UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 AMENDMENT NO. 1 TO
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarter Ended June 30, 2009
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF EXCHANGE ACT
 Commission File No. 0-12185
 NGAS Resources, Inc.
 (Exact name of registrant as specified in its charter)
 Province of British Columbia
(State or other jurisdiction of 
incorporation or organization)
    
    Not Applicable
(I.R.S. Employer
Identification No.)120 Prosperous Place, Suite 201Lexington, Kentucky
    
    40509-1844(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (859) 263-3948
  þ o
 þ o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
  Title of Class
    
    Outstanding at August 4, 2009Common Stock
    
    27,004,361




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##### 



NGAS Resources, Inc.
 INDEX TO FORM 10-Q/A
  Part I. Financial Information
 PageItem 1. Financial Statements:Condensed Consolidated Balance Sheets  June 30, 2009 (unaudited) and December 31, 2008
    
    
    1Condensed Consolidated Statement of Operations  Three months and six months ended
June 30, 2009 (restated) and 2008
    
    
    2Condensed Consolidated Statement of Cash Flows  Three months and six months ended
June 30, 2009 (restated) and 2008
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    22
 
 Additional Information
 SEC NGAS company we our us Dth MMBtu Mcf Mcfe Mmcf Bcf EUR
 Explanatory Note
 10-Q/A 10-Q
 
    
    Condensed Consolidated Financial Statements The condensed consolidated financial
statements have been restated to account for the embedded conversion feature of our 6%
convertible notes as a derivative liability under ASC 815-40-15 (formerly EITF 07-5), which
became effective as of January 1, 2009. The impact of the change in accounting principles is
set forth in Note 2  Restatement Adjustments.
    
    MD&A The recognition of non-cash interest expense for accretion of the debt discount and
related adjustments from the change in accounting principles are reflected under the caption
Results of Operations.
    
    Certifications The certifications in the exhibits to the 10-Q have been updated as the
date of this 10-Q/A.




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##### 



NGAS Resources, Inc.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash
    
    $
    7,642,019
    
    
    $
    981,899Accounts receivable
    
    
    5,684,160
    
    
    
    10,450,173Prepaid expenses and other current assets
    
    
    515,848
    
    
    
    540,253Loans to related parties
    
    
    76,914
    
    
    
    79,188Total current assets
    
    
    13,918,941
    
    
    
    12,051,513Bonds and deposits
    
    
    263,695
    
    
    
    623,898Oil and gas properties
    
    
    179,603,725
    
    
    
    229,218,344Assets held for sale
    
    
    47,216,714
    
    
    
    Property and equipment
    
    
    5,667,261
    
    
    
    3,285,925Loans to related parties
    
    
    171,429
    
    
    
    171,429Deferred financing costs
    
    
    1,645,985
    
    
    
    1,689,580Goodwill
    
    
    313,177
    
    
    
    313,177Total assets
    
    $
    248,800,927
    
    
    $
    247,353,866LIABILITIESCurrent liabilities:Accounts payable
    
    $
    5,237,137
    
    
    $
    12,362,092Accrued liabilities
    
    
    665,157
    
    
    
    675,141Deferred compensation
    
    
    2,094,700
    
    
    
    2,246,439Customer drilling deposits
    
    
    698,400
    
    
    
    2,262,955Long-term debt, current portion
    
    
    87,703
    
    
    
    24,000Total current liabilities
    
    
    8,783,097
    
    
    
    17,570,627Deferred compensation
    
    
    344,013
    
    
    
    Deferred income taxes
    
    
    13,012,717
    
    
    
    12,949,476Long-term debt
    
    
    112,878,664
    
    
    
    109,270,818Fair value of derivative financial instruments
    
    
    5,513
    
    
    
    Other long-term liabilities
    
    
    4,008,675
    
    
    
    3,685,849Total liabilities
    
    
    139,032,679
    
    
    
    143,476,770SHAREHOLDERS EQUITYCapital stockAuthorized:5,000,000   Preferred shares100,000,000   Common sharesIssued:26,968,646   Common shares (2008  26,543,646)
    
    
    110,988,162
    
    
    
    110,626,91221,100   Common shares held in treasury, at cost
    
    
    (23,630
    )
    
    
    (23,630
    )Paid-in capital  options and warrants
    
    
    4,204,791
    
    
    
    3,774,600To be issued:9,185   Common shares (2008  9,185)
    
    
    45,925
    
    
    
    45,925115,215,248
    
    
    
    114,423,807Deficit
    
    
    (5,447,000
    )
    
    
    (10,546,711
    )Total shareholders equity
    
    
    109,768,248
    
    
    
    103,877,096Total liabilities and shareholders equity
    
    $
    248,800,927
    
    
    $
    247,353,866
 See accompanying notes.
 1




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##### 



NGAS Resources, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008REVENUEContract drilling
    
    $
    5,172,998
    
    
    $
    7,625,356
    
    
    $
    12,496,750
    
    
    $
    14,227,474Oil and gas production
    
    
    6,891,644
    
    
    
    11,179,620
    
    
    
    13,958,863
    
    
    
    19,669,054Gas transmission, compression
and processing
    
    
    2,599,229
    
    
    
    2,536,560
    
    
    
    5,404,211
    
    
    
    5,094,652Total revenue
    
    
    14,663,871
    
    
    
    21,341,536
    
    
    
    31,859,824
    
    
    
    38,991,180DIRECT EXPENSESContract drilling
    
    
    3,873,266
    
    
    
    5,756,997
    
    
    
    9,414,692
    
    
    
    10,876,846Oil and gas production
    
    
    2,614,094
    
    
    
    3,107,095
    
    
    
    4,939,059
    
    
    
    5,872,050Gas transmission, compression
and processing
    
    
    1,025,408
    
    
    
    957,548
    
    
    
    1,994,325
    
    
    
    2,047,794Total direct expenses
    
    
    7,512,768
    
    
    
    9,821,640
    
    
    
    16,348,076
    
    
    
    18,796,690OTHER EXPENSES (INCOME)Selling, general and administrative
    
    
    2,552,740
    
    
    
    3,442,094
    
    
    
    5,803,005
    
    
    
    6,730,577Options, warrants and deferred compensation
    
    
    319,192
    
    
    
    234,803
    
    
    
    737,465
    
    
    
    372,482Depreciation, depletion and amortization
    
    
    3,687,621
    
    
    
    3,261,192
    
    
    
    7,306,491
    
    
    
    6,132,952Bad debt expense
    
    
    
    
    
    
    59,000
    
    
    
    
    
    
    
    406,840Interest expense
    
    
    2,415,451
    
    
    
    1,355,643
    
    
    
    4,696,459
    
    
    
    2,681,613Interest income
    
    
    (6,194
    )
    
    
    (9,093
    )
    
    
    (15,010
    )
    
    
    (78,803
    )Fair value (gain) loss on
derivative financial instruments
    
    
    4,995
    
    
    
    
    
    
    
    (9,324
    )
    
    
    Other, net
    
    
    216,377
    
    
    
    34,632
    
    
    
    295,918
    
    
    
    28,355Total other expenses
    
    
    9,190,182
    
    
    
    8,378,271
    
    
    
    18,815,004
    
    
    
    16,274,016INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (2,039,079
    )
    
    
    3,141,625
    
    
    
    (3,303,256
    )
    
    
    3,920,474INCOME TAX EXPENSE (BENEFIT)
    
    
    (103,921
    )
    
    
    1,620,363
    
    
    
    63,241
    
    
    
    2,236,023NET INCOME (LOSS)
    
    $
    (1,935,158
    )
    
    $
    1,521,262
    
    
    $
    (3,366,497
    )
    
    $
    1,684,451NET INCOME (LOSS) PER SHAREBasic
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    0.06Diluted
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    0.06WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:Basic
    
    
    26,968,646
    
    
    
    26,346,506
    
    
    
    26,820,718
    
    
    
    26,291,159Diluted
    
    
    26,968,646
    
    
    
    27,344,529
    
    
    
    26,820,718
    
    
    
    27,015,161
 See accompanying notes.
 2




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##### 



NGAS Resources, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008OPERATING ACTIVITIESNet income (loss)
    
    $
    (1,935,158
    )
    
    $
    1,521,262
    
    
    $
    (3,366,497
    )
    
    $
    1,684,451Adjustments to reconcile net income to
net cash provided by operating activities:Incentive bonus paid in common shares
    
    
    
    
    
    
    
    
    
    
    361,250
    
    
    
    31,570Options, warrants and deferred compensation
    
    
    319,192
    
    
    
    234,803
    
    
    
    737,465
    
    
    
    372,482Depreciation, depletion and amortization
    
    
    3,687,621
    
    
    
    3,261,192
    
    
    
    7,306,491
    
    
    
    6,132,952Bad debt expense
    
    
    
    
    
    
    59,000
    
    
    
    
    
    
    
    406,840Gain (loss) on sale of assets
    
    
    (3,620
    )
    
    
    981
    
    
    
    (12,905
    )
    
    
    (355
    )Fair value (gain) loss on
derivative financial instruments
    
    
    4,995
    
    
    
    
    
    
    
    (9,324
    )
    
    
    Accretion of debt discount
    
    
    955,627
    
    
    
    
    
    
    
    1,864,594
    
    
    
    Deferred income taxes (benefit)
    
    
    (103,921
    )
    
    
    1,620,363
    
    
    
    63,241
    
    
    
    2,236,023Changes in assets and liabilitiesAccounts receivable
    
    
    74,059
    
    
    
    (2,987,214
    )
    
    
    4,766,013
    
    
    
    (4,143,320
    )Prepaid expenses and other current assets
    
    
    94,002
    
    
    
    574,348
    
    
    
    24,405
    
    
    
    117,614Other non-current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,242,790Accounts payable
    
    
    (28,706
    )
    
    
    (1,633,082
    )
    
    
    (7,124,955
    )
    
    
    704,684Accrued liabilities
    
    
    23,395
    
    
    
    78,814
    
    
    
    (9,984
    )
    
    
    207,618Deferred compensation
    
    
    (115,000
    )
    
    
    
    
    
    
    (115,000
    )
    
    
    Customers drilling deposits
    
    
    (895,848
    )
    
    
    (1,396,787
    )
    
    
    (1,564,555
    )
    
    
    (1,227,502
    )Other long-term liabilities
    
    
    162,769
    
    
    
    
    
    
    
    322,826
    
    
    
    Net cash provided by operating activities
    
    
    2,239,407
    
    
    
    1,333,680
    
    
    
    3,243,065
    
    
    
    9,765,847INVESTING ACTIVITIESProceeds from sale of assets
    
    
    34,337
    
    
    
    26,500
    
    
    
    54,033
    
    
    
    38,700Purchase of property and equipment
    
    
    (2,458,544
    )
    
    
    (149,214
    )
    
    
    (2,487,800
    )
    
    
    (304,501
    )Change in bonds and deposits
    
    
    224,203
    
    
    
    39,500
    
    
    
    10,203
    
    
    
    (35,500
    )Additions to oil and gas properties, net
    
    
    1,931,517
    
    
    
    (13,228,191
    )
    
    
    (4,077,095
    )
    
    
    (26,325,157
    )Net cash used in investing activities
    
    
    (268,487
    )
    
    
    (13,311,405
    )
    
    
    (6,500,659
    )
    
    
    (26,626,458
    )FINANCING ACTIVITIESDecrease in loans to related parties
    
    
    560
    
    
    
    739
    
    
    
    2,274
    
    
    
    2,677Proceeds from issuance of common shares
    
    
    
    
    
    
    1,006,806
    
    
    
    
    
    
    
    1,108,806Payments of deferred financing costs
    
    
    (371,527
    )
    
    
    (29,250
    )
    
    
    (372,560
    )
    
    
    (143,543
    )Proceeds from issuance of long-term debt
    
    
    4,800,000
    
    
    
    11,000,000
    
    
    
    10,300,000
    
    
    
    16,740,000Payments of long-term debt
    
    
    (6,000
    )
    
    
    (6,000
    )
    
    
    (12,000
    )
    
    
    (2,026,175
    )Net cash provided by financing activities
    
    
    4,423,033
    
    
    
    11,972,295
    
    
    
    9,917,714
    
    
    
    15,681,765Change in cash
    
    
    6,393,953
    
    
    
    (5,430
    )
    
    
    6,660,120
    
    
    
    (1,178,846
    )Cash, beginning of period
    
    
    1,248,066
    
    
    
    1,643,262
    
    
    
    981,899
    
    
    
    2,816,678Cash, end of period
    
    $
    7,642,019
    
    
    $
    1,637,832
    
    
    $
    7,642,019
    
    
    $
    1,637,832SUPPLEMENTAL DISCLOSUREInterest paid
    
    $
    1,450,714
    
    
    $
    1,353,635
    
    
    $
    2,822,194
    
    
    $
    2,681,318Income taxes paid
    
    
    
    
    
    
    
    
    
    
    -          
    
    
    
    
 See accompanying notes.
 3




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##### 



NGAS Resources, Inc.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1. Summary of Significant Accounting Policies
 General NGAS U.S. GAAP
 Basis of Presentation DPI company we our us ASC Contracts in Entitys Own Equity
 Estimates .
 Note 2. Restatement Adjustments
 Change in Accounting Principle Derivatives and Hedging  Embedded Derivatives
 Cumulative Effect
Adjustments
 4




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##### 



Cumulative Effect Adjustment:
    
    Retained DeficitAs previously reported, December, 31, 2008
    
    $
    (10,546,711
    )Cumulative effect adjustment
    
    
    8,466,208As adjusted, January 1, 2009
    
    $
    (2,080,503
    )
 Impact on Interim Financial Statements
 As Previously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedThree Months Ended June 30, 2009:Total revenue
    
    $
    14,663,871
    
    
    $
    
    
    
    $
    14,663,871Total direct expenses
    
    
    7,512,768
    
    
    
    
    
    
    
    7,512,768Other expenses (income)Selling, general and administrative
    
    
    2,552,740
    
    
    
    
    
    
    
    2,552,740Options, warrants and deferred compensation
    
    
    319,192
    
    
    
    
    
    
    
    319,192Depreciation, depletion and amortization
    
    
    3,687,621
    
    
    
    
    
    
    
    3,687,621Interest expense
    
    
    1,459,824
    
    
    
    955,627
    
    
    
    2,415,451Interest income
    
    
    (6,194
    )
    
    
    
    
    
    
    (6,194
    )Fair value loss on derivative financial instruments
    
    
    
    
    
    
    4,995
    
    
    
    4,995Other, net
    
    
    216,377
    
    
    
    
    
    
    
    216,377Total other expenses
    
    
    8,229,560
    
    
    
    960,622
    
    
    
    9,190,182Loss before income taxes
    
    
    (1,078,457
    )
    
    
    (960,622
    )
    
    
    (2,039,079
    )Income tax benefit
    
    
    (103,921
    )
    
    
    
    
    
    
    (103,921
    )Net loss
    
    $
    (974,536
    )
    
    $
    (960,622
    )
    
    $
    (1,935,158
    )EPS  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    
    (0.07
    )Six Months Ended June 30, 2009:Total revenue
    
    $
    31,859,824
    
    
    $
    
    
    
    $
    31,859,824Total direct expenses
    
    
    16,348,076
    
    
    
    
    
    
    
    16,348,076Other expenses (income)Selling, general and administrative
    
    
    5,803,005
    
    
    
    
    
    
    
    5,803,005Options, warrants and deferred compensation
    
    
    737,465
    
    
    
    
    
    
    
    737,465Depreciation, depletion and amortization
    
    
    7,306,491
    
    
    
    
    
    
    
    7,306,491Interest expense
    
    
    2,831,865
    
    
    
    1,864,594
    
    
    
    4,696,459Interest income
    
    
    (15,010
    )
    
    
    
    
    
    
    (15,010
    )Fair value gain on derivative financial instruments
    
    
    
    
    
    
    (9,324
    )
    
    
    (9,324
    )Other, net
    
    
    295,918
    
    
    
    
    
    
    
    295,918Total other expenses
    
    
    16,959,734
    
    
    
    1,855,270
    
    
    
    18,815,004Loss before income taxes
    
    
    (1,477,986
    )
    
    
    (1,855,270
    )
    
    
    (3,303,256
    )Income tax expense
    
    
    63,241
    
    
    
    
    
    
    
    571,357Net loss
    
    $
    (1,052,342
    )
    
    $
    (1,855,270
    )
    
    $
    (3,366,497
    )EPS  basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.07
    )
    
    $
    (0.13
    )
 5




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##### 



Note 3. Oil and Gas Properties
 Sale of 50% Undivided Interest in Appalachian Gas Gathering Facilities NG II APA Seminole Gathering System Seminole Energy
 Capitalized Costs and DD&A DD&A
 June 30,
    
    
    December 31,2009(1)
    
    
    2008Proved oil and gas properties
    
    $
    194,933,880
    
    
    $
    192,186,676Unproved oil and gas properties
    
    
    5,031,686
    
    
    
    5,065,835Gathering facilities and well equipment
    
    
    16,162,264
    
    
    
    67,326,445216,127,830
    
    
    
    264,578,956Accumulated DD&A
    
    
    (36,524,105
    )
    
    
    (35,360,612
    )Net oil and gas properties and equipment
    
    $
    179,603,725
    
    
    $
    229,218,344
 
 (1)
    
    Excludes capitalized costs totaling $47,216,714 for Gathering System assets held for sale,
net of accumulated depreciation totaling $5,311,507. Suspended Well Costs Accounting for Suspended Well Costs
 Note 4. Property and Equipment
  June 30,
    
    
    December 31,2009
    
    
    2008Land
    
    $
    12,908
    
    
    $
    12,908Building improvements
    
    
    64,265
    
    
    
    64,265Machinery and equipment
    
    
    6,164,986
    
    
    
    3,333,981Office furniture and fixtures
    
    
    175,862
    
    
    
    175,862Computer and office equipment
    
    
    669,465
    
    
    
    670,349Vehicles
    
    
    1,790,323
    
    
    
    1,951,2798,877,809
    
    
    
    6,208,644Accumulated depreciation
    
    
    (3,210,548
    )
    
    
    (2,922,719
    )Net other property and equipment
    
    $
    5,667,261
    
    
    $
    3,285,925
 6




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##### 



Note 5. Deferred Financing Costs
  Note 6. Goodwill
 SFAS Goodwill and Other Intangible Assets
 Note 7. Customer Drilling Deposits
  Note 8. Long-Term Debt
 Convertible Notes
 Credit Facility
 
    
    Redetermination of the borrowing base to $65 million, with an additional $10
million reduction upon release of our Gathering System assets from the collateral
package under the credit agreement;
    
    Change in the maximum interest rate for borrowings under the credit agreement to
2.25% above the administrative agents prime rate;
    
    Waiver of current ratio financial covenant under the credit agreement until
September 30, 2009, and
    
    Adjustments to our other financial covenants under the credit agreement through
December 31, 2010.
  7




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##### 



Installment Loan
 Acquisition Debt
 Total Long-Term Debt and Maturities
 RestatedJune 30,
    
    
    December 31,Principal Amount Outstanding
    
    2009(1)
    
    
    2008Total long-term debt (including current portion)(2)
    
    $
    112,966,367
    
    
    $
    109,294,818Less current portion
    
    
    87,703
    
    
    
    24,000Total long-term debt
    
    $
    112,878,664
    
    
    $
    109,270,818
 Maturities of DebtRemainder of 2009
    
    $
    43,3852010
    
    
    30,473,146
    (2)2011
    
    
    80,093,5572012
    
    
    2,157,4612013 and thereafter
    
    
    198,818
 
 (1)
    
    Does not reflect the $28 million reduction in our credit facility borrowings from proceeds
of the sale of a 50% interest in our Gathering System on July 15, 2009. See Note 3  Oil and
Gas Properties.(2)
    
    Reflects the carrying amount of our 6% convertible notes in the principal amount of
$37,000,000, net of the unamortized debt discount of $6,616,451 at June 30, 2009 attributable
to their embedded conversion feature. See Note 2  Restatement Adjustments. Note 9. Capital Stock
 Preferred Shares
 Common Shares
 Common Shares Issued
    
    Shares
    
    
    AmountBalance, December 31, 2007
    
    
    26,136,064
    
    
    $
    108,842,526Issued to employees as incentive bonus
    
    
    50,000
    
    
    
    259,690Issued upon exercise of stock options
    
    
    357,582
    
    
    
    1,524,696Balance, December 31, 2008
    
    
    26,543,646
    
    
    
    110,626,912Issued as stock awards under incentive plan
    
    
    425,000
    
    
    
    361,250Balance, June 30, 2009
    
    
    26,968,646
    
    
    $
    110,988,162Paid In Capital  Options and WarrantsBalance, December 31, 2007
    
    
    
    
    
    
    3,484,148Recognized
    
    
    
    
    
    
    625,142Exercised
    
    
    
    
    
    
    (334,690
    )Balance, December 31, 2008
    
    
    
    
    
    
    3,774,600Recognized
    
    
    
    
    
    
    430,191Balance, June 30, 2009
    
    
    
    
    
    $
    4,204,791Common Shares to be IssuedBalance, June 30, 2009 and December 31, 2008
    
    
    9,185
    
    
    $
    45,925
 8




---



##### 



Stock Options and Awards
 Weighted AverageIssued
    
    Exercisable
    
    Exercise PriceBalance, December 31, 2007
    
    
    2,681,250
    
    
    
    1,739,583
    
    
    $
    4.75Granted
    
    
    2,300,000
    
    
    
    
    
    
    
    2.93Vested
    
    
    
    
    
    
    41,667
    
    
    
    6.02Exercised
    
    
    (357,582
    )
    
    
    (357,582
    )
    
    
    3.33Forfeited
    
    
    (10,000
    )
    
    
    (10,000
    )
    
    
    7.04Balance, December 31, 2008
    
    
    4,613,668
    
    
    
    1,413,668
    
    
    
    3.95Vested
    
    
    
    
    
    
    1,220,000
    
    
    
    4.68Expired
    
    
    (310,000
    )
    
    
    (310,000
    )
    
    
    4.03Balance, June 30, 2009
    
    
    4,303,668
    
    
    
    2,323,668
    
    
    
    3.94
  Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedExercise
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AveragePrice
    
    
    
    
    
    Remaining
    
    Exercise
    
    
    
    
    
    Exerciseor Range
    
    Number
    
    Life (years)
    
    Price
    
    Number
    
    Price$
    1.51
    
    
    
    
    
    1,650,000
    
    
    
    5.86
    
    
    $
    1.51
    
    
    
    
    
    
    $
    4.03
    
    
    4.09
    
    
    1,230,000
    
    
    
    0.49
    
    
    
    4.05
    
    
    
    1,230,000
    
    
    
    4.056.02
    
    
    7.64
    
    
    1,423,668
    
    
    
    1.86
    
    
    
    6.66
    
    
    
    1,093,668
    
    
    
    6.694,303,668
    
    
    
    
    
    
    
    
    
    
    
    2,323,668
 Share-Based Payment
 Note 10. Income (Loss) Per Share
 EPS
 9




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Restated
    
    
    
    
    
    
    RestatedNumerator:Net income (loss) as reported for basic EPS
    
    $
    (1,935,158
    )
    
    $
    1,521,262
    
    
    $
    (3,366,497
    )
    
    $
    1,684,451Adjustments to income (loss) for diluted EPS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) for diluted EPS
    
    $
    (1,935,198
    )
    
    $
    1,521,262
    
    
    $
    (3,366,497
    )
    
    $
    1,684,451Denominator:Weighted average shares for basic EPS
    
    
    26,968,646
    
    
    
    26,346,506
    
    
    
    26,820,718
    
    
    
    26,291,159Effect of dilutive securities  stock options
    
    
    
    
    
    
    998,023
    
    
    
    
    
    
    
    724,002Adjusted weighted average shares and
assumed conversions for diluted EPS
    
    
    26,968,646
    
    
    
    27,344,529
    
    
    
    26,820,718
    
    
    
    27,015,161Basic EPS
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    0.06Diluted EPS
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    (0.13
    )
    
    $
    0.06
 Note 11. Segment Information
 Disclosure about
Segments of an Enterprise and Related Information
 Note 12. Commitments
  Maturities of Lease ObligationsRemainder of 2009
    
    $
    1,168,1462010
    
    
    2,267,9732011
    
    
    2,047,0862012
    
    
    847,4422013 and thereafter
    
    
    73,283Total
    
    $
    6,403,930
 Note 13. Recent Accounting Standards
 SFAS No. 168 Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
 Oil and Gas Reporting Requirements
 10




---



##### 



NGAS Resources, Inc.
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
  Recent Developments
 Liquidity from Sale of Interest in Gathering System Gathering System APA DPI NGAS Gathering II Seminole Seminole Energy
 Option for Sale of Retained Gathering System Interest Seminole Option
 Development of Additional Drilling Prospects
 Business Strategy
  11




---



##### 




    
    Organic Growth through Drilling with Reduced Capital Spending. While we are
committed to a long-term strategy of developing our reserves through the drillbit and
retaining most of our available working interest in new wells, we have addressed the
challenging conditions in our industry by reducing our 2009 capital spending budget,
currently set at $15 million, and sharing development costs by returning to our successful
partnership structure for operated initiatives. We raised over $34 million for a
non-operated program last year through our established sales network. To meet our
near-term drilling commitments and objectives, in addition to monetizing our Gathering
System, we are currently sponsoring a partnership to participate in up to 53 horizontal
wells throughout our operated properties. The partnership commenced operations following
an initial closing of its private placement in June 2009. We are maintaining a 20%
interest in this years program and will earn an additional 15% reversionary interest
after program payout.
    
    Horizontal Drilling Initiatives. Recent advances in horizontal drilling and
completion technology have enhanced the value proposition for our operated properties by
substantially increasing our recovery volumes and rates at dramatically lower finding
costs. Horizontal drilling also gives us access to areas where natural gas development
would otherwise be delayed or constrained by coal mining activity or challenging terrain.
We focused these initiatives during 2008 in our Leatherwood field, where we completed 20
horizontal wells last year. Each well has a single lateral leg up to 3,500 feet through
the Devonian shale formation, which is present throughout our Appalachian operating areas.
Initial 30-day flow rates for our Leatherwood horizontals averaged 309 Mcf per day. We
achieved comparable results for our first two New Albany shale horizontals drilled late in
2008 on our Illinois Basin acreage and our initial Devonian shale horizontals completed
during the first quarter of 2009 in each of our Straight Creek, Fonde and Martins Fork
fields. We plan to continue this transition throughout our operated properties.
    
    Advantages from Restructured Infrastructure Position. The Gathering System
covered by our APA with Seminole provides deliverability from 90% of our Appalachian
properties directly from the wellhead to major east coast natural gas markets through an
interconnect with Spectra Energy Partners East Tennessee Interstate pipeline network.
Although our sale of a 50% interest in our Gathering System eliminated the closed-access
status of our field-wide infrastructure, our retained capacity rights ensure long-term
deliverability from our operated Appalachian properties serviced by these facilities.
These capacity rights, currently established at 30,000 Mcf per day, also preserve our
competitive advantages from control of regional gas flow, enhancing our opportunities to
acquire undeveloped acreage near our core producing fields upon completion of coal mining
activities.
 Drilling Operations
 General
 Geological Factors EUR
 Horizontal Drilling
 12




---



##### 



Staged Completion Technology
 New Albany Shale Play
 Drilling Results
 Development Wells
    
    Exploratory WellsProductive
    
    Dry
    
    Productive
    
    DryGross
    
    Net
    
    Gross
    
    Gross
    
    Net
    
    GrossYear Ended December 31, 2008Vertical
    
    
    137
    
    
    
    58.8522
    
    
    
    
    
    
    
    9
    
    
    
    8.8125
    
    
    
    Horizontal
    
    
    47
    
    
    
    15.7254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    184
    
    
    
    74.5776
    
    
    
    
    
    
    
    9
    
    
    
    8.8125
    
    
    
    Six Months Ended June 30, 2009Vertical
    
    
    10
    
    
    
    1.6972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Horizontal
    
    
    8
    
    
    
    1.7588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    18
    
    
    
    3.4560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Producing Activities
 Regional Advantages Dth
 Liquids Extraction
 13




---



##### 



Oil and Gas Production
 Three Months Ended
    
    
    Six Months Ended
    
    
    Year EndedJune 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2008Production volumes:Natural gas (Mcf)
    
    
    836,282
    
    
    
    764,530
    
    
    
    1,704,830
    
    
    
    1,508,528
    
    
    
    3,087,596Oil (Bbl)
    
    
    12,149
    
    
    
    14,994
    
    
    
    25,426
    
    
    
    28,482
    
    
    
    57,291Natural gas liquids (gallons)
    
    
    1,235,477
    
    
    
    1,094,547
    
    
    
    2,436,658
    
    
    
    1,728,682
    
    
    
    3,895,649Equivalents (Mcfe)
    
    
    1,001,838
    
    
    
    950,268
    
    
    
    2,040,135
    
    
    
    1,830,682
    
    
    
    3,745,124Average sales prices:Natural gas (per Mcf)
    
    $
    6.47
    
    
    $
    9.88
    
    
    $
    6.61
    
    
    $
    9.21
    
    
    $
    8.89Oil (per Bbl)
    
    
    51.89
    
    
    
    115.54
    
    
    
    42.07
    
    
    
    103.67
    
    
    
    95.07Natural gas liquids (per gallon)
    
    
    0.69
    
    
    
    1.73
    
    
    
    0.67
    
    
    
    1.64
    
    
    
    1.41
 Future Gas Sales Contracts
 Fixed-Price Contracts for Natural Gas Production
 2009Q3
    
    Q4
    
    2010Average price per Mcf
    
    $
    8.38
    
    
    $
    7.82
    
    
    $
    6.71Percent of anticipated gas production contracted
    
    
    50.7
    %
    
    
    55.3
    %
    
    
    45.4
    %
 Results of Operations  Three Months Ended June 30, 2009 and 2008
 Revenues
 Three Months Ended June 30,% of
    
    
    
    
    
    
    %2009
    
    
    Revenue
    
    
    2008
    
    
    ChangeRevenue:Contract drilling
    
    $
    5,172,998
    
    
    
    35
    %
    
    $
    7,625,356
    
    
    
    (32
    )%Oil and gas production
    
    
    6,891,644
    
    
    
    47
    
    
    
    11,179,620
    
    
    
    (38
    )Gas transmission, compression and processing
    
    
    2,599,229
    
    
    
    18
    
    
    
    2,536,560
    
    
    
    2Total
    
    $
    14,663,871
    
    
    
    100
    %
    
    $
    21,341,536
    
    
    
    (31
    )
  14




---



##### 



Expenses
 Three Months Ended June 30,Direct Expenses:
    
    2009
    
    
    Margin
    
    
    2008
    
    
    MarginContract drilling
    
    $
    3,873,266
    
    
    
    25
    %
    
    $
    5,756,997
    
    
    
    25
    %Oil and gas production
    
    
    2,614,094
    
    
    
    62
    
    
    
    3,107,095
    
    
    
    72Gas transmission, compression and processing
    
    
    1,025,408
    
    
    
    61
    
    
    
    957,548
    
    
    
    62Total direct expenses
    
    
    7,512,768
    
    
    
    49
    
    
    
    9,821,640
    
    
    
    54
 Other Expenses:
    
    (Restated)
    
    
    % Revenue
    
    
    
    
    
    
    % RevenueSelling, general and administrative
    
    
    2,552,740
    
    
    
    17
    %
    
    
    3,442,094
    
    
    
    16
    %Options, warrants and deferred compensation
    
    
    319,192
    
    
    
    2
    
    
    
    234,803
    
    
    
    1Depreciation, depletion and amortization
    
    
    3,687,621
    
    
    
    25
    
    
    
    3,261,192
    
    
    
    15Bad debt expense
    
    
    
    
    
    
    N/A
    
    
    
    59,000
    
    
    
    Interest expense, net of interest income
    
    
    2,409,257
    
    
    
    16
    
    
    
    1,346,550
    
    
    
    6Fair value loss on derivative financial instruments
    
    
    4,995
    
    
    
    
    
    
    
    
    
    
    
    N/AOther, net
    
    
    216,377
    
    
    
    1
    
    
    
    34,632
    
    
    
    Total other expenses
    
    $
    9,190,182
    
    
    
    
    
    
    $
    8,378,271
  15




---



##### 



SG&A
  DD&A
   Net Income (Loss) and EPS EPS
 Results of Operations  Six Months Ended June 30, 2009 and 2008
 Revenues
 16




---



##### 



Six Months Ended June 30,% of
    
    
    
    
    
    
    %Revenue:
    
    2009
    
    
    Revenue
    
    
    2008
    
    
    ChangeContract drilling
    
    $
    12,496,750
    
    
    
    39
    %
    
    $
    14,227,474
    
    
    
    (12
    )%Oil and gas production
    
    
    13,958,863
    
    
    
    44
    
    
    
    19,669,054
    
    
    
    (29
    )Gas transmission, compression and processing
    
    
    5,404,211
    
    
    
    17
    
    
    
    5,094,652
    
    
    
    6Total
    
    $
    31,859,824
    
    
    
    100
    %
    
    $
    38,991,180
    
    
    
    (18
    )
    Expenses
 Six Months Ended June 30,Direct Expenses:
    
    2009
    
    
    Margin
    
    
    2008
    
    
    MarginContract drilling
    
    $
    9,414,692
    
    
    
    25
    %
    
    $
    10,876,846
    
    
    
    24
    %Oil and gas production
    
    
    4,939,059
    
    
    
    65
    
    
    
    5,872,050
    
    
    
    70Gas transmission, compression and processing
    
    
    1,994,325
    
    
    
    63
    
    
    
    2,047,794
    
    
    
    60Total direct expenses
    
    
    16,348,076
    
    
    
    49
    
    
    
    18,796,690
    
    
    
    52
 Other Expenses:
    
    (Restated)
    
    
    % Revenue
    
    
    
    
    
    
    % RevenueSelling, general and administrative
    
    
    5,803,005
    
    
    
    18
    %
    
    
    6,730,577
    
    
    
    17
    %Options, warrants and deferred compensation
    
    
    737,465
    
    
    
    2
    
    
    
    372,482
    
    
    
    1Depreciation, depletion and amortization
    
    
    7,306,491
    
    
    
    23
    
    
    
    6,132,952
    
    
    
    16Bad debt expense
    
    
    
    
    
    
    N/A
    
    
    
    406,840
    
    
    
    1Interest expense, net of interest income
    
    
    4,681,449
    
    
    
    15
    
    
    
    2,602,810
    
    
    
    7Gain on derivative
    
    
    (9,324
    )
    
    
    N/A
    
    
    
    
    
    
    
    N/AOther, net
    
    
    295,918
    
    
    
    1
    
    
    
    28,355
    
    
    
    Total other expenses
    
    $
    18,815,004
    
    
    
    
    
    
    $
    16,274,016
  17




---



##### 



Net Income (Loss) and EPS
  Liquidity and Capital Resources
 Liquidity
  Capital Resources
 18




---



##### 




    
    Redetermination of the borrowing base at $55 million, which included a $10 million
reduction to reflect the release of our Gathering System assets from the collateral
package under the credit agreement;
    
    Change in the maximum interest rate for borrowings under the credit agreement to
2.25% above the administrative agents prime rate;
    
    Waiver of current ratio financial covenant under the credit agreement until
September 30, 2009, and
    
    Adjustments to our other financial covenants under the credit agreement through
December 31, 2010.
   19




---



##### 

\

Forward Looking Statements
  
    
    uncertainty about estimates of future natural gas production and required capital
expenditures;
    
    commodity price volatility;
    
    increases in the cost of developing and producing our reserves;
    
    unavailability of drilling rigs and services;
    
    drilling, operational and environmental risks;
    
    regulatory changes and litigation risks; and
    
    uncertainties in estimating oil and gas reserves and projecting future production
rates.
  Contractual Obligations and Commercial Commitments
  Operating Leases
    
    
    Long TermYear
    
    Equipment
    
    
    Premises
    
    
    Total
    
    
    DebtRemainder of 2009
    
    $
    1,044,619
    
    
    $
    123,527
    
    
    $
    1,168,146
    
    
    $
    43,3852010
    
    
    2,020,158
    
    
    
    247,815
    
    
    
    2,267,973
    
    
    
    30,473,146
    (1)2011
    
    
    1,794,697
    
    
    
    252,389
    
    
    
    2,047,086
    
    
    
    80,093,557
    (2)2012
    
    
    591,469
    
    
    
    255,973
    
    
    
    847,442
    
    
    
    2,157,4612013 and thereafter
    
    
    51,929
    
    
    
    21,355
    
    
    
    73,284
    
    
    
    198,818Total
    
    $
    5,502,872
    
    
    $
    901,059
    
    
    $
    6,403,931
    
    
    $
    112,966,367
 
 (1)
    
    Excludes the unamortized debt discount of $6,616,451 at June 30, 2009 attributable to the
embedded conversion feature of our 6% convertible notes in the principal amount of
$37,000,000.(2)
    
    Does not reflect the $28 million reduction in our credit facility borrowings from proceeds of
the sale of a 50% interest in our Gathering System on July 15, 2009. 20




---



##### 



Critical Accounting Policies and Estimates
 General
 Estimates of Proved Reserves and Future Net Cash Flows
 Impairment of Long-Lived Assets .
 Allowance for Doubtful Accounts .
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Commodity Price Risk
  Financial Market Risks
 Interest Rate Risk
 Foreign Market Risk
 21




---



##### 



Item 4. Controls and Procedures
 Managements Responsibility for Financial Statements
  Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework
 Changes in Internal Control over Financial Reporting
  Part II  Item 6
 ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(b), as
adopted under Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(b), as
adopted under Section 906 of the Sarbanes-Oxley Act of 2002.
 22




---



##### 



SIGNATURES
  NGAS Resources, Inc.Date: December 31, 2009
    By:
    /s/William S. DaughertyWilliam S. DaughertyChief Executive Officer 
(Duly Authorized Officer) 
(Principal Executive Officer) 23