March 31,			December 31,
	2008			2007
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	874		$	1,133
Accounts receivable:
Joint interest billing		1,470			1,701
Revenue receivable		3,447			2,444
Fair value of derivative instruments		─			1,760
Prepaid costs and other current assets		2,847			2,941
Total current assets		8,638			9,979
PROPERTY AND EQUIPMENT (full cost method), at cost:
Oil and gas properties:
Unproved properties		50,953			51,438
Proved properties		86,454			78,096
Less accumulated depreciation, depletion, and amortization		(14,264	)		(12,228	)
Oil and gas properties, net		123,143			117,306
Other property		1,113			1,180
Accumulated depreciation		(848	)		(778	)
Total other property, net		265			402
Total property and equipment, net		123,408			117,708
OTHER NON-CURRENT ASSETS:
Restricted cash		351			685
Debt issuance costs, net of accumulated amortization of $2,274 and $1,988, respectively		3,198			3,435
Accounts receivable long-term		1,354			759
Fair value of derivative instruments		888			─
Total other non-current assets		5,791			4,879
Total assets	$	137,837		$	132,566
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	7,406		$	5,825
Revenue payable		2,422			1,678
Accrued and other liabilities		4,185			4,131
Interest payable		(13	)		12
Share-based payments liability		504			394
Fair value of derivative instruments		6,849			─
Total current liabilities		21,353			12,040
NON-CURRENT LIABILITIES:
Ad valorem taxes payable		276			0
Asset retirement obligation		1,806			1,713
Fair value of derivative instruments		─			183
Bank debt		51,311			43,056
Convertible notes payable		50,195			50,195
Total non-current liabilities		103,588			95,147
Total liabilities		124,941			107,187
SHAREHOLDERS' EQUITY:
Common shares, without par value, unlimited authorized, issued and outstanding:  81,096,070 at March 31, 2008 and 81,087,320 at December 31, 2007		69,834			69,834
Additional paid-in capital		5,778			5,640
Accumulated other comprehensive income (loss)		(1,536	)		7,483
Accumulated deficit		(61,180	)		(57,578	)
Total shareholders' equity		12,896			25,379
Total liabilities and shareholders' equity	$	137,837		$	132,566

 

 

	For the Three Months Ended March 31,
	2008			2007
NATURAL GAS REVENUE	$	6,017		$	3,912
OPERATING EXPENSES:
Gathering and transportation		803			561
Lease operating expenses		1,664			576
Production and ad valorem taxes		739			327
General and administrative		1,716			2,662
Depreciation, depletion, amortization and accretion of asset retirement obligation		2,162			1,634
Total operating expenses		7,084			5,760
Operating loss		(1,067	)		(1,848	)
OTHER INCOME (EXPENSE):
Interest expense		(2,269	)		(629	)
Interest and other miscellaneous income		20			32
Amortization of deferred financing costs		(286	)		─
Total other income (expense)		(2,535	)		(597	)
Loss before taxes		(3,602	)		(2,445	)
Recovery of future income tax asset from flow-through shares		─			1,095
NET LOSS	$	(3,602	)	$	(1,350	)
Basic and diluted loss per share	$	(0.04	)	$	(0.02	)
Weighted average number of shares outstanding		81,087,416			80,498,487

 

 

		For the Three Months Ended March 31,
		2008			2007
Cash flows from operating activities:
Net loss		$	(3,602	)	$	(1,350	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Recovery of future income tax asset from flow-through shares			─			(1,090	)
Share-based payments			266			454
Depreciation, depletion, amortization and accretion of asset retirement obligation			2,162			1,677
Amortization of debt issuance costs			286			─
Changes in operating assets and liabilities:
Accounts receivable			(673	)		1,437
Other current assets			(21	)		(1,538	)
Accounts payable			(1,050	)		(456	)
Accrued interest and other current liabilities			7,745			(1,736	)
Net cash provided by (used in) operating activities			5,113			(2,602	)
Cash flows from investing activities:
Restricted cash			1,075			─
Capital expenditures - oil and gas properties			(6,842	)		(21,446	)
Capital expenditures - other assets			51			(11	)
Fair value of derivatives			(8,203	)		378
Net cash used in investing activities			(13,919	)		(21,079	)
Cash flows from financing activities:
Issuance of common stock			─			811
Debt issuance costs			101			(7,630	)
Proceeds from bank debt			8,255			─
Proceeds from convertible notes payable			─			32,950
Net cash provided by financing activities			8,356			26,131
Effect of exchange rate changes on cash			191			(1,017	)
Net decrease in cash and cash equivalents			(259	)		1,433
Cash and cash equivalents at beginning of period			1,133			5,299
Cash and cash equivalents at end of period		$	874		$	6,732
Supplemental disclosure of cash flow information:
Cash paid for interest		$	1,176		$	792
Supplemental disclosure of non-cash investing and financing activities:
Capital accruals and asset additions		$	10,049		$	5,300
Increase in asset retirement obligation		$	64		$	44

	For the Three Months Ended
	March 31,
	2008			2007
Net loss	$	(3,602	)	$	(1,350	)
Depreciation, depletion, amortization and accretion		2,162			1,634
Interest Expense		2,249			597
Income Taxes		─			(1,095	)
Amortization of Debt Issuance Costs		286			─
EBITDA		1,095			(214	)
Stock-based compensation expense		266			447
Adjusted EBITDA(1)(3)	$	1,361		$	233

	For the Three Months Ended
	March 31,
	2008			2007
Operating loss	$	(1,067	)	$	(1,848	)
General and administrative		1,716			2,662
Depreciation, depletion, amortization and accretion		2,162			1,634
Operating Cash Flow (2)(3)	$	2,811		$	2,448

(1)	We have included Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, and share-based compensation expense) because we believe it provides investors with a useful industry comparative and is a financial measure used by management to assess the performance of our Company.

(2)	We have included Operating Cash Flow (natural gas revenues less lease operating expenses, gathering and transportation expenses and production taxes) because we believe it provides useful information to assess our performance and to measure our cash flows from operations for our investors.

(3)

We believe EBITDA, Adjusted EBITDA and Operating Cash Flow provide useful measures of cash flows from operations for our investors because EBITDA, Adjusted EBITDA and Operating Cash Flow are industry comparative measures of cash flows generated by our operations and because they are financial measures used by management to assess the performance and liquidity of our Company.  EBITDA, Adjusted EBITDA and Operating Cash Flow are not measurements of financial performance or liquidity under accounting principles generally accepted in the United States of America and should not be considered in isolation or construed as a substitutes for net income (loss) or other operations data or cash flow data prepared in accordance with accounting principles generally accepted in the United States of America for purposes of analyzing our profitability or liquidity.  In addition, not all funds depicted by EBITDA, Adjusted EBITDA and Operating Cash Flow are available for management’s discretionary use.  For example, a portion of such funds are subject to contractual restrictions and functional requirements to pay debt service, fund necessary capital expenditures and meet other commitments from time to time as described in more detail in the Company’s 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008.  EBITDA, Adjusted EBITDA and Operating Cash Flow, as calculated, may not be comparable to similarly titled measures reported by other companies.