loss) to net cash used by operating
      activities:Depreciation
      and depletion expense
              
              
              21,917
              
              
              
              30,571
              
              
              
              36,897
              
              
              
              1,453,398Provision
      for loss on deposits
              
              
              -
              
              
              
              -
              
              
              
              4,234,317
              
              
              
              4,234,317Write-offs
      and abandonments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              7,742,128Deferred
      income taxes
              
              
              (1,088,758
              )
              
              
              30,360
              
              
              
              -
              
              
              
              (2,018,398
              )Compensatory
      stock options
              
              
              175,440
              
              
              
              48,460
              
              
              
              -
              
              
              
              1,308,240Gain
      from settlement
              
              
              -
              
              
              
              -
              
              
              
              (365,000
              )
              
              
              (617,310
              )Gain
      on sale of partial interest inDRSTP
      concession
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (30,102,250
              )Amortization
      of beneficial conversion feature associated with convertible
      debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,793,929Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,257,863Loss
      on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,682,368Stock
      issued for services
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              20,897,077Stock
      issued for settlements
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              225,989Stock
      issued for officer bonuses
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,015,000Stock
      issued for interest and penalties on convertible debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,631,768Stock
      issued for board compensation
              
              
              -
              
              
              
              88,500
              
              
              
              366,600
              
              
              
              2,431,648Changes
      in operating assets and liabilities:Prepaid
      expenses and other current assets
              
              
              893,077
              
              
              
              (19,464
              )
              
              
              (247,926
              )
              
              
              (447,344
              )Accounts
      payable and other accrued liabilities
              
              
              (1,598,173
              )
              
              
              (156,342
              )
              
              
              26,640
              
              
              
              (2,742,598
              )Income
      tax payable
              
              
              (3,013,147
              )
              
              
              -
              
              
              
              -
              
              
              
              0Accounts
      payable and accrued liabilities, related party
              
              
              169,175
              
              
              
              116,319
              
              
              
              (239,700
              )
              
              
              115,233Accrued
      interest - related party
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Accrued
      retirement obligation
              
              
              -
              
              
              
              -
              
              
              
              (120,000
              )
              
              
              365,000Net
      cash used by operating activities
              
              
              (6,197,373
              )
              
              
              (2,932,753
              )
              
              
              (3,997,309
              )
              
              
              (40,527,315
              )
 
 
 The
accompanying notes are an integral part of these financial
statements
  40
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGECONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Years Ended September 30, 2007, 2008 and 2009 and for the Period
      FromInception,
      September 5, 1995 to September 30, 2009Inception
      to September 30,2007
                
                
                2008
                
                
                2009
                
                
                2009Cash
      Flows From Investing ActivitiesPurchase
      of long-term investment
                
                $
                -
                
                
                $
                -
                
                
                $
                (5,292,896
                )
                
                $
                (5,292,896
                )Purchase
      of DRSTP concession
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (5,679,000
                )Proceeds
      from sale of partial interest in DRSTP concession
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                45,900,000Purchase
      of furniture and equipment
                
                
                (71,808
                )
                
                
                (32,168
                )
                
                
                (38,079
                )
                
                
                (947,447
                )Net
      cash provided (used) by investing activities
                
                
                (71,808
                )
                
                
                (32,168
                )
                
                
                (5,330,975
                )
                
                
                33,980,657Cash
      Flows From Financing Activities:Proceeds
      from warrants exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                160,000Proceeds
      from common stock, net of expenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,955,049Proceeds
      from line of credit, related party
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,750,000Proceeds
      from non-convertible debt, related party
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                158,700Proceeds
      from convertible debt, related party
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8,207,706Proceeds
      from sale of convertible debt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,019,937Proceeds
      from bank borrowing
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                175,000Proceeds
      from stockholder loans
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,845,809Proceeds
      from stock subscription receivable
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                913,300Repayment
      of shareholder loans
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,020,607
                )Repayment
      of long-term debt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (189,508
                )Net
      cash provided by financing activities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                28,975,386Net
      increase (decrease) in cash  and cash
equivalents
                
                
                (6,269,181
                )
                
                
                (2,964,921
                )
                
                
                (9,328,284
                )
                
                
                22,428,728Cash
      and cash equivalents, beginning of period
                
                
                40,991,114
                
                
                
                34,721,933
                
                
                
                31,757,012
                
                
                
                -Cash
      and cash equivalents, end of period
                
                $
                34,721,933
                
                
                $
                31,757,012
                
                
                $
                22,428,728
                
                
                $
                22,428,728
 
 
 The
accompanying notes are an integral part of these financial
statements
  41
 Table of Contents
 
 ERHC
      ENERGY INC.A
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSFor
      the Years Ended September 30, 2007, 2008 and 2009 and for the Period
      FromInception,
      September 5, 1995 to September 30,
2009
 
 Note
1 – Summary of Significant Accounting Policies
 
 General
Business and Nature of Operations
 
 ERHC
Energy Inc. is an independent oil and gas company that reports as a development
stage enterprise because there are currently no significant operations and no
revenue has been generated from business activities.  ERHC was formed
in 1986, as a Colorado corporation, and was engaged in a variety of businesses
until 1996, when it began its current operations as an independent oil and gas
company.  ERHC’s goal is to maximize its value through exploration and
exploitation of oil and gas reserves in the Gulf of Guinea offshore of central
West Africa.  The Company’s current focus is to exploit its primary
assets, which are rights to working interests in exploration acreage in the JDZ
between the Democratic Republic of Sao Tome and Principe (“DRSTP”) and the
Federal Republic of Nigeria (“FRN”) and in the exclusive waters of Sao Tome (the
“Exclusive Economic Zone” or “EEZ”).  The Company has formed
relationships with upstream oil and gas companies to assist the Company in
exploiting its assets in the JDZ as further described in Note 4.  ERHC
currently has no other operations.
 
 Consolidated
Financial Statements
 
 The
consolidated financial statements include the accounts of ERHC and its wholly
owned subsidiaries, after elimination of all significant inter-company accounts
and transactions.
 
 Use
of Estimates
 
 The
consolidated financial statements have been prepared in conformity with US.
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period for the years then ended.
Actual results could differ significantly from those estimates.
 
 Reclassification
 
 Certain
prior year amounts have been reclassified to conform with the current year
presentation.
 
 Concentration
of Risks
 
 ERHC
primarily transacts its business with four financial institutions. From time to
time the amount on deposit in one or all of these institutions may exceed the
$250,000 federally insured limit.  The balances are maintained in
demand accounts to minimize risk.
 
 ERHC’s
focus is to exploit its assets which are agreements with the DRSTP concerning
oil and gas exploration in EEZ and with the JDA concerning oil and gas
exploration in the JDZ.  ERHC has formed relationships with Sinopec
International Petroleum Exploration and Production Corporation Nigeria
(“Sinopec”), and Addax Energy Nigeria Limited (“Addax Ltd.”) to assist ERHC in
leveraging its interests in the EEZ and the JDZ. ERHC currently has no other
operations.
 
 Cash
Equivalents
 
 ERHC
considers all highly liquid short-term investments with an original maturity of
three months or less, when purchased, to be cash equivalents.
 
 Furniture,
Fixtures and Equipments
 
 Furniture,
fixtures and equipment are stated at cost and include expenditures for renewals
and improvements and capitalized interest. Maintenance and repairs are charged
to current operations. When property is retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the respective
accounts, and any gain or loss on disposition is included in income.
Depreciation is provided principally on the straight-line method over the
estimated service lives of the assets. In general, office furniture is
depreciated over 7 years, office equipment over 5 years and computer equipment
over 3 years.
  42
 Table of Contents
  Fair
Value of Financial Instruments
 
 Effective
October 1, 2008, ERHC adopted new fair value measurements guidance for financial
assets and financial liabilities. In adopting the guidance the
Company  delayed application of  the fair value measurements
for non-financial assets and non-financial liabilities, until October 1, 2009.
The new guidance defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements.
 
 The new
guidance defines fair value as the price that would be received to sell an
asset, or paid to transfer a liability, in an orderly transaction between market
participants. The new guidance establishes a fair value hierarchy for valuation
inputs that gives the highest priority to quoted prices in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs.
The fair value hierarchy is as follows:
 
 •
              Level
      1 Inputs—Unadjusted quoted prices in active markets for identical assets
      or liabilities that the reporting entity has the ability to access at the
      measurement date.
 
 •
              Level
      2 Inputs—Inputs other than quoted prices included in Level 1 that are
      observable for the asset or liability, either directly or indirectly.
      These might include quoted prices for similar assets or liabilities in
      active markets, quoted prices for identical or similar assets or
      liabilities in markets that are not active, inputs other than quoted
      prices that are observable for the asset or liability (such as interest
      rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that
      are derived principally from or corroborated by market data by correlation
      or other means.
 
 •
              Level
      3 Inputs—Unobservable inputs for determining the fair values of assets or
      liabilities that reflect an entity's own assumptions about the assumptions
      that market participants would use in pricing the assets or
      liabilities.
 
 Cash
Equivalents.    Cash equivalents are reported at fair value
utilizing Level 1 Inputs. We obtain quoted market prices in identical markets to
estimate the fair value of its cash equivalents.
 
 The
adoption of the new guidance  did not significantly change the
valuation techniques we had previously utilized prior to its
adoption.
 Financial
instruments consist of cash and cash equivalents, accounts receivable,
installments receivable, collateralized receivables, accounts payable and
secured borrowings.
 
 Successful
Efforts
 
 ERHC uses
the successful efforts method of accounting for oil and gas producing
activities.  Under this method, acquisition costs for proved and
unproved properties are capitalized when incurred.  Exploration costs,
including geological and geophysical costs, the costs of carrying and retaining
unproved properties and exploratory dry hole drilling costs, are
expensed.  Development costs, including the costs to drill and equip
development wells and successful exploratory drilling costs to locate proved
reserves are capitalized. Exploratory drilling costs are capitalized when
incurred pending the determination of whether a well has found proved
reserves.  A determination of whether a well has found proved reserves
is made shortly after drilling is completed. The determination is based on a
process that relies on interpretations of available geologic, geophysic, and
engineering data.  If a well is determined to be successful, the
capitalized drilling costs will be reclassified as part of the cost of the
well.  If a well is determined to be unsuccessful, the capitalized
drilling costs will be charged to expense in the period the determination is
made.  If an exploratory well requires a major capital expenditure
before production can begin, the cost of drilling the exploratory well will
continue to be carried as an asset pending determination of whether proved
reserves have been found only as long as: i) the well has found a sufficient
quantity of reserves to justify its completion as a producing well if the
required capital expenditure is made and ii) drilling of the additional
exploratory wells is under way or firmly planned for the near
future.  If drilling in the area is not under way or firmly planned,
or if the well has not found a commercially producible quantity of reserves, the
exploratory well is assumed to be impaired, and its costs are charged to
expense.
 
 In the
absence of a determination as to whether the reserves that have been found can
be classified as proved, the costs of drilling such an exploratory well is not
carried as an asset for more than one year following completion of
drilling.  If, after that year has passed, a determination that proved
reserves exist cannot be made, the well is assumed to be impaired, and its costs
are charged to expense.  Its costs can, however, continue to be
capitalized if sufficient quantities of reserves are discovered in the well to
justify its completion as a producing well and sufficient progress is made in
assessing the reserves and the well’s economic and operating
feasibility.
 
 The
impairment of unamortized capital costs is measured at a lease level and is
reduced to fair value if it is determined that the sum of expected future net
cash flows is less than the net book value. ERHC determines if impairment has
occurred through either adverse changes or as a result of the annual review of
all fields.
  43
 Table of Contents
  Development
costs of proved oil and gas properties, including estimated dismantlement,
restoration and abandonment costs and acquisition costs, are depreciated and
depleted on a field basis by the units-of-production method using proved
developed and proved reserves, respectively. The costs of unproved oil and gas
properties are generally combined and impaired over a period that is based on
the average holding period for such properties and the Company’s experience of
successful drilling.
 
 Asset
Retirement Obligation
 
 ERHC’s
asset retirement obligation relates to the plugging and abandonment of certain
oil and gas properties in Wichita Falls, Texas. The provisions of SFAS No. 143
require the fair value of a liability for an asset retirement obligation to be
recorded and a corresponding increase in the carrying amount of the associated
asset.  The cost of the tangible asset, including the initially
recognized asset retirement cost is depleted over the useful life of the
asset.  If the fair value of the estimated asset retirement obligation
changes, an adjustment is recorded to the retirement obligation and the asset
retirement cost. The offsetting ARO liability is recorded at fair value, and
accretion expense recognized as the discounted liability is accreted to its
expected settlement value.  The fair value of the ARO asset and
liability is measured using expected future cash out flows discounted at the
Company’s credit adjusted risk free interest rate. These oil and gas properties
were abandoned and written off during the year ended September 30, 1999 and the
current liability is fully accreted and represents management’s best estimate of
the fair value of the outstanding obligation. During the year ended September
30, 2009, the Company settled the asset retirement obligation by paying $120,000
and recognized a gain of $365,000
 
 Impairment
of Long-lived Assets
 
 ERHC
evaluates the recoverability of long-lived assets when events and circumstances
indicate that such assets might be impaired.  ERHC determines
impairment by comparing the undiscounted future cash flows estimated to be
generated by these assets to their respective carrying
amounts.  Impairments are charged to operations in the period to which
events and circumstances indicate that such assets might be
impaired.  ERHC has evaluated its investment in its DRSTP concession
fee in light of its 2003 Option Agreement (see Note 4) and there have been no
events or circumstances that would indicate that such asset might be
impaired.
 
 Income
Taxes
 Income
taxes are accounted for under the under the assets and liability
method.  Under this method, the deferred tax assets and liabilities
are estimated based upon the difference between the financial statement and tax
bases of assets and liabilities using tax rates in effect for the year in which
the Company expects the differences to affect taxable income. The tax
consequences of most events recognized in the current year’s financial
statements are included in determining income taxes currently payable. However,
because tax laws and financial accounting standards differ in their recognition
and measurement of assets, liabilities, equity, revenues, expenses, gains and
losses, differences arise between the amount of taxable income and pretax
financial income for a year and between the tax bases of assets or liabilities
and their reported amounts in the financial statements. Because the Company
assumes that the reported amounts of assets and liabilities will be recovered
and settled, respectively, a difference between the tax basis of an asset or a
liability and its reported amount in the balance sheet will result in a taxable
or a deductible amount in some future years when the related liabilities are
settled or the reported amounts of the assets are recovered, which gives rise to
a deferred tax asset. The Company must then assess the likelihood that the
deferred tax assets will be recovered from future taxable income and to the
extent the Company believes that recovery is not likely, the Company must
establish a valuation allowance.
 The
Company estimates the provision for income taxes based on income before income
taxes for each tax jurisdiction in which the Company has established operations.
The Company does not provide incremental U.S. income taxes on un-remitted
foreign earnings taxed at rates less than the U.S. tax rates as such earnings
are considered permanently invested.
 On
October 1, 2007, the Company adopted new FASB guidance on accounting for
uncertainty in income taxes which provides a financial statement recognition
threshold and measurement attribute for a tax position taken or expected to be
taken in a tax return. Under the new guidance, the Company may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in
the financial statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement. The guidance also extends to derecognition of income tax
assets and liabilities, classification of current and deferred income tax assets
and liabilities, accounting for interest and penalties associated with tax
positions, and income tax disclosures.
 
 Net
Income (Loss) Per Share
 
 Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the
period.  Diluted income (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares outstanding, after giving
effect to potentially dilutive common share equivalents outstanding during the
period.  Potentially dilutive common share equivalents are not
included in the computation of diluted income (loss) per share if they are
anti-dilutive.  Diluted income (loss) per common share is the same as
basic for all periods presented because the effect of potentially dilutive
common shares arising from outstanding stock warrants and options was
anti-dilutiveFor the year ended September 30, 2009, 2008 and 2007, potential
dilutive securities had an anti-dilutive effect and were not included in the
calculation of diluted net loss per common share.
  44
 Table of Contents
  Stock-based
Compensation
 
 On
October 1, 2005, ERHC began recording compensation expense associated with stock
options and other forms of equity compensation in accordance with new fair value
guidance issued by the Financial Accounting Standards Board
and  interpreted by the SEC.
 
 New
Accounting Pronouncements
 
 Effective
July, 1, 2009, the Company adopted the Accounting Standards Codification (ASC)
issued by the Financial Accounting Standards Board (FASB). The ASC does not
change generally accepted accounting principles in the United States of America
(GAAP), but instead takes the numerous individual accounting pronouncements that
previously constituted GAAP and reorganizes them into approximately 90
accounting topics, which are then broken down into subtopics, sections and
paragraphs. The intent is to simplify user access to authoritative GAAP by
providing all of the guidance related to a particular topic in one place. The
ASC supersedes all previously existing non-SEC or non-grandfathered accounting
and reporting standards. The adoption of the ASC did not have any impact on the
Company’s consolidated financial statements.
 
 In
December 2007, the FASB issued authoritative guidance which establishes
principles and requirements for determining how an enterprise recognizes and
measures the fair value of certain assets and liabilities acquired in a business
combination, including non-controlling interests, contingent consideration, and
certain acquired contingencies. The guidance also requires acquisition-related
transaction expenses and restructuring costs be expensed as incurred rather than
capitalized as a component of the business combination. The guidance will be
applicable prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The adoption of this guidance did not have any
impact on the Company’s consolidated financial statements.
 
 In
December 2007, the FASB issued authoritative guidance which establishes
accounting and reporting standards for the non-controlling interest in a
subsidiary (previously referred to as minority interests). The guidance also
requires that a retained non-controlling interest upon the deconsolidation of a
subsidiary be initially measured at its fair value. Upon adoption this guidance,
the Company would be required to report any non-controlling interests as a
separate component of stockholders’ equity. The Company would also be required
to present any net income allocable to non-controlling interests and net income
attributable to the stockholders of the Company separately in its consolidated
statements of operations. The guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. The guidance requires retroactive adoption of the presentation and
disclosure requirements for existing minority interests, however, all other
requirements shall be applied prospectively. This guidance will not have a
material effect on the Company’s consolidated financial statements since the
Company does not have existing minority interests.
 
 In March
2008, the FASB issued authoritative guidance intended to provide users of
employers’ financial statements with more informative disclosures about the
nature and valuation of postretirement benefit plan assets. The disclosures on
plan assets are effective for fiscal years ending after December 15,
2009.
 
 In April
2008, the FASB issued authoritative guidance that amends the factors that should
be considered in developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. The guidance also
requires expanded disclosure regarding the determination of intangible asset
useful lives. The guidance is effective for fiscal years beginning after
December 15, 2008. This guidance will not have a material impact on the
Company’s consolidated financial statements.
 
 In June
2009, the FASB issued authoritative guidance which requires additional
information regarding transfers of financial assets, including securitization
transactions, and where companies have continuing exposure to the risks related
to transferred financial assets. The guidance eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets, and requires additional disclosures. It is effective for
fiscal years beginning after November 15, 2009. The Company is currently
evaluating the impact that the adoption of this guidance will have on its
consolidated financial statements and disclosures.
  45
 Table of Contents
  In June
2009, the FASB issued authoritative guidance which amends certain requirements
to improve financial reporting by enterprises involved with variable interest
entities and to provide more relevant and reliable information to users of
financial statements. The guidance will be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The Company is currently
evaluating the impact, if any, that this guidance will have on its consolidated
financial statements.
 
 Note
2 - Fair Value of Financial Instruments
 
 The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of September 30, 2009 segregated by the
level of the valuation inputs within the fair value hierarchy utilized to
measure fair value:
 
 Quoted
      Prices In Active Markets for Identical Assets (Level 1)
              
              
              Significant
      Other Observable Inputs (Level 2)
              
              
              Significant
      Unobservable Inputs (Level 3)
              
              
              TotalCash
      and cash equivalents
              
              $
              22,428,728
              
              
              $
              -
              
              
              $
              -
              
              
              $
              22,428,728Long-term
      investment
              
              
              -
              
              
              
              -
              
              
              
              1,058,579
              
              
              
              1,058,579Total
              
              $
              22,428,728
              
              
              
              
              
              
              $
              -
              
              
              $
              23,487,307
 
 Level 3
Losses
 
 The table
below sets forth a summary of changes in the fair value of the Plan’s level 3
assets for the year ended September 30, 2009:
 
 Long-Term
      InvestmentBalance,
      beginning of year
              
              $
              -Purchases
              
              
              5,292,896Write
      down to estimated fair value
              
              
              (4,234,317
              )Balance,
      end of year
              
              $
              1,058,579
  46
 Table of Contents
  Note
3 – Accounts Payable and Accrued Liabilities
 
 Accounts
payable and accrued liabilities consisted of the following as of September 30,
2009 and 2008:
 
 2009
              
              
              2008Accounts
      payable
              
              $
              246,840
              
              
              $
              222,044Accrued
      stock payable – success fee
              
              
              4,803,750
              
              
              
              4,803,750$
              5,050,590
              
              
              $
              5,025,794
  Note
4 – Revision to Financial Statements
 
 ERHC
revised its financial statements to report as a development stage company for
the year ended September 30, 2006 and subsequent
periods.  Accordingly, the statements of operations, stockholders’
equity and cash flows include inception to date amounts.  The
consolidated statements of stockholders’ equity of the Company for the years
ended from inception (September 5, 1995) through September 30, 1998 were audited
by other auditors who are no longer members of the Public Company Accounting
Oversight Board ("PCAOB") and whose reports for each of the years ended from
inception (September 5, 1995) through September 30, 1998 expressed an
unqualified opinion on those statements. Because the other auditors were no
longer members of the PCAOB, the inception to date amounts shown in the
accompanying statements of operations and statement of cash flows are considered
unaudited.
  Note
5 – Sao Tome Concession
 
 In April
2003, the Company and the DRSTP entered into an Option Agreement (the “2003
Option Agreement”) in which the Company relinquished certain financial interests
in the JDZ in exchange for exploration rights in the JDZ.  The Company
additionally entered into an administration agreement with the Nigeria-Sao Tome
and Principe JDA.  The administration agreement is the formal
agreement by the JDA that it will fully implement ERHC’s preferential rights to
working interests in the JDZ acreage as set forth in the 2003 Option Agreement
and describes certain procedures regarding the exercising of these
rights.  However, ERHC retained under a previous agreement the
following rights to participate in exploration and production activities in the
EEZ subject to certain restrictions:  (a) the right to receive up to
two blocks of ERHC’s choice and (b) the option to acquire up to a 15% paid
working interest in up to two blocks of ERHC’s choice in the EEZ.  The
Company would be responsible for its proportionate share of exploration and
exploitation costs in the EEZ blocks.
 
 The
following represents ERHC’s current rights in the JDZ blocks.
 
 JDZ
      Block #
                ERHC
                  Original
                  Participating
                  Interest
    (1)
                ERHC
                  Joint
      Bid
                  Participating
                  Interest
                Participating
                  Interest(s)
      Sold
                Current
      ERHC
                  Retained
                  Participating
                  Interest2
                30%
                35%
                43%
      (2)
                22%3
                20%
                5%
                15%
      (3)
                10%4
                25%
                35%
                40.5%
      (4)
                19.5%5
                15%
                (5)
                (5)
                15%6
                15%
                (5)
                (5)
                15%9
                20%
                (5)
                (5)
                20%
 
 (1)
              Original
      Participating Interest granted pursuant to the Option Agreement, dated
      April 2, 2003, between DRSTP and ERHC (the “2003 Option
      Agreement”).
 
 (2)
              In
      March 2006, ERHC sold an aggregate 28.67% participating interest to
      Sinopec and an aggregate 14.33% participating interest to Addax
      Ltd.
 
 (3)
              In
      February 2006, ERHC sold a 15% participating interest to Addax
      Sub.
 
 (4)
              By
      a Participation Agreement made in November 2005 and subsequently amended,
      ERHC sold 40.5% participating interest to
Addax.
 
 (5)
              No
      contracts have been entered into as of the date
  hereof.
  47
 Table of Contents
  This
exercise of the Company’s rights was subject to the condition that if no license
is awarded or a license is awarded and subsequently withdrawn by the JDA prior
to the commencement of operations, ERHC will be entitled to receive its working
interest in that block in a future license awarded for the block.
 
 On
March 15, 2006, Godsonic and ERHC (on behalf of the ERHC/Addax consortium)
entered into an agreement wherein ERHC agreed to assign 9% of its interest in
Block 4 to Godsonic subject to certain stipulated financial and other conditions
to be fulfilled by Godsonic. On April 11, 2006, ERHC and Addax by an amendment
to the Participation Agreement, agreed that Addax would acquire 7.2% of the 9%
interest in the event that Godsonic failed to meet agreed upon conditions and
foreclosed from the claims to the 9% interest. This would give Addax a total of
40.5% interest and ERHC 19% in Block 4.
 
 In July
2007, Godsonic failed to meet the stipulated conditions and ERHC reclaimed the
9% interest. Addax claimed entitlement under the existing agreements to 7.2% out
of the recovered 9%, without payment of any further consideration to
ERHC.  In July 2008, the London Court of International Arbitration
(LCIA) confirmed that under the Participation Agreement between the parties no
further consideration was payable by Addax Petroleum to ERHC for Addax
Petroleum’s 7.2 percent share of the 9 percent.
 
 In
February 2006, ERHC sold 15% of its 25% participating interest in Block 3 of the
JDZ to Addax Petroleum Resources Nigeria Limited (“Addax Sub”) for $7.5 million
which was paid in the second quarter of fiscal 2006. Under the participation
agreement between ERHC and Addax Sub, Addax Sub agreed to “carry” all of ERHC’s
future costs in respect of petroleum operations in Block 3. Upon production
Addax Sub is entitled to 100% of ERHC’s allocation of cost plus up to 50% of
ERHC’s allocation of profit until Addax Sub recovers 100% of the costs advanced
on behalf of ERHC.
 
 In March
2006, ERHC sold a 28.67% participating interest in Block 2 of the JDZ to Sinopec
International Petroleum Exploration and Production Corporation Nigeria
(“Sinopec”), and a 14.33% participating interest in Block 2 of the JDZ to Addax
Energy Nigeria Limited (“Addax Ltd.”) leaving a 22% participating interest in
Block 2 to the Company. In exchange, Sinopec paid ERHC $13.6 million and Addax
Ltd. paid ERHC $6.8 million in the second quarter of fiscal 2006. Under the
participation agreement among ERHC, Sinopec and Addax Ltd., Sinopec will serve
as operator, and Sinopec and Addax Ltd. will pay all of ERHC’s future costs in
respect of petroleum operations in Block 2. Sinopec and Addax Ltd. are entitled
to 100% of ERHC’s allocation of cost plus up to 50% of ERHC’s allocation of
profit until they recover 100% of the costs they advanced on behalf of ERHC and
Sinopec is to receive 6% interest on its future costs, up to $35 million, but
only to the extent that those interest costs are recoupable out
of   production.
 
 ERHC sold
various participating interests in Blocks 2, 3 and 4 (as noted above) during
2006 for total cash proceeds of $45,900,000.  Following is an analysis
of the sale of the participating interests in blocks 2, 3 and 4.
 
 Cost
      Basis
              
              
              Cash
      Proceeds
              
              
              Success
      Fees (1)
              
              
              Gain
      LossBlock
      2
              
              $
              946,500
              
              
              $
              20,400,000
              
              
              $
              12,958,250
              
              
              $
              6,495,250Block
      3
              
              
              946,500
              
              
              
              7,500,000
              
              
              
              -
              
              
              
              6,553,500Block
      4
              
              
              946,500
              
              
              
              18,000,000
              
              
              
              -
              
              
              
              17,053,500Total
              
              $
              2,839,500
              
              
              $
              45,900,000
              
              
              $
              12,958,250
              
              
              $
              30,102,250
 
 (1) See
Note 6
 
 ERHC’s
goal is to enter into agreements to exploit its interests in Blocks 5, 6 and 9
also.  Additionally, the Company intends to exploit its rights in the
EEZ.
  48
 Table of Contents
  Note
6 – DRSTP Success Fee
 
 ERHC
agreed to pay a $3 million cash success fee ($1.5 million was paid in March 2006
and the remaining $1.5 million was paid in March 2007) to Feltang International
Inc., a British Virgin Island company that was responsible for obtaining
Sinopec’s participation in Block 2.  ERHC will also issue to Feltang
5,250,000 shares of common stock and warrants to purchase 6,500,000 shares at an
exercise price of $0.355 per share.  The common stock was valued at
$4,803,750 (included in accounts payable at September 30, 2009, 2008, 2007 and
2006) based on the quoted market value of the common stock on the date Sinopec
signed the production sharing agreement. The warrants were valued at $5,154,500
based on a valuation using the Black-Scholes Option Pricing Model and the
following assumptions; market price of $0.915, strike price of $0.355,
volatility of 115%, interest rate of 4.42%, dividend yield of 0% and expected
life of 4 years.
 
 Upon sale
of the participation interests, ERHC removed the entire cost of the related
blocks due to the uncertainty surrounding their unproved interests.
  Note
7 – Convertible Debt
 
 At
September 30, 2009 and 2008, ERHC had $33,513 of nonaffiliated convertible debt
and $10,561 and $8,719, respectively, of accrued but unpaid interest
outstanding, respectively.  At September 30, 2009 and 2008, this note
was in default and ERHC was unable to locate the investor.  If the
outstanding convertible debt were converted using the conversion price of $0.20
per share, ERHC would be required to issue 220,370 shares of common stock based
on an outstanding principal amount of $33,513 and accrued interest of
$10,561.
  Note
8 – Income Taxes
 
 At
September 30, 2009, ERHC had a consolidated net operating loss carry-forward
(“NOL”) of approximately $13,775,097.
 
 The
composition of deferred tax assets and the related tax effects at September 30,
2009 and 2008 are as follows:
  2009
                
                
                2008Net
      operating losses
                
                $
                4,683,533
                
                
                $
                1,430,118Income
      tax receivable
                
                
                2,018,398
                
                
                
                2,018,398Accrual
      for asset retirement
                
                
                -
                
                
                
                164,900Allowance
      for loss on deposits
                
                
                1,439,668
                
                
                
                -Accrued
      stock-based compensation
                
                
                88,587
                
                
                
                -Total
      deferred tax assets
                
                
                8,230,186
                
                
                
                3,613,416Valuation
      allowance
                
                
                (6,211,788
                )
                
                
                (1,595,018
                )Net
      deferred tax asset
                
                $
                2,018,398
                
                
                $
                2,018,398
  49
 Table of Contents
  The
$2,018,398 deferred tax asset at September 30, 2009 and 2008, represents a
refundable amount of $2,018,398 to be claimed by ERHC because of overpayment
made in its 2006 tax return.
 
 The
difference between the income tax benefit (provision) in the accompanying
statement of operations and the amount that would result if the U.S. federal
statutory rate of 34% were applied to pre-tax income (loss) for years ended
September 30, 2009, 2008 and 2007, is as follows:
 
 2009
              
              
              2008
              
              
              2007Income
      tax benefit (provision) at federal statutory rate
              
              $
              2,597,254
              
              
              $
              1,033,870
              
              
              $
              1,183,167Change
      in valuation allowance
              
              
              (2,575,312
              )
              
              
              (978,877
              )
              
              
              1,998,759Expiration
      and adjustment of NOL’s
              
              
              -
              
              
              
              -
              
              
              
              (1,364,518
              )Director’s
      stock compensation
              
              
              -
              
              
              
              (24,633
              )
              
              
              (30,090
              )Consultants
      stock option expense
              
              
              -
              
              
              
              -
              
              
              
              (59,650
              )State
      income tax
              
              
              -
              
              
              
              -
              
              
              
              -Penalties
              
              
              (11,982
              )
              
              
              -
              
              
              
              (3,621
              )Other
              
              
              (10,000
              )
              
              
              -
              
              
              
              (1,047
              )Income
      tax benefit (provision)
              
              $
              -
              
              
              $
              30,360
              
              
              $
              1,723,000
 
 In
preparing the Company’s consolidated financial statements, the Company assesses
the likelihood that its deferred tax assets will be realized from future taxable
income. The Company establishes a valuation allowance if it determines that it
is more likely than not that some portion of the deferred tax assets will not be
realized. Changes in the valuation allowance, when recorded, would be included
in its consolidated statements of operations as a provision for (benefit from)
income taxes. The Company exercise significant judgment in determining its
provisions for income taxes, its deferred tax assets and liabilities and its
future taxable income for purposes of assessing its ability to utilize any
future tax benefit from its deferred tax assets. During 2009, the Company
assessed the need for a valuation allowance against its deferred tax assets. The
deferred tax asset valuation allowance was $6,211,788 as of September 30, 2009.
The valuation allowance relates primarily to the net operating losses and
various expense deductions for which a tax benefit is currently unavailable
..
 
 At
September 30, 2009, the Company has Federal net operating loss carry forward of
approximately $13,755,097. The federal loss carry forward expires on various
dates through 2029.
 
 FIN
48
 
 On
October 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes—an interpretation of
FASB Statement No. 109”,  which provides a financial statement recognition threshold
and measurement attribute for a tax position taken or expected to be taken in a
tax return. Under ASC 740, the Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained upon examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate
settlement. ASC 740 also provides guidance on de-recognition of income tax
assets and liabilities, classification of current and deferred income tax assets
and liabilities, accounting for interest and penalties associated with tax
positions, and income tax disclosures.
 
 The
Company is subject to taxation in the United States and various foreign
jurisdictions. The Company’s tax years for 2005 through 2008 are subject to
examination by the tax authorities. The Company is currently under examination
by the Internal Revenue Service for the 2006 tax year.
  50
 Table of Contents
  Note
9 – Shareholders’ Equity
 
 Common
Stock Issued for Services:
 
 During
the years ended September 30, 2009, 2008 and 2007, ERHC issued 1,111,875 shares
of common stock for payment of director and employee services as
follows:
 
 (i)
              315,000
      shares to Directors for 2009 services rendered and the fair value of
      $226,800 was recorded by the
Company.
 
 (i)
              240,000
      shares to Directors for 2005 services rendered (these shares were issued
      in the second quarter of 2009.
 
 (iii)
              46,875
      shares to company non-management staff for 2009 services rendered and the
      fair value of $33,755 was recorded by the
  Company.
 
 (iv)
              210,000
      shares for 2008 services rendered and fair value of $72,450 was
      recorded.
 
 (v)
              300,000
      shares for 2007 services rendered and fair value of $88,500 was
      recorded.
 
 Common
Stock Issued Upon Exercise of Warrants:
 
 During
2007, 5,625,000 warrants were exercised on a cashless basis for 2,949,587 shares
of common stock.
 
 Stock
Options:
 
 On
January 1, 2005, ERHC issued options to purchase a total of 1,750,000 shares of
common stock, upon completion of a full year of service to three consultants as
part of their initial compensation packages.  These options have an
exercise price of $0.20 per share and vested on December 31,
2005.  Fair value of $816,550 was calculated using the Black-Scholes
Model. Variables used in the Black-Scholes option-pricing model during the year
ended September 30, 2006, include (1) 4.57% discount rate, (2) warrant life is
the expected remaining life of the options as of each year end, (3) expected
volatility of 115%, and (4) zero expected dividends. These options were
exercised, on a cashless basis, during the year ended September 30, 2006, for a
total of 1,339,030 shares.
 
 During
the year ended September 30, 2007, the Company issued 1,000,000 options to
purchase common stock of the Company to an employee. These options are for a
term of three years, have an exercise price of $0.43 and vest over one year.
Fair value of $223,900 was calculated using the Black-Scholes Model. Variables
used in the Black-Scholes option-pricing model during the year ended September
30, 2007, include (1) 4.90% discount rate, (2) warrant life is the expected
remaining life of the options as of each year end, (3) expected volatility of
75.00%, and (4) zero expected dividends. Option expense of $48,460 and $175,440
was recorded during the years ended September 30, 2008 and 2007, respectively,
related to these options.
 
 Stock
Warrants
 
 During
the year ended September 30, 2009, 2008 and 2007, a total of 8,741,940
warrants expired unexercised as shown in the table below. These warrants had
exercise prices ranging from $0.25 per share to $3.00 per share.  At
September 30, 2009, $6,500,000 warrants remain outstanding with an exercise
price of $0.36 per share and expiring on April 14, 2010, indicating a remaining
life of 0.5 years.
 
 Stock
Warrants / Stock Options Summary
 
 Information
regarding warrants/options, their respective changes and their weighted average
exercise prices as of and for the fiscal years ended September 30, 2009, 2008
and 2007 are as follows:
  51
 Table of Contents
  Weighted
      Average Exercise
              
              
              Market
      Price Intrinsic
              
              
              
              
              
              Weighted
      Average Exercise
              
              
              Exercise
      Price IntrinsicDescription
              
              Warrants
              
              
              Price
              
              
              Value
              
              
              Options
              
              
              Price
              
              
              ValueBalance
      at September 30, 2006
              
              
              20,866,940
              
              
              $
              0.37
              
              
              $
              -
              
              
              
              -
              
              
              $
              -
              
              
              $
              -Granted
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              1,000,000
              
              
              
              0.43Exercised(a)
              
              
              (5,625,000
              )
              
              
              0.20
              
              
              
              
              
              
              
              -
              
              
              
              -Expired
      or cancelled.
              
              
              (1,840,000
              )
              
              
              0.50
              
              
              
              
              
              
              
              -
              
              
              
              -Balance
      at September 30, 2007
              
              
              13,401,940
              
              
              
              0.43
              
              
              
              -
              
              
              
              1,000,000
              
              
              
              0.43
              
              
              
              -Granted
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -Expired
      or cancelled.
              
              
              (4,281,940
              )
              
              
              0.31
              
              
              
              
              
              
              
              -
              
              
              
              -Balance
      at September 30, 2008
              
              
              9,120,000
              
              
              
              0.36
              
              
              
              -
              
              
              
              1,000,000
              
              
              
              0.43
              
              
              
              -Granted
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -Expired
      or cancelled.
              
              
              (2,620,000
              )
              
              
              0.36
              
              
              
              
              
              
              
              -
              
              
              
              -Balance
      at September 30, 2009
              
              
              6,500,000
              
              
              
              0.36
              
              
              
              
              
              
              
              1,000,000
              
              
              
              0.43
              
              
              
              0.29Exercisable
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              1,000,000
              
              
              
              0.43
 
 (a)
During 2007, 5,625,000 warrants were exercised on a cashless basis for 2,949,587
shares of common stock.
 
 The
1,000,000 Options outstanding at September 30, 2009 are fully vested, have a
weighted average exercise price of $0.43 per share, and a weighted average
remaining contractual life of 0.2 year.  These options
expired
 
 Note
10 – Commitments and Contingencies
 
 Legal
Proceedings
 
 DOJ, SEC and U.S. Senate Committee
Subpoenas.  On May 4, 2006, a search warrant issued by the U.S.
District Court of the Southern District of Texas, Houston Division, was executed
on ERHC seeking various records including, among others, documents, if any,
related to correspondence with foreign governmental officials or entities in Sao
Tome and Nigeria.  The search warrant cited, among other things,
possible violations of the FCPA, Section 10(b) of the Exchange Act, Rule 10b-5
under the Exchange Act and criminal conspiracy and wire fraud
statutes.  ERHC filed suit in federal district court in Texas in June
2006 seeking to protect the Company’s attorney-client privileged documents and
to allow its counsel to determine the factual basis for the DOJ’s search warrant
affidavit, which is currently under seal.
  52
 Table of Contents
  A related
SEC subpoena was issued on May 9, 2006, and a second related subpoena issued on
August 29, 2006.  The subpoenas request from ERHC a range of documents
including all documents related to correspondence with foreign governmental
officials or entities in Sao Tome and Nigeria, personnel records (specifically,
those regarding the Company’s former Chief Financial Officer, Franklin
Ihekwoaba) and other corporate records.  The Company has been actively
responding to both subpoenas.
 
 On July
5, 2007, U.S. Senate Committee on Homeland Security and Governmental Affairs’
Permanent Subcommittee on Investigations served ERHC with a subpoena, in
connection with its review of matters relating to the potential abuse of
payments made to foreign governments. The subpoena, as amended on July 18, 2007,
seeks documents and information regarding ERHC’s activities, particularly those
related to the acquisition of ERHC’s interests in the Gulf of
Guinea.  ERHC’s attorneys, Akin Gump Strauss Hauer & Feld LLP, are
assisting ERHC in responding to all subpoenas.
 
 The
Company anticipates that these investigations may be lengthy and do not know
when they will conclude.  If violations are found, the Company may be
subject to criminal, civil and/or administrative sanctions, including
substantial fines, and the resolution or disposition of these matters could have
a material adverse effect on its business, prospects, operations, financial
condition and cash flows.
 
 ERHC/Addax
Arbitration.Addax, our consortium partner in JDZ Block 4,
claimed entitlement under our existing agreements to 7.2% out of the recovered
9% interest in Block 4, leaving 1.8% remaining with ERHC. In July 2008, the
London Court of International Arbitration (LCIA) confirmed that under the
Participation Agreement between the parties in respect of JDZ Block 4, no
further consideration is payable by Addax Petroleum to ERHC for Addax
Petroleum’s 7.2 percent share of the 9 percent recovered by the ERHC/Addax
consortium from Godsonic upon the failure of Godsonic to meet certain financial
obligations under which the 9 percent was to have been transferred to
Godsonic.
 
 Lakeshore
Arbitration.In October 2006, Lakeshore Capital Limited
(“Lakeshore”) filed an arbitration claim against ERHC seeking $4,400,000 for the
alleged value of 4,500,000 shares of ERHC common stock and for a warrant to
purchase 1,500,000 shares at an exercise price of $.20 per share, including
interest and costs, as compensation for financial consultancy and related
services rendered under a contract with ERHC dated May 20, 2002 and mediation
conducted by the American Arbitration Association which resulted in the payment
of $250,000 to Lakeshore.  Pursuant to the Settlement Agreement dated
May 16, 2007, the arbitration was discontinued with prejudice.
 
 Godsonic
Negotiations.  In July 2007, ERHC and Godsonic commenced
negotiations over relinquishment by Godsonic of any claims by Godsonic to
entitlement to a 9% from the ERHC/Addax bid interest in JDZ Block 4. The parties
reached a settlement in August 2007 which resulted in Godsonic’s relinquishment
of all claims to the 9% interest in Block 4.
 
 JDZ Blocks 5 &
6.  On November 3, 2008, the Company filed a suit in Nigeria to
prevent any tampering with its rights in JDZ Blocks 5 and 6. The lawsuit comes
after the JDA and the Joint Ministerial Counsel (JMC) of theNigeria-Săo Tomé and
Príncipe JDZ failed to give a satisfactory response to the Company’s letters
seeking clarification on the Company’s rights in JDZ Blocks 5 and 6 following
media reports stating that the JMC had approved of the Company’s removal from
the Blocks. The Company was awarded a 15 percent working interest in each
of the Blocks in a 2005 bid/licensing round conducted by the JDA, following the
exercise by ERHC of preferential rights in the Blocks as guaranteed by contract
and treaty.  If the Company fails to prevail in its lawsuit, there
could be significant adverse affects on the Company’s future planned operations
in JDZ Blocks 5 & 6.
  In
November 2008, the Company dispatched notices of arbitration for service on the
JDA and the governments of Nigeria and Sao Tome & Principe to commence
arbitration in London. ERHC wants the London Court of International Arbitration
to clarify that ERHC's interests in JDZ Blocks 5 and 6 remain
intact.
  From time
to time, ERHC may be subject to routine litigation, claims, or disputes in the
ordinary course of business.  ERHC intends to defend these matters
vigorously; the Company cannot predict with certainty, however, the outcome or
effect of any of the litigation or investigatory matters specifically described
above or any other pending litigation or claims.  There can be no
assurance as to the ultimate outcome of these lawsuits and
investigations.
  53
 Table of Contents
  Operating
Lease
 
 ERHC
leases office space at 5444 Westheimer Road, Houston, Texas.  The
lease for office space expires December 2011.  The monthly base rent
payment is $8,920 for approximately 5,200 square feet.  During the
years ended September 30, 2009, 2008 and 2007, ERHC incurred lease expenses of
$107,040, $104,330 and $107,124, respectively.  The future remaining
annual lease payments under this lease are as follows:
 
 Year
      Ending September 30,
              
              Amount2010
              
              
              $
              107,0402011
              
              
              
              107,0402012
              
              
              
              26,760
 
 
 Note
11 – Related Party Transactions
 
 Mr. Emeka
Offor resigned, effective August 12, 2007, as ERHC’s non-executive Chairman of
the Board.  As of September 30, 2007, Mr. Offor, through Chrome Oil
Services, Ltd. (“Chrome”) and Chrome Energy, LLC (“Chrome Energy”), beneficially
owns approximately 43% of the common stock of ERHC.  He has been
compensated as a director of the Company as follows:
 
 Year
              
              Cash
                Compensation
              
              
              Common
                Stock
                Issuances
              
              
              Value
      of
                Common
      Stock
                Issuances
              
              
              Total
                Compensation2009
              
              $
              -
              
              
              
              -
              
              
              $
              -
              
              
              $
              -2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -2007
              
              
              38,100
              
              
              
              60,000
              
              
              
              17,700
              
              
              
              55,800
 
 At
September 30, 2007, ERHC owed Chrome Energy, the entity controlled by Mr. Offor,
$62,314 for furniture. This liability was fully paid during the year ended
September 30, 2008.
  54
 Table of Contents
  Note
12 – Quarterly Financial Information (Unaudited)
 
 For
      the Year Ended September 30, 2009FirstQuarter
              
              
              SecondQuarter
              
              
              ThirdQuarter
              
              
              FourthQuarterGeneral
      and administrative expenses
              
              $
              710,181
              
              
              $
              943,714
              
              
              $
              1,270,463
              
              
              $
              1,945,127Interest
      expense
              
              
              461
              
              
              
              461
              
              
              
              461
              
              
              
              460Other
      income
              
              
              281,535
              
              
              
              130,640
              
              
              
              -
              
              
              
              9,554Provision
      for loss on deposits
              
              
              -
              
              
              
              -
              
              
              
              (2,117,158
              )
              
              
              (2,119,059
              )Benefit
      (provision) for income tax
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss attributable to common stockholders
              
              
              (429,107
              )
              
              
              (804,535
              )
              
              
              (3,379,743
              )
              
              
              (3,705,531
              )Basic
      and diluted earnings per share
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.01
              )
 
 For
      the Year Ended September 30, 2008First
              
              Second
              
              Third
              
              FourthQuarter
              
              Quarter
              
              Quarter
              
              QuarterGeneral
      and administrative expenses
              
              $
              1,018,167
              
              
              $
              1,170,240
              
              
              $
              828,692
              
              
              $
              1,263,044Interest
      expense
              
              
              461
              
              
              
              461
              
              
              
              460
              
              
              
              461Other
      income
              
              
              431,863
              
              
              
              322,962
              
              
              
              225,079
              
              
              
              261,285Benefit
      (provision) for income tax
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (30,360
              )Net
      loss attributable to common stockholders
              
              
              (586,765
              )
              
              
              (847,739
              )
              
              
              (604,073
              )
              
              
              (1,032,580
              )Basic
      and diluted earnings per share
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
 
 For
      the Year Ended September 30, 2007First
              
              
              Second
              
              
              Third
              
              
              FourthQuarter
              
              
              Quarter
              
              
              Quarter
              
              
              QuarterGeneral
      and administrative expenses
              
              $
              1,334,313
              
              
              $
              1,181,541
              
              
              $
              1,083,539
              
              
              $
              1,377,372Interest
      expense
              
              
              461
              
              
              
              461
              
              
              
              461
              
              
              
              460Other
      income
              
              
              543,632
              
              
              
              540,495
              
              
              
              457,541
              
              
              
              457,036Gain
      (loss) on settlements
              
              
              -
              
              
              
              -
              
              
              
              (500,000
              )
              
              
              -Benefit
      (provision) for income tax
              
              
              269,000
              
              
              
              197,000
              
              
              
              539,241
              
              
              
              717,759Net
      loss attributable to common stockholders
              
              
              (522,142
              )
              
              
              (444,507
              )
              
              
              (587,218
              )
              
              
              (203,037
              )Basic
      and diluted earnings per share
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
 
 The sum
of the individual quarterly basic and diluted loss per share amounts may not
agree with year-to-date basis and diluted loss per share amounts as a result of
each period’s computation being based on the weighted average number of common
shares outstanding during that period.
  Note
13 – Subsequent Events
 
 The
Company has evaluated all subsequent events through December 10, 2009, the date
of this filing, and concluded there were no significant events to be
reported.
  55
 Table of Contents
  Item9.  Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
 
 None.
 
 Item9A.  Controls and Procedures
  Disclosure
Controls and Procedures
 
 We have
established disclosure controls and procedures to ensure that material
information relating to ERHC Energy, including its consolidated subsidiaries, is
made known to the officers who certify ERHC’s financial reports and to other
members of senior management and the Board of Directors.
  Based on
their evaluation, ERHC’s principal executive and principal financial officers
have concluded that ERHC’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were
effective as of September 30, 2009 to ensure that the information required to be
disclosed by ERHC in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC rules and forms. Our officers also concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including
our principal executive and principal financial officers to allow timely
decisions regarding required disclosure.
 
 Management’s
Annual Report on Internal Control Over Financial Reporting
  Management
of ERHC is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) of the Exchange
Act). ERHC’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of
America.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.
  Management,
with the participation of the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of ERHC’s internal control over financial
reporting as of September 30, 2009. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on
this evaluation, management, with the participation of the Chief Executive
Officer and Chief Financial Officer, concluded that, as of September 30, 2009,
ERHC’s internal control over financial reporting was effective.
 
 The
effectiveness of ERHC’s internal control over financial reporting as of
September 30, 2009 has been audited by Malone & Bailey PC,  an
independent registered public accounting firm who audited ERHC’s consolidated
financial statements as of and for the year ended September 30, 2009, as stated
in their report, which is included under “Item 8. Financial Statements and
Supplementary Data.”
 
 Changes
in Internal Control Over Financial Reporting
  There
were no changes in ERHCs internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30,
2009, that have materially affected, or are reasonably likely to materially
affect, ERHC’s internal control over financial reporting.
 
 Item9B.  Other Information
  None.
  56
 Table of Contents
  PART
III
 
 
 Item 10.  Directors and Executive
Officers of the Registrant; and C 
    orporate
Governance
 
 The
following are the Directors and Principal Executive Officer of the Company as
of  November 30, 2009 (1):
 
 Name
                
                Age
                
                PositionHoward
      Jeter
                
                62
                
                DirectorAndrew
      Uzoigwe
                
                67
                
                DirectorPeter
      C. Ntephe
                
                43
                
                Chief
      Operating Officer and Acting Chief Executive
  Officer
 
 (1)
                Clement
      Nwizubo has served as Director and Audit Committee Chairman from March
      2006 until his death in June
2009.
 
 Ambassador
(rtd.) Howard F. Jeter has served as a Director since April
2005.  Ambassador Jeter retired from the State Department in 2003
after a distinguished 27 year career in the Foreign Service.  He
retired with the rank of Career Minister.
 
 Ambassador
Jeter served as the United States Ambassador to Nigeria,
2000-2003.  He also served as Deputy Assistant Secretary of State for
African Affairs, State Department Director for West Africa, President Clinton's
Special Envoy for Liberia, and Ambassador to Botswana,
respectively.   Ambassador Jeter was Deputy Chief of Mission and
later Charge d’Affaires, ad interim, in Lesotho and Namibia.  He also
had multi-year assignments in Tanzania and Mozambique. Ambassador Jeter has
lived and worked in Africa for more than 18 years.
 
 Ambassador
Jeter was the recipient of numerous awards and commendations, including the
Presidential Meritorious Service Award, Superior Honor Awards, and several
Performance Awards.  He received the prestigious Bennie Trailblazer
Award from Morehouse College and the International Peace and Justice Award from
the Rainbow-Push Coalition, led by Reverend Jesse Jackson. Ambassador Jeter is a
member of the Council on Foreign Relations, the American Foreign Service
Association, and Phi Beta Kappa. He earned his Bachelor of Arts Degree, with
Honors, from Morehouse College and Master's Degrees in International
Relations/Comparative Politics and African Studies from Columbia University and
UCLA respectively.
 
 Following
his retirement from the State Department, Ambassador Jeter began a career as an
international business consultant, with a special focus on investment and trade
promotion with Africa.  In 2006, he was named President and CEO of the
Leon H. Sullivan Foundation, a non-governmental organization dedicated to
preserving the work and legacy of Reverend Leon H.
Sullivan.  Ambassador Jeter retired from the Sullivan Foundation in
June, 2008.
 
 Ambassador
Jeter chaired the Africa Advisory Group of the U.S. Export-Import Bank, 2006-
2007, and currently serves on the Board of Directors of Africare and the Center
for International Affairs at Morehouse College.  In Nigeria, he is an
Honorary Board Member of the Anyiam-Osigwe Foundation, the Outreach Foundation,
and was recently named to the International Advisory Board of the Ken Nnamani
Centre for Leadership and Development. In May 2008, Ambassador Jeter moderated a
plenary session at the U.S.-China Forum on Sustainable Energy and Environment in
Beijing, co-sponsored by the U.S. Chamber of Commerce Institute for 21st Century
Energy.  He also was a member of the New York-based East West
Institute’s (EWI) delegation to the second round of the U.S.-China High Level
Security Dialogue, co-hosted by the EWI and the China Institute of International
Studies.
 
 Andrew
Uzoigwe has served as a Director since April 2005.  Dr. Uzoigwe
started his career with Dow Chemical Company where he held various senior
positions in its Walnut Creek Research Center and in its Specialty Chemicals
Facility in Pittsburgh, California. He joined the Nigerian National Petroleum
Corporation (NNPC) in 1981. During his tenure at NNPC, Dr. Uzoigwe held several
senior technical and management positions including Chief Engineer and Project
Coordinator (Petrochemicals), Group General Manager (R&D Division), Managing
Director of NNPC’s Refining and Petrochemicals subsidiaries. In 1999 he was
appointed the Group Executive Director (Exploration & Production) a position
he held until he retired from NNPC in 2002. Dr. Uzoigwe has also served in the
Governing Boards of Raw Material Research and Development Council, National
Management Agency. He has traveled extensively on numerous professional and
official assignments on behalf of NNPC and the Nigerian Government. Dr. Uzoigwe
is a Registered Professional Mechanical Engineer and a Registered Professional
Chemical Engineer in the State of California. He is a fellow of the Nigerian
Society of Chemical Engineers and a Fellow of the Polymer Institute of Nigeria.
He has a BSc (Mechanical Engineering) and a Master of Business Administration
from University of California at Berkley. He also holds Msc and PhD degrees in
Petroleum and Chemical Engineering from Stanford University
California.
  57
 Table of Contents
  Peter
Ntephe has been the Chief Operating Officer and acting Chief Executive
Officer of ERHC Energy from 2008.  Mr. Ntephe has been involved in
fundamental aspects of the Company's executive management since 2001,
having joined initially as Corporate Secretary.  His roles
have included key participation in the negotiation, securing and
maintenance of the Company's oil and gas interests in the Gulf of Guinea. 
As Chief Operating Officer and acting Chief Executive Officer, he oversees the
executive management of ERHC Energy and its subsidiaries.  He is
responsible for ensuring that the group's strategic objectives are met. 
Mr. Ntephe has had a career spanning over 22 years, in the public and private
sectors. Mr. Ntephe has a Master of Science degree from the University of
Oxford. He also has three degrees in law (including one with a specialization in
regulatory issues from the University of London) and a degree in management from
Brunel University, London.   Mr. Ntephe has taught Business Law
as part of adjunct faculty in the Business School of the American
IntercontinentalUniversity, London.
 Mr.
Ntephe, like all officers, serves at the discretion of the Board of Directors,
subject to contract.  There are no family relationships between or
among any Executive Officers and Directors.  There are no arrangements
or understandings between any Executive Officer or Director and any other person
pursuant to which he was or is to be selected as an Executive Officer or
Director.
 
 Our other
executive officers are as follows:
 
 David Bovell, Vice President -
Corporate Development- David A. Bovell 52, has held the position of Vice
President - Corporate Development since May 2008. Prior to joining the ERHC and
since 1993, Mr. Bovell served as a Managing Director for Green Corporate Finance
Ltd, in the United Kingdom. Green Corporate Finance is an independent company
advising small and medium sized companies on corporate finance, strategy and
restructuring, including listing on stock exchanges. Mr. Bovell has a Bachelor
of Commerce in Economics & Financial Management from the University of Cape
Town. He is a Certified institute of Chartered Accountants (South Africa), and a
member of UK Institute of Chartered Management Accountants.
 
 Daniel Gralla, Vice President -
Technical -Daniel S. Gralla is the Vice President Technical of ERHC
Energy Inc. and its subsidiaries and has held that position since December 2008.
Prior to joining ERHC and since 1993 Mr. Gralla served as an Engineering
Consultant for Kerr McGee, Arco, ConocoPhillips and Aspect Energy. Mr. Gralla
has 25 years of technical experience as a petroleum engineer working for both
major and independent oil and gas exploration and production companies. Mr.
Gralla has a Bachelor of Science in Petroleum Engineering from the Colorado
School of Mines.
 
 Sylvan Odobulu 49, is the Financial Controller and
Principal Accounting Officer of ERHC. He directs the daily operation of ERHC’s
finance function, including treasury, budgeting, auditing, tax, accounting,
capital purchasing, investor relations, forecasting and insurance activities. In
this capacity, Mr. Odobulu is responsible for regulatory and disclosure issues
including preparation of financial statements and other requisite disclosure
documents, accounting, payroll, tax and audit matters, including liaison with
external auditors, maintenance of financial controls, liaison with various
governmental and regulatory agencies, as well as procurement and logistics. Mr.
Odobulu provides counsel to ERHC’s President & CEO relating to financial and
tax considerations and develops long-range strategies to establish and maintain
the Company’s financial self-sufficiency, establishes ERHC’s accounting systems
and procedures to ensure they are up-to-date and in compliance with all
applicable statutory and regulatory requirements, and provides advice and review
for compliance with appropriate statutory and regulatory
requirements.  Additionally, Mr. Odobulu prepares and issues quarterly
and annual audited financial statements and reports. Prior to joining ERHC and
since 1999, Mr. Odobulu was employed by Ernst and Young LLP, serving in various
capacities, most recently as an Accounting Supervisor. He holds a Bachelor of
Science degree from the University of North Texas, majoring in
Accounting.
 Compensation
of Directors
 
 The
Company's Directors’ compensation program is designed to enhance the Company's
ability to attract and retain highly qualified Directors and to align their
interests with the long-term interests of the Company's shareholders. The
program consists of both a cash component, designed to compensate independent
Directors for their service on the Board and its Committees, and an equity
component, designed to align the interests of independent Directors and
shareholders.
 
 The
number of stock awards granted to each director during years prior to the 2009
fiscal year was determined by reference to the awards in an equal amount that
would yield thirty to fifty percent of total compensation of each director. In
2009 fiscal year, based on the recommendations of Compensation Committee, the
Company increased total compensations for Directors for serving on the Board.
Stock awards to Directors are restricted shares under Rule 144 of the Securities
Act of 1933, but they include no conditions for vesting.
 
 Cash
Compensation - During 2009, the basic annual cash retainer paid to each Director
(other than the Board Chairman) was $20,000.   Each Board member
is paid a meeting fee of $1,500 per Board meeting
attended.
  58
 Table of Contents
  The
Chairman of the Audit Committee is paid an annual retainer of
$10,000.  The Chairman of the Compensation Committee is paid an annual
retainer of $5,000.  The Chairman of the Governance and Nominating
Committee is paid an annual retainer of $5,000.  Each member of the
Audit Committee is paid an annual retainer of $3,125.  Each member of
the Compensation Committee is paid an annual retainer of $2,500.  Each
member of the Governance and Nominating Committee is paid an annual retainer of
$2,500.  In addition, each member of a Committee is paid a meeting fee
of $1,000 per Committee meeting attended.
 
 The
following table sets forth information concerning total director compensation
during the 2009 fiscal year for each non-employee director:
 
 Name
                
                Fees Earned or Paid in
      Cash
                
                
                Stock Awards (1)
                
                
                Option Awards (2)
                
                
                Non-Equity Incentive Plan
      Compensation
                
                
                Change in Pension Value and Nonqualified Deferred
      Compensation Earnings
                
                
                All Other
    Compensation
                
                
                TotalHoward
      Jeter
                
                $
                82,125
                
                
                $
                83,183
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                165,308Andrew
      Uzoigwe
                
                
                76,625
                
                
                
                83,183
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                159,808Clement
      Nwizubo (2)
                
                
                59,250
                
                
                
                83,183
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                142,433
 
 (1)
                The
      amounts included in the “Stock Awards” column represent the compensation
      cost recognized by the Company in 2008 related to non-option awards to
      directors, computed in accordance with Statement of Financial Accounting
      Standards No. 123(R), or SFAS No. 123(R). As of September 30, 2009, no
      non-employee directors had any aggregate outstanding deferred shares. The
      amounts included in the “Stock Awards” column represent the compensation
      cost recognized by the Company in 2009 related to non-option awards to
      directors, computed in accordance with Statement of Financial Accounting
      Standards No. 123(R), or SFAS No. 123(R). As of September 30, 2008, no
      non-employee directors had any aggregate outstanding deferred shares. The
      number of shares underlying stock awards to directors during fiscal 2009
      were as follows: Howard Jeter – 165,000 shares, Andrew Uzoigwe – 165,000
      shares and Clement Nwizubo – 165,000 shares.  The disclosure
      relates solely to grants of restricted stock (Under Rule 144) in 2009.
      Certain of the shares awarded to directors in 2009 have not been
      issued.
 
 (2)
                The
      amounts included in the “Option Awards” column represent the compensation
      cost recognized by the Company in related to stock option awards to
      directors, computed in accordance with SFAS No. 123(R). There were no
      stock option awards to directors in
2009.
 
 No table
of the grant date fair value of stock option and deferred share awards made to
each non-employee director has been included because no stock option or deferred
share awards occurred during 2009.
 
 It is
expected that the directors will receive compensation in fiscal
2010.
 
 Section
16(a) Beneficial Ownership Reporting Compliance
 
 Section
16(a) of the Exchange Act requires the Company’s Directors and Executive
Officers, and persons who own beneficially more than ten percent (10%) of the
common stock, to file reports of ownership and changes of ownership with the
Securities and Exchange Commission.  Copies of all filed reports are
required to be furnished to the Company.  Based solely on the reports
received and the representations of the reporting person, the Company believes
that these persons have complied with all applicable filing requirements during
the fiscal year ended September 30, 2009.
 
 Corporate
Governance
 
 The Board
of Directors has adopted a Code of Ethics to govern the conduct of all of the
Officers, Directors and employees of the Company.  In addition, the
Board has adopted Charters for its Governance and Nominating Committee, Audit
Committee and Compensation Committee.  The Code of Ethics and
Committee Charters, along with ERHC’s FCPA Policy and Whistleblower Protection
Policy, can be accessed on the Company’s website
www.erhc.com
  59
 Table of Contents
  Director
Independence
 
 The
Company’s Board of Directors is required to have a majority of independent
directors and has adopted director independence guidelines based upon and as
defined in the NASDAQ listing standards. The Company is not listed on NASDAQ and
is not subject to the rules of NASDAQ but applies the rules established by
NASDAQ to establish director independence.  The Company’s Board of
Directors periodically analyzes the independence of each director and has
determined that the following directors meet the standards of independence under
our Corporate Governance Guidelines and director independence guidelines,
including that each member is free of any relationship that would interfere with
his or her individual exercise of independent judgment: Messrs.  Jeter
and Uzoigwe. No Director is deemed independent unless the Board affirmatively
established his/her independence.
 
 Audit
Committee
 
 The
Company’s Audit Committee is constituted of Messrs. Jeter and
Uzoigwe.  The ultimate responsibility for good corporate governance
rests with the Board, whose primary role is oversight, counseling and direction
to the Company's management in the best long-term interests of the Company and
its stockholders. The Audit Committee, in accordance with its charter, has been
established for the purpose of overseeing the accounting and financial reporting
processes of the Company and audits of the Company's annual financial
statements. As described more fully in its charter, the purpose of the Audit
Committee is to assist the Board in its general oversight of the Company's
financial reporting, internal controls and audit
functions.  Management is responsible for the preparation,
presentation and integrity of the Company's financial statements; establishing
and applying accounting and financial reporting principles; designing and
implementing systems of internal controls; and establishing procedures designed
to reasonably assure compliance with accounting standards, applicable laws and
regulations. The Company's independent auditing firm is responsible for
performing an independent audit of the consolidated financial statements in
accordance with generally accepted auditing standards. In accordance with law,
the Audit Committee has ultimate authority and responsibility to select,
compensate, evaluate and, when appropriate, replace the Company's independent
auditors. The Audit Committee has the authority to engage its own outside
advisers, including experts in particular areas of accounting, as it determines
appropriate, apart from counsel or advisers hired by management. All of the
members of the Audit Committee meet the independence and experience requirements
of the SEC. The Board of Directors determined that Mr. Nwizubo qualifies as an
“Audit Committee Financial Expert” as defined by the SEC; however, since his
death in June 2009, the Board has been conducting a search for his
replacement.
 
 The Audit
Committee members are not professional accountants or auditors, and their
functions are not intended to duplicate or to certify the activities of
management and the independent auditors, nor can the Audit Committee certify
that the independent auditors are “independent” under applicable rules. The
Audit Committee serves a Board-level oversight role, in which it provides
advice, counsel and direction to management and the auditors on the basis of the
information it receives, discussions with management and the auditors, and the
experience of the Audit Committee's members in business, financial and
accounting matters. Stockholders should understand that the designation of “an
Audit Committee Financial Expert” is an SEC disclosure requirement related to
Mr. Nwizubo’s experience and understanding with respect to certain accounting
and auditing matters.  The designation does not impose on Mr.
Nwizubo’s any duties, obligations or liability greater than generally imposed on
them as members of the Audit Committee and the Board, and this designation as an
Audit Committee Financial Expert pursuant to this SEC requirement does not
affect the duties, obligations or liability of any other member of the Audit
Committee or the Board.
 
 Item
11.  Executive Compensation
 
 Compensation
Discussion and Analysis
 
 The
following discussion and analysis of compensation arrangements of our named
executive officers should be read together with the compensation tables and
related disclosures set forth below. This discussion contains forward-looking
statements that are based on our current plans, as well as considerations,
expectations and determinations regarding future compensation programs. Actual
compensation programs that we adopt may differ materially from currently planned
programs as summarized in this discussion.
 
 Overview
 
 ERHC’s
current business activity is to exploit its assets, which are rights to working
interests in exploration acreage in the JDZ between the DRSTP and the FRN and in
the EEZ.  Our current business plan is based on attracting and
retaining a limited group of highly qualified professionals. ERHC had 5
employees at September 30, 2009 and 2008.
 
 At this
time in our development, it is critical to retain and motivate our current
employees, as well as attract new talented personnel to the Company, in order to
continue to work on the implementation of our business plan. The Company offers
a competitive compensation and benefits package to enable us to recruit new
employees and retain our current employees. The same benefits are generally
available to each of our employees regardless of
position.
  60
 Table of Contents
  Compensation
Philosophy and Objectives
 
 Our
executive compensation program and objectives are based on our need to attract
and retain executives with the talent and experience necessary for ERHC to
achieve its goal of fully developing its assets. ERHC competes
with  large energy companies that have substantially greater
resources.  Therefore, the Company  must provide a total
compensation package that is sufficiently competitive  to attract and
retain the required executive personnel. In determining a total compensation
package, the Company does not rely on benchmarking to determine total
compensation or any material element of compensation. Because we are a
developing company, we sometimes use a combination of equity and cash as a
compensation incentive. Our compensation and benefits
include:
 
 •
                a
      base salary rate typically targeted at a level that is competitive in our
      market as determined by the Compensation
  Committee,
 
 •
                other
      equity awards, including equity grants to new hires to attract talented
      personnel and occasional grants of options/restricted shares to retain our
      talented employees, and
 
 •
                a
      comprehensive benefits
package.
 
 Since
2004, the equity portion of annual incentives has been paid primarily in
restricted Company common stock. The incentive amount is generally converted to
shares based on the closing price of the Company’s common stock on the date of
grant.
 
 Compensation
Consultant
 
 Each
year, the Compensation Committee, working with independent compensation experts,
evaluates the compensation earned by executive officers to assess if it is
reasonable and adequate to retain the services of those executive officers and
recommends to the Board of Directors appropriate compensation for the Named
Executive Officers.  The Board reviews such recommendations and then
adopts compensation for the upcoming year.  As the Company grows, it
intends to explore more complex procedures for evaluating and fixing
compensation for its executive officers.
 
 Role
of Compensation Committee and Executive Officers in Compensation
Decisions
 
 The
Compensation Committee has the responsibility to review and approve annual
compensation, including the competitiveness of the total compensation package,
for the Chief Operating Officer and Acting Chief Executive Officer, the
Technical Vice President, the Controller and Head Office Administrator,
Principle Financial Officer, and Vice President - Corporate
Development  (collectively, the “Executive Officers”). The
Compensation Committee endeavors to provide a compensation package for the
Executive Officers that they believe is reasonable and competitive. Generally,
the components of compensation provided to our Executive Officers are similar to
those provided to our general employee population.
 
 Base
salaries, annual incentives and other equity awards for the Executive Officers
are based on comparative industry salary produced by compensation consultant
hired by the Committee. The Compensation Committee makes the final determination
as to base salaries, annual incentives and equity awards for each of the
Executive Officers based on Company performance and executive performance and
their understanding of the employment market.
 
 2009
Executive Compensation
 
 Base
Salaries
 
 Base
salaries for our Executive Officers and other employees are designed to be
comparable to like positions in the marketplace from where we recruit. These
competitive salaries are proposed by the Compensation Committee based on their
familiarity with the current market for employees with similar
qualifications.
 
 Equity
Awards
 
 Overview
 
 We may
grant restricted stock, stock options and other equity-based awards to
employees, consultants and non-employee directors under our 2004 Plan. As
previously mentioned, our annual grants of equity awards are tied to the
achievement of our annual performance objectives. Equity awards are also used
for new hire incentives. We do not have a formal policy for the timing of
granting equity awards but do not time equity awards to increase the economic
value of the award to plan participants.
 
 The Board
has authorized the Compensation Committee to act on behalf of the Board in
granting equity-based awards, including restricted stock and stock options, to
eligible employees and consultants (other than Executive
Officers).
  61
 Table of Contents
  We do not
currently intend to grant stock or stock options except under limited
circumstances, including stock awards granted to a director upon his or her
initial election to the Board. Under the provisions of the 2004 Plan, stock
awards or stock options cannot be granted at an exercise price of less than the
closing price of a share of the Company’s common stock as reported on NASDAQ on
the date of grant of such stock options. All equity grants to Executive Officers
must be approved by the Compensation Committee or a subcommittee thereof. Stock
options or stocks granted to members of the Board must be approved by the
Compensation Committee.
 
 Retention
Plan
 
 In 2006,
the Compensation Committee granted stock options to the Technical Vice President
in an effort to provide an employment incentive and encourage retention through
this crucial stage in our operations. The options vest upon completion of one
year of service from the grant date. The exercise price of each of the grants
was set at the closing price of the Company’s common stock on the date of grant.
The Technical Vice President’s grant consisted of 1,000,000 stock options with
an exercise price of $0.43 per share. The closing price of the Company’s common
stock on December 18, 2006, the date of this grant, was $0.43. These options
expired unexercised in December 2008.
 
 Perquisites
 
 Perquisites
are not provided to our officers.
 
 Benefits
 
 We
provide the same level of benefits to all of our employees and Executive
Officers.
 
 Accounting
and Tax Implications
 
 Our 2004
Plan is designed to grant stock awards that are performance-based compensation
expense that is fully deductible for federal income tax purposes. When the
awards vest or are otherwise includible in the taxable compensation of the
affected executives, we may not be able to recognize current or future tax
benefits that may otherwise be available to the Company related to such awards.
We began expensing equity awards in 2006 in accordance with guidance issued by
the Financial Accounting Standards Board. In general, the accounting rules did
not impact the types of equity awards granted to plan
participants.
 
 COMPENSATION
COMMITTEE REPORT
 
 The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and,
based on such review and discussions, the Compensation Committee recommended to
the Board that the Compensation Discussion and Analysis be included in this
Annual Report on Form 10-K.
 
 THE
COMPENSATION COMMITTEE
 
 Dr.
Andrew Uzoigwe-Chairman
 Ambassador
Howard Jeter-Member
  62
 Table of Contents
  SUMMARY
COMPENSATION TABLE
 
 The
following table sets forth the aggregate compensation awarded to, earned by or
paid to the Company’s named executive officers for 2009 and 2008 and
2007
 
 Name and Principal
      Position
                
                Year
                
                Salary
                  ($)
                
                
                Bonus
                  ($)
                
                
                Stock Awards
                  ($) (1)
                
                
                Option Awards
                  ($) (2)
                
                
                Non-Equity Incentive Plan
      Compensation
                  ($)
                
                
                Change in Pension Value and Nonqualified Deferred
      Compensation Earnings
                  ($) (7)
                
                
                All Other Compensation
                  ($)
                
                
                Total
                  ($)Peter
      Ntephe (1)
                  Chief
      Operation Officer and Acting Chief Executive
Officer
                
                2009
                
                
                236,000
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                236,0002008
                
                
                131,733
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                131,7332007
                
                
                60,000
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                60,000James
      Ledbetter (2)
                  Technical
      Vice President
                
                2009
                
                
                57,500
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                57.5002008
                
                
                230,000
                
                
                
                —
                
                
                
                —
                
                
                
                48,460
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                278,4602007
                
                
                191,083
                
                
                
                —
                
                
                
                —
                
                
                
                175,440
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                366,523David
      Bovell (3)
                  Vice
      President - CorporateDevelopment
                
                2009
                
                
                235,000
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                235,0002008
                
                
                95,000
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                95,0002007
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Sylvan
      Odobulu (4) Controller/Principal
      Accounting Officer and Administrator
                
                2009
                
                
                163,200
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                163,2002008
                
                
                138,900
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                138,9002007
                
                
                111,018
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                111,018Daniel
      Gralla (5)
                  Technical
      Vice President
                
                2009
                
                
                151,250
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                151,2502008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —2007
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
  63
 Table of Contents
  (1)
                Mr.
      Ntephe became COO (and began acting as interim CEO) upon Mr. Luca’s
      resignation in April 2008. Mr. Ntephe is contracted through
      ERHC’s  holding company, ERHC Energy Cayman Limited and is paid
      a salary of $236,000 per year for his services as a COO and
      CEO.
 
 (2)
                Mr.
      Ledbetter was issued 1,000,000 stock options at an exercise price of $0.43
      per share on December 18, 2006. The option exercise price is $0.43 per
      share, the closing price of the Company's common stock on the date of
      grant. The options vest over a one-year period beginning on the date of
      grant. Fair value of $22.39 per share or a total of $223,900 was
      calculated using the Black-Scholes option pricing model. Variables used in
      this option-pricing model for the year ended September 30, 2007 were (1)
      4.90% discount rate, (2) option life is the expected remaining life of the
      options as of each year end, (3) expected volatility of 75.00%, and (4)
      zero expected dividends. Option expense of $48,460 and $175,440 was
      recorded during the years ended September 30, 2008 and 2007, respectively,
      in accordance with FAS123(R). Mr. Ledbetter served as Technical Vice
      President until December 2008 and his options expired unexercised in
      December 2008.
 
 (3)
                Mr.
      Bovell was became VP of Corporate Development on May 1, 2008 and receives
      a salary of $235,000 per year.  Mr. Bovell is contracted through
      ERHC’s holding company, ERHC Energy Cayman
  Limited.
 
 (4)
                Mr.
      Odobulu joined the Company in July 2006 as controller and has acted as
      Principal Accounting Officer since joining the Company. He is also the
      Corporate Administrator
 
 (5)
                Mr.
      Gralla became Technical VP in December 2008 and receives a base salary of
      $4,000 per month for four days service plus $1,400 per day for
      any additional services (if such additional services are
      required.)
 
 (6)
                ERHC
      does not provide either a pension plan or a nonqualified deferred
      compensation plan for any of its
  employees.
  64
 Table of Contents
  GRANTS
OF PLAN-BASED AWARDS
 
 The
following table sets forth the information about grants made to the Company’s
named executive officers in 2009 pursuant to the 2004 Plan.
 
 Name
                
                Grant Date
                
                
                Estimated Future Payouts Under Non-Equity
      Incentive Plan Awards
                
                
                Estimated Future Payouts Under Equity Incentive
      Plan Awards
                
                
                All Other Stock Awards: Number of Shares of Stock
      or Unit
                  (#) (1)
                
                
                All Other Option Awards: Number of Securities
      Underlying Options
                  (#) (2)
                
                
                Exercise or Base Price of Option
      Awards
                  ($/Share)
                
                
                Grant Date Fair Value of Stock and Option
      Awards
                  ($)Threshold
                  ($)
                
                
                Target
                  ($)
                
                
                Maximum
                  ($)
                
                
                Threshold
                  (#)
                
                
                Target
                  (#)
                
                
                Maximum
                  (#)James
      Ledbetter
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Sylvan
      Odobulu
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Peter
      Ntephe
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —David
      Bovell
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Daniel
      Gralla
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
 
 (1)
                The
      number in this column reflects the rule 144 restricted stock awarded in
      2009 pursuant to the 2004
Plan.
 
 (2)
                Reflects
      the dollar amounts recognized for financial statement reporting purposes
      for the fiscal year ended September 30, 2009 in accordance with FAS123R of
      awards made pursuant to the 2005 Plan excluding any reduction in value due
      to potential service-based
forfeitures.
  65
 Table of Contents
  OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
 
 The
following table reflects all outstanding equity awards held by the Company’s
named executive officers as of September 30, 2009.
 
 Stock AwardsNumber of Shares or Units of Stock That Have Not
      Vested
                  (#)
                
                
                Market Value of Shares or Units of Stock That Have
      Not Vested
                  ($)
                
                
                Equity Incentive Plan Awards: Number of Unearned
      Shares, Units or Other Rights That Have Not
      Vested
                  (#)
                
                
                Equity Incentive Plan Awards: Market or Payout
      Value of Unearned Shares, Units or Other Rights That Have Not
      Vested
                  ($)Option AwardsName
                
                Number of Securities Underlying Unexercised
      Options
                
                
                Equity Incentive Plan Awards: Number of Securities
      Underlying Unexercised Unearned Options
                  (#)
                
                Option Exercise Price
                  ($)
                
                
                Option Expiration
    DateExercisable
                
                
                UnexercisableNicolae
      Luca
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —James
      Ledbetter
                
                
                1,000,000
                
                
                
                —
                
                
                
                —
                
                
                $
                0.43
                
                
                12/18/2008
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Sylvan
      Odobulu
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Peter
      Ntephe
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —David
      Bovell
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Daniel
      Gralla
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
 
 (1)
                The
      options were granted on December 18, 2006 and vested upon the completion
      of one year of service. These options expired unexercised in December
      2008.
  66
 Table of Contents
  OPTION
EXERCISES AND STOCK VESTED
 
 The
following table reflects the stock options exercised by the Company’s named
executive officers during 2009 and their restricted stock that vested during
2009.
 
 Option Awards
                
                
                Stock AwardsName
                
                Number of Shares Acquired on
      Exercise
                  (#)
                
                
                Value Realized on
      Exercise
                  ($)
                
                
                Number of Shares Acquired on
      Vesting
                  (#)
                
                
                Value Realized on
      Vesting
                  ($)James
      Ledbetter
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Sylvan
      Odobulu
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Peter
      Ntephe
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —David
      Bovell
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Daniel
      Gralla
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
 
 POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
 
 As of
September 30, 2009, Company has entered into four employment or other agreements
that include a change of control severance provisions with an executive officer,
including the named executive officers. The Company’s employment agreements with
provide that certain officers are eligible for payments upon any termination
without cause prior to expiration of the contract as described below under
Employment Contracts.
  67
 Table of Contents
  Employment
Contracts
 
 Following
is an analysis of the Company’s employment contracts with named executive
officers at September 30, 2009:
 
 Employee
                
                Position
                
                Date of Agreement
      Commencement
                
                Date of Agreement
      Termination
                
                Term of Agreement
                
                Monthly/Annual
      Compensation
                
                
                Estimated Cost if Triggering Event Occurred at
      September 30, 2009 (*)Peter
      Ntephe
                
                Chief
      Operating Officer and Chief
                
                4/22/2008
                
                4/21/2010
                
                2
      years
                
                $
                19,667
      / 236,000
                
                
                $
                137,666Executive
      OfficerDavid
      Bovell
                
                Vice
      President of Corporate Development
                
                5/1/2008
                
                4/30/2010
                
                2
      years
                
                $
                19,583
      / 235,000
                
                
                $
                137,083Sylvan
      Odobulu
                
                Controller
      and Head Office Administrator
                
                7/3/2008
                
                7/2/2010
                
                2
      years
                
                $
                13,500
      / 162,000
                
                
                $
                121,500and
      Acting Principal Accounting OfficerDaniel
      Gralla
                
                Technical
      Vice President
                
                12/17/2008
                
                (1)
                
                (1)
                
                
                4,000/
                (1)
 
 (*)
                In
      the first six months of the employment contracts, no termination benefits
      accrue to the employees.
 
 (1)
                Daniel
      Gralla's contract  is for a six month period at a base rate of
      $4,000 per month for four working days per month plus additional
      compensation of $1,400 per day for services, if required, performed in
      excess of four days per month. The contract renews under the same terms
      based on the mutual agreement of Mr. Gralla and the Company. For
      termination with out cause, Mr. Gralla receives payment for services
      performed through the date of
  termination.
  68
 Table of Contents
  The above
contracts provides for the following:
 
 An
extension provision that at any time before the expiration of the primary term
the agreement that it may be renewed upon mutual agreement on the same terms and
conditions contained in the current agreement herein or on such other terms and
conditions as the Company and the employee mutually agree.
 
 The
employee's status as an employee of the Company terminates immediately and
automatically upon the earliest to occur of: (i) his death or “Disability", (ii)
his/her discharge by the Company "For Cause", (iii) his/her termination by the
Company by notice or, (iv) the expiration, without renewal, of the employment
term. Termination of the employment agreement with cause results in the Company
having no further responsibility under the agreement.
 
 For
termination without cause for reasons of bankruptcy, insolvency, dissolution or
liquidation of the Company, the Company is obligated to the employees for all
amounts due during the remaining term of the employment agreement in either a
lump sum or in the current monthly amounts for the remaining term together with
all unpaid benefits awarded or accrued up to the date of
termination.
 
 If the
employee is terminated without cause for other reasons, he/she is entitled to
one to six months compensation depending on the time he/she has spent with the
Company.
 
 Annual
paid vacation ranging from four to five weeks.
 
 Reimbursement
of authorized general business and travel expenses.
 
 Relocation
allowance in the event that the terms of employment require the employee to
relocate from his or her city or country of residence.
 
 Incentive compensation as approved by the
Company's Board of Directors.
 
 Mr.
Ntephe, was paid annual compensation of $60,000, in the form of consultancy fees
for his services as Secretary until April 2008.   Mr. Ntephe
became COO (and began acting as interim CEO) upon Mr. Luca’s resignation in
April 2008. Mr. Ntephe is contracted in that capacity through ERHC’s holding
company, ERHC Energy Cayman Limited.
 
 Mr.
Bovell became Vice President Corporate Development from May 1
2008.  Mr. Bovell is contracted in that capacity through EHRC’s
holding company, ERHC Energy Cayman Limited.
 
 Mr.
Odobulu was employed by the Company in July 2006 and was placed under contract
as shown above.
 
 Securities
Authorized for Issuance Under Equity Compensation Plans
 
 In
November 2004, the Board of Directors adopted a 2004 Compensatory Stock Option
Plan pursuant to which it reserved 20,000,000 shares for
issuance.  This plan was approved at a special meeting of the
stockholders of the Company in February 2005.  Under this plan,
7,576,756 shares have been issued.
  69
 Table of Contents
  Plan Category
                
                Number of Securities to be Issued Upon Exercise of
      Outstanding Options, Warrants and Rights
                
                
                Weighted-Average Exercise Price of Outstanding
      Options, Warrants and Rights
                
                
                Number of Securities Remaining Available for
      Future issuance Under Equity Compensation Plans (Excluding Securities
      Reflected in Column (a))(a)
                
                
                (b)Equity
      compensation plans approved by security holders
                
                
                1,000,000
                (1)
                
                $
                0.43
                
                
                
                10,658,244Equity
      compensation plans not approved by security holders
                
                
                -
                
                
                
                -
                
                
                
                -
 
 (1) In
December 2008, these options expired unexercised.
 
 Compensation
Committee Interlocks Insider Participation
 
 The
Company’s Compensation Committee is comprised Messrs. Jeter and
Uzoigwe.  Mr. Nwizubo served on the until  his death in June
2009. None of the members of the Compensation Committee has been or is an
officer or employee of the Company, or is involved with a related transaction or
a relationship as defined by Item 404 of Regulation S-K.  None of the
Company’s Executive Officers serves on the Board of Directors or compensation
committee of a company that has an Executive Officer that serves on the
Company’s Board or Compensation Committee.  No member of the Company’s
Board is an Executive Officer of a company in which one of the Company’s
Executive Officers serves as a member of the Board of Directors or compensation
committee of that company.
 
 Item 12.  Security Ownership of Certain
Beneficial Owners and Mana 
    gement and Related Stockholder
Matters
 
 The
following table and notes thereto set forth certain information regarding
beneficial ownership of the common stock as of November 30, 2008 by (i) each
person known by the Company to beneficially own more than five percent of the
common stock, (ii) each Director, (iii) each named Executive Officer and (iv)
all Directors and Officers of the Company as a group.  As of December
31, 2009 there were 723,050,444 shares of common stock issued and
outstanding.   Beneficial ownership is determined in accordance
with rules of the SEC and generally includes voting or dispositive power with
respect to such shares.
  70
 Table of Contents
  Name and Address
                
                Shares of Common Stock Beneficially
      Owned(1)
                
                
                Percentage of Voting
      PowerPrincipal
      ShareholdersChrome
      Oil Services LTD
                
                
                200,285,727
                
                
                
                27.7
                %c/o
      No 22 Lobito, Wuse IIAbuja,
      NigeriaChrome
      Energy, LLC
                
                
                103,305,706
                
                
                
                14.3
                %c/o
      No 22 Lobito Crescent, Wuse II,Abuja,
      Nigeria.First
      Atlantic Bank
                
                
                60,641,821
                
                
                
                8.2
                %4/6
      Adetokunboh Ademola StreetVictoria
      Island, LagosSir
      Emeka Offor
                
                
                307,796,433
                
                
                
                42.6
                %Directors
      and Named Executive OfficerAndrew
      Uzoigwe(3)
                
                
                325,000
                
                
                
                *Howard
      Jeter(3)
                
                
                325,000
                
                
                
                *Peter
      Ntephe(3)
                
                
                388,889
                
                
                
                *All
      directors and named exectuvie officer as a group
      (3persons)
                
                
                1,038,889
                
                
                
                *
                %
 
 
 *
                Less
      than one percent.
 
 (1)
                The
      number of shares beneficially owned by each person or group as of December
      31, 2009 (except where another date is indicated) includes shares of
      common stock that such person or group had the right to acquire on or
      within 60 days after that date, including, but not limited to, upon the
      exercise of options and vesting and release of restricted stock units. To
      our knowledge, except as otherwise indicated in the footnotes to this
      table and subject to applicable community property laws, each stockholder
      named in the table has sole voting and investment power with respect to
      the shares set forth opposite such stockholder’s
    name.
 
 (2)
                Sir
      Emeka Offor is the beneficial owner of the shares held of record by Chrome
      Oil Services, Ltd., and Chrome Energy, LLC as the sole voting and
      investment power over these shares. He holds 4,205,000 shares in his own
      name
 
 (3)
                c/o
      Suite 1440, 5444 Westheimer Road, Houston, TX
  77056
 
 Item 13. Certain Relationships and Re 
    lated Transactions
 
 Review,
Approval or Ratification Of Transactions With Related
Persons
 
 The Audit
Committee of the Company is responsible for review, approving or ratifying
related party transactions, including any related-party transaction that the
Company would be required to disclose pursuant to Item 404 of Regulation S-K
promulgated pursuant to the rules and regulations of the
SEC.
  71
 Table of Contents
  Policy
 
 The Audit
Committee, which consists solely of independent Directors, must review all
“Related Person Transactions” as defined by Item 404 of Regulation S-K of the
rules promulgated by the SEC. The Audit Committee will approve a Related Person
Transaction only if it determines that the Related Person Transaction is
consistent with the business interests of the Company. In considering the
Related Person Transaction, the Committee will consider all relevant factors,
including as applicable: (i) the Company’s business rationale for entering into
the Related Person Transaction; (ii) whether the Related Person Transaction is
on terms comparable to those available to third parties, or in the case of
employment relationships, to employees generally; (iii) the potential for the
Related Person Transaction to lead to an actual or apparent conflict of interest
and any safeguards imposed to prevent such actual or apparent conflicts; and
(iv) the overall fairness of the Related Person Transaction to the
Company.
 
 Procedure
 
 Directors
and executive officers are responsible for bringing a potential Related Person
Transaction to the attention of the Chair of the Audit
Committee.
 
 Transactions
in 2009
 
 None
 
 Item 14.  Principal Accounting Fees
and 
    Services
 
 Aggregate
fees for professional services rendered by MaloneBailey, LLP for the fiscal
years ended September 30, 2009 and 2008, were as follows:
 
 2008
                
                
                2009Audit
      fee
                
                $
                109,303
                
                
                $
                97,915Audit
      –related fee
                
                
                3,750
                
                
                
                3,000Tax
      fees
                
                
                29,328
                
                
                
                17,395All
      other fees
                
                
                -
                
                
                
                -Total:
                
                $
                142,381
                
                
                $
                118,310
 
 
 Audit fees for the fiscal
years ended September 30, 2009 and 2008 represent the aggregate fees billed for
professional services rendered for the audit of the Company’s annual financial
statements and review of financial statements included in its quarterly reports
on Form 10-Q or services that are normally provided in connection with statutory
and regulatory filings or engagements for those fiscal
years.
 
 Tax fees for the fiscal year
ended September 30, 2009 and 2008, represents the aggregate fees billed for
professional services rendered for tax compliance, tax advice, and tax
planning.
 
 All other fees for the fiscal
year ended September 30, 2009 and 2008, represents the aggregate fees billed for
products and services provided by the Company’s audit professionals other than
the services reported in the other categories.  All other fees
generally relate to fees assessed for corporate tax restructuring and other
general corporate tax related matters.
  72
 Table of Contents
 Audit
Committee Pre-Approval Policies and Procedures
 
 The Audit
Committee on an annual basis reviews audit and non-audit services performed by
the independent auditor.  All audit and non-audit services are
pre-approved by the Audit Committee, which considers, among other things, the
possible effect of the performance of such services on the auditors’
independence.  The Audit Committee has considered the role of Malone
& Bailey in providing services to us for the fiscal year ended September 30,
2009 and has concluded that such services are compatible with Malone &
Bailey’s independence as the Company’s auditors.
 73
 Table of Contents
 PART
IV
 
 Item
15.  Exhibits and Financial Statement Schedules and
Reports on Form 8-K
 
 (32)
                Consolidated
      Financial Statements and Schedules:
 
 1.
                Consolidated
      Financial Statements:  See Index to Consolidated Financial
      Statements immediately following the signature pages of this
      report.
 
 2.
                Consolidated
      Financial Statement Schedule: See Index to Consolidated Financial
      Statements immediately following the signature pages of this
      report.
 
 3.
                The
      following documents are filed as exhibits to this
  report:
 
 EXHIBIT
      NO.
                
                IDENTIFICATION
      OF EXHIBITExhibit
      3.1*
                
                Articles
      of IncorporationExhibit
      3.2*
                
                BylawsExhibit
      4.1*
                
                Specimen
      Common Stock Certificate.Exhibit
      4.2*
                
                Form
      of Amended and Restated 12% Convertible Promissory Note, dated effective
      January 2001.Exhibit
      4.3*
                
                Form
      of Amended and Restated 5.5% Convertible Promissory Note, dated effective
      January 2001.Exhibit
      4.4*
                
                20%
      Convertible Promissory Note, dated January 31, 2001, in favor of
      Chrome.Exhibit
      4.5*
                
                Term
      Loan Agreement, dated February 15, 2001, by and between Chrome and
      ERHC.Exhibit
      4.6*
                
                Senior
      Secured 10% Exchangeable 10% Convertible Promissory Note, dated January
      31, 2001, in favor of Chrome.Exhibit
      4.7*
                
                Form
      of Warrant entitling Chrome to purchase common stock of the Company,
      exercise price of $0.40 per share.Exhibit
      10.1*
                
                Option
      Agreement, dated April 7, 2003, by and between the Company and the
      Democratic Republic of Sao Tome and Principe (incorporated herein by
      reference to Exhibit 10.1 of Form 8-K filed April 2,
  2003)Exhibit
      10.2*
                
                Management
      and Administrative Services Agreement by and between Chrome Oil Services,
      Ltd. And the Company. (Incorporated by reference to Form 10-KSB filed
      September 24, 2001).Exhibit
      10.4*
                
                Letter
      Agreement, dated November 29, 2004, by and between the Company and Chrome
      (incorporated herein by reference to Exhibit 10.1 of Form 8-K filed
      December 29, 2004).Exhibit
      10.5*
                
                Promissory
      Note, dated December 15, 2004, made by the Company in favor of Chrome
      (incorporated herein by reference to Exhibit 10.2 of Form 8-K filed
      December 29, 2004).Exhibit
      10.6*
                
                Promissory
      Note, dated December 15, 2004, made by the Company in favor of Chrome
      (incorporated herein by reference to Exhibit 10.3 of Form 8-K filed
      December 29, 2004).Exhibit
      10.7*
                
                Employment
      Agreement with Ali Memon.Exhibit
      10.8*
                
                Audit
      committee charterExhibit
      10.9
                
                Employment
      Agreement with James LedbetterExhibit
      10.10
                
                May
      21, 2001 Memorandum of Agreement made b/w DRSTP and
ERHCExhibit
      10.11
                
                March
      15,  2003 Memorandum of Agreement made b/w DRSTP and
      ERHCExhibit
      10.12
                
                April
      2, 2003 Option Agreement b/w DRSTP and ERHCExhibit
      10.13
                
                Administrative
      Agreement b/w Nigeria/DRSTP and ERHCExhibit
      10.14
                
                Block
      2 Participation Agreement March 2, 2006 b/w ERHC, Addax and
      SinopecExhibit
      10.15
                
                Block
      2 Participation Agreement August 11, 2004 b/w ERHC and
    PioneerExhibit
      10.16
                
                Block
      3 Participation Agreement  February 16, 2006 b/w ERHC and
      AddaxExhibit
      10.17
                
                Block
      4 Participation Agreement November 17, 2005 b/w ERHC and
    AddaxExhibit
      10.18
                
                Block
      4 2nd Amendment to Participation Agreement March 14,
  2006Exhibit
      10.19
                
                Block
      4 3rd Amendment to Participation Agreement July 14,
2006Exhibit 10.20
                
                Employment
      Agreement with Sylvan OdobuluExhibit 10.21
                
                Employment
      Agreement with David Alan BovellExhibit 10.22
                
                Employment
      Agreement with Peter NtepheExhibit
      31.1
                
                Certification
      Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002Exhibit
      31.2
                
                Certification
      Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002Exhibit
      32.1
                
                Certification
      Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002Exhibit
      32.2
                
                Certification
      Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 *
Previously filed
  74
 Table of Contents
  SIGNATURES
 
 In
accordance with the Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on January 27, 2010 on its behalf by
the undersigned, thereunto duly authorized.
 
 ERHC
      Energy Inc.By:
                //s//Peter
      NtephePeter
      NtepheChief
      Operating Officer & Acting Chief Executive Officer//s//Sylvan
      OdobuluSylvan
      OdobuluPrincipal
      Accounting Officer
 
 
 In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
 
 Signature
                
                Title
                
                Date//s//  Howard
      Jeter
                
                Director
                
                January
      27, 2010Howard
      Jeter
                
                Member
      Audit Committee//s//  Andrew
      Uzoigwe
                
                Director
                
                January
      27, 2010Andrew
      Uzoigwe
                
                Member
      Audit Committee
   75