##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 For the Quarter Ended March 31, 2010
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 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)
    
    Not Applicable
(I.R.S. Employer Identification No.)120 Prosperous Place, Suite 201
Lexington, Kentucky
(Address of principal executive offices)
    
    40509-1844
(Zip Code)
 (859) 263-3948
Registrants telephone number, including area code:
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ




---



##### 



NGAS Resources, Inc.  120 Prosperous Place, Suite 201
Lexington, Kentucky 40509
 
 Form 10-Q  March 31, 2010
 
 Table of Contents
 PagePart I Financial InformationItems 1 Financial Statements:Condensed Consolidated Balance Sheets 
March 31, 2010 (unaudited) and December 31, 2009
    
    
    2Condensed Consolidated Statement of Operations 
Three months ended March 31, 2010 and 2009
    
    
    3Condensed Consolidated Statement of Cash Flows 
Three months ended March 31, 2010 and 2009
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4 Controls and Procedures
    
    
    20Part II Other InformationItem 6 ExhibitsEX-31.1EX-31.2EX-32.1
  
 Additional Information
 NGAS Company we our us NGL CBM Dth Mcf Mcfe Mmcf Mmcf/d Bcf EUR




---



##### Table of Contents



NGAS Resources, Inc.
 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash
    
    $
    448,567
    
    
    $
    4,332,650Accounts receivable
    
    
    7,188,977
    
    
    
    7,277,311Note receivable
    
    
    6,373,673
    
    
    
    6,247,880Prepaid expenses and other current assets
    
    
    498,643
    
    
    
    633,884Loans to related parties
    
    
    75,169
    
    
    
    75,679Total current assets
    
    
    14,585,029
    
    
    
    18,567,404Bonds and deposits
    
    
    258,695
    
    
    
    258,695Note receivable
    
    
    5,125,077
    
    
    
    6,766,451Oil and gas properties
    
    
    181,734,206
    
    
    
    182,189,679Property and equipment
    
    
    10,547,017
    
    
    
    5,113,093Loans to related parties
    
    
    171,429
    
    
    
    171,429Deferred financing costs
    
    
    1,206,978
    
    
    
    1,235,705Goodwill
    
    
    313,177
    
    
    
    313,177Total assets
    
    $
    213,941,608
    
    
    $
    214,615,633LIABILITIESCurrent liabilities:Accounts payable
    
    $
    6,111,606
    
    
    $
    5,587,290Accrued liabilities
    
    
    696,270
    
    
    
    938,829Long-term debt, current portion
    
    
    9,952,515
    
    
    
    32,534,084Fair value of derivative financial instruments
    
    
    
    
    
    
    111Customer drilling deposits
    
    
    1,418,569
    
    
    
    5,581,877Total current liabilities
    
    
    18,178,960
    
    
    
    44,642,191Deferred compensation
    
    
    804,924
    
    
    
    651,287Deferred income taxes
    
    
    12,276,654
    
    
    
    12,559,549Long-term debt
    
    
    63,840,396
    
    
    
    40,949,836Fair value of derivative financial instruments
    
    
    2,433,242
    
    
    
    Other long-term liabilities
    
    
    4,085,788
    
    
    
    3,962,254Total liabilities
    
    
    101,619,964
    
    
    
    102,765,117SHAREHOLDERS EQUITYCapital stockAuthorized:5,000,000 Preferred shares100,000,000 Common sharesIssued:33,521,512 Common shares (2009  30,484,361)
    
    
    122,330,972
    
    
    
    117,142,63921,100 Common shares held in treasury, at cost
    
    
    (23,630
    )
    
    
    (23,630
    )Paid-in capital  options and warrants
    
    
    4,579,757
    
    
    
    4,467,246To be issued:9,185 Common shares
    
    
    45,925
    
    
    
    45,925126,933,024
    
    
    
    121,632,180Deficit
    
    
    (14,611,380
    )
    
    
    (9,781,664
    )Total shareholders equity
    
    
    112,321,644
    
    
    
    111,850,516Total liabilities and shareholders equity
    
    $
    213,941,608
    
    
    $
    214,615,633
 See accompanying notes.
 2




---



##### Table of Contents



NGAS Resources, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009REVENUEContract drilling
    
    $
    3,578,431
    
    
    $
    7,323,752Oil and gas production
    
    
    6,407,566
    
    
    
    7,067,219Gas transmission, compression and processing
    
    
    1,279,129
    
    
    
    2,804,982Total revenue
    
    
    11,265,126
    
    
    
    17,195,953DIRECT EXPENSESContract drilling
    
    
    2,688,919
    
    
    
    5,541,426Oil and gas production
    
    
    3,315,067
    
    
    
    2,324,965Gas transmission, compression and processing
    
    
    277,104
    
    
    
    968,917Total direct expenses
    
    
    6,281,090
    
    
    
    8,835,308OTHER EXPENSES (INCOME)Selling, general and administrative
    
    
    2,152,868
    
    
    
    3,250,265Options, warrants and deferred compensation
    
    
    266,149
    
    
    
    418,273Depreciation, depletion and amortization
    
    
    3,236,393
    
    
    
    3,618,870Interest expense
    
    
    1,742,681
    
    
    
    2,281,008Interest income
    
    
    (254,420
    )
    
    
    (8,816
    )Fair value loss (gain) on derivative financial instruments
    
    
    2,433,131
    
    
    
    (14,319
    )Refinancing costs
    
    
    625,344
    
    
    
    Other, net
    
    
    (105,499
    )
    
    
    79,541Total other expenses
    
    
    10,096,647
    
    
    
    9,624,822LOSS BEFORE INCOME TAXES
    
    
    (5,112,611
    )
    
    
    (1,264,177
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    (282,895
    )
    
    
    167,162NET LOSS
    
    $
    (4,829,716
    )
    
    $
    (1,431,339
    )NET LOSS PER SHAREBasic
    
    $
    (0.15
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.15
    )
    
    $
    (0.05
    )WEIGHTED AVERAGE COMMON
SHARES OUTSTANDINGBasic
    
    
    33,150,305
    
    
    
    26,671,146Diluted
    
    
    33,150,305
    
    
    
    26,671,146
 See accompanying notes.
 3




---



##### Table of Contents



NGAS Resources, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009OPERATING ACTIVITIESNet loss
    
    $
    (4,829,716
    )
    
    $
    (1,431,339
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Incentive bonus paid in common shares
    
    
    
    
    
    
    361,250Options, warrants and deferred compensation
    
    
    266,148
    
    
    
    418,273Depreciation, depletion and amortization
    
    
    3,236,393
    
    
    
    3,618,870Gain on sale of assets
    
    
    1,622
    
    
    
    (9,285
    )Fair value loss (gain) on derivative financial instruments
    
    
    2,433,131
    
    
    
    (14,319
    )Accretion of debt discount
    
    
    747,251
    
    
    
    908,967Deferred income taxes
    
    
    (282,895
    )
    
    
    167,162Changes in assets and liabilities:Accounts receivable
    
    
    88,334
    
    
    
    4,691,954Prepaid expenses and other current assets
    
    
    135,241
    
    
    
    (69,597
    )Accounts payable
    
    
    524,316
    
    
    
    (7,096,249
    )Accrued liabilities
    
    
    (242,559
    )
    
    
    (33,379
    )Customers drilling deposits
    
    
    (4,163,308
    )
    
    
    (668,707
    )Other long-term liabilities
    
    
    123,534
    
    
    
    160,057Net cash provided by (used in) operating activities
    
    
    (1,962,508
    )
    
    
    1,003,658INVESTING ACTIVITIESProceeds from sale of assets
    
    
    1,520,681
    
    
    
    19,696Purchase of property and equipment
    
    
    (5,669,918
    )
    
    
    (29,256
    )Increase in bonds and deposits
    
    
    
    
    
    
    (214,000
    )Additions to oil and gas properties
    
    
    (2,358,647
    )
    
    
    (6,008,612
    )Net cash used in investing activities
    
    
    (6,507,884
    )
    
    
    (6,232,172
    )FINANCING ACTIVITIESDecrease in loans to related parties
    
    
    510
    
    
    
    1,714Payments of deferred financing costs
    
    
    (164,274
    )
    
    
    (1,033
    )Proceeds from issuance of long term debt
    
    
    7,480,000
    
    
    
    5,500,000Payments of long term debt
    
    
    (2,729,927
    )
    
    
    (6,000
    )Net cash provided by financing activities
    
    
    4,586,309
    
    
    
    5,494,681Change in cash
    
    
    (3,884,083
    )
    
    
    266,167Cash, beginning of period
    
    
    4,332,650
    
    
    
    981,899Cash, end of period
    
    $
    448,567
    
    
    $
    1,248,066SUPPLEMENTAL DISCLOSUREInterest paid
    
    $
    985,529
    
    
    $
    1,371,480Income taxes paid
    
    
    
    
    
    
    
 See accompanying notes.
 4




---



##### Table of Contents



NGAS Resources, Inc.
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Summary of Significant Accounting Policies
 General. NGAS GAAP annual report
 Basis of Consolidation. NGAS Production Sentra NGAS Securities we our us
 Estimates.
 Convertible Note Restructuring. 2005 notes 2010 notes
 Subsequent Events.
 Comprehensive Income and Loss.
 Note 2  Recently Adopted Accounting Standards
  Note 3  Oil and Gas Properties
 DD&A
 5




---



##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009Proved oil and gas properties
    
    $
    205,401,081
    
    
    $
    203,670,153Unproved oil and gas properties
    
    
    5,674,684
    
    
    
    5,441,933Gathering facilities and well equipment
    
    
    15,806,756
    
    
    
    15,411,788226,882,521
    
    
    
    224,523,874Accumulated DD&A
    
    
    (45,148,315
    )
    
    
    (42,334,195
    )Net oil and gas properties and equipment
    
    $
    181,734,206
    
    
    $
    182,189,679
 Note 4  Other Property and Equipment
  March 31,
    
    
    December 31,2010
    
    
    2009Land
    
    $
    12,908
    
    
    $
    12,908Building and improvements
    
    
    5,664,265
    
    
    
    64,265Machinery and equipment
    
    
    5,930,573
    
    
    
    5,866,853Office furniture and fixtures
    
    
    175,862
    
    
    
    175,862Computer and office equipment
    
    
    693,359
    
    
    
    688,261Vehicles
    
    
    1,786,764
    
    
    
    1,810,06414,263,731
    
    
    
    8,618,213Accumulated depreciation
    
    
    (3,716,714
    )
    
    
    (3,505,120
    )Net other property and equipment
    
    $
    10,547,017
    
    
    $
    5,113,093
 Note 5  Note Receivable
 Appalachian Gathering System Seminole Energy
 Note 6  Loans to Related Parties
  Note 7  Deferred Financing Costs
  6




---



##### Table of Contents



Note 8  Goodwill
  Note 9  Customer Drilling Deposits
  Note 10  Long-Term Debt
 Convertible Notes. 2010 warrants
 ASC Debt Derivatives and
Hedging
 Credit Facility.
  7




---



##### Table of Contents



Building Loan.
 Installment Loan.
 Acquisition Debt.
 Total Long-Term Debt and Maturities.
 March 31,
    
    
    December 31,2010
    
    
    2009Principal Amount OutstandingTotal long-term debt (including current portion)
    
    $
    73,792,911
    
    
    $
    73,483,920Less current portion
    
    
    9,952,515
    
    
    
    32,534,084
    (1)Total long-term debt
    
    $
    63,840,396
    
    
    $
    40,949,836Debt Maturities(1)Remainder of 2010
    
    $
    6,818,5312011
    
    
    54,595,4572012
    
    
    8,114,2732013
    
    
    182,0292014
    
    
    189,9072015 and thereafter
    
    
    3,892,714
 
 (1)
    
    Excludes allocations of $3,393,262 for the unaccreted debt discount on the 2010 notes at
March 31, 2010 and $4,555,513 for the unaccreted debt discount on the 2005 notes at December
31, 2009. Note 11  Capital Stock
 Preferred Shares.
 Common Shares.
 Common Shares Issued
    
    Shares
    
    
    AmountBalance, December 31, 2008
    
    
    26,543,646
    
    
    $
    110,626,912Issued in registered direct placement
    
    
    3,480,000
    
    
    
    6,089,476Issued as stock awards under incentive plan
    
    
    460,715
    
    
    
    426,251Balance, December 31, 2009
    
    
    30,484,361
    
    
    
    117,142,639Issued in convertible note restructuring
    
    
    3,037,151
    
    
    
    5,188,333Balance, March 31, 2010
    
    
    33,521,512
    
    
    $
    122,330,972
 8




---



##### Table of Contents



Shares
    
    
    AmountPaid In Capital  Options and WarrantsBalance, December 31, 2008
    
    
    
    
    
    $
    3,774,600Recognized
    
    
    
    
    
    
    692,646Balance, December 31, 2009
    
    
    
    
    
    
    4,467,246Recognized
    
    
    
    
    
    
    112,511Balance, March 31, 2010
    
    
    
    
    
    $
    4,579,757Common Shares to be IssuedBalance, March 31, 2010 and December 31, 2009
    
    
    9,185
    
    
    $
    45,925
 Stock Options and Awards.
 Weighted AverageIssued
    
    
    Exercisable
    
    
    Exercise PriceBalance, December 31, 2008
    
    
    4,613,668
    
    
    
    1,413,668
    
    
    $
    3.95Vested
    
    
    
    
    
    
    1,225,000
    
    
    
    4.69Expired
    
    
    (740,000
    )
    
    
    (740,000
    )
    
    
    4.06Balance, December 31, 2009
    
    
    3,873,668
    
    
    
    1,898,668
    
    
    
    3.92Expired
    
    
    (900,000
    )
    
    
    (900,000
    )
    
    
    4.25Forfeited
    
    
    (75,000
    )
    
    
    (27,500
    )
    
    
    3.71Balance, March 31, 2010
    
    
    2,898,668
    
    
    
    971,168
    
    
    $
    3.83
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    

    
    WeightedExercise
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    

    
    AveragePrice
    
    
    
    
    
    
    Remaining
    
    
    Exercise
    
    
    
    
    

    
    Exerciseor Range
    
    
    Number
    
    
    Life (years)
    
    
    Price
    
    
    Number
    


    Price$
    1.51
    
    
    
    1,610,000
    
    
    
    5.11
    
    
    $
    1.51
    
    
    
    
    

    $
    6.02  7.64
    
    
    
    1,288,668
    
    
    
    1.21
    
    
    
    6.72
    
    
    
    971,168
    

    
    6.782,898,668
    
    
    
    
    
    
    
    
    
    
    
    971,168
  Common Stock Purchase Warrants.
 9




---



##### Table of Contents



Note 12   Loss Per Share
 EPS Earnings per Share
 Three Months EndedMarch 31,2010
    
    
    2009Numerator:Net loss as reported for basic EPS
    
    $
    (4,829,716
    )
    
    $
    (1,431,339
    )Adjustments to loss for diluted EPS
    
    
    
    
    
    
    Net loss for diluted EPS
    
    $
    (4,829,716
    )
    
    $
    (1,431,339
    )Denominator:Weighted average shares for basic and diluted EPS
    
    
    33,150,305
    
    
    
    26,671,146Basic EPS
    
    $
    (0.15
    )
    
    $
    (0.05
    )Diluted EPS
    
    $
    (0.15
    )
    
    $
    (0.05
    )
 Note 13  Related Party Transactions
  Note 14  Segment Information
 egment Reporting.
 Note 15  Commitments
 Operating Lease Obligations.
 Future Lease ObligationsRemainder of 2010
    
    $
    1,739,5862011
    
    
    1,853,8372012
    
    
    616,0872013
    
    
    77,4952014 and thereafter
    
    
    31,959Total
    
    $
    4,318,964
 Gas Gathering and Sales Commitments.
 10




---



##### Table of Contents



NGAS Resources, Inc.
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
 General
  Capital Structure
 Appalachian
Gathering System 2010 notes
 Business Strategy
  
    
    Organic Growth with Reduced Capital Spending. We have addressed the
challenging conditions in our industry by funding our capital budget from cash flow and
opening up our core properties to joint development with industry partners and
sponsored drilling partnerships. Our 2009 drilling partnership raised over $19 million
for participation in 22 horizontal wells. This enabled us to meet our near-term
drilling commitments and objectives with a reduced budget of $12 million last year. We
have a 20% interest in our 2009 drilling partnership, which will increase to 35% after
payout. We have retained this structure for participation by our 2010 drilling
partnership in up to 57 horizontal wells on our core properties, while continuing to
maintain our capital expenditures in line with our operating cash flows.
 
    
    Horizontal Drilling Advances. Advances in air-driven horizontal drilling
and staged completion technology have enhanced the value proposition of our properties
by substantially increasing recovery volumes and rates at dramatically lower finding
costs. Horizontal drilling has also enabled us to develop areas that would otherwise
be inaccessible due to challenging terrain or coal mining activities. We began
drilling horizontals early in 2008, initially focusing on our key Leatherwood field,
and continued the transition to horizontal drilling throughout our operated properties
during 2009. The lateral legs traverse one or more sections of the Devonian shale
formation, which blankets our Appalachian properties at an average depth of 4,500 feet,
or the New Albany shale at depths ranging from 2,600 to 2,800 feet in the Illinois
Bain. This year, we have further improved the performance of our horizontals by
extending the laterals and increasing the number of completion stages.
 11




---



##### Table of Contents




    
    Infrastructure Position. We operate the Appalachian Gathering System and
have firm capacity rights for 30 Mmcf/d of controlled gas through the system. This
ensures long-term deliverability from our connected fields, representing over 90% of
our Appalachian production, through an interconnect with Spectra Energy Partners East
Tennessee Interstate pipeline network. These operating and capacity rights also
preserve our competitive advantages in acquiring additional undeveloped acreage in the
region upon completion of coal mining activities. Our sale of the Appalachian
Gathering System did not include our 50% interest in a processing plant for extracting
natural gas liquids (NGL) from system throughput at its delivery point in Rogersville,
Tennessee. This is within 5.5 miles of an 880-megawatt gas-fired power plant under
construction by the Tennessee Valley Authority, which will substantially increase
regional demand when completed later this year.
 
    
    Acreage Upgrades. We follow a disciplined evaluation process in selecting
opportunities to expand our substantial inventory of drilling prospects that meet our
criteria for predictable, long-lived reserve development. In October 2009, we expanded
our lease position near our Leatherwood field by 10,300 gross (8,280 net) undeveloped
acres. Earlier in the year, we also acquired a farmout from Chesapeake Appalachia, LLC
for a tract of 56,000 gross (42,000 net undeveloped) acres next to our Amvest field in
eastern Kentucky. These upgrades bring our holdings in the Appalachian Basin to a
total of 333,392 gross acres.
 Drilling Operations
 Geographic Focus EUR
 Horizontal Air Drilling
 Drilling Results
 Development Wells
    
    
    Exploratory WellsProductive
    
    
    Dry
    
    
    Productive
    
    
    DryGross
    
    
    Net
    
    
    Gross
    
    
    Gross
    
    
    Net
    
    
    GrossYear ended December 31, 2009Vertical
    
    
    10
    
    
    
    1.6972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Horizontal
    
    
    24
    
    
    
    5.0588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal(1)
    
    
    34
    
    
    
    6.7560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Quarter ended March 31, 2010Vertical
    
    
    1
    
    
    
    1.0000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Horizontal(2)
    
    
    12
    
    
    
    1.6250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    13
    
    
    
    2.6250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    47
    
    
    
    9.3810
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes 9 gross (1.9560 net) non-operated wells.(2)
    
    Includes 8 wells to be included in our 2010 drilling partnership. 12




---



##### Table of Contents



Participation Rights
 Drilling Partnerships
 Benefits
 Structure
 Producing Activities
 Regional Advantages
 Liquids Extraction
 Production Profile, Volumes and Prices
 Three Months Ended
    
    
    Year EndedMarch 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2009Production volumes:Natural gas (Mcf)
    
    
    666,148
    
    
    
    868,548
    
    
    
    3,321,146Oil (Bbl)
    
    
    11,179
    
    
    
    17,277
    
    
    
    48,737Natural gas liquids (gallons)
    
    
    966,980
    
    
    
    1,201,181
    
    
    
    4,858,044Equivalents (Mcfe)
    
    
    805,746
    
    
    
    1,038,297
    
    
    
    3,977,920Average sales prices:Natural gas (per Mcf)
    
    $
    6.76
    
    
    $
    6.74
    
    
    $
    6.17Oil (per Bbl)
    
    
    71.08
    
    
    
    33.09
    
    
    
    52.63Natural gas liquids (per gallon)
    
    
    1.15
    
    
    
    0.64
    
    
    
    0.73
 13




---



##### Table of Contents



Future Gas Sales Contracts
 Fixed price contracts for
    
    2010
    
    
    2011natural gas production:
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Q1
    
    
    Q2Percentage of gas contracted
    
    
    52
    %
    
    
    57
    %
    
    
    54
    %
    
    
    53
    %
    
    
    22
    %Average price per Mcf
    
    $
    6.47
    
    
    $
    6.54
    
    
    $
    6.60
    
    
    $
    6.63
    
    
    $
    6.66
 Results of Operations  Three Months Ended March 31, 2010 and 2009
 Revenues
 Three Months Ended March 31,% of
    
    
    
    
    
    
    %Revenue:
    
    2010
    
    
    Revenue
    
    
    2009
    
    
    ChangeContract drilling
    
    $
    3,578,431
    
    
    
    32
    %
    
    $
    7,323,752
    
    
    
    (51
    )%Oil and gas production
    
    
    6,407,566
    
    
    
    57
    
    
    
    7,067,219
    
    
    
    (9
    )Gas transmission, compression and processing
    
    
    1,279,129
    
    
    
    11
    
    
    
    2,804,982
    
    
    
    (54
    )Total
    
    $
    11,265,126
    
    
    
    100
    %
    
    $
    17,195,953
    
    
    
    (34
    )%
     Expenses
 14




---



##### Table of Contents



Three Months Ended March 31,Direct Expenses:
    
    2010
    
    
    Margin
    
    
    2009
    
    
    MarginContract drilling
    
    $
    2,688,919
    
    
    
    25
    %
    
    $
    5,541,426
    
    
    
    24
    %Oil and gas production
    
    
    3,315,067
    
    
    
    48
    
    
    
    2,324,965
    
    
    
    67Gas transmission, compression and processing
    
    
    277,104
    
    
    
    78
    
    
    
    968,917
    
    
    
    65Total direct expenses
    
    
    6,281,090
    
    
    
    44
    
    
    
    8,835,308
    
    
    
    49
 Three Months Ended March 31,Other Expenses (Income):
    
    2010
    
    
    % Revenue
    
    
    2009
    
    
    % RevenueSelling, general and administrative
    
    $
    2,152,868
    
    
    
    19
    %
    
    $
    3,250,265
    
    
    
    19
    %Options, warrants and deferred compensation
    
    
    266,149
    
    
    
    2
    
    
    
    418,273
    
    
    
    2Depreciation, depletion and amortization
    
    
    3,236,393
    
    
    
    29
    
    
    
    3,618,870
    
    
    
    21Interest expense, net of interest income
    
    
    1,488,261
    
    
    
    13
    
    
    
    2,272,192
    
    
    
    13Fair value loss (gain) on derivative financial instruments
    
    
    2,433,131
    
    
    
    22
    
    
    
    (14,319
    )
    
    
    N/ARefinancing costs
    
    
    625,344
    
    
    
    6
    
    
    
    
    
    
    
    N/AOther, net
    
    
    (105,499
    )
    
    
    N/A
    
    
    
    79,541
    
    
    
    Total other expenses
    
    $
    10,096,647
    
    
    
    
    
    
    $
    9,624,822
    SG&A
  DD&A
  15




---



##### Table of Contents



Net Loss and EPS EPS
  Liquidity and Capital Resources
 Liquidity
  Capital Resources
   16




---



##### Table of Contents



2005 notes 2010 warrants
      17




---



##### Table of Contents



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
 General
 Operating
    
    
    Long-TermYear
    
    Leases
    
    
    Debt(1)Remainder of 2010
    
    $
    1,739,586
    
    
    $
    6,818,5312011
    
    
    1,853,837
    
    
    
    54,595,4572012
    
    
    616,087
    
    
    
    8,114,2732013
    
    
    77,495
    
    
    
    182,0292014
    
    
    31,959
    
    
    
    189,9072015 and thereafter
    
    
    
    
    
    
    3,892,714Total
    
    $
    4,318,964
    
    
    $
    73,792,911
 
 (1)
    
    Excludes an allocation of $3,393,262 for the unaccreted debt discount on the 2010 notes. Gas Gathering and Sales Commitments
 
    
    Base monthly gathering fees of $850,000, with annual escalations at the rate of
1.5%;
 
    
    Base monthly operating fees of $175,000, plus $0.20 per Mcf of purchased gas; and
 
    
    Monthly capital fees in amounts intended to yield a 20% internal rate of return for
all capital expenditures on the Appalachian Gathering System by Seminole Energy.
 Related Party Transactions
 General
 18




---



##### Table of Contents



Purchase of Office Building
 Critical Accounting Policies and Estimates
 General
 Estimates of Proved Reserves and Future Net Cash Flows
 Impairment of Long-Lived Assets .
 Allowance for Doubtful Accounts .
 Off-Balance Sheet Arrangements
  
 Item 3 Quantitative and Qualitative Disclosures about Market Risk
 Commodity Price Risk
  19




---



##### Table of Contents



Financial Market Risks
 Interest Rate Risk
 Foreign Market Risk
 
 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. OTHER INFORMATION
 
 Part II  Item 6
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Notice of Articles, certified on June 3, 2004 by the Registrar of Corporations under the
British Columbia Business Corporations Act (incorporated by reference to Exhibit 3.1 to
Current Report on Form 8-K [File No. 0-12185], filed June 29, 2004).3.2
    
    Alteration to Notice of Articles, certified on June 25, 2004 by the Registrar of
Corporations under the British Columbia Business Corporations Act (incorporated by reference
to Exhibit 3.2 to Current Report on Form 8-K [File No. 0-12185], filed June 29, 2004).3.3
    
    Articles dated June 25, 2004, as amended and restated for corporate transition under the
British Columbia Business Corporations Act (incorporated by reference to Exhibit 3.3 to
Current Report on Form 8-K [File No. 0-12185], filed June 29, 2004).
 20




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.1
    
    Form of Amortizing Convertible Note of NGAS Resources, Inc. due May 1, 2012 (incorporated
by reference to Exhibit 10.2 to Current Report on Form 8-K [File No. 0-12185] filed January
12, 2010).4.2
    
    Form of Warrant issued by NGAS Resources, Inc. on August 13, 2009 (incorporated by
reference to Exhibit C to Underwriting Agreement dated August 10, 2009 between NGAS
Resources, Inc. and BMO Capital Markets Corp., filed as Exhibit 1.1 to Current Report on
Form 8-K [File No. 0-12185] filed August 11, 2009).4.3
    
    Form of Warrant issued by NGAS Resources, Inc. on January 12, 2010 (incorporated by
reference to Exhibit 10.3 to Current Report on Form 8-K [File No. 0-12185] filed January 12,
2010).10.1
    
    2001 Stock Option Plan (incorporated by reference to Exhibit 10[b] to Annual Report on Form
10-KSB [File No. 0-12185] for the year ended December 31, 2002).10.2
    
    2003 Incentive Stock and Stock Option Plan (incorporated by reference to Exhibit 10.3 to
Quarterly Report on Form 10-QSB [File No. 0-12185] for the quarter ended June 30, 2004).10.3
    
    Amended and Restated Credit Agreement dated as of May 30, 2008 (ARCA) among NGAS
Resources, Inc., NGAS Production Co. and KeyBank National Association, as agent for the
lenders named therein (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form
10-Q [File No. 0-12185] for the quarter ended June 30, 2008).10.4
    
    Third Amendment to ARCA dated as of June 2, 2009 (incorporated by reference to Exhibit 10.1
to Current Report on Form 8-K [File No. 0-12185] filed June 5, 2009).10.5
    
    Fourth Amendment to ARCA dated as of January 11, 2010 (incorporated by reference to Exhibit
10.4 to Current Report on Form 8-K [File No. 0-12185] filed January 12, 2010).10.6
    
    Form of Exchange Agreement dated January 11, 2010 (Exchange Agreements) between NGAS
Resources, Inc. and each holder of its 6% Convertible Notes due December 15, 2010
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K [File No. 0-12185]
filed January 12, 2010).10.7
    
    NAESB Gas Purchase Agreement dated as of July 15, 2009 between NGAS Production Co. and
Seminole Energy Services, LLC (incorporated by reference to Exhibit 10.5 to current report on
Form 8-K [File No. 0-12185] dated July 17, 2009).10.8
    
    Form of Change of Control Agreement dated as of February 25, 2004 (incorporated by
reference to Exhibit 10.9 to quarterly report on Form 10-QSB [File No. 0-12185] for the
quarter ended June 30, 2004).10.9
    
    Form of Indemnification Agreement dated as of February 25, 2004 (incorporated by reference
to Exhibit 10.10 to quarterly report on Form 10-QSB [File No. 0-12185] for the quarter ended
June 30, 2004).10.10
    
    Form of Long-Term Incentive Agreement dated as of December 9, 2008 (incorporated by
reference to Exhibit 10.11 to annual report on Form 10-K [File No. 0-12185] for the year
ended December 31, 2008).10.11
    
    Form of general partnership agreement with sponsored drilling programs (incorporated by
reference to Exhibit 10.11 to amended annual report on Form 10-K/A [File No. 0-12185] for the
year ended December 31, 2006).10.12
    
    Form of limited partnership agreement with sponsored investment partnerships (incorporated
by reference to Exhibit 10.12 to amended annual report on Form 10-K/A [File No. 0-12185] for
the year ended December 31, 2006).10.13
    
    Form of assignment of drilling rights with sponsored drilling programs (incorporated by
reference to Exhibit 10.13 to amended annual report on Form 10-K/A [File No. 0-12185] for the
year ended December 31, 2006).10.14
    
    Form of drilling and operating agreement with sponsored drilling programs (incorporated by
reference to Exhibit 10.14 to amended annual report on Form 10-K/A [File No. 0-12185] for the
year ended December 31, 2006).11.1
    
    Computation of Loss Per Share (included in Note 12 to the accompanying consolidated
financial statements).21.0
    
    Subsidiaries (incorporated by reference to Exhibit 21.1 to annual report on Form 10-K [File
No. 0-12185] for the year ended December 31, 2006).
 21




---



##### Table of Contents



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.
 SIGNATURES
  NGAS Resources, Inc.Date: May 6, 2010
    By:
    /s/William S. DaughertyWilliam S. DaughertyChief Executive Officer
(Duly Authorized Officer)
(Principal Executive Officer) 22