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Friday, 12/16/2005 4:17:23 PM

Friday, December 16, 2005 4:17:23 PM

Post# of 353423
Share Burn Rate REALITY check.

Many can play games by selectively picking numbers and coming up with their own twisted outcome to put on a stock chat board for their own personal gain (Yes, I am primarily referring to you Mongo, I just don’t know and don’t care what personal gain you get from twisting facts in a negative light for ERHE). These number games are played by both sides, pumpers and bashers.

I am not going to go into every detail but I would like to shed light to some obvious flaws to the twisted conclusions that Mongo is touting (fairly cleverly, I will admit) but also reflect that this is no free lunch. Yes, my goal is to do a reality check and a realistic analysis of historical figures.

I will first point out the ELEPHANT in the room that Mongo is so cleverly trying to hide (kind of a cool pun, don’t you think considering ERHE is looking for what is referred to as a Elephant field of oil, LOL). In a nut shell, ERHE did a one-time “cleanup” of the company’s financial position. By issuing shares of stock, the company paid off all loan balances, accrued interest, and settlements of old lawsuits. This resulted in an abnormally large issuing of shares during this one quarter to clean the slate. Directly from the SEC filings:

“The Company issued to Chrome 73,100,962 of unregistered shares of ERHC common stock in conversion of the entire outstanding principal and accrued interest of the Consolidated Note and the Promissory Note. The Consolidated Note was converted at $0.175 per share pursuant to the terms of such note and cancelled in its entirety. The Promissory Note was converted at $0.175 per share pursuant to the terms of such note and cancelled in its entirety. ERHC issued these shares pursuant to the exemption from registration requirements of the Securities Act of 1933, as amended, by Section 4(2).”

The bottom line (whether or not you agree with the way ERHE went about settling their financial affairs) is that the financial statements were entirely cleaned up of old and accumulated debt, interest and outstanding lawsuits. This resulted in the removal of the quarterly “going concern” (that Mongo used to hold over ERHE/ERHC’s head for so long).

I will admit, I wasn’t thrilled with the amount of shares that ERHE issued to settle all these affairs and how they communicated it. The fact is though, that it is done and the company is in a stronger financial position to move forward. I now have a new share count to evaluate my risk/reward going forward.

With this known fact that this major financial cleanup adversely skewed the new shares issued count for one quarters (Dec. 2004), Mongo is creating a false assumption that (regardless of which three year quarterly analysis you choose) ERHE will need to issue this amount of shares in the future. I will be the first to admit, I don’t know how many shares ERHE will need to issue in the future quarters, but clearly, it would be dishonest to suggest or assume a onetime major debt cleanup would need to be done on an on going basis.

I would like to point out that Balance_Builder (in post #74856 on RB message board) did a more realistic and honest assessment of current share burn rate utilizing the most recent quarter only due to the fact there is no longer any interest payment needed on accumulated debt. But BB also errored on the conservative side. He correctly pointed out that:

“The 10Q ending 3-31-05 shows our O/S was 709,912,226.

The 10QA shows the total O/S thru 8/4/05 was 710,912,226.

The difference between these are 1,747,153 meaning ERHC added 1,747,153 shares to our O/S between 3-31-05 and 8-4-05.

From 3-31-05 to the last (freshest) filing going to 8-4-05 there were 126 days or roughly 4 months.”

The error BB did was then multiplying 1,747,153 by 4 (this would be equivalent to 16 months a year). It should have been multiplied by 3 to come up with a rough 5,241,459 annual share burn rate or 14,400 shares per day. You will note that 14,400 per day is a far cry from the “Between 42,300 and 128,000 shares per day” figure Mongo came up with using his analytically unsound approach.

Now, I want to bring up one more “reality check” point that was brought to light last week in the Addax news. In just this one deal, it looks like Addax will be providing $18,000,000 in financial support to ERHE in addition to carrying to first oil for block 4. A cash infusion like this would dramatically reduce the need to issue new shares for ongoing business needs.

I also will point out that this $18 million will be needed in addition to other funding to provide ERHE with their share of money needed for signing bonus obligations in blocks other than 2, 3, and 4. But, it was a very pleasant surprise to me because I have been assuming all along that they would be needing to use “share financing” for all the bonus obligations. Obviously, Offer has been negotiating strong deals to minimize future share dilution.

To all, a happy Friday and may we see positive movement next week.


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