| Credit Facility | 5. Credit Facility The Company has a loan agreement with Bank
of America, N.A. (the “Agreement”) (“Bank”), which provided for a credit facility of $5,570,000 with no
monthly commitment reductions and a borrowing base to be evaluated on July 30 and January 1 of each year or at any additional time
in Bank’s discretion. The borrowing base also resets to the extent the Company sells or otherwise disposes of any of its
oil and gas properties as the Company is required to pay 100% of such net proceeds to the lender resulting in a permanent reduction
of the borrowing base unless prior approval by Bank states otherwise. The borrowing base was evaluated on July 31, 2018 and set
at $525,000. The Agreement was renewed eleven times with
the eleventh amendment effective as of March 8, 2017 with a maturity date of November 30, 2020. Under such renewal agreement, interest
on the facility accrues at an annual rate equal to the British Bankers Association London Interbank Offered Rate (“BBA LIBOR”)
daily floating rate, plus 3.0 percentage points, which was 5.22% on September 30, 2018. Interest on the outstanding amount under
the credit agreement is payable monthly. In addition, the Company will pay an unused commitment fee in an amount equal to ½
of 1 percent (.5%) times the daily average of the unadvanced amount of the commitment. The unused commitment fee is payable quarterly
in arrears on the last day of each calendar quarter and is included in the consolidated statements of operations under the caption
“General and administrative” expenses. Availability of this line of credit at September 30, 2018 was $50,000. No principal
payments are anticipated to be required through November 30, 2020. Amounts borrowed under the Agreement are collateralized by the
common stock of the Company’s wholly owned subsidiaries and substantially all of the Company’s oil and gas properties. The Agreement contains customary covenants
for credit facilities of this type including limitations on change in control, disposition of assets, mergers and reorganizations.
The Company is also obligated to meet certain financial covenants under the Agreement and requires minimum earnings before interest,
taxes, depreciation and amortization (“EBITDA”) of $650,000 for each trailing four fiscal quarters and minimum interest
coverage ratio (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarter. The Company is in compliance with all covenants as of
September 30, 2018 and believes it will remain in compliance for the current fiscal year. The amended Agreement allows for up to $500,000
of the facility to be used for outstanding letters of credit. As of September 30, 2018, one letter of credit for $25,000, in lieu
of plugging bond with the Texas Railroad Commission (“TRRC”) covering the properties the Company operates is outstanding
under the facility. This letter of credit renews annually. The Company will pay a fee in an amount equal to 1 percent (1.0%) per
annum of the outstanding undrawn amount of each standby letter of credit, payable monthly in arrears, on the basis of the face
amount outstanding on the day the fee is calculated. In addition, this Agreement prohibits the Company
from paying cash dividends on its common stock. The Agreement does grant the Company permission to enter into hedge agreements
however, it is under no obligation to do so. The balance outstanding on the line of credit
as of September 30, 2018 was $450,000. The following table is a summary of activity on the Bank of America, N.A. line of credit
for the six months ended September 30, 2018:
Principal
Balance at April 1, 2018: $ 700,000
Borrowings -
Repayments (250,000 )
Balance at September 30, 2018: $ 450,000 Subsequently, the balance outstanding on the
line of credit as of November 8, 2018 was $375,000 which increased availability of the line of credit to $125,000. |
