ARD » Topics » Capital Resources and Liquidity

This excerpt taken from the ARD 10-Q filed May 8, 2009.

Capital Resources and Liquidity

As shown in the financial statements for the three months ended March 31, 2009, the Company had cash on hand of $52,403,274, compared to $58,489,574 as of December 31, 2008. The Company had net cash provided by operating activities for the three months ended March 31, 2009 of $11,231,316, compared to $35,480,006 for the same period 2008. Other significant sources of cash inflow in 2008 were $5,500,000 drawn down on the Company’s credit facility and proceeds from option and warrant exercises of $1,566,844. The most significant cash outflows during the three months ended March 31, 2009 and 2008 were capital expenditures of $17,317,616 in 2009 and $41,068,121 in 2008.

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In June 2007, the Company entered into a new agreement that increased the borrowing base under its credit facility to $100,000,000, while leaving the credit facility at $150,000,000. Additionally, the interest rate was changed to be a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 1.75%. Additionally, the subordination of the loans from two officers was released. All other terms and conditions remained the same.

In June 2008, we entered into an amended agreement that increased the borrowing base under our credit facility to $150,000,000, while leaving the credit facility at $150,000,000. All other terms and conditions remained the same. As of March 31, 2009, we were in compliance with all covenants and did not have any amount outstanding under this credit facility.

This excerpt taken from the ARD 10-Q filed Nov 6, 2008.

Capital Resources and Liquidity

As shown in the financial statements for the nine months ended September 30, 2008, the Company had cash on hand of $79,243,230, compared to $5,213,459 as of December 31, 2007. The Company had net cash provided by operating activities for the nine months ended September 30, 2008 of $142,458,786, compared to $34,321,101 for the same period 2007. Other significant sources of cash inflow were net proceeds from issuance of common stock of $116,130,189 in 2008 and $95,099,298 in 2007, proceeds from issuance of notes payable of $11,000,000 in 2008 and $30,700,000 in 2007, proceeds from option and warrant exercises of $4,653,439 in 2008 and $1,557,003 in 2007 and proceeds from the sale of oil and gas properties of $1,915,640 in 2007. The most significant cash outflows during the nine months ended September 30, 2008 and 2007 were capital expenditures of $154,212,644 in 2008 and $89,619,376 in 2007 and repayment of notes payable of $46,000,000 in 2008 and $50,400,000 in 2007.

In June 2008, the Company entered into an amended agreement that increased the borrowing base under its credit facility to $150,000,000, while leaving the credit facility at $150,000,000. All other terms and conditions remained the same. As of September 30, 2008, the Company was in compliance with all covenants and did not have any amount outstanding under this credit facility.

As noted above, the Company has, subsequent to September 30, 2008, determined to reduce its estimated capital expenditure budget for 2008. In doing so, the Company intends to operate within existing cash flows. At current commodity prices, the revised capital expenditure budget would allow it to operate within existing cash flow while still continuing to increase its estimated production and proven reserves.

This excerpt taken from the ARD 10-Q filed Aug 6, 2008.

Capital Resources and Liquidity

As shown in the financial statements for the six months ended June 30, 2008, the Company had cash on hand of $86,062,095, compared to $5,213,459 as of December 31, 2007. The Company had net cash provided by operating activities for the six months ended June 30, 2008 of $87,338,395, compared to $18,949,655 for the same period 2007. Other significant sources of cash inflow were net proceeds from issuance of common stock of $116,149,336 in 2008 and $95,399,643 in 2007, proceeds from issuance of notes payable of $11,000,000 in 2008 and $30,700,000 in 2007, proceeds from option and warrant exercises of $2,515,417 in 2008 and $1,557,003 in 2007 and proceeds from the sale of oil and gas properties of $1,915,640 in 2007. The most significant cash outflows during the six months ended June 30, 2008 and 2007 were capital expenditures of $90,154,512 in 2008 and $58,892,021 in 2007 and repayment of notes payable of $46,000,000 in 2008 and $50,400,000 in 2007.

In June 2008, the Company entered into an amended agreement that increased the borrowing base under its credit facility to $150,000,000, while leaving the credit facility at $150,000,000. All other terms and conditions remained the same. As of June 30, 2008, the Company was in compliance with all covenants and did not have any amount outstanding under this credit facility.

This excerpt taken from the ARD 10-Q filed May 7, 2008.

Capital Resources and Liquidity

As shown in the financial statements for the three months ended March 31, 2008, the Company had cash on hand of $6,687,188, compared to $5,213,459 as of December 31, 2007. The Company had net cash provided by operating activities for the three months ended March 31, 2008 of $35,480,006, compared to $6,056,437 for the same period 2007. Other significant sources of cash inflow were $5,500,000 drawn down on the Company’s credit facility and proceeds from option and warrant exercises of $1,566,844 in 2008 and $17,200,000 drawn down on the Company’s credit facility and proceeds from option and warrant exercises of $755,503 in 2007. The most significant cash outflows during the three months ended March 31, 2008 and 2007 were capital expenditures of $41,068,121 in 2008 and $26,276,289 in 2007 and repayment of notes payable to related parties of $400,000 in 2007.

In June 2007, the Company entered into a new agreement that increased the borrowing base under its credit facility to $100,000,000, while leaving the credit facility at $150,000,000. Additionally, the interest rate was changed to be a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 1.75%. Additionally, the subordination of the loans from two officers was released. All other terms and conditions remained the same. As of March 31, 2008, the Company was in compliance with all covenants and had $40,500,000 outstanding under this credit facility.

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This excerpt taken from the ARD 10-Q filed Nov 8, 2007.

Capital Resources and Liquidity

As shown in the financial statements for the nine months ended September 30, 2007, the Company had cash on hand of $32,300,916, compared to $4,919,984 as of December 31, 2006. The Company had net cash provided by operating activities for the nine months ended September 30, 2007 of $34,321,101, compared to $30,260,511 for the same period 2006. Other significant sources of cash inflow during the nine months ended September 30, 2007 and 2006, were from issuances of common stock net of offering costs of $95,099,298 in 2007 and $29,788,881 in 2006, draw downs on the Company’s credit facility of $30,700,000 in 2007 and $11,000,000 in 2006, proceeds from option exercises of $1,287,000 in 2007 and $640,000 in 2006 and proceeds from the sale of oil and gas properties of $1,915,640 in 2007. The most significant cash outflows during the nine months ended September 30, 2007 and 2006 were capital expenditures of $83,235,525 in 2007 and $61,556,302 in 2006, purchases of building and equipment of $6,381,851 in 2007 and $717,818 in 2006 and repayment of notes payable $50,400,000 in 2007 and $11,000,000 in 2006.

Credit facility — In April 2006, the Company entered into an agreement that increased its credit facility to $150,000,000, with an increased borrowing base of $65,000,000. The interest rate was a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2%, and is payable monthly. Amounts borrowed under the revolving credit facility are due in May 2009. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense, maintain a current asset to current liability ratio of 1-to-1 and a requirement to maintain a maximum leverage ratio of no more than 2.5-to-1, calculated on a rolling four quarter basis

In June 2007, the Company entered into a new agreement that increased the borrowing base under its credit facility to $100,000,000, while leaving the credit facility at $150,000,000. Additionally, the interest rate was changed to be a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 1.75%. Additionally, the subordination of the loans from two officers was released. All other terms and conditions remained the same. As of September 30, 2007, the Company was in compliance with all covenants and no amount was outstanding under this credit facility.

Related party notes payable – Previously, two officers and members of the Board of Directors of the Company loaned money to the Company, evidenced by notes payable in the amount of $400,000. During the nine months ended September 30, 2007, the Company paid all principal and interest owed under the notes payable.

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This excerpt taken from the ARD 10-Q filed May 4, 2007.

Capital Resources and Liquidity

As shown in the financial statements for the three months ended March 31, 2007, the Company had cash on hand of $3,970,368, compared to $4,919,984 as of December 31, 2006. The Company had net cash provided by operating activities for the three months ended March 31, 2007 of $6,056,437, compared to $6,114,193 for the same period 2006. Other significant sources of cash inflow were $17,200,000 drawn down on the Company’s credit facility and proceeds from option and warrant exercises of $755,503 in 2007 and $11,000,000 drawn down on the Company’s credit facility in 2006. The most significant cash outflows during the three months ended March 31, 2007 and 2006 were capital expenditures of $26,276,289 in 2007 and $13,855,005 in 2006 and repayment of notes payable to related parties of $400,000 in 2007.

In April 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000. The interest rate was a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, and is payable monthly. Amounts borrowed under the revolving credit facility are due in May 2009. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1.

In April 2006, the Company entered into a new credit agreement increasing the Company’s credit facility to $150,000,000 with a $65,000,000 borrowing base. Additionally, this new agreement adjusted the interest rate to be equal to the 30, 60 or 90 day LIBOR rate plus 2%, removed the requirement to maintain a tangible net worth but added a requirement to a rolling four quarter basis of a maximum leverage ratio of no more than 2.5-to-1. All other conditions of the credit facility remained the same. At March 31, 2007, the Company was in compliance with all covenants and had $36,500,000 outstanding under this credit facility, excluding $527,500 reserved under the revolving credit facility as collateral for standby letters of credit issued to various states.

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This excerpt taken from the ARD 10-Q filed Nov 3, 2006.

Capital Resources and Liquidity

As shown in the financial statements for the nine months ended September 30, 2006, the Company had cash on hand of $4,740,380, compared to $4,317,114 as of December 31, 2005. The Company had positive net cash flows from operations for the nine months ended September 30, 2006 of $30,260,512, compared to $9,858,079 for the same period 2005. Other significant sources of cash inflow were $11,000,000 drawn down on the Company’s credit facility and net proceeds from a private placement of $29,788,881 in 2006 and $9,916,749 net proceeds from a private placement and $13,605,728 net proceeds from the exercise of warrants in 2005. The most significant cash outflows during the nine months ended September 30, 2006 and 2005 were capital expenditures of $61,556,302 in 2006 and $18,021,414 in 2005 and repayment of debt on the Company’s credit facility of $11,000,000 in 2006 and $10,000,000 in 2005.

In April 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000. The interest rate was a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, and is payable monthly. Amounts borrowed under the revolving credit facility are due in May 2009. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1.

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In April 2006, the Company entered into a new credit agreement increasing the Company’s credit facility to $150,000,000 with a $65,000,000 borrowing base. Additionally, this new agreement adjusted the interest rate to be equal to the 30, 60 or 90 day LIBOR rate plus 2%, removed the requirement to maintain a tangible net worth but added a requirement to a rolling four quarter basis of a maximum leverage ratio of no more than 2.5-to-1. All other conditions of the credit facility remained the same. At September 30, 2006, the Company was in compliance with all covenants and had no amounts outstanding under this credit facility, excluding $527,500 reserved under the revolving credit facility as collateral for standby letters of credit issued to various states.

This excerpt taken from the ARD 10-Q filed Aug 4, 2006.

Capital Resources and Liquidity

As shown in the financial statements for the six months ended June 30, 2006, the Company had cash on hand of $17,985,825, compared to $4,317,114 as of December 31, 2005. The Company had positive net cash flows from operations for the six months ended June 30, 2006 of $14,795,434, compared to $5,618,615 for the same period 2005. Other significant sources of cash inflow were $11,000,000 drawn down on the Company’s credit facility and net proceeds from a private placement of $29,858,463 in 2006 and $6,012,673 net proceeds from the exercise of warrants in 2005. The most significant cash outflows during the six months ended June 30, 2006 and 2005 were capital expenditures of $34,899,092 in 2006 and $6,480,089 in 2005 and repayment of debt on the Company’s credit facility of $11,000,000 in 2006 and $5,000,000 in 2005.

In April 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000. The interest rate was a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, and is payable monthly. Amounts borrowed under the revolving credit facility are due in May 2009. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1.

15

In April 2006, the Company entered into a new credit agreement increasing the Company’s credit facility to $150,000,000 with a $65,000,000 borrowing base. Additionally, this new agreement adjusted the interest rate to be equal to the 30, 60 or 90 day LIBOR rate plus 2%, removed the requirement to maintain a tangible net worth but added a requirement to a rolling four quarter basis of a maximum leverage ratio of no more than 2.5-to-1. All other conditions of the credit facility remained the same. At June 30, 2006, the Company was in compliance with all covenants and had no amounts outstanding under this credit facility, excluding $527,500 reserved under the revolving credit facility as collateral for standby letters of credit issued to various states.

This excerpt taken from the ARD 10-Q filed May 10, 2006.

Capital Resources and Liquidity

As shown in the financial statements for the three months ended March 31, 2006, the Company had cash on hand of $7,650,020, compared to $4,317,114 as of December 31, 2005. The Company had positive net cash flows from operations for the three months ended March 31, 2006 of $6,114,193, compared to $1,258,365 for the same period 2005. Other significant source of cash inflow was $11,000,000 drawn down on the Company’s credit facility in 2006 and $5,672,607 net proceeds from the exercise of warrants in 2005. The most significant cash outflows during the three months ended March 31, 2006 and 2005 were capital expenditures of $13,446,705 in 2006 and $1,409,705 in 2005 and repayment of debt on the Company’s credit facility of $5,000,000 in 2005.

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In April 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000. Any increases in the borrowing base are subject to written consent by the financial institution. The interest rate is a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, currently 7.25% per annum, and is payable monthly. Amounts borrowed under the revolving credit facility are due on April 30, 2008. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1. At March 31, 2006, the Company was in compliance with all covenants and $11,000,000 was outstanding under this credit facility, and an additional $527,500 is reserved under the revolving credit facility as collateral for standby letters of credit issued to various states.

Subsequent to March 31, 2006, the Company entered into an agreement that increased the facility to $150,000,000, with an increased borrowing base of $65,000,000. At this time, the agreement was expanded from a single lender to a syndicate of lenders and the maturity date was extended to May 3, 2008. All other covenants and conditions remained the same.

This excerpt taken from the ARD 10-Q filed Feb 15, 2006.

Capital Resources and Liquidity

As shown in the financial statements for the six months ended June 30, 2005, the Company had cash on hand of $1,405,168, compared to $1,253,969 as of December 31, 2004. The Company had positive net cash flows from operations for the six months ended June 30, 2005 of $5,618,615, compared to $1,444,687 for the same period 2004. Other significant sources of cash inflow include the receipt of $6,012,673 during the six months ended June 30, 2005 and $130,500 for the same period in 2004 from the exercise of warrants for the Company’s restricted common stock and $1,000,000 from the issuance of notes payable in 2004. The most significant cash outflows during the six months ended June 30, 2005 and 2004 were capital expenditures of $6,480,089 in 2005 and $1,525,178 in 2004, repayment of debt on the Company’s credit facility of $5,000,000 in 2005 and payment of deferred offering costs of $204,701 for the public offering that was completed later in 2004.

In 2004 the Company established a $25,000,000 credit facility from a bank with a $15,000,000 borrowing base. Any increases in the borrowing base are subject to written consent by the financial institution. The interest rate is a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, currently 5.04% per annum, and is payable monthly. Annual fees for the facility were 1/8 of one percent of the unused portion of the borrowing base. Amounts borrowed under the revolving credit facility are due in April 2007. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1. During the six months ended June 30, 2005, the Company paid a total of $5,000,000 of the amounts borrowed during 2004, using the proceeds from the exercise of warrants for the Company’s common stock. As of June 30, 2005, $5,000,000 remained outstanding on this credit facility.

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Effective April 30, 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000. At that time, the annual fee for the unused portion of the borrowing base was removed, the tangible net worth the Company must maintain was increased to $18,000,000 and the maturity date changed to April 30, 2008. All other terms and conditions of the credit facility remained the same.

This excerpt taken from the ARD 10-Q filed Feb 15, 2006.

Capital Resources and Liquidity

As shown in the financial statements for the three months ended March 31, 2005, the Company had cash on hand of $1,764,414, compared to $1,253,969 as of December 31, 2004. The Company had positive net cash flows from operations for the three months ended March 31, 2005 of $1,258,365, compared to $568,710 for the same period 2004. Another significant source of cash inflow was the receipt of $5,672,607 during the three months ended March 31, 2005 and $21,750 for the same period in 2004 from the exercise of warrants for the Company’s restricted common stock. The most significant cash outflows during the three months ended March 31, 2005 and 2004 were capital expenditures of $1,420,527 in 2005 and $314,066 in 2004, repayment of debt on the Company’s credit facility of $5,000,000 in 2005 and payment of deferred offering costs of $114,788 for the public offering that was completed later in 2004.

On April 14, 2004, the Company established a $15,000,000 credit facility from a bank with an $8,500,000 initial borrowing base. In November 2004, the Company entered into an agreement that increased the facility to $25,000,000, with an increased borrowing base of $15,000,000. Any increases in the borrowing base are subject to written consent by the financial institution. The interest rate is a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, currently 5.04% per annum, and is payable monthly. Annual fees for the facility were 1/8 of one percent of the unused portion of the borrowing base. Amounts borrowed under the revolving credit facility are due in April 2007. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1. During December 2004, the Company drew $9,000,000 under this revolving credit facility to fund the acquisition of the Fuhrman Mascho leases and $1,000,000 to help fund development activities. An additional $299,029 is reserved under the revolving credit facility as collateral for standby letters of credit issued to various states. During the three months ended March 31, 2005, the Company paid a total of $5,000,000 of the amounts borrowed during 2004, using the proceeds from the exercise of warrants for the Company’s common stock. As of March 31, 2005, $5,000,000 remained outstanding on this credit facility.

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As stated in the Subsequent Events section, effective April 30, 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000. At that time, the annual fee for the unused portion of the borrowing base was removed, the tangible net worth the Company must maintain was increased to $18,000,000 and the maturity date changed to April 30, 2008. All other terms and conditions of the credit facility remained the same.

This excerpt taken from the ARD 10-Q filed Feb 15, 2006.

Capital Resources and Liquidity

As shown in the financial statements for the nine months ended September 30, 2005, the Company had cash on hand of $6,571,237, compared to $1,253,969 as of December 31, 2004. The Company had positive net cash flows from operations for the nine months ended September 30, 2005 of $9,858,079, compared to $3,414,117 for the same period 2004. Other significant sources of cash inflow include the receipt of net proceeds of $13,605,728 during the nine months ended September 30, 2005 and $189,500 for the same period in 2004 from the exercise of warrants for the Company’s common stock, $9,916,750 net proceeds from the private placement of common stock in July 2005, $8,434,823 net proceeds from the Company’s secondary public offering in August 2004 and $1,000,000 from the issuance of notes payable in 2004. The most significant cash outflows during the nine months ended September 30, 2005 and 2004 were capital expenditures of $18,063,288 in 2005 and $2,277,703 in 2004, repayment of debt on the Company’s credit facility of $10,000,000 in 2005 and $10,008,440 in 2004.

In 2004 the Company established a $25,000,000 credit facility with a bank that provided a $15,000,000 borrowing base. Any increases in the borrowing base are subject to written consent by the financial institution. The interest rate is a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, currently 6.49% per annum, and is payable monthly. Annual fees for the facility were 1/8 of one percent of the unused portion of the borrowing base. Amounts borrowed under the revolving credit facility are due in April 2007. The revolving credit facility is secured by the Company’s principal mineral interests. In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1.

17

Effective April 30, 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000. At that time, the annual fee for the unused portion of the borrowing base was removed, the tangible net worth the Company must maintain was increased to $18,000,000 and the maturity date changed to April 30, 2008. All other terms and conditions of the credit facility remained the same. During the nine months ended September 30, 2005, the Company paid the outstanding $10,000,000 amount that was borrowed during 2004, using the proceeds from the exercise of warrants for the Company’s common stock and the proceeds of the private sale of the Company’s common stock. As of September 30, 2005, no amounts remained outstanding on this credit facility.

This excerpt taken from the ARD 10-Q filed May 11, 2005.

Capital Resources and Liquidity


As shown in the financial statements for the three months ended March 31, 2005, the Company had cash on hand of $1,764,414, compared to $1,253,969 as of December 31, 2004.  The Company had positive net cash flows from operations for the three months ended March 31, 2005 of $1,258,365, compared to $568,710 for the same period 2004.  Another significant source of cash inflow was the receipt of $5,672,607 during the three months ended March 31, 2005 and $21,750 for the same period in 2004 from the exercise of warrants for the Company’s restricted common stock.  The most significant cash outflows during the three months ended March 31, 2005 and 2004 were capital expenditures of $1,420,527 in 2005 and $314,066 in 2004, repayment of debt on the Company’s credit facility of $5,000,000 in 2005 and payment of deferred offering costs of $114,788 for the public offering that was completed later in 2004.


On April 14, 2004, the Company established a new $15,000,000 credit facility from a bank with an $8,500,000 initial borrowing base.  In November 2004, the Company entered into an agreement that increased the facility to $25,000,000, with an increased borrowing base of $15,000,000.  Any increases in the borrowing base are subject to written consent by the financial institution.  The interest rate is a floating rate equal to the 30, 60 or 90 day LIBOR rate plus 2.25%, currently 5.04% per annum, and is payable monthly.  Annual fees for the facility were 1/8 of one percent of the unused portion of the borrowing base.  Amounts borrowed under the revolving credit facility are due in April 2007.  The revolving credit facility is secured by the Company’s principal mineral interests.  In order to obtain the revolving credit facility, loans from two officers were subordinated to the position of the bank. The Company is required under the terms of the credit facility to maintain a tangible net worth of $12,000,000, maintain a 5-to-1 ratio of income before interest, taxes, depreciation, depletion and amortization to interest expense and maintain a current asset to current liability ratio of 1-to-1.



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During December 2004, the Company drew $9,000,000 under this revolving credit facility to fund the acquisition of the Fuhrman Mascho leases and $1,000,000 to help fund development activities.  An additional $299,029 is reserved under the revolving credit facility as collateral for standby letters of credit issued to various states.  During the three months ended March 31, 2005, the Company paid a total of $5,000,000 of the amounts borrowed during 2004, using the proceeds from the exercise of warrants for the Company’s common stock.  As of March 31, 2005, $5,000,000 remained outstanding on this credit facility.


As stated in the Subsequent Events section, effective April 30, 2005, the Company entered into an agreement that increased its credit facility to $50,000,000, with an increased borrowing base of $35,000,000.  At that time, the annual fee for the unused portion of the borrowing base was removed, the tangible net worth the Company must maintain was increased to $18,000,000 and the maturity date changed to April 30, 2008.  All other terms and conditions of the credit facility remained the same.


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