5.	Line of Credit

The Company has a line of credit with a bank with a borrowing base of $11,000,000 and $8,500,000 at December 31, 2012 and 2011, respectively. The amount outstanding under this line of credit was $6,740,000 as of December 31, 2012 and 2011. The agreement requires monthly interest-only payments until maturity on October 18, 2014. The interest rate is based on a LIBOR or Prime option. The Prime option provides for the interest rate to be prime plus a margin ranging between 1.75% and 2.25% and the LIBOR option to be the 3-month LIBOR rate plus a margin ranging between 2.75% and 3.25%, both depending on the borrowing base usage. Currently, we have elected the LIBOR interest rate option in which our interest rate was approximately 3.50% as of December 31, 2012 and 2011, respectively. The commitment fee is .50% of the unused borrowing base. The line of credit provides for certain financial covenants and ratios which include a current ratio, leverage ratio, and interest coverage ratio requirements. We were in compliance with our covenants as of December 31, 2012 and 2011. The line of credit is collateralized by substantially all of our oil and gas properties and is personally guaranteed by our President and CEO.