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EX-32.1 - EX-32.1 - RADIANT OIL & GAS INCex32-1.htm
EX-31.1 - EX-31.1 - RADIANT OIL & GAS INCex31-1.htm


U. S. Securities and Exchange Commission
Washington, D. C. 20549
 


FORM 10-K
 


  x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012 and 2011

   o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File No. 000-24688

RADIANT OIL & GAS, INC.
(Name of Small Business Issuer in its Charter)
 
Nevada
 
27-2425368
(State or Other Jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

9700 Richmond Ave., Suite 124
 Houston, Texas 77042
(Address of Principal Executive Offices)

Issuer’s Telephone Number: (832) 242-6000


Securities registered under Section 12(b) of the Act: None
 
Name of Each Exchange on Which Registered: None

Securities registered under Section 12(g) of the Act:

$0.01 par value common stock
Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 Yes o  No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
 Yes o   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1)
 Yes o   No x
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes o     No x
 
On June 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter 9,862,897shares of its common stock, $0.001 par value per share were held by non-affiliates of the registrant. The market value of those shares was 11,342,331.55 based on the last sale price of $1.15 per share of the common stock on that date. For this purpose, shares of common stock beneficially owned by each executive officer and director of the registrant, and each person known to the registrant to be the  beneficial owner of 10% of more of the common stock then outstanding, have been excluded because such person may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
 
(APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
 
Not applicable.
 
(APPLICABLE ONLY TO CORPORATE ISSUERS)
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
Common shares outstanding as of January 16, 2014 16,219,408.
 
 
DOCUMENTS INCORPORATED BY REFERENCE

A description of “Documents Incorporated by Reference” is contained in Part IV, Item 15 of this Report.

EXPLANATORY NOTE

Throughout this annual report on Form 10-K, the terms "we," "us," "our," "Radiant," and "Company," refer to Radiant Oil & Gas, Inc., unless the context indicates otherwise.
 
General: This report on Form 10-K is a comprehensive filing for the fiscal years ended December 31, 2012 and 2011, and the interim periods within 2012 and 2011. It is being filed by us in order to become current in our filing obligations under the Securities Exchange Act of 1934, as amended.  This is our first periodic filing since the annual period ended December 31, 2010. We have previously submitted periodic filings for the quarters ended March 31, 2011 and June 30. 2011, however, they were not reviewed by an independent public accountant in accordance with professional standards for conducting such reviews, and as such were not considered in compliance with the Securities Exchange Act of 1934, as amended.

Readers should be aware that several aspects of this report differ from other annual reports. First, this report is for each of the fiscal years ended December 31, 2012 and 2011, in lieu of filing separate reports for each of those fiscal years. Second, because of the amount of time that has passed since our last periodic report was filed with the SEC, the information relating to our business and related matters is focused on our more recent periods, including certain information for periods after December 31, 2012 and through the day of filing this report. Our quarterly financial information included in this report has been reviewed by an independent public accountant in accordance with professional standards for conducting such reviews, and is in a level of detail consistent with Rule 10-01(a) and (b) in Regulation S-X.  See "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Selected Quarterly Results of Operations" under Item 7.

We intend to file, as soon as practicable, our Quarterly Reports on Form 10-Q for each of the quarters ended March 31, 2013, June 30, 2013 and September 30, 2013.
 
Background for Filing Delay: We were unable to file the above referenced periodic reports due to capital constraints resulting from our reduced and discontinued hydrocarbon production in 2011 and 2012 and limited access to financing. As a result, the Company was unable (i) to satisfy significant payables due to third parties, including its independent auditors, for work performed for the Company, (ii) to maintain an adequate financial staff, and (iii) to retain the necessary advisors to prepare and complete the financial reports required by the Exchange Act and the rules and regulations of the SEC. Due to these constraints, the Company was unable to prepare and file the required reports with the SEC under Section 13(a) of the Exchange Act in September 2011.  This Comprehensive Form 10-K should be read together and in connection with the other reports filed by us with the SEC for a comprehensive description of our current financial condition and operating results. In the interest of complete and accurate disclosure, we have included current information in this annual report for all material events and developments that have taken place through the date of filing of this annual report with the SEC.

Other Information. Due to our failure to file timely our periodic reports with the SEC since the filing of the Annual Report on Form 10-K for the year ended December 31, 2011, we were unable to comply with the listing standards of OTCBB and our Common Units were removed from listing on OTCBB. As a result, our Common Units are currently listed to trade on the Pink OTC Market, Inc.
 
 
Table of Contents
 
PART 1
   
ITEM 1
6
ITEM 1A
14
ITEM 1B  
26
ITEM 2
26
ITEM 3
28
ITEM 4
28
     
PART II
   
ITEM 5
29
ITEM 6
30
ITEM 7
31
ITEM 7A
44
ITEM 8
44
ITEM 9
44
ITEM 9A
44
ITEM 9B
45
     
PART III
   
ITEM 10
46
ITEM 11
47
ITEM 12
49
ITEM 13
  50
ITEM 14
51
     
PART IV
   
ITEM 15
52
     
53
     
F-1

 
GLOSSARY OF OIL AND NATURAL GAS TERMS
 
The following is a description of the meanings of some of the oil and natural gas industry terms used in this report.
 
“3-D seismic” Geophysical data that depict the subsurface strata in three dimensions. 3-D seismic typically provides a more detailed and accurate interpretation of the subsurface strata than 2-D, or two dimensional, seismic.
 
 “Bbl” One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to oil and other liquid hydrocarbons.
 
“Bcf” One billion cubic feet of natural gas.
 
“behind pipe” Reserves which are expected to be recovered from zones behind casing in existing wells, which require additional completion work or a future recompletion prior to the start of production.
 
“Boe” Barrels of crude oil equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
 
“Boepd” Boe per day.
 
“Bopd” Bbls per day.
 
“Btu” One British thermal unit.
 
“completion” The installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
 
“condensate” Hydrocarbons which are in the gaseous state under reservoir conditions and which become liquid when temperature or pressure is reduced. A mixture of pentanes and higher hydrocarbons.
 
“development well” A well drilled within the proved area of an oil and gas reservoir to the depth of a stratigraphic horizon known to be productive.
 
“drilling locations” Total gross locations specifically quantified by management to be included in the company’s multi-year drilling activities on existing acreage. The company’s actual drilling activities may change depending on the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, drilling results and other factors.
 
“dry hole” An exploratory or development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.
 
“exploratory well” A well drilled to find and produce oil or gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir.
 
“farm-in” An agreement between a participant who brings a property into the venture and another participant who agrees to spend an agreed amount to explore and develop the property and has no right of reimbursement but may gain a vested interest in the venture. A “farm-in” describes the position of the participant who agrees to spend the agreed-upon sum of money to gain a vested interest in the venture.
 
“field” An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
 
“formation” An identifiable layer of rocks named after its geographical location and dominant rock type.
 
“gross wells” Total number of producing wells in which we have an interest.
 
 
“held by production” or “HBP” A provision in an oil and gas lease that perpetuates a company’s right to operate a property or concession as long as the property or concession produces a minimum paying quantity of oil or gas.
 
“lease” A legal contract that specifies the terms of the business relationship between an energy company and a landowner or mineral rights holder on a particular tract of land.
 
“leasehold” Mineral rights leased in a certain area to form a project area.
 
“lease operating expenses” The expenses, usually recurring, which pay for operating the wells and equipment on a producing lease.
 
LLS” Light Louisiana Sweet crude oil, being a high quality low-sulfur content premium crude oil.
 
“MBbl” One thousand barrels of oil or other liquid hydrocarbons.
 
“MBoe” Thousand barrels of crude oil equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
 
“MBoepd” Thousand barrels of crude oil equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids per day.
 
“Mcf” One thousand cubic feet of natural gas.
 
“Mcfpd” Mcf per day.
 
“MMBbl” One million barrels of oil or other liquid hydrocarbons.
 
“MMBoe” Million barrels of crude oil equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
 
“MMBtu” One million British Thermal Units.
 
“MMcf” One million cubic feet of natural gas.
 
“net acre” Fractional ownership working interest multiplied by gross acres. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.
 
“net revenue interest” A share of production after all burdens, such as royalty and overriding royalty, have been deducted from the working interest. It is the percentage of production that each party actually receives.
 
“net wells” The sum of our fractional interests owned in gross wells.
 
“NGLs” Natural gas liquids.
 
“NYMEX” The New York Mercantile Exchange.
 
“overriding royalty interest” A right to receive revenues, created out of the working interest, from the production of oil and gas from a well free of obligation to pay any portion of the development or operating costs of the well and limited in life to the duration of the lease under which it is created.
 
“pay” The vertical thickness of an oil and natural gas producing zone. Pay can be measured as either gross pay, including non-productive zones or net pay, including only zones that appear to be productive based upon logs and test data.
 
“PDP” Proved developed producing.
 
“PDNP” Proved developed nonproducing.
 
 
“plugging and abandonment” Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of many states require plugging of abandoned wells.
 
“possible reserves” Possible reserves are those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than probable reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of proved plus probable plus possible reserves (3P), which is equivalent to the high estimate scenario. In this context, when probabilistic methods are used, there should be at least a 10-percent probability that the actual quantities recovered will equal or exceed the 3P estimate.
 
“probable reserves” Probable reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated proved plus probable reserves (2P). In this context, when probabilistic methods are used, there should be at least a 50-percent probability that the actual quantities recovered will equal or exceed the 2P estimate.
 
“production” Natural resources, such as oil or gas, taken out of the ground.
 
“productive well” A well that is found to be capable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.
 
“prospect” A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
 
“proved developed non-producing reserves (PDNP)”  Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods that are not currently being produced.
 
“proved developed producing reserves (PDP)” Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods and that are currently being produced.
 
“proved reserves. The estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable from known reservoirs under current economic and operating conditions, operating methods, and government regulations.
 
“proved undeveloped reserves (PUD)” Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.
 
“PV-10” The discounted present value of the estimated future gross revenue to be generated from the production of proved oil and gas reserves (using pricing assumptions consistent with, and after deducting estimated abandonment costs to the extent required by, SEC guidelines), net of estimated future development and production costs, before income taxes and without giving effect to non-property related expense, discounted using an annual discount rate of 10% and calculated in a manner consistent with SEC guidelines.
 
“recompletion” After the initial completion of a well, the action and techniques of reentering the well and redoing or repairing the original completion to restore the well’s productivity.
 
“reserve life” A measure of the productive life of an oil and gas property or a group of properties, expressed in years.
 
“reservoir” A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.
 
“royalties” The portion of oil and gas retained by the lessor on execution of a lease or the cash value paid by the lessee to the lessor based on a percentage of the gross production from the leased property free and clear of all costs except taxes.
 
 
“sand” A geological term for a formation beneath the surface of the earth from which hydrocarbons are produced. Its make-up is sufficiently homogenous to differentiate it from other formations.
 
“shut-in” To close valves on a well so that it stops producing; said of a well on which the valves are closed.
 
“standardized measure” The present value of estimated future cash inflows from proved oil and natural gas reserves, less future development, abandonment, production and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were used to calculate PV-10. Standardized measure differs from PV-10 because standardized measure includes the effect of future income taxes.
 
 “successful” A well is determined to be successful if it is producing oil or natural gas, or awaiting hookup, but not abandoned or plugged.
 
 “undeveloped acreage” Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.
 
“working interest” The interest in an oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and a share of production, subject to all royalties, overriding royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.
 
“workover” The repair or stimulation of an existing production well for the purpose of restoring, prolonging or enhancing the production of hydrocarbons.
 
“WTI” West Texas Intermediate crude oil, being light, sweet crude oil with high API gravity and low sulfur content used as a benchmark for U.S. crude oil refining and trading.
 
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this Comprehensive Form 10-K may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties.  These statements involve known and unknown risks, uncertainties and other factors that may cause our results, performance or achievements to be materially different from any future results, performance or achievements express or implied by these forward-looking statements.  In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “projects,” “predicts,” “potential,” and similar expressions intended to identify forward-looking statements.  All statements, other than historical facts, included in this Form 10-K that address activities, events or developments that we expect or anticipate will or may occur in the future, including such things as estimated net revenues from oil and gas reserves and the present value thereof, future capital expenditures (including the nature and amount thereof), business strategy and measures to implement strategy, goals, expansion and growth of our business and operations, plans, references to future success, reference to intentions as to future matters and other such matters are forward-looking statements.

These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management.  These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.

Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control.  In addition, management’s assumptions about future events may prove to be inaccurate.  Management cautions all readers that the forward-looking statements in this Comprehensive Form 10-K are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events or circumstances will occur.  Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in this Comprehensive Form 10-K.  All forward-looking statements speak only as of the date of this Comprehensive Form 10-K.  We do not intend to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.  These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
 

ITEM 1.  DESCRIPTION OF OUR BUSINESS
 
Radiant Oil and Gas, Inc. (“Radiant” or “the Company”) is an independent oil and gas exploration and production company that operates in the Gulf Coast region of the United States of America, specifically, onshore in Louisiana, Mississippi and Texas and the state waters of Louisiana, USA, and has the capacity to operate in the federal waters offshore Texas and Louisiana in the Gulf of Mexico.
 
In August 2010, Jurasin Oil and Gas, Inc. (“JOG”) completed a reverse acquisition transaction (“Reorganization”) through an exchange agreement with the Company, whereby the Company acquired 100% of JOG’s issued and outstanding capital stock in exchange for 5,000,000 shares of the Company’s common stock.  The agreement provides for the issuance of up to an additional 1,000,000 shares of the Company’s common stock upon the satisfaction of certain performance conditions. Under the agreement for the performance of certain conditions (up to a maximum of four), the former JOG shareholders will receive 250,000 additional shares of common stock. As of December 31, 2010, two of the performance conditions have been met resulting in the issuance of 500,000 of these common shares. The performance conditions that were met were the nomination of the southern acreage for lease and the re-acquiring of the seismic permit on 1,000 net acres for Amber. As of December 31, 2012, the remaining conditions have been met and no additional shares have been issued arising from the performance of such conditions.
 
As a result of the reverse acquisition, JOG became the Company’s wholly-owned subsidiary and the former stockholders of JOG became the controlling stockholders of Radiant. The share exchange with Radiant was treated as a reverse acquisition, with JOG as the accounting acquirer and Radiant as the acquired party.
 
In March 2012 and June 2012, the Company entered into a joint venture agreement (“Shallow Oil Project”) with Grand Synergy Petroleum, LLC (Grand) and Black Gold Inc. (Black Gold). As a result of an agreement with Grand, two new Louisiana entities were formed, Charenton Oil Company, LLC (“Charenton”) on May 8, 2012 and Radiant Synergy Operating, LLC (“Synergy”) on June 28, 2012. Charenton is a wholly owned subsidiary of Radiant and Synergy is owned 50%/50% by Radiant and Grand.
 
Acquisitions and Financing
 
On October 9, 2013, the Company completed the purchase of oil and gas properties located in Louisiana and Mississippi for approximately $19,000,000. The  acquired  properties  contain  over  eighty (80)  wells  in  Louisiana  and  Mississippi.  The Louisiana properties include over 39 wells and numerous leases located in Catahoula, Concordia, La Salle and St. Mary's Parishes. The Mississippi properties include over 41 wells and numerous leases located in Adams, Amite, Franklin, and Wilkinson Counties. The properties include up to 24 productive wells and up to 36 shut-in wells that have been evaluated for work-over and behind pipe opportunities which is expected to provide for cost-effective near-term production increases.
 
Effective October 4, 2013, the Company, through its wholly-owned subsidiary Radiant Acquisitions 1, LLC (“Radiant Acquisitions”), entered into a First Lien Credit Agreement (the “Credit Agreement”) with various financial institutions (the “Lenders”).  The maximum aggregate commitment of the Lenders to advance loans under this Agreement was $39,788,000, and the maximum aggregate principal amount to be repaid by the Borrower in respect thereof is $40,600,000 and for any given loan, the amount of funds advanced by any Lender shall be ninety-eight percent (98%) of the amount of principal required to be repaid by the Borrower in respect of such Loan.  The Credit Agreement has a stated maturity date of September 30, 2018 (the “maturity date”).  The outstanding principal balance of the Loans (as may have been advanced from time to time) bears interest at a per annum rate of twelve percent (12%).  Any outstanding indebtedness from the Credit Agreement was collateralized by substantially all of the assets of Radiant Acquisitions. In addition, the Company pledged its ownership interest in Radiant Acquisitions and executed a parent company as additional security.  The Credit Facility contains restrictive financial covenants.  The proceeds from the Credit Guarantee Agreement were used to fund the closing of its recent acquisition of oil and gas properties located in  Louisiana and Mississippi, as well as to develop multiple re­ entry,  work-over  and  drilling  opportunities   on  acquired   acreage  throughout  south Louisiana and Mississippi.
 
Concurrent with the closing of the Credit Agreement, a total of $27,050,428 was disbursed.
 
 
Core Areas of Operation and Certain Key Properties
 
Our proved oil and gas reserves are concentrated in the Louisiana Gulf Coast region. The fields tend to have stacked multiple producing horizons with production typically between 3,000 and 13,000 feet. Some of the fields have numerous available wellbores capable of providing workover and recompletion opportunities. We expect the characteristics of these fields to allow us to record significant proved behind pipe and PUD reserves in each annual year-end and mid-year reserve report. At August 1, 2013, our proved developed producing, or PDP, reserves of 522.2 Mbbls of oil, which represented 9.3% of our 5,621.2 Mboe of total proved oil and natural gas reserves, our proved developed non-producing, or PDNP, reserves of 208.1 Mbbls were 3.7% of our total proved oil and natural gas reserves and our PUD reserves of 4,890.9 Mboe were 87.0% of our total proved oil and natural gas reserves. We sell substantially all of our current hydrocarbon production in the St. James market and receive premium Light Louisiana Sweet (LLS) pricing.
 
Properties
 
Vidalia
 
In October of 2013, Radiant acquired the Vidalia properties, which include numerous leases in Catahoula, Concordia, La Salle and St. Mary’s parishes in Louisiana and Adams, Franklin and Wilkinson counties in Mississippi.  We have an average working interest in these properties of 97.2% and an average net revenue interest of 72.4%.
 
The acquired leases represent 105,000 gross acres (2,800 net) and over 80 wells.  Productive zones range from 3,000’ to 8,600’. The capital plan for Vidalia includes equal spending on work-over activity and drilling of PUD locations. When acquired, Vidalia had 24 productive wells and numerous shut in locations.  To date, we have spent $1.4 million working-over 18 wells, creating a total of 36 productive wells and a greater than 25% increase in production.  Work continues on an additional seven wells, with spending budgeted to continue through 2014.
 
Ensminger Project
 
The Company had a minority interest in a well (Ensminger #1) drilled on this prospect. The lease was abandoned in 2011 and agreements with participants in this prospect area expired in mid-2012. Between 2005 to 2007, the Ensminger #1 well produced from the lower Planulina 69 Sand at a maximum productive rate of 10.4 MMCF/D and 205 BO/D, with what we estimate to be cumulative production of over 3.25 BCF and 49 MBO (from only 6 feet of pay; the thinnest of the three pay sands. The operator shut in production while the well was still producing at a rate of 2 MMCF/D and 11 BO/D with no formation water. The plan was to abandon the 69 Sand and re-complete in the 68 Sand with an expected production rate of 18 MMCF/D. During the recompletion, the operator lost tools in the hole, and subsequent failed fishing operations resulted in damage to the casing; making further use of the well bore unfeasible.
 
During fourth quarter 2013, the Company has acquired a lease for materially the same area. The Ensminger Project covers 634 acres, of which we own a 100.0% working interest and have a net revenue interest of 75.0%. We intend to act as the operator of this project to drill and complete a well.
 
We have developed a plan to side-track out of an existing well thereby saving on drilling costs. The Ensminger Project is located onshore in sugar cane fields in St. Mary Parish, Louisiana. The original Ensminger well (“Ensminger #1”), which we intend to side-track, was originally funded by management and was drilled in 2004 in partnership with Exxon Mobil Corp. and Century Exploration New Orleans, Inc. and it discovered a depletion-drive field from the Planulina Pay Sands at approximately 15,000’ Total Vertical Depth.
 
The estimated net cost to drill and complete the proposed sidetrack is $4.0 million.
 
Coral Project
 
All four leases comprising this prospect expired in 2011.
 
 
During fourth quarter 2013, The Company was a high bidder on two leases in this area covering approximately 1,405 acres. We have a 100% working interest and a 76.0% net revenue interest in the Coral Project. We intend to act as the operator of this project to re-enter and complete a well. Coral consists of 1,405 gross acres in shallow Louisiana state coastal waters of St. Mary Parish.
 
The Coral Project is a multiple well prospect in an old Shell Oil Company field, which has produced 509 BCF and 65 MMBO. The prospect includes drilling in a new fault block extension of the Eugene Island Block 18 field. The primary objectives are the geopressured Tex. W. sands which have produced 103 BCF and 2.8 MMBC in the field proper. Three Tex W sands, ranging in depths from 12,300′ to 12,800′ are the specific prospect targets. The initial proposed well will be a re-entry from the inactive COCKRELL #1 SL 14354 borehole. The estimated net cost to drill and complete the proposed sidetrack is $3.4 million.
 
The secondary objective in the Coral Project is the Cib. Op (Middle Miocene) sands in a deeper pool reservoir in a gas productive fault block at an estimated depth of 15,500’. The prospect is covered with 3-D seismic. We do not expect to drill to the Cib Op in 2014 unless we are able to sell a portion of our interest and significantly reduce or eliminate our capital requirement.
 
Our Business Strategy
 
We intend to become a leading independent oil and gas producer by using our industry expertise and in-depth regional experience to increase reserves, production and cash flow. Key elements to our strategy include:
 
Focus on Mature Fields with Existing Infrastructure. We currently have approximately 7,450 Gulf Coast region net acres owned or under contract. Our primary focus is on the re-development of existing fields with substantial historical production with relatively low cost of entry.
 
Exploitation and Development Our Properties. We will continue to focus on the development and exploration efforts in our Gulf Coast properties, which we recently acquired. We believe that our properties will allow us to grow through low-risk, in-fill and side-track drilling programs that present attractive opportunities to expand our reserve base and through workovers and recompletions, field extensions, delineating deeper formations within existing fields. We also intend to increase our acreage position in those areas in which we currently operate.
 
Pursue Opportunistic Acquisitions of Underdeveloped Properties. We intend to continually review opportunities to acquire producing properties that include significant drilling prospects that are in our core operating areas and throughout the Gulf Coast region. We will continue to evaluate acquisition opportunities that we believe will further enhance our operations and reserves in a cost-effective manner.
 
Actively Manage Our Drilling Program. Our strategy is to increase our oil and natural gas reserves and production while carefully managing the development and operating costs associated with our current and future production. We expect to implement this strategy through drilling relatively low-cost wells and actively managing our contractors and service providers.
 
Utilize Our Industry and Technological Expertise. Our management team collectively has over individually and average of 30 years experience in the oil and gas industry. The technical expertise of our management team has lead to the discovery of over 300.0 million barrels of oil equivalent of new discoveries during the course of their collective careers. We employ technical advancements, including 3-D seismic data, pre-stack depth and reverse-time migration, to identify and exploit new opportunities in our asset base. We also employ the latest directional drilling, completion and stimulation technology in our wells to enhance recoverability and accelerate cash flows.
 
2014Budget. For 2014, we have targeted an initial capital budget of approximately $14.0 million to $20.0 million (including dry-hole costs), primarily focused on our Vidalia, Ensminger, Garnett and Coral field projects. The capital program will include several maintenance projects in addition to field exploitation within Vidalia. Approximately $8.0 million will be expended in the 1st half of 2014. Success on these programs will provide cash flow and availability under our credit facility to conduct a drilling program across several fields in the 2nd half of 2014.
 
 
Competition
 
We compete against other natural gas and oil companies in all areas of our operations, including the acquisition of exploratory prospects and proven properties. Many of our competitors are large, well-established companies that have been engaged in the natural gas and oil business for much longer than we have and possess substantially larger operating staffs and greater capital resources than we do. Our ability to explore for oil and natural gas reserves and to acquire additional properties in the future will be dependent upon our ability to conduct our operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment. We believe that our expertise, our exploration, land, drilling and production capabilities and the experience of our management generally enable us to compete effectively.
 
Marketing
 
Our production is marketed to third parties consistent with industry practices. Typically, oil is sold at the wellhead at field-posted prices plus an oil-quality differential and natural gas is sold under contract at a negotiated price based upon factors normally considered in the industry, such as distance from the well to the pipeline, well pressure, estimated reserves, quality of natural gas and prevailing supply and demand conditions.
 
Our marketing objective is to receive the highest possible wellhead price for our product. We are aided by the presence of multiple outlets near our production in Texas and Louisiana. We take an active role in determining the available pipeline alternatives for each property based on historical pricing, capacity, pressure, market relationships, seasonal variances and long-term viability.
 
Regulation of the Oil and Natural Gas Industry
 
The oil and natural gas industry is subject to extensive regulation by federal, state and local authorities. Legislation affecting the oil and natural gas industry is frequently amended or reinterpreted, and may increase the regulatory burden on our industry and our company. In addition, numerous federal and state agencies are authorized by statute to issue rules, regulations and policies that are binding on the oil and natural gas industry and its individual participants. Some of these rules and regulations authorize the imposition of substantial penalties for failures to comply. The regulatory burden on the oil and natural gas industry increases the cost of doing business and, consequently, our profitability. However, this regulatory burden generally does not affect us any differently or to a greater or lesser extent than it affects other companies in the oil and natural gas industry with similar types, quantities and locations of oil and natural gas production.
 
Regulation of Sales and Transportation of Oil
 
Sales of crude oil, condensate and natural gas liquids are not currently regulated and are made at negotiated prices. Nevertheless, the United States Congress, or Congress, could reenact price controls in the future.
 
Our sales of crude oil are affected by the availability, terms and cost of transportation. The transportation of oil by common carrier pipelines is subject to rate regulation. The Federal Energy Regulatory Commission, or the FERC, regulates interstate oil pipeline transportation rates under the Interstate Commerce Act. Interstate oil pipeline rates must be just and reasonable and may not be unduly discriminatory or confer undue preference upon any shipper. Rates generally are cost-based, although rates may be market-based or may be the result of settlement, if agreed to by all shippers. Some oil pipeline rates may be increased pursuant to an indexing methodology, whereby the pipeline may increase its rates up to a prescribed ceiling that changes annually based on the change from year to year in the Producer Price Index for Finished Goods. Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state. Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect our operations in any way that is of material difference from those of our competitors.
 
Further, interstate and intrastate common carrier oil pipelines must provide service on a non-discriminatory basis. Common carriers must offer service to all similarly situated shippers requesting service on the same terms and under the same rates. Accordingly, we believe that access to oil pipeline transportation services generally will be available to us to the same extent as to our competitors.
 
 
Regulation of Sales, Transportation and Gathering of Natural Gas
 
In the past, the federal government has regulated the prices at which natural gas could be sold. While sales by producers of natural gas can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938, or the NGA, the Natural Gas Policy Act of 1978 and regulations enacted under those statutes by the FERC. The FERC regulates interstate natural gas transportation rates and service conditions, which affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas. Since 1985, the FERC has endeavored to make natural gas transportation more accessible to natural gas buyers and sellers. In general, the interstate pipelines’ traditional roles as wholesalers of natural gas have been eliminated and replaced by a structure under which pipelines provide transportation and storage service on an open-access basis to others who buy and sell natural gas. Although the FERC’s orders generally do not directly regulate natural gas producers, they are intended to foster increased competition within all phases of the natural gas industry. Failure to comply with the FERC’s regulations, policies and orders may result in substantial penalties. Under the Energy Policy Act of 2005, the FERC has civil authority under the NGA to impose penalties for violations of up to $1 million per day per violation.
 
We cannot accurately predict whether the FERC’s actions will achieve the goal of increasing competition in markets in which our natural gas is sold. Additional proposals and proceedings that might affect the natural gas industry are pending before the FERC and the courts. The natural gas industry historically has been very heavily regulated. Therefore, we cannot provide any assurance that the pro-competitive regulatory approach established by the FERC will continue. However, we do not believe that any action taken will affect us in a way that materially differs from the way it affects other natural gas producers.
 
Intrastate natural gas transportation is subject to regulation by state regulatory agencies. The degree of regulatory oversight and scrutiny given to intrastate natural gas pipeline rates and services varies from state to state. Insofar as such regulation within a particular state will generally affect all intrastate natural gas shippers within the state on a comparable basis, we believe that intrastate natural gas transportation in the states in which we operate will not affect our operations in any way that is of material difference from those of our competitors. Like the regulation of interstate transportation rates, the regulation of intrastate transportation rates affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas.
 
Gathering, which is distinct from transportation, is regulated by state regulatory authorities and is not subject to regulation by the FERC. Under certain circumstances, the FERC will reclassify jurisdictional transportation facilities as non-jurisdictional gathering facilities. This reclassification tends to increase our costs of getting natural gas to point-of-sale locations.
 
Regulation of Production
 
The production of oil and natural gas is subject to and affected by regulation under a wide range of local, state and federal statutes, rules, orders and regulations. Federal, state and local statutes and regulations require permits for drilling of wells, drilling bonds and reports concerning operations. Each of the states in which we own and operate properties have regulations governing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum allowable rates of production from oil and natural gas wells, the regulation of well spacing and the plugging and abandonment of wells. The effect of these regulations may be to limit the amount of oil and natural gas that we can produce from our wells and to limit the number of wells or the locations at which we can drill, although we can apply for exceptions to such regulations or to have reductions in well spacing. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within its jurisdiction.
 
Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations.
 
 
Environmental Matters and Other Regulation
 
General
 
Our operations are subject to stringent and complex federal, state and local laws and regulations governing environmental protection as well as the discharge of materials into the environment. These laws and regulations may, among other things:
 
·  
require the acquisition of various permits before drilling commences;
 
·  
restrict the types, quantities and concentration of various substances that can be released into the environment in connection with oil and natural gas drilling and production activities;
 
·  
limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and
 
·  
require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells.
 
These laws and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability. Additionally, the United States Congress and federal and state agencies frequently revise environmental laws and regulations, and any changes that result in more stringent and costly waste handling, disposal and cleanup requirements for the oil and gas industry could have a significant impact on our operating costs.
 
 The following is a summary of some of the existing laws, rules and regulations to which our business operations are subject.
 
Waste Handling
 
The Resource Conservation and Recovery Act, or RCRA, and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the federal Environmental Protection Agency, or the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters and most of the other wastes associated with the exploration, development and production of crude oil or natural gas are currently exempted from regulation under RCRA or state hazardous waste provisions, though our operations may produce waste that does not fall within this exemption. However, these oil and gas production wastes may be regulated as solid waste under state law or RCRA. It is possible that certain oil and natural gas exploration and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change could result in an increase in our costs to manage and dispose of wastes, which could have a material adverse effect on our results of operations and financial position.
 
Comprehensive Environmental Response, Compensation, and Liability Act
 
The Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, also known as the Superfund Law, imposes joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current or former owner or operator of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.
 
In the course of our operations, we generate wastes that may fall within CERCLA’s definition of hazardous substances. Further, we currently own, lease or operate properties that have been used for oil and natural gas exploration and production for many years. Hazardous substances or petroleum may have been released on, at or under the properties owned, leased or operated by us, or on, at or under other locations, including off-site locations, where such hazardous substances or other wastes have been taken for disposal. In addition, some of our properties have been operated by third parties or by previous owners or operators whose handling, treatment and disposal of hazardous substances, petroleum, or other materials or wastes were not under our control. These properties and the substances or materials disposed or released on, at or under them may be subject to CERCLA, RCRA or analogous or other state laws. Under such laws, we could be required to remove previously disposed substances and wastes or released petroleum, remediate contaminated property or perform remedial plugging or pit closure operations to prevent future contamination.
 
 
Water Discharges
 
The Federal Water Pollution Control Act, or the Clean Water Act, and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances into waters of the United States or state waters. Under these laws, the discharge of pollutants into regulated waters is prohibited except in accordance with the terms of a permit issued by the EPA or an analogous state agency. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations.
 
The Oil Pollution Act of 1990, or OPA, which amends and augments the Clean Water Act, establishes strict liability for owners and operators of facilities that are the site of a release of oil into waters of the United States. In addition, OPA and regulations promulgated pursuant to OPA impose a variety of regulations on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills. OPA also requires certain oil and natural gas operators to develop, implement and maintain facility response plans, conduct annual spill training for certain employees and provide varying degrees of financial assurance.
 
Air Emissions
 
The Federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs and the imposition of other requirements. In addition, the EPA has developed and continues to develop stringent regulations governing emissions of toxic air pollutants at specified sources. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the Federal Clean Air Act and associated state laws and regulations. Oil and gas operations may in certain circumstances and locations be subject to permits and restrictions under these statutes for emissions of air pollutants, including volatile organic compounds, nitrous oxides and hydrogen sulfide.
 
Climate Change
 
In response to findings that emissions of carbon dioxide, methane and other greenhouse gases, or GHGs, present an endangerment to public health and the environment because emissions of such gases are contributing to warming of the earth’s atmosphere and other climatic changes, the EPA had adopted regulations under existing provisions of the Federal Clean Air Act that would require a reduction in emissions of GHGs from motor vehicles and also could trigger permit review for GHG emissions from certain stationary sources. The EPA has asserted that the motor vehicle GHG emission standards triggered Federal Clean Air Act construction and operating permit requirements for stationary sources, commencing when the motor vehicle standards took effect on January 2, 2011. The EPA published its final rule to address the permitting of GHG emissions from stationary sources under the prevention of significant deterioration, or PSD, and Title V permitting programs. This rule “tailors” these permitting programs to apply to certain stationary sources of GHG emissions in a multi-step process, with the largest sources first subject to permitting. It is widely expected that facilities required to obtain PSD permits for their GHG emissions also will be required to reduce those emissions according to “best available control technology” standards for GHGs that have yet to be developed. With regards to the monitoring and reporting of GHGs, on November 30, 2010, the EPA published a final rule expanding its existing GHG emissions reporting rule published in October 2009 to include onshore oil and natural gas production activities, which may include certain of our operations. In addition, both houses of Congress have actively considered legislation to reduce emissions of GHGs, and almost one-half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. The adoption and implementation of any legislation or regulations imposing reporting obligations with respect to, or limiting emissions of GHGs from, our equipment and operations could require us to incur costs to reduce emissions of GHGs associated with our operations or could adversely affect demand for the oil and natural gas we produce. Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic event; if any such effects were to occur, they could have an adverse effect on our exploration and production operations.
 
 
National Environmental Policy Act
 
Oil and natural gas exploration and production activities on federal lands are subject to the National Environmental Policy Act, or NEPA. NEPA requires federal agencies, including the Department of the Interior, to evaluate major agency actions that have the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an environmental assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed environmental impact statement that may be made available for public review and comment. All of our current exploration and production activities, as well as proposed exploration and development plans, on federal lands require governmental permits that are subject to the requirements of NEPA. This process has the potential to delay the development of oil and natural gas projects.
 
Endangered Species, Wetlands and Damages to Natural Resources
 
Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands and natural resources. These statutes include the Endangered Species Act, the Migratory Bird Treaty Act, the Clean Water Act and CERCLA. Where takings of or harm to species or damages to wetlands, habitat or natural resources occur or may occur, government entities or at times private parties may act to prevent oil and gas exploration or production or seek damages to species, habitat or natural resources resulting from filling or construction or releases of oil, wastes, hazardous substances or other regulated materials.
 
OSHA and Other Laws and Regulations
 
We are subject to the requirements of the federal Occupational Safety and Health Act, or OSHA, and comparable state statutes. The OSHA hazard communication standard, the Emergency Planning and Community Right to Know Act and similar state statutes require that we organize or disclose information about hazardous materials stored, used or produced in our operations.
 
Private Lawsuits
 
In addition to claims arising under state and federal statutes, where a release or spill of hazardous substances, oil and gas or oil and gas wastes has occurred, private parties or landowners may bring lawsuits against oil and gas companies under state law. The plaintiffs may seek property damages, personal injury damages, remediation costs or injunctions to require remediation or restoration of contaminated property, soil, groundwater or surface water. In some cases, oil and gas operations are located near populated areas and emissions or accidental releases could affect the surrounding properties and population.
 
Employees
 
As of January 1, 2013, we had 6 full-time employees. We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. We believe our relationships with our employees are good. From time to time, we utilize the services of independent contractors to perform various field and other services.
 
 
ITEM 1A.  RISK FACTORS
 
Risks Related to our Financial Condition
 
We currently have nominal revenues, have experienced losses, and anticipate that we will continue to incur losses for the foreseeable future.
 
During the twelve months ended December 31, 2012 and December 31, 2011, Radiant generated net revenues of $-0- and $-0-, respectively. For the twelve months ended December 31, 2012, Radiant operating expenses were $1,473,315 resulting in a loss from operations of $1,473,315. For the twelve months ended December 31, 2011, Radiant operating expenses were $2,866,627 resulting in a loss from operations of $2,866,627. It should be expected that we will continue to experience operating losses at least through 2013. There can be no assurance that we will ever achieve net income from operations or otherwise become profitable.
 
We may have negative cash flow from operations.
 
We have historically experienced losses and negative cash flows from operations and these conditions raise substantial doubt about our ability to continue as a going concern and management is attempting to raise additional capital to address our liquidity. We believe that our negative cash flow from operations will continue at least through 2013. There can be no assurance that we will ever be able to raise sufficient capital to generate positive cash flow from operations.
 
The terms of Amber Energy, LLCs and Rampant Lion Energy, LLC’s debt obligation subject us to the risk of foreclosure on all of AE’s and RLE’s respective assets and imposes restrictions that may limit our ability to take certain actions.
 
Our subsidiaries Amber Energy, LLC (“AE”) and Rampant Lion Energy, LLC (“RLE”) both have secured credit facilities with Macquarie Bank Ltd. (“MBL”). All of the RLE and AE assets secure the Credit Facility. As of December 31, 2012 and 2011, the outstanding balance on its RLE Credit Facility was $818,309.  Accrued interest related to this credit facility amounted to $587,337 and $407,778 as of December 31, 2012 and 2011, respectively. The Credit Facility matured in September 2011. As of the date of this filing, there are substantially no assets remaining in AE and RLE and we are working with MBL to settle all outstanding amounts owed to MBL.
 
Failure to retire or refinance either the AE Credit Facility or the RLE Credit Facility could adversely affect our financial condition.
 
We do not have sufficient funds to repay the AE Credit Facility and the RLE Credit Facility which are now in default. Accordingly, we will be required to obtain funds to repay the Credit Facility either through refinancing or the issuance of additional equity or debt securities. As we have no commitment in place to effect such actions, there is no assurance that we can refinance such indebtedness. The failure to refinance either the AE Credit Facility or the RLE Credit Facility would adversely affect the Company and could cause us to curtail operations. MBL has been working with management on these issues.
 
We expect to have substantial capital requirements, and we may be unable to obtain needed financing on satisfactory terms.
 
We expect to make substantial capital expenditures for the acquisition, development, production, exploration and abandonment of oil and gas properties. Our capital requirements will depend on numerous factors, and we cannot predict accurately the timing and amount of our capital requirements. We intend to primarily finance our capital expenditures through best efforts equity and debt offerings. There is no assurance that we will be successful in these capital raising activities. Adverse change in market conditions could make obtaining this financing economically unattractive or impossible.
 
A significant increase in our indebtedness, or an increase in our indebtedness that is proportionately greater than our issuances of equity, as well as the conditions in the credit market and debt and equity capital market at the time could negatively impact our ability to remain in compliance with the financial covenants under our credit facilities which could have a material adverse effect on our financial condition, results of operations and cash flows. If we are unable to finance our growth as expected, we could be required to seek alternative financing, the terms of which may not be attractive to us, or not purse growth opportunities.
 
 
Without additional capital resources, we may be forced to limit or defer our planned natural gas and oil exploration and development program and this will adversely affect the recoverability and ultimate value of our natural gas and oil properties, in turn negatively affecting our business, financial condition and results of operations. As a result, we may lack the capital necessary to capitalize on business opportunities described herein and be successful in our business operations. There is no assurance that we will be successful in raising the capital necessary to implement our business plan.
 
To service our indebtedness, we will require a significant amount of cash.
 
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and development efforts will depend on our future operating performance and financial results will be subject, in part, to factors beyond our control, including interest rates and general economic, financial and business conditions. We cannot assure you that cash flow generated from our operations and drilling programs, or other facilities will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
 
We may be required to:
 
·  
Obtain additional financing;
 
·  
Sell some of our assets or operations;
 
·  
Reduce or delay capital expenditures, development efforts and acquisitions; or
 
·  
Revise or delay our strategic plans.
 
If we are required to take any of these actions, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt instruments.
 
Risks Related to Our Business
 
Oil and natural gas prices are volatile, and a decline in oil and natural gas prices would affect our financial results and impede growth.
 
Our future financial condition, revenues, profitability and carrying value of our properties will depend substantially upon the prices and demand for oil and natural gas. The markets for these commodities are volatile and even relatively modest drops in prices can affect our financial results and impede our growth.
 
Natural gas and oil prices historically have been volatile and are likely to continue to be volatile in the future, especially given current geopolitical and economic conditions. Prices for oil and natural gas fluctuate widely in response to relatively minor changes in the supply and demand for oil and natural gas, market uncertainty and a variety of additional factors beyond our control, such as:
 
·  
Domestic and foreign supplies of oil and natural gas;
 
·  
Price and quantity of foreign imports of oil and natural gas;
 
·  
Actions of the Organization of Petroleum Exporting Countries and other state-controlled oil companies relating to oil and natural gas price and production controls;
 
·  
Level of consumer product demand;
 
·  
Level of global oil and natural gas exploration and productivity;
 
 
·  
Domestic and foreign governmental regulations;
 
·  
Level of global oil and natural gas inventories;
 
·  
Political conditions in or affecting other oil-producing and natural gas-producing countries, including the current conflicts in the Middle East and conditions in South America and Russia;
 
·  
Weather conditions;
 
·  
Technological advances affecting oil and natural gas consumption;
 
·  
Overall U.S. and global economic conditions; and
 
·  
Price and availability of alternative fuels.
 
Further, oil prices and natural gas prices do not necessarily fluctuate in direct relationship to each other. Lower oil and natural gas prices may not only decrease our expected future revenues on a per unit basis but also may reduce the amount of oil and natural gas that we can produce economically. This may result in us, in future periods, having to make substantial downward adjustments to any estimated proved reserves and could have a material adverse effect on our financial condition and results of operations.
 
Our future business will involve many uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.
 
We engage in development drilling activities. Any such activities may be unsuccessful for many reasons. In addition to a failure to find oil or natural gas, drilling efforts can be affected by adverse weather conditions (such as hurricanes and tropical storms in the Gulf of Mexico), cost overruns, equipment shortages and mechanical difficulties. Therefore, the successful drilling of an oil or gas well does not ensure we will realize a profit on our investment. A variety of factors, both geological and market-related, could cause a well to become uneconomic or only marginally economic. In addition to their costs, unsuccessful wells could impede our efforts to replace reserves.
 
Our business involves a variety of inherent operating risks, including:
 
·  
Fires;
 
·  
Explosions;
 
·  
Blow-outs and surface cratering;
 
·  
Uncontrollable flows of gas, oil and formation water;
 
·  
Natural disasters, such as hurricanes and other adverse weather conditions;
 
·  
Pipe, cement, subsea well or pipeline failures;
 
·  
Casing collapses;
 
·  
Mechanical difficulties, such as lost or stuck oil field drilling and service tools;
 
·  
Abnormally pressured formations; and
 
·  
Environmental hazards, such as gas leaks, oil spills, pipeline ruptures and discharges of toxic gases.
 
 
If we experience any of these problems, well bores, platforms, gathering systems and processing facilities could be affected, which could adversely affect our ability to conduct operations. We could also incur substantial losses due to costs and/or liability incurred as a result of:
 
·  
Injury or loss of life;
 
·  
Severe damage to and destruction of property, natural resources and equipment;
 
·  
Pollution and other environmental damage;
 
·  
Clean-up responsibilities;
 
·  
Regulatory investigations and penalties
 
·  
Suspension of our operations; and
 
·  
Repairs to resume operations.
 
Reserve estimates depend on many assumptions that may turn out to be inaccurate and any material inaccuracies in the reserve estimates or underlying assumptions of our properties will materially affect the quantities and present value of those reserves.
 
Estimating crude oil and natural gas reserves is complex and inherently imprecise. It requires interpretation of the available technical data and making many assumptions about future conditions, including price and other economic conditions. In preparing such estimates, projection of production rates, timing of development expenditures and available geological, geophysical, production and engineering data are analyzed. The extent, quality and reliability of this data can vary. This process also requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. If our interpretations or assumptions used in arriving at our reserve estimates prove to be inaccurate, the amount of oil and gas that will ultimately be recovered may differ materially from the estimated quantities and net present value of reserves owned by us. Any inaccuracies in these interpretations or assumptions could also materially affect the estimated quantities of reserves shown in the reserve reports summarized herein. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses, decommissioning liabilities and quantities of recoverable oil and gas reserves most likely will vary from estimates. In addition, we may adjust estimates of any proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
 
Unless we replace crude oil and natural gas reserves any future reserves and production will decline.
 
Our future crude oil and natural gas production will depend on our success in finding or acquiring additional reserves. If we are unable to replace any reserves through drilling or acquisitions, our level of production and cash flows will be adversely affected. In general, production from oil and gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Our total proved reserves decline as reserves are produced unless we conduct other successful exploration and development activities or acquire properties containing proved reserves, or both. Our ability to make the necessary capital investment to maintain or expand our asset base of crude oil and natural gas reserves would be impaired to the extent cash flow from operations is reduced and external sources of capital become limited or unavailable. We may not be successful in exploring for, developing or acquiring additional reserves. We also may not be successful in raising funds to acquire additional reserves.
 
The nature and age of our wells may result in fluctuations in our production resulting from mechanical failures and other factors.
 
The majority of our recently acquired wells has been in operation and has produced for many years. As a result of the age of those wells, they typically experience higher maintenance requirements than newer wells. As a result, some of our wells may periodically be shut-in to perform maintenance or to restore optimal production levels or as a result of maintenance by third parties that operate facilities that serve our wells. Due to the periodic need to shut-in wells, we experience routine fluctuations in production levels with production declining below normal operating capacity during periods of maintenance. Further, we sometimes experience delays in identifying and addressing production declines.
 
 
The possible lack of business diversification may adversely affect our results of operations.
 
Unlike other entities that are geographically diversified, we do not have the resources to effectively diversify our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating acquisitions only in the offshore Gulf of Mexico and Gulf Coast onshore our lack of diversification may:
 
·  
Subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we operate; and
 
·  
Result in our dependency upon a single or limited number of reserve basins.
 
In addition, the geographic concentration of our properties in the Gulf of Mexico and Gulf Coast onshore means that some or all of the properties could be affected should the region experience:
 
·  
Severe weather;
 
·  
Delays or decreases in production, the availability of equipment, facilities or services;
 
·  
Delays or decreases in the availability of capacity to transport, gather or process production; and/or
 
·  
Changes in the regulatory environment.
 
Because all or a number of the properties could experience many of the same conditions at the same time, these conditions could have a relatively greater impact on our results of operations than they might have on other producers who have properties over a wider geographic area.
 
Competition for oil and gas properties and prospects is intense and some of our competitors have larger financial, technical and personnel resources that could give them an advantage in evaluating and obtaining properties and prospects.
 
We operate in a highly competitive environment for reviewing prospects, acquiring properties, marketing oil and gas and securing trained personnel. Many of our competitors are major or independent oil and gas companies that possess and employ financial resources that allow them to obtain substantially greater technical and personnel resources than we. We actively compete with other companies when acquiring new leases or oil and gas properties. These additional resources can be particularly important in reviewing prospects and purchasing properties. Competitors may be able to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit. Competitors may also be able to pay more for productive oil and gas properties and exploratory prospects than we are able or willing to pay. If we are unable to compete successfully in these areas in the future, our future revenues and growth may be diminished or restricted.
 
Our offshore operations, when and should they commence, will involve special risks that could affect operations adversely.
 
Offshore operations are subject to a variety of operating risks specific to the marine environment, such as capsizing, collisions and damage or loss from hurricanes or other adverse weather conditions. These conditions can cause substantial damage to facilities and interrupt production. As a result, we could incur substantial liabilities that could reduce or eliminate the funds available for exploration, development or leasehold acquisitions, or result in loss of equipment and properties. In particular, we are not intending to put in place business interruption insurance due to its high cost. We therefore may not be able to rely on insurance coverage in the event of such natural phenomena.
 
 
Market conditions or transportation impediments may hinder access to oil and gas markets or delay production.
 
Market conditions, the unavailability of satisfactory oil and natural gas transportation or the remote location of our drilling operations may hinder our access to oil and natural gas markets or delay production. The availability of a ready market for oil and gas production depends on a number of factors, including the demand for and supply of oil and gas and the proximity of reserves to pipelines or trucking and terminal facilities. We may be required to shut in wells or delay initial production for lack of a market or because of inadequacy or unavailability of pipeline or gathering system capacity. When that occurs, we will be unable to realize revenue from those wells until the production can be tied to a gathering system. This can result in considerable delays from the initial discovery of a reservoir to the actual production of the oil and gas and realization of revenues. In some cases, our wells may be tied back to platforms owned by parties with no economic interests in these wells. There can be no assurance that owners of such platforms will continue to operate the platforms. If the owners cease to operate the platforms or their processing equipment, we may be required to shut in the associated wells, which could adversely affect our results of operations.
 
We are not the operator on all of our properties and therefore are not in a position to control the timing of development efforts, the associated costs, or the rate of production of the reserves on such properties.
 
As we carry out our planned drilling program, we will not serve as operator of all planned wells. While we do serve as operator on substantially all of our recently acquired properties and planned development prospects, we can provide no assurance that will always be the case in the future. As a result, we may have limited ability to exercise influence over the operations of some non-operated properties or their associated costs. Dependence on the operator and other working interest owners for these projects, and limited ability to influence operations and associated costs could prevent the realization of targeted returns on capital in drilling or acquisition activities.
 
The success and timing of development and exploitation activities on properties operated by others depend upon a number of factors that will be largely outside of our control, including:
 
·  
The timing and amount of capital expenditures;
 
·  
The availability of suitable offshore drilling rigs, drilling equipment, support vessels, production and transportation infrastructure and qualified operating personnel;
 
·  
The operator’s expertise and financial resources;
 
·  
Approval of other participants in drilling wells;
 
·  
Selection of technology; and
 
·  
The rate of production of the reserves.
 
Our insurance may not protect us against business and operating risks.
 
We maintain insurance for some, but not all, of the potential risks and liabilities associated with our business. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. Due to market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance policies are economically unavailable or available only for reduced amounts of coverage. Although we will maintain insurance at levels we believe are appropriate and consistent with industry practice, we will not be fully insured against all risks, including high-cost business interruption insurance and drilling and completion risks that are generally not recoverable from third parties or insurance. In addition, pollution and environmental risks generally are not fully insurable. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our financial condition and results of operations. Due to a number of catastrophic events such as the terrorist attacks on September 11, 2001 and Hurricanes Ivan, Katrina, Rita, Gustav and Ike, insurance underwriters increased insurance premiums for many of the coverages historically maintained and issued general notices of cancellation and significant changes for a wide variety of insurance coverages. The oil and natural gas industry suffered extensive damage from Hurricanes Ivan, Katrina, Rita, Gustav and Ike.
 
 
As a result, insurance costs have increased significantly from the costs that similarly situated participants in this industry have historically incurred. Insurers are requiring higher retention levels and limit the amount of insurance proceeds that are available after a major wind storm in the event that damages are incurred. If storm activity in the future is as severe as it was in 2005 or 2008, insurance underwriters may no longer insure Gulf of Mexico assets against weather-related damage. We do not intend to put in place business interruption insurance due to its high cost. This insurance may not be economically available in the future, which could adversely impact business prospects in the Gulf of Mexico and adversely impact our operations. If an accident or other event resulting in damage to our operations, including severe weather, terrorist acts, war, civil disturbances, pollution or environmental damage, occurs and is not fully covered by insurance or a recoverable indemnity from a customer, it could adversely affect our financial condition and results of operations. Moreover, we may not be able to maintain adequate insurance in the future at rates we consider reasonable or be able to obtain insurance against certain risks.
 
Our operations will be subject to environmental and other government laws and regulations that are costly and could potentially subject us to substantial liabilities.
 
Oil and gas exploration and production operations in the United States and the Gulf of Mexico are subject to extensive federal, state and local laws and regulations. Companies operating in the Gulf of Mexico are subject to laws and regulations addressing, among others, land use and lease permit restrictions, bonding and other financial assurance related to drilling and production activities, spacing of wells, unitization and pooling of properties, environmental and safety matters, plugging and abandonment of wells and associated infrastructure after production has ceased, operational reporting and taxation. Failure to comply with such laws and regulations can subject us to governmental sanctions, such as fines and penalties, as well as potential liability for personal injuries and property and natural resources damages. We may be required to make significant expenditures to comply with the requirements of these laws and regulations, and future laws or regulations, or any adverse change in the interpretation of existing laws and regulations, could increase such compliance costs. Regulatory requirements and restrictions could also delay or curtail our operations and could have a significant impact on our financial condition or results of operations.
 
Our oil and gas operations are subject to stringent laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection. These laws and regulations:
 
·  
Require the acquisition of a permit before drilling commences;
 
·  
Restrict the types, quantities and concentration of substances that can be released into the environment in connection with drilling and production activities;
 
·  
Limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and
 
·  
Impose substantial liabilities for pollution resulting from operations.
 
Failure to comply with these laws and regulations may result in:
 
·  
The imposition of administrative, civil and/or criminal penalties;
 
·  
Incurring investigatory or remedial obligations; and
 
·  
The imposition of injunctive relief, which could limit or restrict our operations.
 
Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on our industry in general and on our own results of operations, competitive position or financial condition. Although we intend to be in compliance in all material respects with all applicable environmental laws and regulations, we cannot assure you that we will be able to comply with existing or new regulations. In addition, the risk of accidental spills, leakages or other circumstances could expose us to extensive liability.
 
 
We are unable to predict the effect of additional environmental laws and regulations that may be adopted in the future, including whether any such laws or regulations would materially adversely increase our cost of doing business or affect operations in any area.
 
Under certain environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or contamination, or if current or prior operations were conducted consistent with accepted standards of practice. Such liabilities can be significant, and if imposed could have a material adverse effect on our financial condition or results of operations.
 
Climate change legislation, regulation and litigation could materially adversely affect us.
 
 There is an increased focus by local, state and national regulatory bodies on greenhouse gas (“GHG”) emissions and climate change. GHGs are certain gases, including carbon dioxide and methane that may be contributing to warming of the Earth’s atmosphere and other climatic changes.  Various regulatory bodies have announced their intent to regulate GHG emissions, including the United States Environmental Protection Agency, which promulgated several GHG regulations in 2010 and late 2009. As these regulations are under development or are being challenged in the courts, we are unable to predict the total impact of these potential regulations upon our business, and it is possible that we could face increases in operating costs in order to comply with GHG emission legislation.
 
 Passage of legislation or regulations that regulate or restrict emissions of GHG, or GHG-related litigation instituted against us, could result in direct costs to us and could also result in changes to the consumption and demand for natural gas and carbon dioxide produced from our oil and natural gas properties, any of which could have a material adverse effect on our business, financial position, results of operations and prospects.
 
The adoption of derivatives legislation by Congress could have an adverse impact on our ability to hedge risks associated with our business.
 
In conjunction with the closing of the Credit Agreement, we entered into hedges on the acquired producing properties and we believe we will continue to enter into hedges in the future, and may be required to do so in the future. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act regulates derivative transactions, which include certain instruments used in some risk management activities we may consider using in the future.
 
The Dodd-Frank Act requires the Commodity Futures Trading Commission (the “CFTC”) and the SEC to promulgate rules and regulations relating to, among other things, swaps, participants in the derivatives markets, clearing of swaps and reporting of swap transactions. In general, the Dodd-Frank Act subjects swap transactions and participants to greater regulation and supervision by the CFTC and the SEC and will require many swaps to be cleared through a CFTC- or SEC-registered clearing facility and executed on a designated exchange or swap execution facility.
 
Among the other provisions of the Dodd-Frank Act that may affect derivative transactions are those relating to establishment of capital and margin requirements for certain derivative participants; establishment of business conduct standards, recordkeeping and reporting requirements; and imposition of position limits.
 
The new legislation and regulations promulgated thereunder could increase the operational and transactional cost of derivatives contracts and affect the number and/or creditworthiness of counterparties available to us.
 
Unanticipated decommissioning costs could materially adversely affect our future financial position and results of operations.
 
We may become responsible for unanticipated costs associated with abandoning and reclaiming wells, facilities and pipelines. Abandonment and reclamation of facilities and the costs associated therewith is often referred to as “decommissioning.” We do not currently anticipate decommissioning any facilities within the next year.  Should decommissioning be required that is not presently anticipated or the decommissioning be accelerated, such as can happen after a hurricane, such costs may exceed the value of reserves remaining at any particular time. We may have to draw on funds from other sources to satisfy such costs. The use of other funds to satisfy such decommissioning costs could have a material adverse effect on our financial position and results of operations.
 

If we are unable to acquire or renew permits and approvals required for operations, we may be forced to suspend or cease operations altogether.
 
 The construction and operation of energy projects require numerous permits and approvals from governmental agencies. We may not be able to obtain all necessary permits and approvals, and as a result our operations may be adversely affected. In addition, obtaining all necessary permits and approvals may necessitate substantial expenditures and may create a risk of expensive delays or loss of value if a project is unable to function as planned due to changing requirements or local opposition.
 
Risks Related to Our Acquisition Strategy
 
Our acquisitions may be stretching our existing resources.
 
We recently acquired our principal properties in October of 2013 and may make acquisitions in the future. Future transactions may prove to stretch our internal resources and infrastructure. As a result, we may need to invest in additional resources, which will increase our costs. Any further acquisitions we make over the short term would likely intensify these risks.
 
We may be unable to successfully integrate the operations of the properties we acquire.
 
Integration of the operations of the properties we acquire with our existing business is a complex, time-consuming and costly process. Failure to successfully integrate the acquired businesses and operations in a timely manner may have a material adverse effect on our business, financial condition, results of operations and cash flows. The difficulties of combining the acquired operations include, among other things:
 
·  
operating a larger organization;
 
·  
coordinating geographically disparate organizations, systems and facilities;
 
·  
integrating corporate, technological and administrative functions;
 
·  
diverting management’s attention from other business concerns;
 
·  
diverting financial resources away from existing operations;
 
·  
an increase in our indebtedness; and
 
·  
potential environmental or regulatory liabilities and title problems.
 
The process of integrating our operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our business. If our senior management is not able to effectively manage the integration process, or if any business activities are interrupted as a result of the integration process, our business could suffer.
 
In addition, we face the risk of identifying, competing for and pursuing other acquisitions, which takes time and expense and diverts management’s attention from other activities.
 
The properties we acquire may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with the acquired properties or obtain protection from sellers against such liabilities.
 
The properties we acquire may not produce as expected, may be in an unexpected condition and we may be subject to increased costs and liabilities, including environmental liabilities. Although we review properties prior to acquisition in a manner consistent with industry practices, such reviews are not capable of identifying all potential conditions. Generally, it is not feasible to review in depth every individual property involved in each acquisition. We focus our review efforts on the higher-value properties or properties with known adverse conditions and will sample the remainder. However, even a detailed review of records and properties may not necessarily reveal existing or potential problems or permit a buyer to become sufficiently familiar with the properties to fully assess their condition, any deficiencies, and development potential. Inspections may not be performed on every well, and environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken.
 
 
Risks Related to our Common Stock
 
We depend on key personnel, the loss of any of whom could materially adversely affect future operations.
 
 Our success will depend to a large extent upon the efforts and abilities of our executive officer and chairman of the board, John Jurasin. The loss of the services of this key employee could have a material adverse effect on us. Our business will also be dependent upon our ability to attract and retain qualified personnel. Acquiring and keeping these personnel could prove more difficult or cost substantially more than estimated. Furthermore, we have and may continue to issue equity incentives, including stock options, to attract key personnel which may be dilutive to our stockholders and negatively affect our stock price. This could cause us to incur greater costs, or prevent us from pursuing our exploitation strategy as quickly as we would otherwise wish to do. To mitigate this risk, the Company has entered into an employment agreement with Mr. Jurasin, and will periodically monitor and adjust such contracts as necessary.
 
Future sales of our common stock in the public market could lower our stock price.
 
We will likely sell additional shares of common stock to raise capital. We may also issue additional shares of common stock to finance future acquisitions, services rendered or equity raises. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.  Moreover, any such sales may be dilutive to our existing stockholders.
 
There is no assurance of continued public trading market and being a low priced security may affect the market value of stock.
 
To date, there has been only a limited public market for our common stock. Our common stock is currently quoted on the Pink OTC Market, Inc. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of our stock. Our stock is subject to the low-priced security or so called “penny stock” rules of the SEC that impose additional sales practice requirements on broker/dealers who sell such securities. Some of such requirements are discussed below.
 
A broker/dealer selling “penny stocks” must, at least two business (2) days prior to effecting a customer’s first transaction in a “penny stock,” provide the customer with a document containing information mandated by the SEC regarding the risks of investing in our stock, and the broker/dealer must receive a signed and dated written acknowledgement of the customer’s receipt of that document prior to effecting a customer’s first transaction in a “penny stock.”
 
Subject to limited exceptions, a broker/dealer must obtain information from a customer concerning the customer’s financial situation, investment experience and investment objectives and, based on the information and any other information known by the broker/dealer, the broker/dealer must reasonably determine that transactions in “penny stocks” are suitable for the customer, that the customer has sufficient knowledge and experience in financial matters, and that the customer reasonably may be expected to be capable of evaluating the risks of transactions in “penny stocks.” A broker/dealer must, at least two business (2) days prior to effecting a customer’s first purchase of a “penny stock” send a statement of this determination, together with other disclosures required by the SEC, to the customer, and the broker/dealer must receive a signed and dated copy of the statement prior to effecting the customer’s first purchase of a “penny stock”.
 
 
A broker/dealer must also, orally or in writing, disclose prior to effecting a customer’s transaction in a “penny stock” (and thereafter confirm in writing):
 
·  
the bid and offer price quotes in and for the “penny stock,” and the number of shares to which the quoted prices apply;
 
·  
the brokerage firm’s compensation for the trade; and
 
·  
the compensation received by the brokerage firm’s sales person for the trade.
 
In addition, subject to limited exceptions, a brokerage firm must send to its customers trading in “penny stocks” a monthly account statement that gives an estimate of the value of each “penny stock” in the customer’s account. Accordingly, the Commission’s rules may limit the number of potential purchasers of the shares of our common stock.
 
Resale restrictions on transferring “penny stocks” are sometimes imposed by some states, which may make transaction in our stock more difficult and may reduce the value of the investment. Various state securities laws pose restrictions on transferring “penny stocks” and as a result, investors in our common stock may have the ability to sell their shares of our common stock impaired.
 
 There can be no assurance we will have market makers in our stock. If the number of market makers in our stock should decline, the liquidity of our common stock could be impaired, not only in the number of shares of common stock which could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for the common stock than might otherwise prevail. Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market.
 
We have never paid dividends on our common stock.
 
We have never paid dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. We anticipate that for the foreseeable future any funds available for payment of dividends will be re-invested into the Company to further its business strategy.
 
Because the public market for shares of our common stock is limited, investors may be unable to resell their shares.
 
Currently, there is only a limited public trading market for our common stock on the “pink sheets” and investors may be unable to resell their shares of our common stock. The development of an active public trading market depends upon the existence of willing buyers and sellers who are able to sell their shares as well as market makers willing to create a market in such shares.  Under these circumstances, the market bid and ask prices for the shares may be significantly influenced by the decisions of the market makers to buy or sell the shares for their own account.  Such decisions of the market makers may be critical for the establishment and maintenance of a liquid public market in our common stock.  Market makers are not required to maintain a continuous two-sided market and are free to withdraw firm quotations at any time.  We cannot give you any assurance that an active public trading market for the shares will develop or be sustained.
 
The price of our common stock is volatile, which may cause investment losses for our stockholders.
 
The market for our common stock is highly volatile, having ranged in the last twelve months from a low of $0.10 to a high of $9.49 on the “pink sheets.”  The trading price of our common stock on the “pink sheets” is subject to wide fluctuations in response to, among other things, the limited number of shares traded, and general economic and market conditions.  In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to our market or relating to us could result in an immediate and adverse effect on the market price of our common stock.  The highly volatile nature of our stock price may cause investment losses for our stockholders.  In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities.  If securities class action litigation is brought against us, such litigation could result in substantial costs while diverting management’s attention and resources.
 
 
Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the price of our common stock.
 
At this time, no securities analyst provides research coverage of our common stock.  Further, securities analysts may never provide this coverage in the future.  Rules mandated by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and other restrictions led to a number of fundamental changes in how analysts are reviewed and compensated.  In particular, many investment banking firms are required to contract with independent financial analysts for their stock research.  It may remain difficult for a company with a smaller market capitalization such as ours to attract independent financial analysts that will cover our common stock.  If securities analysts do not cover our common stock, the lack of research coverage may adversely affect our actual and potential market price and trading volume.
 
If one or more analysts elect to cover us and then downgrade our common stock, the stock price would likely decline rapidly.  If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline.  This could have a negative effect on the market price of our shares.
 
Directors, executive officers and principal stockholders own a significant percentage of our capital stock, and they may make decisions that you do not consider to be in the best interests of our stockholders.
 
As of January 16, 2014, our directors, executive officers and principal stockholders beneficially owned, in the aggregate, approximately 39% of our outstanding voting securities.  As a result, if some or all of them acted together, they would have the ability to exert substantial influence over the election of our Board of Directors and the outcome of issues requiring approval by our stockholders.  This concentration of ownership also may have the effect of delaying or preventing a change in control of the Company that may be favored by other stockholders.  This could prevent transactions in which stockholders might otherwise recover a premium for their shares over current market prices.
 
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results.
 
If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common shares.
 
 Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, we are required to prepare assessments regarding internal controls over financial reporting.  In connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB.  A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.  We determined that our disclosure controls and procedures over financial reporting are not effective and were not effective as of December 31, 2012 and 2011.
 
The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.  We cannot assure you that we will implement and maintain adequate controls over our financial process and reporting in the future or that the measures we will take will remediate any material weaknesses that we may identify in the future.
 
 
Our failure to timely file certain periodic reports with the SEC poses significant risks to our business, each of which could materially and adversely affect our financial condition and results of operations.
 
We failed to file our Annual Reports on Form 10-K for the fiscal years ended December  31, 2012 and 2011 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2011, June 30, 2011, September 30, 2011, March 31, 2012, June 30, 2012 and September 30, 2012. Consequently, we were not compliant with the periodic reporting requirements under the Exchange Act.  Our failure to timely file those and possibly future periodic reports with the SEC could subject us to enforcement action by the SEC and shareholder lawsuits. Any of these events could materially and adversely affect our financial condition and results of operations and our ability to register with the SEC public offerings of our securities for our benefit or the benefit of our security holders.  Additionally, our failure to file our past periodic reports and future periodic reports has resulted in and could result in investors not receiving adequate information regarding the Company with which to make investment decisions.
 
We do not expect to be able to access the public U.S. capital markets until all of its periodic reporting with the SEC is up to date.
 
We will be unable to register our common stock with the SEC to access the U.S. public securities markets until we have filed its prior periodic reports and financial statements with the SEC. This precludes us from raising debt or equity financing in registered transactions in the U.S. public capital markets to support growth in its business plan.
 
 Our common stock is quoted on the OTC “pink sheets” market which does not provide investors with a meaningful degree of liquidity.
 
Bid quotations for our common stock are available on the OTC “pink sheets,” an electronic quotation service for securities traded over-the-counter. Bid quotations on the pink sheets can be sporadic and the pink sheets do not provide any meaningful liquidity to investors. An investor may find it difficult to dispose of shares or obtain accurate quotations as to the market value of the common stock. There can be no assurance that our common stock will be listed on a national exchange such as The NASDAQ Stock Market, the New York Stock Exchange or another securities exchange once we become current in our filing obligations with the SEC.
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.
 
ITEM 2.  PROPERTIES

Vidalia
 
In October of 2013, Radiant acquired the Vidalia properties, which include numerous leases in Catahoula, Concordia, La Salle and St. Mary’s parishes in Louisiana and Adams, Franklin and Wilkinson counties in Mississippi.  We have an average working interest in these properties of 97.2% and an average net revenue interest of 72.4%.
 
The acquired leases represent 105,000 gross acres (2,800 net) and over 80 wells.  Productive zones range from 3,000’ to 8,600’. The capital plan for Vidalia includes equal spending on work-over activity and drilling of PUD locations. When acquired, Vidalia had 24 productive wells and numerous shut in locations.  To date, we have spent $1.4 million working-over 18 wells, creating a total of 36 productive wells and a greater than 25% increase in production.  Work continues on an additional seven wells, with spending budgeted to continue through 2014.
 
 
Ensminger Project
 
The Company had a minority interest in a well (Ensminger #1) drilled on this prospect. The lease was abandoned in 2011 and agreements with participants in this prospect area expired in mid-2012. Between 2005 to 2007, the Ensminger #1 well produced from the lower Planulina 69 Sand at a maximum productive rate of 10.4 MMCF/D and 205 BO/D, with what we estimate to be cumulative production of over 3.25 BCF and 49 MBO (from only 6 feet of pay; the thinnest of the three pay sands. The operator shut in production while the well was still producing at a rate of 2 MMCF/D and 11 BO/D with no formation water. The plan was to abandon the 69 Sand and re-complete in the 68 Sand with an expected production rate of 18 MMCF/D. During the recompletion, the operator lost tools in the hole, and subsequent failed fishing operations resulted in damage to the casing; making further use of the well bore unfeasible.
 
During fourth quarter 2013, the Company has acquired a lease for materially the same area. The Ensminger Project covers 634 acres, of which we own a 100.0% working interest and have a net revenue interest of 75.0%. We intend to act as the operator of this project to drill and complete a well.
 
We have developed a plan to side-track out of an existing well thereby saving on drilling costs. The Ensminger Project is located onshore in sugar cane fields in St. Mary Parish, Louisiana. The original Ensminger well (“Ensminger #1”), which we intend to side-track, was originally funded by management and was drilled in 2004 in partnership with Exxon Mobil Corp. and Century Exploration New Orleans, Inc. and it discovered a depletion-drive field from the Planulina Pay Sands at approximately 15,000’ Total Vertical Depth.
 
The estimated net cost to drill and complete the proposed sidetrack is $4.0 million.
 
Coral Project
 
All four leases comprising this prospect expired in 2011.
 
During fourth quarter 2013, The Company was a high bidder on two leases in this area covering approximately 1,405 acres. We have a 100% working interest and a 76.0% net revenue interest in the Coral Project. We intend to act as the operator of this project to re-enter and complete a well. Coral consists of 1,405 gross acres in shallow Louisiana state coastal waters of St. Mary Parish.
 
The Coral Project is a multiple well prospect in an old Shell Oil Company field, which has produced 509 BCF and 65 MMBO. The prospect includes drilling in a new fault block extension of the Eugene Island Block 18 field. The primary objectives are the geopressured Tex. W. sands which have produced 103 BCF and 2.8 MMBC in the field proper. Three Tex W sands, ranging in depths from 12,300′ to 12,800′ are the specific prospect targets. The initial proposed well will be a re-entry from the inactive COCKRELL #1 SL 14354 borehole. The estimated net cost to drill and complete the proposed sidetrack is $3.4 million.
 
The secondary objective in the Coral Project is the Cib. Op (Middle Miocene) sands in a deeper pool reservoir in a gas productive fault block at an estimated depth of 15,500’. The prospect is covered with 3-D seismic. We do not expect to drill to the Cib Op in 2014 unless we are able to sell a portion of our interest and significantly reduce or eliminate our capital requirement.
 
Acreage Data
 
As of December 31, 2012 we controlled approximately 3,245 of undeveloped acreage in St. Mary Parish, Louisiana.
 
General
 
Our principal place of business is at 9700 Richmond Avenue, Suite 124, Houston, Texas 77042. The Company leases its office space on a month-to-month basis.
 
 
ITEM 3.  LEGAL PROCEEDINGS

Other than routine litigation arising in the ordinary course of business that we do not expect, individually or in the aggregate, to have a material adverse effect on us, there is no currently pending material legal proceeding and, as far as we are aware, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters that may arise from time to time may harm our business.
 
ITEM 4.  RESERVED
 
 
 
 

PART II

ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is quoted on the Pink OTC Market, Inc. under the symbol “ROGI.”  The market for our common stock on the Pink OTC Market, Inc. is limited, sporadic and highly volatile.  The following table sets forth the approximate high and low bid quotations per share of our common stock on the Pink OTC Market for the periods indicated.  The closing price of our common stock on December 31, 2012 was $1.15.  The quotations reflect inter-dealer prices, without retail markups, markdowns, or commissions and may not represent actual transactions.
 
Period
 
High
   
Low
 
             
Fiscal Year Ended December 31, 2011
           
  Quarter ended March 31
  $ 9.49     $ 1.01  
  Quarter ended June 30
  $ 2.25     $ 1.75  
  Quarter ended September 30
  $ 2.40     $ 0.60  
  Quarter ended December 31
  $ 1.75     $ 0.30  
                 
Fiscal Year Ended December 31, 2012
               
  Quarter ended March 31
  $ 1.75     $ 1.50  
  Quarter ended June 30
  $ 1.50     $ 0.26  
  Quarter ended September 30
  $ 0.26     $ 0.10  
  Quarter ended December 31
  $ 1.15     $ 0.10  

Holders of Record
 
We had 958 stockholders of record of our common stock as of January 16, 2014 not including an indeterminate number who may hold shares in “street name.”
 
Dividend Policy
 
We have never paid dividends on our common stock.  We currently intend to retain all earnings to fund our operations. Therefore we do not intend to pay any cash dividends on the common stock in the foreseeable future.  
 
Securities Authorized For Issuance under Equity Compensation Plans
 
 In connection with the Reorganization, we have adopted the 2010 Stock Option Plan, for which we have reserved 3,000,000 shares of common stock for issuance thereunder. As of January 16, 2014, there were 1,235,237 stock options issued and outstanding.
 
Recent Sale of Unregistered Securities
 
Other than described below, all securities sold by us during the fiscal years ended December 31, 2011 and 2012 that were not registered under the Securities Act were previously disclosed in our quarterly reports on Form 10-Q or our current reports on Form 8-K.
 
Effective October 4, 2013, the Company, On October 4, 2013, through our wholly-owned subsidiary Radiant Acquisitions 1, LLC (“Radiant Acquisitions”), entered into a First Lien Credit Agreement (the “Credit Agreement”) with various financial institutions (the “Lenders”).  The maximum aggregate commitment of the Lenders to advance loans under this Agreement was $39,788,000, and the maximum aggregate principal amount to be repaid by the Borrower in respect thereof is $40,600,000 and for any given loan, the amount of funds advanced by any Lender shall be ninety-eight percent (98%) of the amount of principal required to be repaid by the Borrower in respect of such Loan.  The proceeds from the Credit Agreement were used to fund the closing of our recent acquisition of oil and gas properties located in  Louisiana and Mississippi, as well as to develop multiple re­ entry,  work-over  and  drilling  opportunities   on  acquired   acreage  throughout  south Louisiana and Mississippi.
 
 
In August 2013, we entered into a Bridge Loan Agreement with various individuals whereby we borrowed $600,000, and also issued to the note holder warrants to purchase 1,500,000 shares of our common stock at a purchase price of $0.01 per share.
 
In February 2013, the Company received $100,000 from a third party investor for the sale of 86,956 shares of common stock at a price of $1.15 per share and warrants to purchase additional 86,956 shares of common stock at a price of $1.16. Warrants expire on February 21, 2016.
 
In January & February 2013, the Company received $90,000 from Black Gold in accordance with the Shallow Oil agreement, in which $45,000 was for the sale of common stock (see Note 2 - Oil & Gas Properties). In accordance with provisions of Shallow Oil agreement, the Company issued 90,000 shares of its stock to Black Gold at a price of $0.50 per share.
 
In June, 2012, the Company entered into another phase of Shallow Oil Project Agreement whereby the Company issued 250,000 shares of its common stock for cash at $.50 per share.
 
In March 2012, the Company received proceeds from the sale of 158,000 shares of common stock for cash for a total consideration of $79,000.  150,000 of these shares relates to a Shallow Oil Project Agreement entered into by the Company in March 2012. The corresponding shares of common stock were issued in August 2012.
 
In November 2011, the Company received proceeds from the sale of 88,000 shares of common stock for cash for a total consideration of $33,000.  The corresponding shares were issued in August 2012.
 
During September 2011, in accordance with a Director’s Agreement, the Company issued 50,000 shares of common stock to a director in compensation for services. The Company determined the fair value of the stock issued be $1.00 per share based on the common stock fair value on the date of issuance.
 
During July 2011, the Company issued 13,000 shares of its common stock in settlement of a vendor liability. The Company determined the fair value of the stock issued be $1.00 per share based on the common stock fair value on the date of issuance.

In February 2011, the Company issued 475,000 shares to Fermo Jaeckle in connection with the 10% Note amounting to $237,500.

We issued all of these securities to persons who were either “accredited investors,” or “sophisticated investors” who, by reason of education, business acumen, experience or other factors, were fully capable of evaluating the risks and merits of an investment in our company; and each had prior access to all material information about us. We believe that the offer and sale of these securities were exempt from the registration requirements of the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and Rule 506 of Regulation D of the Securities and Exchange Commission and from various similar state exemptions. No sales commissions were paid in connection with such issuances.
 
ITEM 6.  SELECTED FINANCIAL DATA

Not Required.
 
 
ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this report.
 
Overview
 
We are an independent oil and gas exploration and production company that operates in the Gulf Coast region of the United States of America, specifically, onshore and the state waters of Louisiana, USA and the federal waters offshore Texas in the Gulf of Mexico.  We currently have oil and gas lease interests throughout Louisiana and Mississippi.
 
Liquidity and Capital Resources
 
At December 31, 2012, we have current assets of $643,636, current liabilities of $7,280,714, and a working capital deficit of $6,637,078.   In early 2013, we initiated efforts to become current in our public company compliance reporting requirements which we believe will permit us to raise capital and effect acquisitions through equity and/or convertible debt transactions at more favorable terms than we might otherwise achieve.  
 
We may seek to raise additional funds through public or private sale of our equity or debt securities, borrowing funds from private or institutional lenders, the sale of our interests in certain oil and gas properties, or farm out of oil and gas interests.  If we raise additional funds through the issuance of debt securities, these securities would have rights that are senior to holders of our common stock and could contain covenants that restrict our operations. Any additional equity financing would likely be substantially dilutive to our stockholders, particularly given the prices at which our common stock has been recently trading. In addition, if we raise additional funds through the sale of equity securities, new investors could have rights superior to our existing stockholders. This could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity.
 
If we raise funds through a farm-out or sale of any of our rights, we may be required to relinquish, on terms that are not favorable to us, our interests in those projects.  Our need to raise capital soon may require us to accept terms that may harm our business or be disadvantageous to our current stockholders, particularly in light of the current illiquidity. There can be no assurance that we will be successful in obtaining additional funding, or selling or farming-out assets, in sufficient amounts or on terms acceptable to us, if at all.
 
If we are unable to raise sufficient additional funds when needed, we would be required to further reduce operating expenses by, among other things, curtailing significantly or delaying or eliminating part or all of our operations and properties.
 
Our ability to obtain additional financing is dependent on the state of the debt and/or equity markets, and such markets’ reception of us and our offering terms. In addition, our ability to obtain financing may be dependent on the status of our oil and gas exploration activities, which cannot be predicted. There is no assurance that capital in any form will be available to us, and if available, that it will be on terms and conditions that are acceptable.
 
 
Recent Developments
 
In January & February 2013, the Company received $90,000 from Black Gold in accordance with the Shallow Oil agreement, in which $45,000 was for the sale of common stock (see Note 2 - Oil & Gas Properties). In accordance with provisions of Shallow Oil agreement, the Company issued 90,000 shares of its stock to Black Gold at a price of $0.50 per share.
 
In February 2013, the Company received $100,000 from a third party investor for the sale of 86,956 shares of common stock at a price of $1.15 per share and warrants to purchase additional 86,956 shares of common stock at a price of $1.16. Warrants expire on February 21, 2016.
 
In August 2013, we entered into a Bridge Loan Agreement with various individuals whereby we borrowed $600,000, and also issued to the note holder warrants to purchase 1,500,000 shares of our common stock at a purchase price of $0.01 per share.
 
On October 4, 2013, we, through our wholly-owned subsidiary Radiant Acquisitions 1, LLC (“Radiant Acquisitions”), entered into a First Lien Credit Agreement (the “Credit Agreement”) with various financial institutions (the “Lenders”).  The maximum aggregate commitment of the Lenders to advance loans under this Agreement was $39,788,000, and the maximum aggregate principal amount to be repaid by the Borrower in respect thereof is $40,600,000 and for any given loan, the amount of funds advanced by any Lender shall be ninety-eight percent (98%) of the amount of principal required to be repaid by the Borrower in respect of such Loan.  The proceeds from the Credit Agreement were used to fund the closing of our recent acquisition of oil and gas properties located in  Louisiana and Mississippi, as well as to develop multiple re­ entry,  work-over  and  drilling  opportunities   on  acquired   acreage  throughout  south Louisiana and Mississippi.
 
Concurrent with the closing of the Credit Agreement, a total of $27,050,428 was disbursed.
 
On October 9, 2013, we completed the purchase of oil and gas properties located in Louisiana and Mississippi for cash and common shares. The  acquired  properties  contain  over  eighty (80)  wells  in  Louisiana  and  Mississippi.  The Louisiana properties include over 39 wells and numerous leases located in Catahoula, Concordia, La Salle and St. Mary's Parishes. The Mississippi properties include over 41 wells and numerous leases located in Adams, Amite, Franklin, and Wilkinson Counties. The properties include up to 24 productive wells and up to 36 shut-in wells that have been evaluated for work-over and behind pipe opportunities which is expected to provide for cost-effective near-term production increases.
 
Effective October 9, 2013, Radiant Oil & Gas, Inc. entered into employment contracts with three individuals, a geophysicist, a petroleum engineer and a financial analyst to help in the operation of the oil and gas properties acquired.  The employment contracts provide for incentive payments based on financial performance of the Company and, in addition, for two of the employees include stock option agreements, considered together, provide for the purchase of up to a total of 4.5% of the fully diluted shares outstanding at the time of the closing of the financing at an option price of $1.16 per share.  As to each, the option shares vest at the rate of one third of the total amount per year beginning on the first anniversary of their employment.  The shares are exercisable at any time from the vesting date for a period of five years from the commencement of their employment.
 
Patriot Agreement
 
On December 28, 2013, the Company entered into an agreement (the “Patriot Agreement”) with Patriot Bridge & Opportunity Fund, L.P. (f/k/a John Thomas Bridge & Opportunity Fund, L.P.) and Patriot Bridge & Opportunity Fund II, L.P., together referred to as the “Funds,” Patriot 28, LLC, the Managing Member of the Funds, and George Jarkesy, individually and as Managing Member of Patriot 28. The Patriot 28 Agreement restructured the outstanding $150,000 due to the Funds in the form of general liability promissory note. The maturity date of the Note shall be the earlier of an equity infusion of not less than ten million ($10,000,000) dollars or December 1, 2014. Interests shall be paid monthly at the rate of six percent (6%) per annum.
 
To the extent any payments are not made timely in accordance with the repayment schedule described in the Patriot 28 Agreement, the Company shall issue 500 shares of Company stock to Fund I and 500 shares of Company stock to Fund II for each default occurrence. This provision does not apply if the Company cures its default within ten (10) days following receipt of written notice that a payment has not been timely made.
 
The Company, upon execution and delivery of the Patriot Agreement, shall pay to the Funds the sum of Fifteen Thousand ($15,000.00) dollars in reimbursement for all legal fees and expenses of the Funds related to the Loan and the January 1, 2014 payment for fourteen thousand one hundred fourteen dollars and eighty-nine one hundredths ($14,114.89) dollars.
 
 
As part of the Patriot Agreement, due to a variety of factors, including the wind down of the Funds, the outstanding obligations under the Loan from the Company to the Funds and other considerations, Mr. Jarkesy has resigned from the Board of Directors of the Company on December 30, 2013.
 
CondensedConsolidated Quarterly Financial Statements

These condensed consolidated quarterly financial statements represent financial position and results of operations as of the end of each quarter of the years ended December 31, 2012 and December 31, 2011. This quarterly financial information has been reviewed by our independent auditors and contains the level of detail consistent with Rule 10-01(a) and (b) of Regulation S-X.
 
Consolidated Balance Sheets – Year ended December 31, 2012
 
   
March 31, 2012
   
June 30, 2012
   
Sept 30, 2012
   
Dec 31, 2012
 
ASSETS
                       
CURRENT ASSETS
                       
Cash and cash equivalents
  $ 18,889     $ 478,969     $ 62,925     $ 162,330  
Other current assets
    2,914       714       4,360       115,029  
Due from related parties
    333,511       323,663       356,412       366,277  
TOTAL CURRENT ASSETS
    355,314       803,346       423,697       643,636  
PROPERTY AND EQUIPMENT
                               
Property and equipment, net of accumulated depreciation
    6,965       5,072       6,068       3,278  
                                 
TOTAL PROPERTY AND EQUIPMENT
    6,965       5,072       6,068       3,278  
TOTAL ASSETS
  $ 362,279     $ 808,418     $ 429,765     $ 646,914  
LIABILITIES & STOCKHOLDERS' DEFICIT
                               
CURRENT LIABILITIES
                               
Accounts payable and accrued expenses
  $ 1,066,140     $ 1,096,080     $ 1,146,286     $ 1,353,160  
Cash advance on acquisition option
    50,000       50,000       50,000       55,565  
Notes payable
    3,499,806       3,494,808       3,499,822       3,497,081  
   Convertible notes payable
    142,500       142,500       142,500       142,500  
Accrued interest
    629,548       684,272       786,054       862,092  
Due to related parties
    1,028,755       1,112,953       736,891       914,968  
Derivative liabilities
    328,019       362,950       399,031       455,348  
TOTAL CURRENT LIABILITIES
    6,744,768       6,943,563       6,760,584       7,280,714  
Deferred gain
    75,000       332,202       587,354       887,076  
Asset retirement obligations
    -       -       -       100,000  
TOTAL LIABILITIES
    6,819,768       7,275,765       7,347,938       8,267,790  
                                 
Commitments and contingencies (Note 12)
    50,000       50,000       50,000       50,000  
                                 
STOCKHOLDERS' DEFICIT
                               
Common stock, $0.01 par value, 100,000,000 shares authorized (1)
    115,978       115,978       115,978       118,478  
 Additional paid-in capital
    3,113,746       3,175,202       3,236,658       3,401,328  
 Accumulated deficit
    (9,737,213 )     (9,808, 527 )     (10,320,809 )     (11,190,682 )
TOTAL STOCKHOLDERS' DEFICIT
    (6,507,489 )     (6,517,347 )     (6,968,173 )     (7,670,876 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 362,279     $ 808,418     $ 429,765     $ 646,914  
 

Consolidated Balance Sheets – Year ended December 31, 2011
 
   
March 31, 2011
(Restated)
   
June 30, 2011
(Restated)
   
Sept 30, 2011
 
   
December 31,
2011 
 
ASSETS
                       
CURRENT ASSETS
                       
Cash and cash equivalents
  $ 40,254     $ 54,592     $ 4,423     $ 12,004  
Other current assets
    49,923       26,897       15,501       3,166  
Due from related parties
    362,985       361,613       362,186       359,528  
TOTAL CURRENT ASSETS
    453,162       443,102       382,110       374,698  
PROPERTY AND EQUIPMENT
                               
Property and equipment, net of accumulated depreciation
    8,224       7,893       6,965       6,965  
                                 
TOTAL PROPERTY AND EQUIPMENT
    8,224       7,893       6,965       6,965  
TOTAL ASSETS
  $ 461,386     $ 450,995     $ 389,075     $ 381,663  
LIABILITIES & STOCKHOLDERS' DEFICIT
                               
CURRENT LIABILITIES
                               
Accounts payable and accrued expenses
  $ 877,927     $ 1,078,366     $ 1,125,636     $ 1,062,332  
Cash advance on acquisition option
    -       50,000       50,000       50,000  
Notes payable
    3,009,389       3,316,002       3,455,331       3,500,357  
   Convertible notes payable
    -       652       28,729       142,500  
Accrued interest
    287,788       343,461       404,548       553,657  
Due to related parties
    1,249,160       1,212,482       1,224,038       1,150,175  
Derivative liabilities
    278,139       348,661       224,560       277,013  
TOTAL CURRENT LIABILITIES
    5,702,403       6,349,624       6,512,842       6,736,034  
Deferred gain
    -       -       -       -  
Asset retirement obligations
    -       -       -       -  
TOTAL LIABILITIES
    5,702,403       6,349,624       6,512,842       6,736,034  
                                 
Commitments and contingencies (Note 12)
                            50,000  
                                 
STOCKHOLDERS' DEFICIT
                               
Common stock, $0.01 par value, 100,000,000 shares authorized (1)
    112,888       112,888       113,518       114,398  
 Additional paid-in capital
    2,809,703       2,970,261       3,095,801       2,974,870  
 Accumulated deficit
    (8,163,608 )     (8,981,778 )     (9,333,086 )     (9,493,639 )
TOTAL STOCKHOLDERS' DEFICIT
    (5,241,017 )     (5,898,629 )     (6,123,767 )     (6,404,371 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 461,386     $ 450,995     $ 389,075     $ 381,663  
                                 
(1) Shares issued and outstanding:
                               
(1) 11,288,813 as of March 31, 2011 and June 30, 2011; 11,351,813 as of September 30, 11; 11,439,813 as of December 31, 2011; 11,597,813 as of March 31, 2012, June 30, 2012 and September 30, 2012; 11,847,813 as of December 31, 2012.
         
 
 
Consolidated Quarterly Statements of Operations for the years ended December 31, 2012 and 2011
 
    For the three months ended     For the three months ended     For the six months ended     For the three months ended     For the nine months ended  
    March 31,     June 30,     June 30,     September 30,     September 30,  
    2012     2011
(Restated)
    2012     2011
(Restated)
    2012     2011
(Restated)
    2012     2011     2012     2011  
                                                             
OPERATING EXPENSES:
                                                           
Depreciation, depletion, and amortization
  $ 897     $ 735     $ 996     $ 736     $ 1,893     $ 1,471     $ 897     $ 736     $ 2,790     $ 2,207  
Impairment of long-lived assets
    -       1,373,906       -       -       -       1,373,906       -       -       -       1,373,906  
General and administrative
    114,688       661,249       207,548       448,132       322,236       1,109,381       396,610       291,417       718,846       1400,798  
TOTAL OPERATING EXPENSES
    115,585       2,035,890       208,544       448,868       324,129       2,484,758       397,507       292,153       721,636       2,776,911  
                                                                                 
OPERATING LOSS
    (115,585 )     (2,035,890 )     (208,544 )     (448,868 )     (324,129 )     (2,484,758 )     (397,507 )     (292,153 )     (721,636 )     (2,776,911 )
                                                                                 
OTHER (INCOME) EXPENSE:
                                                                               
   Loss (gain) on derivative liabilities
    51,006       46,613       34,931       10,522       85,937       57,135       36,081       (159,101 )     122,018       (101,966 )
Other income
    -       -       (250,000 )     -       (250,000 )     -       -       (15,800 )     (250,000 )     (15,800 )
Interest expense
    76,983       106,489       77,839       358,780       154,822       465,269       78,694       234,056       233,516       699,325  
Total other (income) expenses
    127,989       153,102       (137,230 )     369,302       (9,241 )     522,404       114,775       59,155       105,534       581,559  
                                                                                 
NET LOSS
  $ (243,574 )   $ (2,188,992 )   $ (71,314 )   $ (818,170 )   $ (314,888 )   $ (3,007,162 )   $ (512,282 )   $ (351,308 )   $ (827,170 )   $ (3,358,470 )
                                                                                 
LOSS PER SHARE - Basic and diluted
  $ (0.02 )   $ (0.20 )   $ (0.01 )   $ (0.07 )   $ (0.03 )   $ (0.27 )   $ (0.04 )   $ (0.03 )   $ (0.07 )   $ (0.30 )
                                                                                 
WEIGHTED AVERAGE SHARES OUTSTANDING -                                                                                
  Basic and diluted     11,477,132       11,119,924       11,847,813       11,288,813       11,577,308       11,204,835       11,847,813       11,309,617       11,668,134       11,240,146  


Consolidated Statement of Changes in Stockholders' Deficit

               
Additional
         
Total
 
   
Common Stock
   
Paid-in
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Deficit
 
Balance at December 31, 2010
    10,813,813       108,138       2,515,497       (5,974,616 )     (3,350,981 )
February 2011, common stock and warrants issued for cash and debt
    475,000       4,750       232,750       -       237,500  
Stock-based compensation
    -       -       61,456       -       61,456  
Net loss
    -       -       -       (2,188,992 )     (2,188,992 )
Balance at March 31, 2011
    11,288,813       112,888       2,809,703       (8,163,608 )     (5,241,017 )
June 2011, warrants issued for debt
    -       -       99,102       -       99,102  
Stock-based compensation
    -       -       61,456       -       61,456  
Net loss
    -       -       -       (818,170 )     (818,170 )
Balance at June 30, 2011
    11,288,813       112,888       2,970,261       (8,981,778 )     (5,898,629 )
July 2011, common stock for settlement of accounts payable
    13,000       130       12,870       -       13,000  
Stock-based compensation
    50,000       500       112,670       -       113,170  
Net loss
    -       -       -       (351,308 )     (351,308 )
Balance at September 30, 2011
    11,351,813       113,518       3,095,801       (9,333,086 )     (6,123,767 )
November 2011, common stock for cash
    88,000       880       32,120       -       33,000  
Stock-based compensation
    -       -       61,456       -       61,456  
Change in fair value of warrants issued for debt
    -       -       (214,507 )     -       (214,507 )
Net loss
    -       -       -       (160,553 )     (160,553 )
Balance at December 31, 2011
    11,439,813       114,398       2,974,870       (9,493,639 )     (6,404,371 )
Common stock issued for cash
    158,000       1,580       77,420       -       79,000  
Stock-based compensation
    -       -       61,456       -       61,456  
Net loss
    -       -       -       (243,574 )     (243,574 )
Balance at March 31, 2012
    11,597,813       115,978       3,113,746       (9,737,213 )     (6,507,489 )
Stock-based compensation
    -       -       61,456       -       61,456  
Net loss
    -       -       -       (71,314 )     (71,314 )
Balance at June 30, 2012
    11,597,813       115,978       3,175,202       (9,808,527 )     (6,517,347 )
Stock-based compensation
    -       -       61,456       -       61,456  
Net loss
    -       -       -       (512,282 )     (512,282 )
Balance at September 30, 2012
    11,597,813       115,978       3,236,658       (10,320,809 )     (6,968,173 )
Common stock issued for debt
    250,000       2,500       122,500       -       125,000  
Stock-based compensation
    -       -       42,170       -       42,170  
Net loss
    -       -       -       (869,873 )     (869,873 )
Balance at December 31, 2012
    11,847,813       118,478       3,401,328       (11,190,682 )     (7,670,876 )
 
 
Consolidated Quarterly Statements of Cash Flows for the years ended December 31, 2012 and 2011
 
   
Three Months Ended
   
Six Months Ended
   
Nine Months Ended
 
   
March 31,
   
June 30,
   
September 30,
 
   
2012
   
2011
(Restated)
   
2012
   
2011
(Restated)
   
2012
   
2011
 
                                     
CASH FLOWS FROM OPERATING ACTIVITIES:
                                   
Net loss
  $ ( 243,574 )   $ (2,188,992 )   $ (314,888 )   $ (3,007,162 )   $ (827,170 )   $ (3,358,470 )
Adjustments to reconcile net loss to net cash flow from operating activities:
                                               
Depreciation, depletion & amortization
    897       735       1,893       1,471       2,790       2,207  
Impairment of long-lived assets
    -       1,373,906       -       1,373,906       -       1,373,906  
Amortization of deferred financing charges
    649       20,583       649       52,534       649       66,430  
Amortization of debt discount
    -       25,689       -       280,114       -       430,020  
Loss (gain) on derivative liabilities
    51,006       46,613       85,937       57,135       122,018       (101,966 )
Stock-based compensation
    61,456       61,456       122,912       122,912       184,368       186,082  
Shares issued for services
    -       -       -       -       -       50,000  
Changes in operating assets and liabilities:
                                               
Decrease (increase) in receivables
    -       17,371       -       17,371       -       17,371  
Decrease (increase) in other current assets
    (397 )     905       1,803       2,480       (1,843 )     (20 )
Decrease (increase) in due from related parties
    26,017       19,358       35,865       20,730       3,116       20,157  
Increase in accounts payable and accrued expenses
    79,699       302,784       164,363       596,396       316,351       717,753  
Increase (decrease) in deferred income
    75,000       -       332,202       -       587,354       -  
Increase (decrease) in due to related party
    (2,420 )     11,434       182,778       31,370       (132,008 )     42,926  
Net cash provided by (used in) operating activities
    48,333       (308,158 )     613,514       (450,743 )     255,625       (553,604 )
CASH FLOWS FROM INVESTING ACTIVITIES:
                                               
Purchase of equipment
    (897 )     (1,207 )     -       (1,612 )     (1,893 )     (1,420 )
Net cash provided by (used in) investing activities
    (897 )     (1,207 )     -       (1,612 )     (1,893 )     (1,420 )
CASH FLOWS FROM FINANCING ACTIVITIES:
                                               
Proceeds from issuance of common stock and notes payable
    900       475,000       900       562,500       900       615,000  
Payments on notes payable
    (1,451 )     (23,750 )     (6,449 )     (24,308 )     (1,435 )     (24,308 )
Deferred financing costs
    -       (62,675 )     -       (62,675 )     -       (62,675 )
Proceeds from borrowings from related parties
    -       1,063       -       21,449       59,274       21,449  
Payments on borrowings from related parties
    (119,000 )     (72,472 )     (220,000 )     (72,472 )     (340,550 )     (72,472 )
Proceeds from issuance of common stock
    79,000       -       79,000       -       79,000       -  
Cash advance on acquisition option
    -       -       -       50,000       -       50,000  
Net cash provided by financing activities
    (40,551 )     317,166       (146,549 )     474,494       (202,811 )     526,994  
INCREASE (DECREASE) IN CASH
    6,885       7,801       466,965       22,139       50,921       (28,030 )
CASH, BEGINNING OF YEAR
    12,004       32,453       12,004       32,453       12,004       32,453  
CASH, END OF YEAR
  $ 18,889     $ 40,254     $ 478,969     $ 54,592     $ 62,925     $ 4,423  

 
Consolidated Quarterly Statements of Cash Flows for the years ended December 31, 2012 and 2011 -  Continued
 
   
Three Months Ended
   
Six Months Ended
   
Nine Months Ended
 
   
March 31,
   
June 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
   
2012
   
2011
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                                   
CASH PAID DURING THE PERIOD FOR
                                   
Income taxes
  $ -     $ -     $ -