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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Washington, D.C. 20549</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORM S-1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REGISTRATION STATEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNDER</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>THE SECURITIES ACT OF 1933</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>AMERICAN STANDARD ENERGY CORP.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Exact Name of Small Business Issuer in
its Charter)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">Delaware</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 31%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">1381</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 31%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">20-2791397</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">(State or other Jurisdiction of</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">(Primary Standard Classification</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">(IRS Employer Identification</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">Incorporation)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Code)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">No.)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>4800 North Scottsdale Road, Suite 1400</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Scottsdale, AZ 85251</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Tel. No.: (480) 371-1929</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Address and Telephone Number of Registrant&rsquo;s
Principal</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Executive Offices and Principal Place&nbsp;of
Business)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Scott Mahoney, CFA</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Chief Financial Officer</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>4800 North Scottsdale Road, Suite 1400</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Scottsdale, AZ 85251</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Tel. No.: (480) 371-1929</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Name, Address and Telephone Number of Agent
for Service)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Copies of communications to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Kathleen A. Cunningham, Esq.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Kristina L. Trauger, Esq.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Blank Rome LLP</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>The Chrysler Building</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>405 Lexington Avenue</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>New York, New York 10174</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Tel. No.: (212) 885-5339</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;Fax No.: (917) 332-3840</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B>Approximate date of commencement of proposed
sale to the public:</B>&nbsp;&nbsp;As soon as practicable after this Registration Statement becomes effective.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.<FONT STYLE="font-family: Wingdings">&nbsp;&thorn;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;&nbsp;&nbsp;<FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.&nbsp;&nbsp;&nbsp;<FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.&nbsp;&nbsp;&nbsp;<FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.&nbsp;&nbsp;See the definitions
of &ldquo;large accelerated filer,&rdquo; &ldquo;accelerated filer&rdquo; and &ldquo;smaller reporting company&rdquo; in Rule
12b-2 of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 40%">Large accelerated filer</TD>
    <TD STYLE="width: 12%; font-family: Wingdings">&uml;</TD>
    <TD STYLE="width: 35%">Accelerated filer</TD>
    <TD STYLE="width: 13%; font-family: Wingdings">&thorn;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Non-accelerated filer</TD>
    <TD STYLE="font-family: Wingdings">&uml;</TD>
    <TD>Smaller reporting company</TD>
    <TD STYLE="font-family: Wingdings">&uml;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CALCULATION OF REGISTRATION FEE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR>
    <TD STYLE="border-bottom: Black 1pt solid; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Title&nbsp;of&nbsp;Each&nbsp;Class&nbsp;Of&nbsp;Securities&nbsp;to&nbsp;be</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Registered</B></P></TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Amount&nbsp;to&nbsp;be</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Registered</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(1)</B></P></TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Proposed</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Maximum</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Offering&nbsp;Price</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Per&nbsp;Share</B></P></TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Proposed</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Maximum</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Aggregate</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Offering&nbsp;Price</B></P></TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Amount&nbsp;of</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Registration</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Fee</B></P></TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: bottom; padding-bottom: 1pt">Common Stock, $0.001 par value per share, issuable upon exercise of warrants</TD>
    <TD STYLE="vertical-align: top; text-align: right; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right; border-bottom: Black 1pt solid">6,666,666</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; vertical-align: bottom; border-bottom: Black 1pt solid">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right; border-bottom: Black 1pt solid">1.03</TD>
    <TD STYLE="text-align: left; vertical-align: bottom; border-bottom: Black 1pt solid">(2)</TD>
    <TD STYLE="vertical-align: top; text-align: right; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; vertical-align: bottom; border-bottom: Black 1pt solid">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right; border-bottom: Black 1pt solid">6,866,666</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; vertical-align: bottom; border-bottom: Black 1pt solid">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right; border-bottom: Black 1pt solid">787</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-bottom: 2.5pt">TOTAL</TD>
    <TD STYLE="vertical-align: top; text-align: right; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; border-bottom: Black 2.5pt double">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right; border-bottom: Black 2.5pt double">6,666,666</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; border-bottom: Black 2.5pt double">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right; border-bottom: Black 2.5pt double">&nbsp;</TD>
    <TD STYLE="vertical-align: top; border-bottom: Black 2.5pt double">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="vertical-align: top; text-align: right; border-bottom: Black 2.5pt double">6,866,666</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="vertical-align: top; text-align: right; border-bottom: Black 2.5pt double">787</TD>
    <TD STYLE="vertical-align: top; padding-bottom: 2.5pt"></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Registration Statement covers the resale by our selling shareholders of up to 6,666,666 shares of common stock issuable upon
the exercise of common stock purchase warrants.&nbsp;&nbsp;In accordance with Rule 416(a), promulgated under the
Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), the Registrant is also registering hereunder an
indeterminate number of shares that may be issued and resold pursuant to Rule 416 to prevent dilution resulting from stock
splits, stock dividends or similar transactions. No additional consideration will be received for the common stock, and
therefore no registration fee is required pursuant to Rule 457(i) under the Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule
457(c), promulgated under the Securities Act, based on the average of the high and low prices of our common stock on August 2,
2012, as reported on the OTC Bulletin Board.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION&nbsp;8(a) OF THE SECURITIES
ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION&nbsp;8(a),
MAY DETERMINE.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 2%; border-top: windowtext 1pt solid; border-left: windowtext 1pt solid">&nbsp;</TD>
    <TD STYLE="width: 96%; border-top: windowtext 1pt solid">&nbsp;</TD>
    <TD STYLE="width: 2%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-left: windowtext 1pt solid">&nbsp;</TD>
    <TD STYLE="font-style: italic; font-weight: bold"><FONT STYLE="color: Red">The information in this prospectus is not complete
    and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange
    Commission (&ldquo;SEC&rdquo;) is effective. This prospectus is not an offer to sell these securities and we are not soliciting
    offers to buy these securities in any jurisdiction where the offer or sale is not permitted.</FONT></TD>
    <TD STYLE="border-right: windowtext 1pt solid"><FONT STYLE="color: Red">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid"><FONT STYLE="color: Red">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: windowtext 1pt solid"><FONT STYLE="color: Red">&nbsp;</FONT></TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PRELIMINARY PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><I>Subject to completion, dated August
3, 2012</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">6,666,666 SHARES OF COMMON STOCK</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><img src="logo.jpg"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>AMERICAN STANDARD ENERGY CORP.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">This prospectus relates to the resale
by selling security holders of 6,666,666 shares of our common stock, $0.001 par value, issuable upon the exercise of warrants held by the selling security
holders (the &ldquo;Warrants&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We are not selling any shares of our common
stock and, as a result, we will not receive any proceeds from the sale of the common stock covered by this prospectus other than
proceeds in the event that some or all of the Warrants held by the selling security holders are exercised for cash.&nbsp;&nbsp;All
of the net proceeds from the sale of our common stock will go to the selling security holders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">The selling security holders may sell common
stock from time to time at prices established on the Over the Counter Bulletin Board (&ldquo;OTCBB&rdquo;) or as negotiated in
private transactions, or as otherwise described under the heading &ldquo;Plan of Distribution.&rdquo; The common stock may be sold
directly or through agents or broker-dealers acting as agents on behalf of the selling security holders. The selling security holders
may engage brokers, dealers or agents who may receive commissions or discounts from the selling security holders. We will pay all
the expenses incident to the registration of the shares; however, we will not pay for sales commissions or other expenses applicable
to the sale of our common stock registered hereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">Our common stock is quoted on the OTCBB
under the symbol &ldquo;ASEN.&rdquo; On August 2, 2012, the closing bid price of our common stock was $1.03 per share. These prices
will fluctuate based on the demand for our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt"><B>Investing in our common stock involves
a high degree of risk. See &ldquo;Risk Factors&rdquo; beginning on page 4 to read about factors you should consider before investing
in shares of our common stock.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt"><B>NEITHER THE SECURITIES AND EXCHANGE COMMISSION
(&ldquo;SEC&rdquo;) NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt"><B>The Date of This Prospectus is:&nbsp;&nbsp;&nbsp;&nbsp;,
2012</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>TABLE OF CONTENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 93%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 6%; border-bottom: Black 1pt solid; font-weight: bold; text-align: center">PAGE</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Prospectus Summary</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Risk Factors</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">4</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Cautionary Note Regarding Forward-Looking Statements</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">29</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Use of Proceeds</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">29</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Determination of Offering Price</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">29</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Dilution</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">29</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Selling Security Holders</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">29</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Plan of Distribution</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">32</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Market Price and Dividends on Registrant&rsquo;s Common Equity and Related Stockholder Matters</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">35</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Description of Securities</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">36</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Interests of Named Experts and Counsel</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">96</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Description of the Business</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">40</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Legal Proceedings</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">48</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Disclosure Related to Oil and Gas Producing Activities</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">48</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">57</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">76</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Directors, Executive Officers and Corporate Governance</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">77</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Executive Compensation</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">82</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Security Ownership of Certain Beneficial Owners and Management</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">91</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Transactions with Related Persons, Promoters, and Certain Control Persons</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">92</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Financial Statements</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-1</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Other Expenses of Issuance and Distribution</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">II-1</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Indemnification of Directors and Officers</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">II-1</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Recent Sales of Unregistered Securities</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">II-2</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Exhibits and Financial Statement Schedules</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">II-8</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Undertakings</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">II-11</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Please read this prospectus carefully. It describes our business,
our financial condition and results of operations. We have prepared this prospectus so that you will have the information necessary
to make an informed investment decision.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">You should rely only on information contained in this prospectus.&nbsp;&nbsp;We
have not authorized any other person to provide you with different information.&nbsp;&nbsp;This prospectus is not an offer to sell,
nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted.&nbsp;&nbsp;The information
in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that
date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>USE OF CERTAIN DEFINED TERMS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Except as otherwise indicated by the context, references
in this prospectus to &ldquo;we,&rdquo; &ldquo;us,&rdquo; &ldquo;our,&rdquo; or &ldquo;the Company&rdquo; are to the combined
business of American Standard Energy Corp., a Delaware corporation, and its consolidated subsidiaries, including the Company&rsquo;s
wholly-owned subsidiaries, American Standard Energy Corp., a Nevada corporation, which is also referred to herein as &ldquo;Nevada
ASEC&rdquo; and ASEN 2, Corp., a Delaware corporation, which is also referred to herein as &ldquo;ASEN 2.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PROSPECTUS SUMMARY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>This summary highlights selected information contained
elsewhere in this prospectus.&nbsp;&nbsp;This summary does not contain all the information that you should consider before investing
in the common stock.&nbsp;&nbsp;You should carefully read the entire prospectus, including &ldquo;Risk Factors&rdquo;, &ldquo;Management&rsquo;s
Discussion and Analysis of Financial Condition and Results of Operations&rdquo; and the Financial Statements, before making an
investment decision.&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>THE COMPANY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>General</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We are an independent, non-operator oil
and natural gas company engaged in the acquisition of leaseholds of oil and natural gas properties. &nbsp;Our leasehold acreage
is located in the Permian Basin of West Texas and Eastern New Mexico, referred to herein as the Permian Basin, the Eagle Ford
Shale Formation of South Texas, referred to herein as Eagle Ford, the Bakken Shale Formation in North Dakota, referred to herein
as Bakken, the Niobrara Shale Formation of Wyoming and Nebraska, herein referred to as the Niobrara, the Eagle Bine Shale Formation
in South East Texas, herein referred to as the Eagle Bine, and the Gulf Coast of South Texas, herein referred to as the Gulf Coast.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">In the Permian Basin, the Niobrara, the
Eagle Bine and parts of the Eagle Ford, we own a number of leases where we hold the majority working interest. We have historically
contracted and expect to continue to contract with third-party operators, consultants, and other contractor service providers
to operate and drill our majority leasehold acreage. Within this acreage, the Company has historically contracted to drill conventional,
vertical wells. The Company may consider contracting with third parties to selectively drill unconventional, horizontal wells
in areas that may be prospective for oil and gas bearing shale formations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We also hold minority interest leasehold
acreage in the Bakken, parts of the Permian Basin, and parts of the Eagle Ford. In the minority working interest leaseholds, the
Company has historically participated and expects to continue to participate on a non-operated basis in the drilling and production
of acreage operated by independent oil and gas operating companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">As of December 31, 2011, we held working
interests in approximately 40,100 net acres in the Permian Basin, Bakken, and Eagle Ford regions. After closing a significant
acquisition, as of March 31, 2012, we held working interests in approximately 112,400 net acres in the Permian Basin, Bakken,
Eagle Ford, Niobrara, Eagle Bine and Gulf Coast regions. These working interests grant us the right as the lessee of the property
to explore for, develop and produce oil, natural gas and other minerals, while bearing our portion of related exploration, development
and operating costs.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We are affiliated with and have a working
relationship with XOG Operating, LLC, herein referred to as XOG, a seasoned exploration and production operator based in Midland,
Texas that has been operating, developing and exploiting oil and gas properties in 14 states for over 30 years with its primary
focus being the Permian Basin of West Texas.&nbsp;&nbsp;&nbsp;XOG is currently contracted to operate the existing wells currently
held by us in the Permian Basin region.&nbsp;&nbsp;Randall Capps has controlling ownership of XOG, Geronimo Holding Corporation,
herein referred to as Geronimo, and CLW South Texas 2008, LP, herein referred to as CLW (XOG, Geronimo and CLW, collectively,
the &ldquo;XOG Group&rdquo;). We have acquired the majority of our oil and natural gas leasehold properties from the XOG Group.
Mr. Capps is also a member of the Company&rsquo;s board of directors.&nbsp;&nbsp;Through his ownership interest in the XOG Group,
Mr. Capps beneficially owns approximately 56.7% of our common stock as of August 2, 2012 and is the largest shareholder of our
common stock.&nbsp;&nbsp;Mr. Capps is also the father-in-law of Scott Feldhacker, our chief executive officer and director.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Corporate History</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We were incorporated as National Franchise
Directors, Inc. under the laws of the state of Delaware on March 4, 2005.&nbsp;&nbsp;On October 25, 2005, we changed our name to
Famous Uncle Al&rsquo;s Hot Dogs &amp; Grille, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">American Standard Energy Corp., herein
referred to as Nevada ASEC, was incorporated in Nevada on April 2, 2010 for the purposes of acquiring certain oil and natural
gas leasehold properties from the XOG Group and making capital investments in acreage acquisitions and working interests in existing
or planned hydrocarbon production with a special focus on oil and natural gas producing properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">On October 1, 2010, we entered into a Share
Exchange Agreement, referred to as the Share Exchange Agreement by and among our then-controlling stockholder, Nevada ASEC and
the former stockholders of Nevada ASEC.&nbsp;&nbsp;Pursuant to the Share Exchange Agreement, we (i) spun-off our former restaurant
franchise rights and related operations to the former controlling stockholder in exchange for the cancellation of 25,000,000 shares
of our common stock and (ii) acquired 100% of the outstanding shares of common stock of Nevada ASEC from the former Nevada ASEC
stockholders and received $25,000 of additional consideration.&nbsp;&nbsp;In exchange, the Nevada ASEC stockholders received approximately
22,000,000 shares of our common stock on the closing date of the Share Exchange Agreement. As a result, Nevada ASEC became our
wholly-owned subsidiary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">ASEN 2, Corp., referred to herein as
ASEN 2, a wholly-owned subsidiary of the Company, was formed on January 25, 2012 in connection with the acquisition and financing
of certain oil and natural gas leasehold properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We will continue to focus on acquiring producing
and non-producing mineral right interests and developing our currently held mineral rights leaseholds within the Permian Basin,
Bakken, and Eagle Ford regions.&nbsp;&nbsp;Additionally, we also anticipate pursuing the acquisition of leaseholds within other
geographic areas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Risk Factors</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our ability to operate our business successfully and achieve
our goals and strategies is subject to numerous risks as discussed more fully in the section titled &ldquo;Risk Factors,&rdquo;
beginning on page 4, including, for example, the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>We depend on third-party operators, the loss of which could materially affect our ability to operate our business;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>Our growth depends on successful acquisitions and our relationship with the XOG Group;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>Our leases on certain undeveloped leasehold acreage will expire over the next one to eight years, at which time we will lose our right to develop the related properties unless the acreage is held by production;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>Our lack of geographic and industry diversification increases the risk of investment in our Company;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>The loss of any key employee, including members of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industry could harm our business;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>Fluctuations in oil and gas prices may adversely affect our financial condition;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>Tax changes and the elimination of certain tax incentives could have an adverse affect on our financial position;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>Exploration and drilling for oil and gas are high-risk activities and the estimated reserves and costs may be inaccurate;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>Changes in federal and state regulation related to our industry and to hydraulic fracturing may have an adverse affect on our business; and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34px">&nbsp;</TD>
    <TD STYLE="width: 36px; font-family: Symbol">&middot;</TD>
    <TD>An active trading market for our shares may never develop.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Any of the above risks could materially and adversely affect
our business, financial position and results of operations. An investment in our securities involves risks. You should read and
consider the information set forth in &ldquo;Risk Factors&rdquo; and all other information set forth in this prospectus before
investing in our securities.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Corporate Information</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We presently maintain our principal offices at 4800 North Scottsdale
Road, Suite 1400, Scottsdale, AZ 85251.&nbsp;&nbsp;Our telephone number is (480) 371-1929.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>The Offering</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24%; font-weight: bold">Common stock offered by selling security holders</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 74%">6,666,666 shares of common stock issuable upon exercise of the Warrants.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Common stock outstanding before the offering</TD>
    <TD>&nbsp;</TD>
    <TD>50,921,798&nbsp;shares of common stock as of August 3, 2012.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Common stock outstanding after the offering</TD>
    <TD>&nbsp;</TD>
    <TD>50,921,798&nbsp;shares of common stock as of August 3, 2012, assuming that no warrants or options are exercised, including
    the Investor Warrants and Placement Agent Warrants (collectively, the &ldquo;Warrants&rdquo;).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Termination of the Offering</TD>
    <TD>&nbsp;</TD>
    <TD>The offering will conclude upon the earliest of (i) such time as all of the common stock has been sold pursuant to
    the registration statement or (ii) such time as all of the common stock becomes eligible for resale pursuant to Rule 144 promulgated
    under the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), or any other rule of similar effect.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Use of proceeds</TD>
    <TD>&nbsp;</TD>
    <TD>We are not selling any shares of the common stock covered by this prospectus, and, as a result, will not receive any
    proceeds from this offering. We may, however, receive proceeds in the event that some or all of the Warrants held by the selling
    security holders are exercised for cash. The proceeds from the exercise of such Warrants, if any, will be used for working
    capital and other general corporate purposes.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">OTCBB Trading Symbol</TD>
    <TD>&nbsp;</TD>
    <TD>ASEN</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Risk Factors</TD>
    <TD>&nbsp;</TD>
    <TD>The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot
    afford the loss of their entire investment. See &ldquo;Risk Factors&rdquo; beginning on page 4.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>An investment in our securities involves a high degree of
risk. You should carefully consider the risks described below together with all of the other information included in this prospectus
before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are
not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to
differ materially from those set forth in or implied by forward-looking statements. For further information see &ldquo;Cautionary
Statement Regarding Forward-Looking Statements.&rdquo; If any of the following risks actually occurs, our business, financial condition
or results of operations could be harmed. In that case, you may lose all or part of your investment.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>RISKS RELATING TO OUR BUSINESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR LIMITED OPERATING HISTORY MAY NOT
SERVE AS AN ADEQUATE BASIS TO JUDGE OUR FUTURE PROSPECTS AND RESULTS OF OPERATIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Our wholly-owned
subsidiaries, Nevada ASEC and ASEN 2, were incorporated on April 2, 2010 and January 25, 2012. Accordingly, we have a limited
operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their early stages of development. We cannot assure you
that we will be successful in addressing the risks we may encounter, and our failure to do so could have a material adverse effect
on our business, prospects, financial condition and results of operations. Our future operating results will depend on many factors,
including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="text-align: justify">our ability to raise adequate working capital;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="text-align: justify">the successful development and exploration of our properties;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="text-align: justify">demand for oil and natural gas;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="text-align: justify">the performance level of our competition;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="text-align: justify">our ability to attract and maintain key management and employees; and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol; text-align: justify">&middot;</TD>
    <TD STYLE="text-align: justify">our ability to efficiently explore, develop and produce sufficient quantities of marketable natural gas or oil in a highly competitive and speculative environment while maintaining quality and controlling costs.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">The business of acquiring,
exploring for, developing and producing hydrocarbon reserves is inherently risky. We have a limited operating history for you to
consider in evaluating our business and prospects. Our operations are therefore subject to all of the risks inherent in acquiring,
exploring for, developing and producing hydrocarbon reserves, particularly in light of our limited experience in undertaking such
activities. We may never overcome these obstacles.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Our business is speculative
and dependent upon the implementation of our business plan and our ability to enter into agreements with third parties for the
rights to exploit potential oil and natural gas reserves on terms that will be commercially viable for us. To achieve profitable
operations in the future, we must, alone or with others, successfully manage the factors stated above, as well as continue to develop
ways to enhance our production efforts. Despite our best efforts, we may not be successful in our exploration or development efforts,
or obtain required regulatory approvals. There is a possibility that some of our wells may never produce oil or natural gas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE ARE DEPENDENT ON THE SKILL, ABILITY
AND DECISIONS OF THIRD-PARTY OPERATORS.&nbsp;&nbsp;THE FAILURE OF ANY THIRD-PARTY OPERATOR TO PERFORM THEIR SERVICES OR COMPLY
WITH LAWS COULD RESULT IN MATERIAL ADVERSE CONSEQUENCES TO OUR PROPERTY INTERESTS AND SUBSTANTIAL PENALTIES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">We do not operate any
of our properties. The success of the drilling, development, production and marketing of the oil and natural gas from our properties
is dependent upon the decisions of our third-party operators who drill, develop, produce and market the oil and natural gas present
on our leasehold properties.&nbsp;&nbsp;Such third-party operators failure to comply with various laws, rules and regulations affecting
our properties could result in adverse consequences to us, our properties and our production. The failure of any third-party operator
to make decisions, perform their services, discharge their obligations, deal with regulatory agencies, and comply with laws, rules
and regulations, including environmental laws and regulations in a proper manner with respect to properties in which we have an
interest could result in material adverse consequences to our interest in such properties, including substantial penalties and
compliance costs. Such adverse consequences could result in substantial liabilities to us or could reduce the value of our properties,
which could negatively affect our results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR THIRD-PARTY OPERATORS MAY BE UNABLE
TO RENEW OR MAINTAIN CONTRACTS WITH INDEPENDENT PURCHASERS, WHICH WOULD HARM OUR BUSINESS AND FINANCIAL RESULTS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Independent purchasers
buy our oil and natural gas and our third-party operators negotiate such contracts. Upon expiration of our independent purchasers&rsquo;
contracts, we are subject to the risk that the oil and natural gas purchasers will cease buying our oil and gas production output.
It is not always possible for our third-party operators to obtain replacement oil and natural gas purchasers immediately as the
industry is extremely competitive. If these contracts are not renewed, it could result in a significant negative impact on our
business as we would be unable to sell the oil or natural gas produced on our leasehold properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE POSSIBILITY OF A GLOBAL FINANCIAL CRISIS
MAY SIGNIFICANTLY IMPACT THE COMPANY&rsquo;S BUSINESS AND FINANCIAL CONDITION FOR THE FORESEEABLE FUTURE.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">The credit crisis and
related turmoil in the global financial system may adversely impact our business and financial condition, and we may face challenges
if conditions in the financial markets remain challenging. Our ability to access the capital markets may be restricted at a time
when we would prefer or be required to raise financing. Such constraints could have a material negative impact on our flexibility
to react to changing economic and business conditions. The economic situation could also have a material negative impact on the
operators upon whom we are dependent on for drilling our wells, and our lenders, causing us to fail to meet our obligations to
them or for them to fail to meet their obligations to the Company. Additionally, market conditions could have a material negative
impact on any crude oil hedging arrangements we may employ in the future if our counterparties are unable to perform their obligations
or seek bankruptcy protection.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE FUTURE OF THE COMPANY IS DEPENDENT
ON THE SUCCESSFUL ACQUISITION AND DEVELOPMENT OF PRODUCING AND RESERVE-RICH PROPERTIES AND ON OUR RELATIONSHIP WITH XOG.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">We intend to continue
to supplement our current portfolio with additional sites and leaseholds. Our ability to meet our growth and operational objectives
will depend on the success of our acquisitions and our relationship with XOG, and there is no assurance that the integration of
future assets and leaseholds will be successful. XOG is currently contracted to operate our existing wells in the Permian Basin
region and provides us with a source of leasehold acquisitions. The loss of our relationship with XOG would make it more difficult
to locate attractive leasehold acquisition targets. The possibility exists that future transactions between the Company and its
affiliates may not be considered arms-length when executed due to the common ownership of our&nbsp;largest stockholder, Randall
Capps, and his controlling ownership of the XOG Group.&nbsp;&nbsp;Randall Capps is also a Director on the Company&rsquo;s Board
of Directors and the father-in-law of our Chief Executive Officer, Scott Feldhacker.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR LACK OF DIVERSIFICATION WILL INCREASE
THE RISK OF AN INVESTMENT IN THE COMPANY, AND OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY DETERIORATE IF WE FAIL TO
DIVERSIFY.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Our business focus
is on the oil and gas industry. Larger companies have the ability to manage their risk by greater geographic and industry diversification.
However, we may lack comparable diversification, in terms of both the nature and geographic scope of our business. As a result,
we will likely be impacted more acutely by factors affecting the oil and gas industry or the regions in which we operate, than
we would if we were a more diversified business. If we do not diversify the nature and geographic scope of our operations, our
financial condition and results of operations could deteriorate in connection with downturns in the oil and gas industry or the
oil and gas production in the geographic areas in which we operate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE MAY BE UNABLE TO OBTAIN ADDITIONAL
CAPITAL REQUIRED TO IMPLEMENT OUR BUSINESS PLAN, WHICH COULD RESTRICT OUR ABILITY TO GROW.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">We expect to be
able to fund our 2012 capital budget partially with operating cash flows, in conjunction with our credit facility entered into
on September 21, 2011 and other financings. We will require additional capital to continue to grow our business via the drilling
program through our third-party operators associated with our current properties and expansion of our exploration and development
and leasehold acquisition programs. We may be unable to obtain additional capital if and when required.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Future acquisitions
and future exploration and development activity will require additional capital that may exceed operating cash flow. In addition,
our administrative costs (such as salaries, insurance expenses and general overhead expenses, as well as legal compliance costs
and accounting expenses) will require cash resources.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">We may pursue sources
of additional capital through various financing transactions or arrangements, including joint venturing of projects, debt financing,
equity financing or other means. We may not be successful in identifying suitable financing transactions in the time period required
or at all, and we may not obtain the required capital by other means. If we are not successful in raising additional capital,
our resources may be insufficient to fund our planned expansion of operations in 2012 or thereafter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Any additional capital
raised through the sale of equity may dilute the ownership percentage of our stockholders. Raising any such capital could also
result in a decrease in the nominal fair market value of our equity securities because our assets would be owned by a larger pool
of outstanding equity. The terms of securities we issue in future capital transactions may be more favorable to new investors
and may include preferences, superior voting rights, the issuance of other derivative securities and issuances of incentive awards
under equity employee incentive plans, all of which may have a dilutive effect to existing investors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Our ability to obtain
financing, if and when necessary, may be impaired by such factors as the capital markets (both generally and in the oil and gas
industry in particular), our limited operating history, the location of our oil and natural gas properties, prices of oil and
natural gas on the commodities markets (which will impact the amount of asset-based financing available to us) and the departure
of key employees. Further, if oil or natural gas prices decline, our revenues will likely decrease and such decreased revenues
may increase our requirements for capital. If the amount of capital we are able to raise from financing activities, together with
revenues from our operations, are not sufficient to satisfy our capital needs (even if we reduce our operations), we may be required
to cease operations, divest our assets at unattractive prices or obtain financing on unattractive terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">STRATEGIC RELATIONSHIPS UPON WHICH
WE MAY RELY ARE SUBJECT TO CHANGE, WHICH MAY DIMINISH OUR ABILITY TO CONDUCT OPERATIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Our ability to acquire
additional leaseholds successfully, to increase our oil and natural gas reserves, to participate in drilling opportunities through
our third party operators and to identify and enter into commercial arrangements with customers will depend on developing and maintaining
close working relationships with XOG and industry participants, and our ability to select and evaluate suitable properties and
to consummate transactions in a highly competitive environment. Our inability to maintain close working relationships with XOG
and other industry participants or continue to acquire suitable leaseholds may impair our ability to execute our business plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">To continue to develop
our business, we will endeavor to use the business relationships of members of our management to enter into strategic relationships,
which may take the form of joint ventures with other private parties and contractual arrangements with other oil and gas companies,
including those that supply equipment and other resources which we may use in our business. We may not be able to establish these
strategic relationships, or if established, we may not be able to maintain them adequately. In addition, the dynamics of our relationships
with strategic partners may require the Company to incur expenses or undertake activities we would not otherwise be inclined to
in order to fulfill our obligations to these partners or maintain our relationships. For example, we may hold minority interests
in a lease that has significant existing or prospective value due to current production or future reserve prospects.&nbsp;&nbsp;We
may be subject to contracts with a third-party operator that compel us to make certain financial commitments on that lease, otherwise
we may be at risk of forfeiting existing or future rights to petroleum production from that lease if we fail to meet those financial
obligations.&nbsp;&nbsp;Such provisions may be included in any third party joint operating agreement, or JOA, drilling program
under an area of mutual interest (AMI), or other joint venture projects which are common in our industry. If our strategic relationships
are not established or maintained, the Company&rsquo;s business prospects may be limited, which could diminish our ability to
conduct our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE MUST REACH AGREEMENTS WITH THIRD-PARTY
PROFESSIONALS AND EXPERTS TO SUPPLY US WITH THE EXPERTISE, SERVICES AND INFRASTRUCTURE NECESSARY TO OPERATE OUR BUSINESS, AND THE
LOSS OF ACCESS TO THESE EXPERTS, THESE SERVICES AND INFRASTRUCTURE COULD CAUSE OUR BUSINESS TO SUFFER, WHICH, IN TURN, COULD DECREASE
OUR REVENUES AND INCREASE OUR COSTS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">We have certain contemplated
strategic vendor relationships that will be critical to our strategy. As a non-operator, we must actively secure the services of
drilling companies, hydrofracking and completion companies, contract operators, engineers and other service providers.&nbsp;&nbsp;In
our majority working interest leases in the Permian Basin, we rely on the contractual relationship with XOG for much of these services.&nbsp;&nbsp;We
also rely on the consulting expertise of Cambrian Management Ltd., an unaffiliated third-party consulting firm with expertise in
the drilling and completion of specific wells in the Permian Basin.&nbsp;&nbsp;We cannot assure that these relationships can be
maintained or obtained on terms favorable to us. Our success depends substantially on obtaining relationships with additional strategic
partners, such as investment banks, accounting firms, legal firms and operational entities. If we are unable to obtain or maintain
relationships with strategic partners, our business, prospects, financial condition and results of operations may be materially
adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CERTAIN OF OUR UNDEVELOPED LEASEHOLD ACREAGE
IS SUBJECT TO LEASES THAT WILL EXPIRE OVER THE NEXT SEVERAL YEARS UNLESS PRODUCTION IS ESTABLISHED ON SUCH ACREAGE OR THE LEASES
ARE EXTENDED.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Our leases on certain
undeveloped leasehold acreage may expire over the next one to eight years. A portion of our acreage is not currently held by production.
Unless production in paying quantities is established on acres containing these leases during their initial terms or we obtain
extensions of the leases, these leases will expire. If our leases expire, we will lose our right to develop the related properties
covered by such leases.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL.&nbsp;&nbsp;THE
LOSS OF SUCH PERSONNEL COULD IMPAIR OUR ABILITY TO FULFILL OUR BUSINESS PLAN.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">We are dependent on
the services of Scott Feldhacker, our Chief Executive Officer, Richard MacQueen, our President and Scott Mahoney, our Chief Financial
Officer. The loss of services of any of these individuals could impair our ability to complete acquisitions of producing assets
and leaseholds, perform relevant managerial and legal services and maintain key relationships with XOG and other market participants
which could have a material adverse effect on our business, financial condition and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">RANDALL CAPPS, THE FATHER-IN-LAW OF
OUR CHIEF EXECUTIVE OFFICER, IS THE HOLDER OF A MAJORITY OF OUR COMMON STOCK AND IS A DIRECTOR OF THE COMPANY.&nbsp;&nbsp;THE
INTERESTS OF MR. CAPPS MAY NOT BE ALIGNED WITH OUR INTERESTS OR THE INTERESTS OF OUR OTHER STOCKHOLDERS.&nbsp;&nbsp;ACCORDINGLY,
ANY LOSS OF OUR RELATIONSHIP WITH MR. CAPPS, OR A DISAGREEMENT WITH MR. CAPPS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS,
PROSPECTS, REVENUES AND RESULTS OF OPERATIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Randall Capps is
a member of our board of directors and, as of August 2, 2012, beneficially owns&nbsp;28,937,522 shares of common stock or approximately
56.7% of the Company&rsquo;s outstanding common stock. Mr. Capps is the sole owner of XOG and Geronimo and is the majority owner
of CLW. This significant ownership allows Mr. Capps to be able to exert significant control over decisions requiring stockholder
approval, including the election of directors and approval of the sale of assets and other business combinations. Additionally,
as one of our directors, Mr. Capps is aware of our business plans and may disagree with management&rsquo;s day-to-day operations
of the Company.&nbsp;&nbsp;Conflicts of interest may arise between Mr. Capps and his affiliates, including XOG, Geronimo and CLW,
on the one hand, and the Company and our other stockholders, on the other hand. As a result of these conflicts, Mr. Capps and
his affiliates may favor their own interests over the interests of our stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">RANDALL CAPPS AND HIS AFFILIATED ENTITIES,
THE XOG GROUP, ARE NOT LIMITED IN THEIR ABILITY TO COMPETE WITH US, WHICH COULD LIMIT OUR ABILITY TO ACQUIRE OR DEVELOP ADDITIONAL
ASSETS OR BUSINESSES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Mr. Capps and his affiliates
are not limited in their ability to compete with us and are under no obligation to offer opportunities to us. In addition, Mr.
Capps and his affiliates may compete with us with respect to any future acquisition opportunities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Neither our charter
documents nor any other agreement prohibits Mr. Capps or the XOG Group from owning assets or engaging in businesses that compete
directly or indirectly with us. In addition, Mr. Capps and the XOG Group may acquire, develop or dispose of additional oil and
natural gas properties or other assets in the future, without any obligation to offer us the opportunity to purchase or develop
any of those assets. Competition from Mr. Capps and the XOG Group could adversely impact our business prospects and results of
operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE NEED TO CONTINUE TO DEVELOP AND
MAINTAIN A DIVERSE PORTFOLIO OF LEASEHOLDS AND PRODUCING PROPERTIES, OTHERWISE WE WILL BE UNABLE TO EFFECTIVELY COMPETE IN THE
INDUSTRY.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">To remain competitive,
we must continue to enhance and improve our oil and natural gas reserves and producing properties and leaseholds. We need to seek
available properties and leaseholds in various locations including the Bakken, Eagle Ford and Permian Basin formations, among
others. These efforts may require us to choose one available property in lieu of another which increases risk to our potential
holdings.&nbsp;&nbsp;If we are unable to maintain a diverse portfolio of leasehold properties, we will be unable to compete effectively
and may be negatively impacted financially if our leasehold properties in a certain location are unable to produce.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">MARKET CONDITIONS OR TRANSPORTATION IMPEDIMENTS
MAY HINDER ACCESS TO OIL AND NATURAL GAS MARKETS OR DELAY PRODUCTION.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Market conditions, the
unavailability of satisfactory oil and natural gas transportation or the remote location of our drilling operations by our third
party operators may restrict our access to oil and natural gas markets or delay production. The availability of a ready market
for oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas,
the proximity of reserves to pipelines or trucking and terminal facilities and the availability of trucks and other transportation
equipment. The operators we contract or partner with may be required to shut-in wells or delay initial production for lack of a
viable 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 natural gas and realization of revenues.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>RISKS RELATED TO THE OIL AND NATURAL GAS INDUSTRY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CRUDE OIL AND NATURAL GAS PRICES ARE VERY
VOLATILE. A PROTRACTED PERIOD OF DEPRESSED OIL AND NATURAL GAS PRICES MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS
OF OPERATIONS OR CASH FLOWS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The oil and gas
markets are very volatile, and we cannot predict future oil and natural gas prices. The prices we receive for our oil and natural
gas production heavily influences our revenue, profitability, access to capital and future rate of growth. Historically, oil and
natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty
and a variety of additional factors that are beyond our control. Any substantial decline in the price of oil and natural gas will
likely have a material adverse effect on our operations, financial condition and level of expenditures for the development of
our oil and natural gas reserves. The prices we receive for our production and the levels of our production and reserves depend
on numerous factors beyond our control. These factors include, but are not limited to, the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">changes in global supply and demand for oil and natural gas by both refineries
    and end users;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">the ability of the members of the Organization of Petroleum Exporting Countries
    to agree to and maintain oil price and production controls;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">the price and volume of imports of foreign oil and natural gas;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">the level of global oil and gas exploration and production activity;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">the level of global oil and gas inventories;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">weather conditions;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">technological advances affecting energy consumption;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">domestic and foreign governmental regulations and taxes;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">proximity and capacity of oil and gas pipelines and other transportation facilities;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">the price and availability of competitors&rsquo; supplies of oil and gas in
    captive market areas;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">the introduction, price and availability
        of alternative forms of fuel to replace or compete with oil and natural gas;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">speculation in the price of
        commodities in the commodity futures market;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">the availability of drilling
        rigs and completion equipment; and</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">the overall economic environment.&nbsp;</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Further, oil and
natural gas prices do not necessarily fluctuate in direct relationship to each other. Because approximately 63.5% of our estimated
proved reserves as of December 31, 2011 were oil, our financial results are more sensitive to fluctuations in oil prices. The
price of oil has been extremely volatile, and we expect this volatility to continue for the foreseeable future. The slowdown in
economic activity caused by the worldwide economic recession has reduced worldwide demand for energy. This may result in lower
crude oil and natural gas prices. Crude oil prices declined from record high levels in early July 2008 of over $140 per Bbl to
below $45 per Bbl in February 2009 before rebounding to over $85 per Bbl in July 2012. Natural gas prices declined from over $13
per MMBtu (million British thermal units) in mid-2008 to approximately $2.75 per MMBtu in July 2012. Such a decline could occur
again in the future due to global economic conditions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Lower oil and natural
gas prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil and natural gas that we
can produce economically and therefore potentially lower our reserve bookings. A substantial or extended decline in oil or natural
gas prices may result in impairments of our proved oil and gas properties and may materially and adversely affect our future business,
financial condition, results of operations, liquidity or ability to finance planned capital expenditures. To the extent commodity
prices received from production are insufficient to fund planned capital expenditures; we will be required to reduce spending or
borrow to cover any such shortfall. Lower oil and natural gas prices may also reduce the amount of our borrowing base under our
credit agreement, which is determined at the discretion of the lenders based on the collateral value of proved reserves that have
been mortgaged to the lenders, and is subject to regular redeterminations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">These factors
and the volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with
any certainty.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">DRILLING FOR AND PRODUCING OIL AND NATURAL
GAS ARE HIGH RISK ACTIVITIES WITH MANY UNCERTAINTIES.&nbsp;&nbsp;THE OCCURRENCE OF ANY OF THESE UNCERTAINTIES MAY ADVERSELY AFFECT
OUR FINANCIAL CONDITION.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our future success
will depend on the success of our exploration, development, and production activities. Our oil and natural gas exploration and
production activities are subject to numerous risks beyond our control; including the risk that drilling will not result in commercially
viable oil or natural gas production. Our decision to purchase, explore, develop or otherwise exploit prospects or properties
will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering
studies, the results of which are often inconclusive or subject to varying interpretations. Our cost associated with drilling,
completing and operating wells is often uncertain before drilling commences. Overruns in budgeted expenditures are common risks
that can make a particular project uneconomical. Further, many factors may curtail, delay or cancel drilling, including the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">delays imposed by or resulting from compliance with regulatory requirements;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">pressure or irregularities in geological formations;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">shortages of or delays in obtaining qualified personnel or equipment, including drilling rigs and CO2;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%; text-align: justify">equipment failures or accidents;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 92%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">adverse weather conditions, such as freezing
        temperatures, hurricanes and storms;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">unexpected operational events;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">reductions in oil and natural
        gas prices;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">proximity to and capacity of
        transportation facilities;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">title problems; and</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">limitations in the market for
        oil and natural gas.&nbsp;</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The presence of one
or a combination of these factors at our properties could adversely affect our business, financial condition or results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">ESTIMATES OF OIL AND NATURAL GAS RESERVES
THAT MAY BE INACCURATE AND ACTUAL QUANTITY OF OUR PROVED OIL AND NATURAL GAS RESERVES MAY BE LOWER THAN THE COMPANY&rsquo;S PROJECTIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We make estimates
of oil and natural gas reserves, upon which we have and will base our management decisions. We make these reserve estimates using
various assumptions, including assumptions as to oil and natural gas prices, drilling and operating expenses, capital expenditures,
taxes, timing of operations and availability of funds. Some of these assumptions are inherently subjective, and the accuracy of
our reserve estimates rely in part on the ability of our management team, engineers and other advisors to make accurate assumptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Determining the
amount of oil and gas recoverable from various formations where we have exploration and production activities involves great uncertainty.
The process of estimating oil and natural gas reserves is complex and will require us to make significant decisions and assumptions
in the evaluation of available geological, geophysical, engineering and economic data for each property. These assumptions are
dependent on many variables, and therefore changes often occur as these variables evolve. As a result, our reserve estimates will
be inherently imprecise. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating
expenses and quantities of recoverable oil and natural gas reserves may vary substantially from our estimates. Although we have
estimated our reserves and the costs associated with these reserves in accordance with industry standards, estimated costs may
not be accurate, development may not occur as scheduled and actual results may not occur as estimated. If actual production results
vary substantially from our reserve estimates, this could materially reduce our revenues and could result in the impairment of
our oil and natural gas properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE PRESENT VALUE OF FUTURE NET REVENUES
FROM OUR PROVED RESERVES WILL NOT NECESSARILY BE THE SAME AS THE CURRENT MARKET VALUE OF OUR ESTIMATED OIL AND NATURAL GAS RESERVES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">You should not
assume that the present value of future net revenues from our proved reserves is the current market value of our estimated oil
and natural gas reserves. In accordance with SEC requirements for the years ended December&nbsp;31, 2011 and 2010, we based the
estimated discounted future net revenues from our proved reserves on the 12-month unweighted arithmetic average of the first-day-of-the-month
price for the preceding twelve months without giving effect to derivative transactions. Actual future net revenues from our oil
and natural gas properties will be affected by factors such as:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">actual prices we receive for oil and natural gas;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">actual cost of development and production expenditures;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the amount and timing of actual production;&nbsp;and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">changes in governmental regulations or taxation.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The timing of
both our production and our incurring expenses in connection with the development and production of oil and natural gas properties
will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value. In
addition, the 10% discount factor we use when calculating discounted future net revenues may not be the most appropriate discount
factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in
general.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Actual future
prices and costs may differ materially from those used in the present value estimates included in this prospectus. Any significant
future price changes will have a material effect on the quantity and present value of our proved reserves.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE COMPANY WILL RELY ON TECHNOLOGY
TO CONDUCT ITS BUSINESS, AND SUCH TECHNOLOGY COULD BECOME INEFFECTIVE OR OBSOLETE WHICH WOULD RESULT IN SUBSTANTIAL COSTS TO THE
COMPANY.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our industry is
characterized by rapid and significant technological advancements and introductions of new products and services using new technologies.
We rely on technology, including geographic and seismic analysis techniques and economic models, to develop our reserve estimates
and to guide our exploration, development and production activities. We must continually enhance and update our technology to
maintain its efficacy and to avoid obsolescence. The costs of doing so may be substantial and may be higher than the costs that
we anticipate for technology maintenance and development. In addition, other natural gas and crude oil companies may have greater
financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them
to implement new technologies before we can. We may not be able to respond to these competitive pressures and implement new technologies
on a timely basis or at an acceptable cost. If we are unable to maintain the efficacy of our technology, our ability to manage
our business and to compete may be impaired and our business, financial condition and results of operations could be materially
adversely affected. Further, even if we are able to maintain technical effectiveness, our technology may not be the most efficient
means of reaching our objectives, in which case we may incur higher operating costs than if our technology was more efficient.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A DECLINE OF OIL AND NATURAL GAS PRICES
OR A PROLONGED PERIOD OF REDUCED OIL AND NATURAL GAS PRICES COULD RESULT IN A DECREASE IN OUR EXPLORATION AND DEVELOPMENT EXPENDITURES,
WHICH COULD NEGATIVELY IMPACT OUR FUTURE PRODUCTION.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If oil and natural
gas prices decline or reduce to lower levels for a prolonged period of time, we may be unable to continue to fund capital expenditures
at historical levels due to the decreased cash flows that will result from such reduced oil and natural gas prices. Additionally,
a decline in oil and natural gas prices or a prolonged period of lower oil and natural gas prices could result in a reduction
of our borrowing base under our credit facility, which will further reduce the availability of cash to fund our operations, should
we desire to borrow under our credit agreement. As a result, we may have to reduce our capital expenditures in future years. A
decrease in our capital expenditures will likely result in a decrease in our production levels.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CONTINUED WEAKNESS IN ECONOMIC CONDITIONS
OR UNCERTAINTY IN FINANCIAL MARKETS MAY HAVE MATERIAL ADVERSE IMPACTS ON OUR BUSINESS THAT WE CANNOT PREDICT.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">U.S.&nbsp;and
global economies and financial systems have experienced episodes of turmoil and upheaval characterized by extreme volatility in
prices of securities, diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure,
collapse or sale of financial institutions, and continue to be affected by continued high levels of unemployment and an unprecedented
level of intervention by the U.S.&nbsp;federal and other governments. Continued weakness in the U.S.&nbsp;or global economies
could materially adversely affect our business and financial condition. For example:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the demand for oil and natural gas in the U.S.&nbsp;may decline from
    present levels and may remain at low levels if economic conditions remain weak, and negatively impact our revenues, margins,
    profitability, operating cash flows, liquidity and financial condition;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the tightening of credit or lack of credit availability to our customers
    could adversely affect our ability to collect our trade receivables;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">our ability to access the capital markets may be restricted at a time
    when we would like, or need, to raise capital for our business, including for exploration and/or development of our reserves;&nbsp;and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">our commodity hedging arrangements could become ineffective if our
    counterparties are unable to perform their obligations or seek bankruptcy protection.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE OIL AND GAS INDUSTRY IS SUBJECT
TO SUBSTANTIAL COMPETITION.&nbsp;&nbsp;IF WE ARE UNABLE TO COMPETE EFFECTIVELY, OUR FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The oil and gas
industry is highly competitive. Other oil and gas companies may seek to acquire oil and natural gas leases and other properties
and services the Company requires to operate its business in the planned areas. This competition is increasingly intense as prices
of oil and natural gas have risen in recent years. Additionally, other companies engaged in our line of business may compete with
us from time to time in obtaining capital from investors. Competitors include larger companies who may have access to greater
financial, technical and personnel resources and may conduct their own refining and petroleum marketing operations, which may
give them a competitive advantage. Furthermore, these companies may also be better able to withstand the financial pressures of
unsuccessful drilling attempts, sustained periods of volatility in financial markets and generally adverse global and industry-wide
economic conditions, and may be better able to absorb the burdens resulting from changes in relevant laws and regulations, which
would adversely affect our competitive position. Existing or potential competitors may be able to offer better compensation packages
to attract and retain qualified personnel than we are able to offer. The cost to attract and retain qualified personnel has increased
over the past few years due to competition and may increase substantially in the future. In addition, existing or potential competitors
may be strengthened through the acquisition of additional assets and interests. If we are unable to compete effectively or respond
adequately to competitive pressures, our results of operation and financial condition may be materially adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR BUSINESS OF EXPLORING FOR OIL AND
GAS IS RISKY AND MAY NOT BE COMMERCIALLY SUCCESSFUL, AND THE ADVANCED TECHNOLOGIES THE COMPANY USES CANNOT ELIMINATE EXPLORATION
RISK.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Our future success will depend on the
success of our exploratory drilling program through our third party operators. Oil and gas exploration and development involves
a high degree of risk. These risks are more acute in the early stages of exploration.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our expenditures
on exploration may not result in new discoveries of oil or natural gas in commercially viable quantities. Projecting the costs
of implementing an exploratory drilling program is difficult due to a variety of factors, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">the inherent uncertainties of drilling in less known formations;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 89.3pt; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">the costs associated with encountering various and unexpected drilling conditions, such
    as over-pressured zones;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">equipment failures or accidents and shortages or delays in the availability of oilfield
    services or drilling rigs and other equipment;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">changes in drilling plans and locations as a result of prior exploratory wells or additional
    seismic data and interpretations thereof;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">adverse weather conditions, including hurricanes; and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">compliance with governmental requirements.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Even when used
and properly interpreted, three-dimensional (3-D) seismic data and visualization techniques only assist geoscientists in identifying
subsurface structures and hydrocarbon indicators. Such data and techniques do not allow the interpreter to know conclusively if
hydrocarbons are present or economically producible. In addition, the use of three-dimensional (3-D) seismic data becomes less
reliable when used at increasing depths. We could incur losses as a result of expenditures on unsuccessful wells. If exploration
costs exceed our estimates, or if our exploration efforts do not produce results which meet our expectations, our exploration
efforts may not be commercially successful, which could adversely impact our ability to generate revenues from our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE MAY NOT BE ABLE TO DEVELOP OIL AND
GAS RESERVES ON AN ECONOMICALLY VIABLE BASIS, AND OUR RESERVES AND PRODUCTION MAY DECLINE AS A RESULT.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If we succeed in
discovering oil or natural gas reserves, we cannot assure that these reserves will be capable of the production levels we project
or that such levels will be in sufficient quantities to be commercially viable. On a long-term basis, our viability depends on
our ability to find or acquire, develop and commercially produce additional oil and natural gas reserves. Without the addition
of reserves through acquisition, exploration or development activities, our reserves and production will decline over time as
reserves are produced. Our future performance will depend not only on our ability to develop then-existing properties, but also
on our ability to identify and acquire additional suitable producing properties or prospects, to find markets for the oil and
natural gas we develop and to distribute effectively our production into the markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#9;Future oil
and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit
on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage
could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from
successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-downs of connected wells
resulting from extreme weather conditions, problems in storage and distribution and adverse geological and mechanical conditions.
While we will endeavor to effectively manage these conditions, we cannot assure you we will do so optimally, and we will not be
able to eliminate them completely in any case. Therefore, these conditions could diminish our revenue and cash flow levels and
could result in the impairment of our oil and natural gas properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE UNAVAILABILITY OR HIGH COST OF
ADDITIONAL DRILLING RIGS, EQUIPMENT, SUPPLIES, PERSONNEL AND OILFIELD SERVICES COULD ADVERSELY AFFECT OUR ABILITY TO EXECUTE OUR
EXPLORATION AND DEVELOPMENT PLANS WITHIN OUR BUDGET AND ON A TIMELY BASIS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Shortages or the
high cost of drilling rigs, equipment, supplies, personnel or oilfield services could delay or adversely affect our development
and exploration operations or cause us to incur significant expenditures that are not provided for in our capital budget, which
could have a material adverse effect on our business, financial condition or results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR DEVELOPMENT AND EXPLORATION OPERATIONS
REQUIRE SUBSTANTIAL CAPITAL, AND WE MAY BE UNABLE TO OBTAIN NEEDED CAPITAL OR FINANCING ON SATISFACTORY TERMS, WHICH COULD LEAD
TO A LOSS OF PROPERTIES AND A DECLINE IN OUR OIL AND NATURAL GAS RESERVES, AND ULTIMATELY OUR PROFITABILITY.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our industry is
capital intensive. We expect to continue to make substantial capital expenditures in our business and operations for the exploration,
development, production and acquisition of natural gas and crude oil reserves. To date, we have financed capital expenditures
primarily with bank borrowings under our credit facility, cash generated by operating activities, from proceeds from our private
placement offerings of our common stock and proceeds from stock subscription receivables. We intend to finance our future capital
expenditures utilizing similar financing sources. Our cash flows from operations are subject to a number of variables, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">our proved reserves;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">the amount of oil and natural gas we are able to produce from existing wells;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">the prices at which oil and natural gas are sold;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">the costs to produce oil and natural gas; and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">our ability to acquire, locate and produce new reserves.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If our revenues
or the borrowing base under our credit facility decreases as a result of lower natural gas and crude oil prices, operating difficulties,
declines in reserves or for any other reason, then we may have limited ability to obtain the capital necessary to sustain our
operations at current levels. We may, from time to time, need to seek additional financing. If we raise funds by issuing equity
securities, this could have a dilutive effect on existing stockholders. There can be no assurance as to the availability or terms
of any additional financing. Our inability to obtain additional financing, or sufficient financing on favorable terms, would adversely
affect our financial condition and profitability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">IF OIL AND NATURAL GAS PRICES DECREASE,
WE MAY BE REQUIRED TO TAKE WRITE-DOWNS OF THE CARRYING VALUES OF OUR OIL AND NATURAL GAS PROPERTIES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We review our
proved oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability
of their carrying value may have occurred. Based on specific market factors and circumstances at the time of prospective impairment
reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required
to write down the carrying value of our oil and natural gas properties, which may result in a decrease in the amount available
under our revolving credit facility. A write-down constitutes a non-cash charge to earnings. We may incur impairment charges in
the future, which could have a material adverse effect on our ability to borrow under our revolving credit facility and our results
of operations for the periods in which such charges are taken.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE OUTSOURCE THE OPERATION OF ALL OF
OUR DRILLING LOCATIONS, AND, THEREFORE, IN CERTAIN SITUATIONS WE WILL NOT BE ABLE TO CONTROL, AND IN OTHER SITUATIONS WE WILL
HAVE LIMITED INPUT REGARDING, THE TIMING OF EXPLORATION OR DEVELOPMENT EFFORTS, ASSOCIATED COSTS, OR THE RATE OF PRODUCTION OF
ANY NON-OPERATED ASSETS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We enter into
joint operating agreements with operators who are responsible for the management and day-to-day operation of our crude oil and/or
natural gas wells. As a result, we may have limited ability to exercise influence over the operations of the drilling locations
operated by our partners. Dependence on the operators could prevent us from realizing our target returns. The success and timing
of exploration and development activities operated by our partners will depend on a number of factors that will be largely outside
of our control, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the timing and amount of capital expenditures;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the operator&rsquo;s expertise and financial resources;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">approval of other participants in drilling wells;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">selection of technology;&nbsp;and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the rate of production of reserves, if any.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">This limited ability
to exercise control over the operations of our drilling locations may cause a material adverse effect on our results of operations
and financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE DEVELOPMENT OF OUR PROVED UNDEVELOPED
RESERVES MAY TAKE LONGER AND MAY REQUIRE HIGHER LEVELS OF CAPITAL EXPENDITURES THAN WE CURRENTLY ANTICIPATE. THEREFORE, OUR UNDEVELOPED
RESERVES MAY NOT BE ULTIMATELY DEVELOPED OR PRODUCED.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Approximately
29.2% of our total proved reserves were classified as proved undeveloped as of December&nbsp;31, 2011. Development of these reserves
may take longer and require higher levels of capital expenditures than we currently anticipate. Delays in the development of our
reserves or increases in costs to drill and develop such reserves will reduce the PV-10 value of our estimated proved undeveloped
reserves and future net revenues estimated for such reserves and may result in some projects becoming uneconomic. In addition,
delays in the development of reserves could cause us to have to reclassify our proved reserves as unproved reserves.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">UNLESS WE REPLACE OUR OIL AND NATURAL
GAS RESERVES, OUR RESERVES AND PRODUCTION WILL DECLINE, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Unless we conduct
successful development, exploitation and exploration activities or acquire properties containing proved reserves, our proved reserves
will decline as those reserves are produced. Producing oil and natural gas reservoirs generally are characterized by declining
production rates that vary depending upon reservoir characteristics and other factors. Our future oil and natural gas reserves
and production, and therefore our cash flows and income, are highly dependent on our success in efficiently developing and exploiting
our current reserves and economically finding or acquiring additional recoverable reserves. We may not be able to develop, exploit,
find or acquire additional reserves to replace our current and future production at acceptable costs. If we are unable to replace
our current and future production, the value of our reserves will decrease, and our business, financial condition and results
of operations would be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">DRILLING NEW WELLS COULD RESULT IN
NEW LIABILITIES, WHICH COULD ENDANGER THE COMPANY&rsquo;S INTERESTS IN ITS PROPERTIES AND ASSETS. ADDITIONALLY, WE MAY NOT BE
INSURED FOR, OR OUR INSURANCE MAY BE INADEQUATE TO PROTECT US AGAINST, THESE RISKS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">There are risks associated
with the drilling of oil and natural gas wells, including encountering unexpected formations or pressures, premature declines of
reservoirs, blow-outs, craterings, sour gas releases, fires and spills, among others. The occurrence of any of these events could
significantly reduce our revenues or cause substantial losses, impairing our future operating results. We may become subject to
liability for pollution, blow-outs or other hazards. We do our best to insure the Company with respect to these hazards; however,
such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. The payment
of such liabilities could reduce the funds available to us or could, in an extreme case, result in a total loss of our properties
and assets. Moreover, we may not be able to maintain adequate insurance in the future at rates that are considered reasonable.
Oil and natural gas production operations are also subject to all the risks typically associated with such operations, including
premature decline of reservoirs and the invasion of water into producing formations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">DECOMMISSIONING COSTS ARE UNKNOWN AND MAY
BE SUBSTANTIAL. UNPLANNED COSTS COULD DIVERT RESOURCES FROM OTHER PROJECTS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We may become responsible
for costs associated with abandoning and reclaiming wells, facilities and pipelines which the Company uses for production of oil
and natural gas reserves. Abandonment and reclamation of these facilities and the costs associated therewith is often referred
to as &ldquo;decommissioning.&rdquo; We accrue a liability for decommissioning costs associated with our wells, but have not established
any cash reserve account for these potential costs in respect of any of our properties. If decommissioning is required before economic
depletion of our properties or if our estimates of the costs of decommissioning exceed the value of the reserves remaining at any
particular time to cover such decommissioning costs, 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 impair our ability to focus capital investment in other areas of
our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE COMPANY MAY HAVE DIFFICULTY DISTRIBUTING
ITS PRODUCTION, WHICH COULD HARM THE COMPANY&rsquo;S FINANCIAL CONDITION.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In order to sell the
oil and natural gas that are produced from our properties, the operators of our wells may have to make arrangements for storage
and distribution to the market. We will rely on local infrastructure and the availability of transportation for storage and shipment
of our products, but infrastructure development and storage and transportation facilities may be insufficient for our needs at
commercially acceptable terms in the localities in which we operate. This situation could be particularly problematic to the extent
that our operations are conducted in remote areas that are difficult to access, such as areas that are distant from shipping and/or
pipeline facilities. These factors may affect our ability to explore and develop properties and to store and transport our oil
and natural gas production and may increase our expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Furthermore, weather
conditions or natural disasters, actions by companies doing business in one or more of the areas in which we operate, or labor
disputes may impair the distribution of oil and/or natural gas and in turn diminish our financial condition or ability to maintain
our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR POTENTIAL DRILLING LOCATION INVENTORIES
ARE SCHEDULED TO BE DRILLED OVER SEVERAL YEARS, MAKING THEM SUSCEPTIBLE TO UNCERTAINTIES THAT COULD MATERIALLY ALTER THE OCCURRENCE
OR TIMING OF THEIR DRILLING. IN ADDITION, WE MAY NOT BE ABLE TO RAISE THE SUBSTANTIAL AMOUNT OF CAPITAL THAT WOULD BE NECESSARY
TO DRILL A SUBSTANTIAL PORTION OF OUR POTENTIAL DRILLING LOCATIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our management
has identified and scheduled drilling locations as an estimation of our future multi-year drilling activities on our existing
acreage. These potential drilling locations, including those without proved undeveloped reserves, represent a significant part
of our growth strategy. Our ability to drill and develop these locations is subject to a number of uncertainties, including the
availability of capital, seasonal conditions, regulatory approvals, oil and natural gas prices, costs and drilling results. Because
of these uncertainties, we do not know if the numerous potential drilling locations we have identified will ever be drilled or
if we will be able to produce oil or natural gas from these or any other potential drilling locations. Pursuant to existing SEC
rules and guidance, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled
to be drilled within five years of the date of booking. These rules and guidance may limit our potential to book additional proved
undeveloped reserves as we pursue our drilling program.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CERTAIN ACREAGE MUST BE DRILLED BEFORE
LEASE EXPIRATION, GENERALLY WITHIN ONE TO THREE YEARS, IN ORDER TO HOLD THE ACREAGE BY PRODUCTION. IN THE HIGHLY COMPETITIVE MARKET
FOR ACREAGE, FAILURE TO DRILL SUFFICIENT WELLS IN ORDER TO HOLD ACREAGE WILL RESULT IN A SUBSTANTIAL LEASE RENEWAL COST, OR IF
RENEWAL IS NOT FEASIBLE, LOSS OF OUR LEASE AND PROSPECTIVE DRILLING OPPORTUNITIES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Unless production
is established covering the undeveloped acres on which some of the locations are identified, the leases for such acreage will
expire. As of December&nbsp;31, 2011, we had leases representing approximately 3,000&nbsp;net acres expiring in 2012, and 5,000
net acres expiring in 2013. The cost to renew such leases may increase significantly, and we may not be able to renew such leases
on commercially reasonable terms or at all. As such, our actual drilling activities may materially differ from our current expectations,
which could adversely affect our business. During the years ended December&nbsp;31, 2011 and 2010, we recorded non-cash impairment
charges of $1,027,552 and $46,553, respectively, for unproved property leases that expired during the period or are expected to
expire without production.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR DERIVATIVE ACTIVITIES COULD RESULT
IN FINANCIAL LOSSES OR COULD REDUCE OUR INCOME.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">To achieve more
predictable cash flows and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we currently,
and may in the future, enter into derivative arrangements for a portion of our oil and natural gas production, including collars
and fixed-price swaps. We have not designated any of our derivative instruments as hedges for accounting purposes and record all
derivative instruments on our balance sheet at fair value. Changes in the fair value of our derivative instruments are recognized
in earnings. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative
instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Derivative arrangements
also expose us to the risk of financial loss in some circumstances, including when:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">production is less than the volume covered by the derivative instruments;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the counterparty to the derivative instrument defaults on its contract
    obligations;&nbsp;or</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">there is an increase in the differential between the underlying price
    in the derivative instrument and actual price received.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In addition, some
of these types of derivative arrangements limit the benefit we would receive from increases in the prices for oil and natural
gas and may expose us to cash margin requirements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE RECENT ADOPTION OF DERIVATIVES
LEGISLATION BY THE UNITED STATES CONGRESS COULD HAVE AN ADVERSE EFFECT ON OUR ABILITY TO USE DERIVATIVE INSTRUMENTS TO REDUCE
THE EFFECT OF COMMODITY PRICE, INTEREST RATE AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The United States
Congress recently adopted comprehensive financial reform legislation that establishes federal oversight and regulation of the
over-the-counter derivatives market and entities, such as us, that participate in that market. The new legislation was signed
into law by the President on July&nbsp;21, 2010 and requires the Commodities Futures Trading Commission (the &ldquo;CFTC&rdquo;)
and the SEC to promulgate rules and regulations implementing the new legislation within 360&nbsp;days from the date of enactment.
The CFTC has also proposed regulations to set position limits for certain futures and option contracts in the major energy markets,
although it is not possible at this time to predict whether or when the CFTC will adopt those rules or include comparable provisions
in its rulemaking under the new legislation. The financial reform legislation may also require us to comply with margin requirements
and with certain clearing and trade-execution requirements in connection with its derivative activities, although the application
of those provisions to us is uncertain at this time. The financial reform legislation may also require the counterparties to our
derivative instruments to spin off some of their derivative activities to a separate entity, which may not be as creditworthy
as the current counterparty. The new legislation and any new regulations could significantly increase the cost of derivative contracts
(including through requirements to post collateral which could adversely affect our available liquidity), materially alter the
terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability
to monetize or restructure existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we
reduce our use of derivatives as a result of the legislation and regulations, our results of operations may become more volatile
and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.
Finally, the legislation was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators
attributed to speculative trading in derivatives and commodity instruments related to oil and natural gas. Our revenues could
therefore be adversely affected if commodity prices decline as a consequence of the legislation and regulations. Any of these
consequences could have a material adverse effect on us, our financial condition and our results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">INCREASED COSTS OF CAPITAL COULD ADVERSELY
AFFECT OUR BUSINESS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our business and
operating results can be harmed by factors such as the availability, terms and cost of capital, increases in interest rates or
a reduction in credit rating. Changes in any one or more of these factors could cause our cost of doing business to increase,
limit our access to capital, limit our ability to pursue acquisition opportunities, reduce our cash flows available for drilling
and place us at a competitive disadvantage. Recent and continuing disruptions and volatility in the global financial markets may
lead to an increase in interest rates or a contraction in credit availability impacting our ability to finance our operations.
We require continued access to capital. A significant reduction in the availability of credit could materially and adversely affect
our ability to achieve our planned growth and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE MAY BE SUBJECT TO RISKS IN CONNECTION
WITH ACQUISITIONS AND THE INTEGRATION OF SIGNIFICANT ACQUISITIONS MAY BE DIFFICULT.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We periodically
evaluate acquisitions of reserves, properties, prospects and leaseholds and other strategic transactions that appear to fit within
our overall business strategy. The successful acquisition of producing properties requires an assessment of several factors, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">recoverable reserves;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">future oil and natural gas prices and their appropriate differentials;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">development and operating costs;&nbsp;and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">potential environmental and other liabilities.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The accuracy of
these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject properties
that we believe to be generally consistent with industry practices. Our review will not reveal all existing or potential problems
nor will it permit us to become sufficiently familiar with the properties to fully assess their deficiencies and potential recoverable
reserves. Inspections may not always be performed on every well, and environmental problems are not necessarily observable even
when an inspection is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective
contractual protection against all or part of the problems. We often are not entitled to contractual indemnification for environmental
liabilities and acquire properties on an &ldquo;as is&rdquo; basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Significant acquisitions
and other strategic transactions may involve other risks, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">diversion of our management&rsquo;s attention to evaluating, negotiating
    and integrating significant acquisitions and strategic transactions;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the challenge and cost of integrating acquired operations, information
    management and other technology systems and business cultures with those of ours while carrying on our ongoing business;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">difficulty associated with coordinating geographically separate organizations;&nbsp;and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">the challenge of attracting and retaining personnel associated with
    acquired operations.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The process of
integrating 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 significant business activities are interrupted as a result of the integration process, our business could suffer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">IF WE FAIL TO REALIZE THE ANTICIPATED
BENEFITS OF A SIGNIFICANT ACQUISITION, OUR RESULTS OF OPERATIONS MAY BE LOWER THAN WE EXPECT.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The success of
a significant acquisition will depend, in part, on our ability to realize anticipated growth opportunities from combining the
acquired assets or operations with those of ours. Even if a combination is successful, it may not be possible to realize the full
benefits we may expect in estimated proved reserves, production volume, cost savings from operating synergies or other benefits
anticipated from an acquisition or realize these benefits within the expected time frame. Anticipated benefits of an acquisition
may be offset by operating losses relating to changes in commodity prices, or in oil and natural gas industry conditions, or by
risks and uncertainties relating to the exploratory prospects of the combined assets or operations, or an increase in operating
or other costs or other difficulties. If we fail to realize the benefits we anticipate from an acquisition, our results of operations
may be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE COMPANY&rsquo;S BUSINESS MAY SUFFER
IF IT CANNOT OBTAIN OR MAINTAIN NECESSARY LICENSES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our operations
require licenses, permits and in some cases renewals of licenses and permits from various governmental authorities. The Company&rsquo;s
ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to changes in regulations and policies
and to the discretion of the applicable governments, among other factors. Our inability to obtain, or the loss of or denial of
extension of, any of these licenses or permits could result in our inability to utilize certain of our leasehold properties or
wells and would therefore diminish our ability to produce revenue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CHALLENGES TO OUR LEASEHOLDS PROPERTIES
MAY IMPACT THE COMPANY&rsquo;S FINANCIAL CONDITION.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Title to oil and
gas properties is often not capable of conclusive determination without incurring substantial expense. To mitigate title problems,
common industry practice is to obtain a title opinion from a qualified oil and gas attorney prior to the drilling operations of
a well. While the Company intends to make appropriate inquiries into the title of properties and other development rights and
obtain a title opinion when we acquire leaseholds, title defects may exist. In addition, we may be unable to obtain adequate insurance
for title defects, on a commercially reasonable basis or at all. If title defects do exist, it is possible that we may lose all
or a portion of our right, title and interests in and to the leasehold properties to which the title defects relate. If our property
rights are reduced, our ability to conduct our exploration, development and production activities may be impaired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR OPERATIONS ARE SUBJECT TO VARIOUS
GOVERNMENTAL REGULATIONS THAT REQUIRE COMPLIANCE THAT CAN BE BURDENSOME AND EXPENSIVE.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our operations
are subject to various federal, state and local governmental regulations that may be changed from time to time in response to
economic and political conditions. Matters subject to regulation include discharge from drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory
agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas wells
below actual production capacity to conserve supplies of oil and natural gas. In addition, the production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and other substances and materials produced or used in
connection with oil and natural gas operations are subject to regulation under federal, state and local laws and regulations primarily
relating to protection of human health and the environment. These laws and regulations have continually imposed increasingly strict
requirements for water and air pollution control and solid waste management, and compliance with these laws may cause delays in
the additional drilling and development of our properties. Significant expenditures may be required to comply with governmental
laws and regulations applicable to us. We believe the trend of more expansive and stricter environmental legislation and regulations
will continue. While historically we have not experienced any material adverse effect from regulatory delays, there can be no
assurance that such delays will not occur in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">ENVIRONMENTAL RISKS MAY ADVERSELY AFFECT
THE COMPANY&rsquo;S BUSINESS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">All phases of the
oil and gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety
of federal, state and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions
and prohibitions on spills, releases or emissions of various substances produced in association with oil and gas operations. The
legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of
applicable regulatory authorities. Compliance with such legislation can require significant expenditures, and a breach may result
in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner we expect
may result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and
operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities
to governments and third parties and may require the Company to incur costs to remedy such discharge. The application of environmental
laws to our business may cause us to curtail our production or increase the costs of our production, development or exploration
activities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">UNUSUAL WEATHER PATTERNS OR NATURAL
DISASTERS, WHETHER DUE TO CLIMATE CHANGE OR OTHERWISE, COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our business depends,
in part, on normal weather patterns across the United States. Natural gas demand and prices are particularly susceptible to seasonal
weather trends. Warmer than usual winters can result in reduced demand and high season-end storage volumes, which can depress
prices. In addition, at least some of our operations are constantly at risk of extreme adverse weather conditions such as hurricanes
and tornadoes. Any unusual or prolonged adverse weather patterns in our areas of operations or markets, whether due to climate
change or otherwise, could have a material and adverse impact on our business, financial condition and cash flow. In addition,
our business, financial condition and cash flow could be adversely affected if the businesses of our key vendors, purchasers,
contractors, suppliers or transportation service providers were disrupted due to severe weather, such as hurricanes or floods,
whether due to climate change or otherwise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Increasing concentrations
of greenhouse gases in the Earth&rsquo;s atmosphere may produce climate changes that have significant physical effects, such as
increased frequency and severity of storms, droughts, floods and other climatic events. If any such effects were to occur, they
could have a material adverse effect on our financial condition and results of operations. Changes in climate due to global warming
trends could adversely affect our operations by limiting or increasing the costs associated with equipment or product supplies.
In addition, flooding and adverse weather conditions such as increased frequency and/or severity of hurricanes could impair our
ability to operate in affected regions of the country. Repercussions of severe weather conditions may include: curtailment of
services; weather-related damage to facilities and equipment, resulting in suspension of operations; inability to deliver equipment,
personnel and products to job sites in accordance with contract schedules; and loss of productivity. These constraints could delay
our operations and materially increase our operating and capital costs. Unusually warm winters may decrease the demand for our
oil or natural gas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
COULD ADVERSELY AFFECT THE DEVELOPMENT AND EXPLORATION OF OIL, GAS, AND OTHER NATURAL RESOURCES, THEREBY HINDERING OUR ABILITY
TO PRODUCE REVENUE.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">A number of potential
legislative and regulatory proposals under consideration by federal, state, local and foreign governmental organizations may lead
to laws or regulations concerning various aspects of oil, natural gas and other natural resources including within the primary
geographic areas in which we hold properties. The adoption of new laws or the application of existing laws may decrease the growth
in the demand or the cost of exploring for and developing natural resources which could in turn decrease the usage and demand
for our production or increase our cost of doing business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The recent trend
in environmental legislation and regulation generally is toward stricter standards. These laws and regulations including the Comprehensive
Environmental, Response, Compensation, and Liability Act (&ldquo;CERCLA&rdquo;), the Federal Resource Conservation and Recovery
Act (&ldquo;RCRA&rdquo;) and the Endangered Species Act (&ldquo;ESA&rdquo;) may require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities; limit or prohibit construction, drilling and other
activities on certain lands lying within wilderness and other protected areas; and impose substantial liabilities for pollution
resulting from its operations.&nbsp;&nbsp;If operations of our properties are found to be in violation of any of the laws and
regulations to which we are subject, we may be subject to the applicable penalty associated with the violation, including civil
and criminal penalties, damages, fines and the curtailment of operations. Any penalties, damages, fines or curtailment of operations,
individually or in the aggregate, could adversely affect our ability to operate our business and our financial results. In addition,
many of these laws and regulations have not been fully interpreted by the regulatory authorities or the courts, and their provisions
are open to a variety of interpretations. Any action against us for violation of these laws or regulations, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert management&rsquo;s attention from the operation
of our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Additionally,
hydraulic fracturing, the process of creating or expanding cracks, or fractures, in formations underground where water, sand and
other additives are pumped under high pressure into the formation, is currently used in completing greater than 90% of all oil
and natural gas wells drilled in the United States. While hydraulic fracturing is typically regulated by state oil and gas commissions,
the EPA recently asserted federal regulatory authority over hydraulic fracturing involving diesel fuels under the Safe Drinking
Water Act&rsquo;s Underground Injection Control Program and has begun the process of drafting guidance documents for permitting
authorities and the industry on the process for obtaining a permit for hydraulic fracturing involving diesel fuel. At the same
time, the EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, with results of
the study anticipated to be available by late 2012. Also, for the second consecutive session, legislation has been introduced
in Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing
process. We cannot predict whether additional hydraulic fracturing federal, state or local laws or regulations will be enacted
and, if so, what actions any such laws or regulations would require or prohibit. If additional levels of regulation or permitting
requirements were imposed through the adoption of new laws and regulations, our operations with respect to our leasehold properties
could be subject to delays, increased operating and compliance costs and process prohibitions. Restrictions on hydraulic fracturing
could also reduce the amount of oil, natural gas liquids and natural gas that we are ultimately able to produce in commercial
quantities from our leasehold properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">FEDERAL AND STATE LEGISLATION AND REGULATORY
INITIATIVES RELATING TO HYDRAULIC FRACTURING COULD RESULT IN INCREASED COSTS AND ADDITIONAL OPERATING RESTRICTIONS OR DELAYS IN
THE COMPLETION OF OIL AND NATURAL GAS WELLS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Hydraulic fracturing
is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurface rock
formations. Legislation was proposed in the last Congress to amend the federal Safe Drinking Water Act to require the disclosure
of chemicals used by the oil and natural gas industry in the hydraulic fracturing process. Hydraulic fracturing involves the injection
of water, sand and chemicals under pressure into rock formations to stimulate oil and natural gas production. We expect that third
parties will be engaged to provide hydraulic fracturing or other well stimulation services in connection with many of the wells
for the operators. If similar legislation is ultimately adopted, it could establish an additional level of regulation at the federal
or state level that could lead to operational delays or increased operating costs and could result in additional regulatory burdens
that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In addition to
possible future regulatory changes at the federal level, several states (including Arkansas, Colorado, Texas, New York and Pennsylvania),
have considered, or are considering, legislation or regulations similar to the federal legislation described above that have imposed,
or could impose, more stringent permitting, transparency, disposal and well construction requirements on hydraulic fracturing
operations. For example, in December 2011, the Railroad Commission of Texas and the Colorado Oil and Gas Conservation Commission
finalized regulations requiring public disclosure of chemicals in fluids used in the hydraulic fracturing process. Local ordinances
or other regulations also may regulate or prohibit the performance of well drilling in general and hydraulic fracturing in particular.
Such laws and regulations may result in increased scrutiny or third-party claims, or otherwise result in operational delays, liabilities
and increased costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Recently, the
Wyoming Oil and Gas Conservation Commission also passed a rule requiring disclosure of hydraulic fracturing fluid content. At
this time, it is not possible to estimate the potential impact on our business of additional federal or state regulatory actions
affecting hydraulic fracturing. In addition, a number of states in which we plan to conduct hydraulic fracturing operations are
currently conducting, or may in the future conduct, regulatory reviews that potentially could restrict or limit our access to
shale formations located in their states. In most states, our third party operators are required to obtain permits from one or
more governmental agencies in order to perform drilling and completion activities, including hydraulic fracturing. Such permits
are typically required by state agencies, but can also be required by federal and local governmental agencies. The requirements
for such permits vary depending on the location where such drilling and completion activities will be conducted. As with all governmental
permitting processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit
to be issued and the conditions which may be imposed in connection with the granting of the permit. Recently, moratoriums on the
issuance of permits have been imposed upon inland drilling and completion activities. For example, subject to an Executive Order
issued by Governor Paterson on December 13, 2010, the New York Department of Environmental Conservation will not issue permits
for drilling and completion activities until it completes a final environmental impact study following public comment. Some of
the drilling and completion activities may take place on federal land, requiring leases from the federal government to conduct
such drilling and completion activities. In some cases, federal agencies have cancelled oil and natural gas leases on federal
lands.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In March 2010,
the United States Environmental Protection Agency announced that it would conduct a wide-ranging study on the effects of hydraulic
fracturing on drinking water resources and that it will propose standards for the treatment or disposal of wastewater from certain
gas production operations. Interim results of the study are expected in 2012, with final results expected in 2014. The agency
also announced that one of its enforcement initiatives for 2011 to 2013 would be to focus on environmental compliance by the energy
extraction sector. This study and enforcement initiative could result in additional regulatory scrutiny that could make it difficult
to perform hydraulic fracturing and increase our costs of compliance and doing business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">CERTAIN UNITED STATES FEDERAL INCOME
TAX DEDUCTIONS CURRENTLY AVAILABLE WITH RESPECT TO OIL AND GAS EXPLORATION AND DEVELOPMENT MAY BE ELIMINATED AS A RESULT OF PROPOSED
LEGISLATION, AND THEREFORE SLOW THE DEMAND FOR INVESTMENT IN THE COMPANY&rsquo;S INDUSTRY.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">President Obama&rsquo;s
Proposed Fiscal Year 2012 Budget includes proposals that would, if enacted into law, make significant changes to United States
tax laws, including the elimination of certain key U.S. federal income tax incentives currently available to oil and natural gas
exploration and production companies. These changes include, but are not limited to, (i) the repeal of the percentage depletion
allowance for oil and natural gas properties, (ii) the elimination of current deductions for intangible drilling and development
costs, (iii) the elimination of the deduction for certain domestic production activities, and (iv) an extension of the amortization
period for certain geological and geophysical expenditures. It is unclear whether these or similar changes will be enacted and,
if enacted, how soon any such changes could become effective. The passage of any legislation as a result of these proposals or
any other similar changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that are currently
available with respect to oil and natural gas exploration and development, and any such change could increase the taxable income
allocable to the Company. Any such changes could have an adverse effect on our financial position, results of operations and cash
flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">POSSIBLE REGULATION RELATED TO GLOBAL
WARMING AND CLIMATE CHANGE COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS AND DEMAND FOR OIL AND NATURAL GAS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In addition to
other climate-related risks set forth in this &ldquo;Risk Factors&rdquo; section, we are and will be, directly and indirectly,
subject to the effects of climate change and may, directly or indirectly, be affected by government laws and regulations related
to climate change. We cannot predict with any degree of certainty what effect, if any, possible climate change and new and developing
government laws and regulations related to climate change will have on our operations, whether directly or indirectly. While we
believe that it is difficult to assess the timing and effect of climate change and pending legislation and regulation related
to climate change on our business, we believe that climate change and government laws and regulations related to climate change
may affect, directly or indirectly, (i)&nbsp;the cost of the equipment and services we purchase, (ii)&nbsp;our ability to continue
to operate as we have in the past, including drilling, completion and operating methods, (iii)&nbsp;the timeliness of delivery
of the materials and services we need and the cost of transportation paid by us and our vendors and other providers of services,
(iv)&nbsp;insurance premiums, deductibles and the availability of coverage, and (v)&nbsp;the cost of utility services, particularly
electricity, in connection with the operation of our properties. In addition, climate change may increase the likelihood of property
damage and the disruption of our operations, especially in coastal states. As a result, our financial condition could be negatively
impacted by significant climate change and related governmental regulation, and that impact could be material.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">REGULATION AND RECENT COURT DECISIONS
RELATED TO GREENHOUSE GAS EMISSIONS COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS AND DEMAND FOR OIL AND NATURAL GAS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Studies over recent
years have indicated that emissions of certain gases may be contributing to warming of the Earth&rsquo;s atmosphere. In response
to these studies, governments have begun adopting domestic and international climate change regulations that requires reporting
and reductions of the emission of greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a byproduct
of the burning of oil, natural gas and refined petroleum products, are considered greenhouse gases. Internationally, the United
Nations Framework Convention on Climate Change, and the Kyoto Protocol address greenhouse gas emissions, and several counties
including the European Union have established greenhouse gas regulatory systems. In the United States, at the state level, many
states, either individually or through multi-state regional initiatives, have begun implementing legal measures to reduce emissions
of greenhouse gases, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade
programs or have begun considering adopting greenhouse gas regulatory programs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The EPA has issued
greenhouse gas monitoring and reporting regulations that went into effect January 1, 2010, and require reporting by regulated facilities
by March 2011 and annually thereafter. In November 2010, the EPA issued a final rule requiring companies to report certain greenhouse
gas emissions from oil and natural gas facilities. Our oil and natural gas operations are subject to such greenhouse gas reporting
requirements and we will monitor our emissions to make such required reports when due in 2012. While we believe that we will be
able to substantially comply with such reporting requirements without any material adverse effect to our financial condition, since
such reporting requirements with respect to greenhouse gas emissions are new in the oil and gas industry, there can be no assurance
that our reports will initially be in substantial compliance or that such requirements will not develop into more stringent and
costly obligations that may have a significant impact on our operating costs. Beyond measuring and reporting, the EPA issued an
&ldquo;Endangerment Finding&rdquo; under section 202(a) of the Clean Air Act, concluding greenhouse gas pollution threatens the
public health and welfare of current and future generations. The finding serves as a first step to issuing regulations that would
require permits for and reductions in greenhouse gas emissions for certain facilities. EPA has proposed such greenhouse gas regulations
and may issue final rules this year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In the courts, several
decisions have been issued that may increase the risk of claims being filed by governments and private parties against companies
that have significant greenhouse gas emissions. Such cases may seek to challenge air emissions permits that greenhouse gas emitters
apply for and seek to force emitters to reduce their emissions or seek damages for alleged climate change impacts to the environment,
people, and property.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Any laws or regulations
that may be adopted to restrict or reduce emissions of greenhouse gases could require us to incur increased operating and compliance
costs, and could have an adverse effect on demand for the oil and natural gas that we produce.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>RISKS RELATED TO OUR INDEBTEDNESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE MAY NOT BE ABLE TO GENERATE ENOUGH
CASH FLOW TO MEET OUR DEBT OBLIGATIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We expect our
earnings and cash flow to vary significantly from year to year due to the nature of our industry. As a result, the amount of debt
that we can manage in some periods may not be appropriate for us in other periods. Additionally, our future cash flow may be insufficient
to meet our debt obligations and other commitments. Any insufficiency could negatively impact our business. A range of economic,
competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate
cash flow from operations and to pay our debt obligations. Many of these factors, such as oil and natural gas prices, economic
and financial conditions in our industry and the global economy and initiatives of our competitors, are beyond our control. If
we do not generate enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing
plans, such as:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">selling assets;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">reducing or delaying capital investments;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">seeking to raise additional capital; or</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">refinancing or restructuring our debt.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If for any reason
we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing
our debt, which would allow our creditors at that time to declare all outstanding indebtedness to be due and payable. In addition,
our lenders could compel us to apply all of our available cash to repay our borrowings or they could prevent us from making payments
on our senior unsecured notes. If amounts outstanding under our revolving credit facility or our senior unsecured notes were to
be accelerated, we cannot be certain that our assets would be sufficient to repay in full the money owed to the lenders or to
our other debt holders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR REVOLVING CREDIT FACILITY CONTAINS
OPERATING AND FINANCIAL RESTRICTIONS THAT MAY RESTRICT OUR BUSINESS AND FINANCING ACTIVITIES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our revolving
credit facility contains a number of restrictive covenants that will impose significant operating and financial restrictions on
us, including restrictions on our ability to, among other things:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">incur certain indebtedness;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">guaranty indebtedness of another person or entity;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">merge with or into another person or entity;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">make certain acquisitions or investments;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">create or incur certain liens;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">make investments;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">create any subsidiaries;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">enter into a joint venture;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">declare dividends or distributions or redeem any of our common stock; or</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 72px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">engage in certain business activities.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">As a result of
these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable
business activities or finance future operations or capital needs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our ability to comply
with some of the covenants and restrictions contained in our revolving credit facility may be affected by events beyond our control.
If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. A failure to comply
with the covenants, ratios or tests in our revolving credit facility or any future indebtedness could result in an event of default
under our revolving credit facility or our future indebtedness, which, if not cured or waived, could have a material adverse effect
on our business, financial condition and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If an event of
default under our revolving credit facility occurs and remains uncured, the lenders thereunder:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">would not be required to lend any additional amounts to us; and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%; vertical-align: top; text-align: justify">&bull;</TD>
    <TD STYLE="width: 1%; vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">could elect to declare all borrowings outstanding, together with accrued
    and unpaid interest and fees, to be due and payable.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR LEVEL OF INDEBTEDNESS MAY INCREASE
AND REDUCE OUR FINANCIAL FLEXIBILITY. A SUBSTANTIAL PORTION OF OUR ASSETS SECURE OUR INDEBTEDNESS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of June 30,
2012, we had $13,100,000 outstanding under our revolving credit facility, $9,027,756 outstanding under our term loan facility
and $0 available for future secured borrowings under our revolving credit facility. As of June 30, 2012, we also had a $20 million
secured convertible promissory note issued to Pentwater, which was subsequently increased to $25 million on June 30, 2012. The
promissory note with a principal amount of $35 million issued to Geronimo was converted into shares of Series A Preferred Stock
on June 30, 2012 which accrue cumulative dividends semi-annually at a rate of 7.5% per annum. In the future, we may incur significant
indebtedness in order to make future acquisitions or to develop our properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 53.9pt">Our level of indebtedness
could affect our operations in several ways, including the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10px">&nbsp;</TD>
    <TD STYLE="width: 48px">&bull;</TD>
    <TD STYLE="text-align: justify">a significant portion of our cash flows could be used to service our indebtedness;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.6in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10px">&nbsp;</TD>
    <TD STYLE="width: 48px">&bull;</TD>
    <TD STYLE="text-align: justify">a high level of debt would increase our vulnerability to general adverse economic and industry
    conditions;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.6in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10px">&nbsp;</TD>
    <TD STYLE="width: 48px">&bull;</TD>
    <TD STYLE="text-align: justify">the covenants contained in the agreements governing our outstanding indebtedness limit
    our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.6in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10px">&nbsp;</TD>
    <TD STYLE="width: 48px">&bull;</TD>
    <TD STYLE="text-align: justify">our debt covenants may also affect our flexibility in planning for, and reacting to, changes
    in the economy and in our industry;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.6in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10px">&nbsp;</TD>
    <TD STYLE="width: 48px">&bull;</TD>
    <TD STYLE="text-align: justify">a high level of debt may place us at a competitive disadvantage compared to our competitors
    that are less leveraged and therefore, may be able to take advantage of opportunities that our indebtedness would prevent
    us from pursuing;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.6in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10px">&nbsp;</TD>
    <TD STYLE="width: 48px">&bull;</TD>
    <TD STYLE="text-align: justify">a high level of debt may make it more likely that a reduction in our borrowing base following
    a periodic redetermination could require us to repay a portion of our then-outstanding bank borrowings;&nbsp;and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.6in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10px">&nbsp;</TD>
    <TD STYLE="width: 48px">&bull;</TD>
    <TD STYLE="text-align: justify">a high level of debt may impair our ability to obtain additional financing in the future
    for working capital, capital expenditures, acquisitions, general corporate or other purposes.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A high level of
indebtedness increases the risk that we may default on our debt obligations. A debt default could significantly diminish the market
value and marketability of our common stock and could result in the acceleration of the payment obligations under all or a portion
of our consolidated indebtedness. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on
our future performance. General economic conditions, oil and natural gas prices and financial, business and other factors affect
our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient
cash flows to pay the interest on our debt and future working capital, and borrowings or equity financing may not be available
to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or
a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need
capital.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, our
bank borrowing base is subject to periodic redeterminations. We could be forced to repay a portion of our bank borrowings due
to redeterminations of our borrowing base. If we are forced to do so, we may not have sufficient funds to make such repayments.
If we do not have sufficient funds and are otherwise unable to negotiate renewals of our borrowings or arrange new financing,
we may have to sell significant assets. Any such sale could have a material adverse effect on our business and financial results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 53.9pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We have pledged substantially all of
our assets to secure our obligations under our various credit agreements and notes. In the event that we were to fail in the future
to make any required payment under agreements governing our indebtedness or fail to comply with the financial and operating covenants
contained in those agreements, we would be in default regarding that indebtedness. A debt default would enable the lenders to
foreclose on the assets securing such debt and could significantly diminish the market value and marketability of our common stock
and could result in the acceleration of the payment obligations under all or a portion of our consolidated indebtedness.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-transform: uppercase">We
have experienced rapid growth SINCE OUR INCEPTION. If we fail to manage this or any future growth, our business and operating
results could be harmed.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our business has
grown dramatically since our inception. For example, our revenue increased from $6,896,945 million for the year ended December
31, 2010 to $12,407,774 million for the year ended December 31, 2011. Our growth has largely resulted from our acquisition of
new leasehold interests. Since October 2010, we have acquired leasehold interests in approximately 101,000 acres. Additionally,
we continue to evaluate and pursue appropriate acquisition opportunities to the extent we believe that such opportunities would
be in the best interests of our company and our stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This significant
growth has placed considerable demands on our management and other resources and continued growth could place additional demands
on such resources. Our ability to compete effectively and to manage future growth, if any, will depend on the sufficiency and
adequacy of our current resources and infrastructure and our ability to continue to identify, attract and retain competent personnel.
There can be no assurance that our personnel, systems, procedures and controls will be adequate to support our operations and
properly oversee our assets. The failure to support our operations effectively and properly oversee our assets could cause harm
to our assets and have a material adverse effect on their fair values and our business, financial condition and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Also, there can
be no assurance that we will be able to sustain our recent growth. Our growth may be limited by a number of factors including
increased competition for leasehold interests in oil and gas producing regions, insufficient capitalization for future acquisitions
and the lack of attractive acquisition targets. In addition as we continue to grow larger, we will likely need to make additional
and larger acquisitions to continue to grow at our current pace.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-transform: uppercase">We
could be exposed to unknown pre-existing liabilities of THE ASSETS Purchased, which could cause us to incur substantial financial
obligations and harm our business.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with the acquisition,
we may have assumed liabilities of XOG and Geronimo of which we are not aware and may have little or no recourse against XOG and
Geronimo with respect thereto. If we were to discover that there were intentional misrepresentations made to us by XOG and Geronimo,
or their representatives as to these or other matters, we would explore all possible legal remedies to compensate us for any loss,
including our rights to indemnification under the purchase and sale agreement that we entered into with XOG and Geronimo upon
the closing of the acquisition. However, there is no assurance that in such case legal remedies would be available or collectible.
If such unknown liabilities exist and we are not fully indemnified for any loss that we incur as a result thereof, we could incur
substantial financial obligations, which could negatively impact our financial condition and harm our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>RISKS RELATED TO THE COMPANY&rsquo;S
SECURITIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE COMPANY&rsquo;S COMMON STOCK IS QUOTED
ON THE OTC BULLETIN BOARD WHICH MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our common stock is
quoted on the OTCBB, which is a significantly more limited trading market than the New York Stock Exchange or The NASDAQ Stock
Market. The quotation of the Company&rsquo;s shares on the OTCBB may result in a less liquid market available for existing and
potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have
a long-term adverse impact on our ability to raise capital in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">When fewer shares
of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver
accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower likelihood of one&rsquo;s
orders for shares of our common stock being executed, and current prices may differ significantly from the price one was quoted
at the time of one&rsquo;s order entry.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE COMPANY&rsquo;S COMMON STOCK IS THINLY
TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASKING PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO RAISE MONEY OR OTHERWISE
DESIRE TO LIQUIDATE YOUR SHARES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Currently, the Company&rsquo;s
common stock is quoted in the OTCBB and the trading volume the Company anticipates to develop may be limited by the fact that many
major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing
in OTCBB stocks and certain major brokerage firms restrict their brokers from recommending OTCBB stocks because they are considered
speculative, volatile and thinly traded. The OTCBB market is an inter-dealer market much less regulated than the major exchanges
and our common stock is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established
trading market for the Company&rsquo;s common stock. An established trading market may never develop or be maintained. Active trading
markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading
market reduces the liquidity of the shares traded there.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The trading volume
of our common stock has been and may continue to be limited and sporadic. As a result of such trading activity, the quoted price
for the Company&rsquo;s common stock on the OTCBB may not necessarily be a reliable indicator of its fair market value. Further,
if we cease to be quoted, holders would find it more difficult to dispose of our common stock or to obtain accurate quotations
as to the market value of the Company&rsquo;s common stock and as a result, the market value of our common stock likely would decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE COMPANY&rsquo;S COMMON STOCK IS SUBJECT
TO PRICE VOLATILITY UNRELATED TO ITS OPERATIONS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The market price of
the Company&rsquo;s common stock could fluctuate substantially due to a variety of factors, including market perception of our
ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our
common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company&rsquo;s
competitors or the Company itself. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility
has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">OUR BOARD OF DIRECTORS&rsquo; ABILITY TO
ISSUE UNDESIGNATED PREFERRED STOCK AND THE EXISTENCE OF ANTI-TAKEOVER PROVISIONS MAY DEPRESS THE VALUE OF OUR COMMON STOCK.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our authorized capital
includes one million shares of undesignated preferred stock.&nbsp;&nbsp;Our board of directors has the power to issue any or all
of the shares of preferred stock, including the authority to establish one or more series and to fix the powers, preferences, rights
and limitations of such class or series, without seeking stockholder approval.&nbsp;&nbsp;Further, as a Delaware corporation, we
are subject to provisions of the Delaware General Corporation Law regarding &ldquo;business combinations.&rdquo; Our board may,
in the future, consider adopting additional anti-takeover measures. The authority of our board of directors to issue undesignated
stock and the anti-takeover provisions of Delaware law, as well as any future anti-takeover measures adopted by us, may, in certain
circumstances, delay, deter or prevent takeover attempts and other changes in control of us that are not approved by our board.
As a result, our stockholders may lose opportunities to dispose of their shares at favorable prices generally available in takeover
attempts or that may be available under a merger proposal and the market price, voting and other rights of the holders of common
stock may also be affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE DO NOT EXPECT TO PAY DIVIDENDS IN THE
FORESEEABLE FUTURE.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We do not intend to
declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and
growth of our business.&nbsp;&nbsp;Therefore, our stockholders will not receive any funds unless they sell their common stock,
and stockholders may be unable to sell their shares on favorable terms or at all.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">WE ARE SUBJECT TO THE PENNY STOCK RULES
ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION (&ldquo;SEC&rdquo;) THAT REQUIRE BROKERS TO PROVIDE EXTENSIVE DISCLOSURE TO ITS
CUSTOMERS PRIOR TO EXECUTING TRADES IN PENNY STOCKS. THESE DISCLOSURE REQUIREMENTS MAY CAUSE A REDUCTION IN THE TRADING ACTIVITY
OF OUR COMMON STOCK, WHICH IN ALL LIKELIHOOD WOULD MAKE IT DIFFICULT FOR OUR STOCKHOLDERS TO SELL THEIR SECURITIES.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">Rule 3a51-1 of
the Securities Exchange Act of 1934, as amended, establishes the definition of a &ldquo;penny stock,&rdquo; for purposes relevant
to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and
adversely affect any market liquidity for our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">For any transaction
involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person&rsquo;s account
for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting
forth the identity and quantity of the penny stock to be purchased.&nbsp;&nbsp;In order to approve a person&rsquo;s account for
transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of
the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that
person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny
stocks.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">The broker or dealer
must also deliver, prior to any transaction in a penny stock, a disclosure schedule required by the SEC relating to the penny stock
market, which, in highlight form, sets forth:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 94%; text-align: justify">The basis on which the broker or dealer made the suitability determination; and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 94%; text-align: justify">That the broker or dealer received a signed, written agreement from the investor prior to the transaction.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">Disclosure also has
to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission payable
to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and information on the limited market in penny stocks.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">Because of these
regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter
difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other
holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary
market. These additional sales practice and disclosure requirements could impede the sale of our common stock, if and when our
common stock becomes publicly traded. In addition, the liquidity for our common stock may decrease, with a corresponding decrease
in the price of our common stock. Our common stock, in all probability, will be subject to such penny stock rules for the foreseeable
future and our stockholders will, in all likelihood, find it difficult to sell their common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">FUTURE SALES OF COMMON STOCK IN THE PUBLIC
MARKET OR THE ISSUANCE OF COMMON STOCK OR THE EXERCISE OF OUR CONVERTIBLE SECURITIES WOULD CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS
AND COULD ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our Certificate of Incorporation currently
authorizes our board of directors to issue shares of common stock in excess of the common stock outstanding.&nbsp;&nbsp;Any additional
issuances of any of our authorized but unissued shares will not require the approval of stockholders and may have the effect of
further diluting the equity interest of stockholders.&nbsp;&nbsp;We may issue common stock in the future for a number of reasons,
including to attract and retain key personnel, as purchase price for possible acquisitions, to lenders, investment banks, or investors
in order to achieve more favorable terms from these parties and align their interests with our common equity holders, to management
and/or employees to reward performance, to finance our operations and growth strategy, to adjust our ratio of debt to equity,
to satisfy outstanding obligations or for other reasons. As of August 3, 2012, we had 86,757,842<FONT STYLE="font-family: Times New Roman, Times, Serif; color: black"><B>
</B></FONT>shares of our common stock outstanding on a fully-diluted basis, assuming the exercise of all outstanding options,
warrants and convertible notes. If we issue securities or if any of the convertible securities currently outstanding are exercised,
our existing stockholders may experience dilution.&nbsp;&nbsp;Future sales of the common stock, the perception that such sales
could occur or the availability for future sale of shares of the common stock or securities convertible into or exercisable for
our common stock could adversely affect the market prices of our common stock prevailing from time to time.&nbsp;&nbsp;The sale
of shares issued upon the exercise of our derivative securities could also further dilute the holdings of our then existing stockholders.
In addition, future public sales of shares of the common stock could impair our ability to raise capital by offering equity securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Certain information contained in this prospectus includes forward-looking
statements. The statements herein which are not historical reflect our current expectations and projections about the Company&rsquo;s
future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently
available to the Company and its management and management&rsquo;s interpretation of what is believed to be significant factors
affecting the business, including many assumptions regarding future events. Forward-looking statements, which involve assumptions
and describe our future plans, strategies, and expectations, are generally identifiable by use of the words &ldquo;will,&rdquo;
&ldquo;shall,&rdquo; &ldquo;may,&rdquo; &ldquo;should,&rdquo; &ldquo;expect,&rdquo; &ldquo;anticipate,&rdquo; &ldquo;estimate,&rdquo;
&ldquo;believe,&rdquo; &ldquo;intend,&rdquo; &ldquo;plan,&rdquo; or &ldquo;project&rdquo; or the negative of these words or other
variations on these words or comparable terminology.&nbsp;&nbsp;Actual results, performance, liquidity, financial condition, prospects
and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result
of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company&rsquo;s
operations. These statements may be found under &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results
of Operations,&rdquo; &ldquo;Risk Factors&rdquo; and &ldquo;Description of Business,&rdquo; as well as in this prospectus generally.&nbsp;&nbsp;Actual
events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including,
without limitation, the risks outlined under &ldquo;Risk Factors&rdquo; and matters described in this prospectus generally.&nbsp;&nbsp;In
light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus
will in fact occur.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Prospective investors should not place undue reliance on any
forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update
or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other
reason.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The specific discussions herein about the Company include financial
projections and future estimates and expectations about the Company&rsquo;s business.&nbsp;&nbsp;The projections, estimates and
expectations are presented in this prospectus only as a guide about future possibilities and do not represent actual amounts or
assured events.&nbsp;&nbsp;All the projections and estimates are based exclusively on the Company management&rsquo;s own assessment
of its business, the industry in which it works and the economy at large and other operational factors, including capital resources
and liquidity, financial condition, fulfillment of contracts and opportunities.&nbsp;&nbsp;The actual results may differ significantly
from the projections.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>USE OF PROCEEDS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We will not receive any proceeds from the sale of common stock
by the selling security holders. All of the net proceeds from the resale of our common stock will go to the selling security holders
as described below in the sections entitled &ldquo;Selling Security Holders&rdquo; and &ldquo;Plan of Distribution&rdquo;.&nbsp;
We have agreed to bear the expenses relating to the registration of the common stock for the selling security holders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The shares of common stock covered by this prospectus are issuable
upon exercise of the Warrants. We may receive proceeds in the event some or all of the Warrants held by the selling security holders
are exercised for cash. To the extent that the selling stockholders exercise, for cash, all of the Warrants covering the 6,666,666
shares of common stock registered for resale under this prospectus, we would receive approximately $15 million in the aggregate
from such exercises of the total funds. Any proceeds received from the exercise of the warrants will be used for working capital
and other general corporate purposes.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DETERMINATION OF OFFERING PRICE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The prices at which the shares or common stock covered by this
prospectus may actually be sold will be determined by the prevailing public market price for shares of common stock, by negotiations
between the selling security holders and buyers of our common stock in private transactions or as otherwise described in &ldquo;Plan
of Distribution.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DILUTION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The selling security holders are offering for resale common
shares underlying the outstanding Warrants. To the extent such Warrants are exercised, the existing shareholder will experience
dilution to their ownership interests in us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>SELLING SECURITY HOLDERS</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The common shares being offered for resale by the selling
security holders consist of 6,666,666 shares of our common stock underlying warrants with an exercise price of $2.25 held by four
affiliated entities pursuant to a Note and Warrant Pursuant Agreement dated February 9,2012 and amended on July 23,2012. The following
table sets forth the name of the selling security holders, the number of shares of common stock beneficially owned by each of
the selling stockholders as of August 3, 2012 and the number of shares of common stock being offered by the selling stockholders.&nbsp;&nbsp;The
shares being offered hereby are being registered to permit public secondary trading and the selling stockholders may offer all
or part of the shares for resale from time to time. However, the selling stockholders are under no obligation to sell all or any
portion of such shares nor are the selling stockholders obligated to sell any shares immediately upon effectiveness of this prospectus.&nbsp;&nbsp;All
information with respect to share ownership has been furnished by the selling stockholders.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">Name</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Shares <BR>Beneficially <BR>Owned&nbsp;Before <BR>the&nbsp;Offering</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Shares&nbsp;to&nbsp;Be <BR>Offered</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Shares <BR>Beneficially <BR>Owned <BR>After&nbsp;the
    <BR>Offering</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Percentage <BR>Beneficially <BR>Owned&nbsp;After&nbsp;the
    <BR>Offering</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; width: 40%">Pentwater Equity Opportunities Master Fund Ltd.</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="text-align: right; width: 9%">1</TD><TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="text-align: right; width: 9%">6,860,887</TD><TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="text-align: right; width: 9%">3,150,000</TD><TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="text-align: right; width: 9%">3,710,887</TD><TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="text-align: right; width: 9%">6.6</TD><TD STYLE="text-align: left; width: 1%">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Oceana Master Fund Ltd.</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,513,110</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">550,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,963,110</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.7</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">LMA SPC for and on behalf of MAP 98 Segregated Portfolio</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,227,156</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">274,999</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">952,157</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.8</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">PWCM Master Fund Ltd.</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,632,192</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,691,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">940,525</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,233,345</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,666,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,566,679</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14.86</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1) The shares of common stock offered for sale consist
of 3,150,000 <FONT STYLE="font: 10pt Times New Roman, Times, Serif">shares of our common stock underlying </FONT>Warrants. Pentwater
Equity Opportunities Master Fund Ltd. is also the beneficial owner of 1,548,322 shares of our common stock and 2,162,565 shares
of our common stock underlying warrants. Pentwater LP is the investment advisor of Pentwater Equity Opportunities Master Fund
Ltd. (&quot;Pentwater Opportunities&quot;) and consequently has voting control and investment discretion over securities held
by Pentwater Opportunities.&nbsp;&nbsp;Mr. Nenadovic, Chief Financial Officer of Pentwater LP has voting control over Pentwater
Opportunities. As a result of the foregoing, each of Mr. Nenadovic and Pentwater LP may be deemed to have beneficial ownership
(as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the shares of common stock beneficially
owned by Pentwater Opportunities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">(2) The
shares of common stock offered for sale consist of 550,000 shares of our common stock underlying Warrants. Oceana Master Fund
Ltd. is also the beneficial owner of 914,232 shares of our common stock and 1,048,878 shares of our common stock underlying warrants. Pentwater LP is the
investment advisor of Oceana Master Fund Ltd. (&quot;Oceana Fund&quot;) and consequently has voting control and investment
discretion over securities held by Oceana Fund. Mr. Nenadovic, Chief Financial Officer of Pentwater LP has voting control
over Oceana Fund. As a result of the foregoing, each of Mr. Nenadovic and Pentwater LP may be deemed to have beneficial
ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the shares of common
stock beneficially owned by Oceana Fund.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(3) The shares of common stock offered for sale consist
of 274,999 <FONT STYLE="font: 10pt Times New Roman, Times, Serif">shares of our common stock underlying Warrants.</FONT> LMA
SPC for and on behalf of MAP 98 Segregated Portfolio. is also the beneficial owner of <FONT STYLE="font: 10pt Times New Roman, Times, Serif">437,145
shares of our common stock and 515,012 shares of our common stock underlying warrants.</FONT> Pentwater LP is the investment
advisor of LMA SPC for and on behalf of MAP 98 Segregated Portfolio (&quot;MAP 98&quot;) and consequently has voting control
and investment discretion over securities held by MAP 98. Mr. Nenadovic, Chief Financial Officer of Pentwater LP has voting
control over MAP 98. As a result of the foregoing, each of Mr. Nenadovic and Pentwater LP may be deemed to have beneficial
ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the shares of common
stock beneficially owned by MAP 98.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(4) The shares of common stock offered for sale consist
of 2,691,667shares of our common stock Warrants. PWCM Master Fund Ltd. is also the beneficial owner of 333,914 shares of our common
stock and 606,611shares of our common stock underlying warrants. Pentwater LP is the investment advisor of PWCM Master Fund Ltd.
and consequently has voting control and investment discretion over securities held by PWCM Master Fund Ltd. Mr. Nenadovic, Chief
Financial Officer of Pentwater LP has voting control over PWCM Master Fund Ltd. As a result of the foregoing, each of Mr. Nenadovic
and Pentwater LP may be deemed to have beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act
of 1934, as amended) of the shares of common stock beneficially owned by PWCM Master Fund Ltd.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Except as set forth, none of the selling shareholders or
their beneficial owners:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">-</TD><TD>has had a material relationship with us other than as a shareholder at any time within the past three years;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">-</TD><TD>has ever been one of our officers or directors or an officer or director of our predecessors or affiliates; or</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">-</TD><TD>are broker-dealers or affiliated with broker-dealers.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PLAN OF DISTRIBUTION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">This prospectus relates to the resale
of up to 6,666,666 shares of common stock issuable upon the exercise of common stock purchase warrants.&nbsp;&nbsp;We
will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock.&nbsp;&nbsp;We will
bear all fees and expenses incident to our obligation to register the shares of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The selling stockholders may sell all or
a portion of the shares of common stock held by them and offered hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders
will be responsible for underwriting discounts or commissions or agent&rsquo;s commissions. The shares of common stock may be sold
in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined
at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,
pursuant to one or more of the following methods:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>in the over-the-counter market;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>in transactions otherwise than on these exchanges or systems or in the over-the-counter market;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>through the writing or settlement of options, whether such options are listed on an options exchange or otherwise;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>purchases by a broker-dealer as principal and resale by the broker-dealer for its account;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>an exchange distribution in accordance with the rules of the applicable exchange;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>privately negotiated transactions;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>short sales made after the date the Registration Statement is declared effective by the SEC;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>agreements between broker-dealers and the selling securityholders to sell a specified number of such shares at a stipulated
price per share;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a combination of any such methods of sale; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>any other method permitted pursuant to applicable law.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The selling stockholders may also sell shares
of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended, if available, rather than under this prospectus.
In addition, the selling stockholders may transfer the shares of common stock by other means not described in this prospectus.
If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers
or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions
from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents
may be in excess of those customary in the types of transactions involved). Such commissions will be in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction will not be in excess of a customary
brokerage commission in compliance with FINRA Rule&nbsp;2440; and in the case of a principal transaction a markup or markdown in
compliance with FINRA IM-2440.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with sales of the shares of
common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders
may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares.&nbsp;&nbsp;The selling stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer
or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The selling stockholders may pledge or grant
a security interest in some or all of the warrants or shares of common stock owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant
to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act
amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as
selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in
other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial
owners for purposes of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">To the extent required by the Securities
Act and the rules and regulations thereunder, the selling stockholders and any broker-dealer participating in the distribution
of the shares of common stock may be deemed to be &ldquo;underwriters&rdquo; within the meaning of the Securities Act, and any
commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement,
if required, will be distributed, which will set forth the aggregate amount of shares of common stock being offered and the terms
of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting
compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Under the securities laws of some states,
the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some
states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied with.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">There can be no assurance that any selling
stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The selling stockholders and any other person
participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange
Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any
other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution
of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing
may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities
with respect to the shares of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We will pay all expenses of the registration
of the shares of common stock pursuant to the registration rights agreement, estimated to be $31,787 in total, including, without
limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or &ldquo;blue sky&rdquo;
laws; provided, however, a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify
the selling stockholders against liabilities, including some liabilities under the Securities Act in accordance with the registration
rights agreements or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished
to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements
or we may be entitled to contribution.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MARKET PRICE AND DIVIDENDS ON REGISTRANT&rsquo;S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our shares of common stock are trading
on the Over the Counter Bulletin Board (&ldquo;OTCBB&rdquo;) under the trading symbol &ldquo;ASEN.&rdquo; The OTCBB is a significantly
more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares on the OTCBB may result in
a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the
trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the two year period ended December
31, 2011, there were no reported trades for the Company&rsquo;s common stock until October 15, 2010. The following table sets
forth, for the period indicated, the high and low closing prices for our common stock on the OTCBB as reported by various OTCBB
market makers. The quotations do not reflect adjustments for retail mark-ups, mark-downs, or commissions and may not necessarily
reflect actual transactions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>Quarter&nbsp;Ended</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">High&nbsp;($)</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">Low&nbsp;($)</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%">Second Quarter ended June 30, 2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2.51</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1.31</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>First Quarter ended March 31, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.80</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Fourth Quarter ended December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.05</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Third Quarter ended September 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.15</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.65</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Second Quarter ended June 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">6.75</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>First Quarter ended March 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.75</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Fourth Quarter ended December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.50</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Holders</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of August 2, 2012, there were approximately 232 holders
of record of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Transfer Agent and Registrar</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Standard Registrar &amp; Transfer Co., Inc. is currently the
transfer agent and registrar for our common stock. Its address is 12528 South 1840 East, Draper, UT 84020. Its phone number is
(801) 571-8844.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Dividend Policy</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have never declared or paid dividends
on our common stock. We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate
paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company&rsquo;s
board of directors after taking into account various factors, including current financial condition, operating results and current
and anticipated cash needs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Securities Authorized for Issuance under Equity Compensation
Plans</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following is certain information about our equity compensation
plans as of December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center; border-bottom: Black 1pt solid">Plan&nbsp;Category</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of <BR>securities <BR>to&nbsp;be&nbsp;issued
    <BR>upon <BR>exercise <BR>of <BR>outstanding <BR>options, <BR>warrants <BR>and&nbsp;rights</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted&ndash; <BR> average <BR> exercise <BR>
    price <BR> of <BR> outstanding <BR> options, <BR> warrants <BR> and&nbsp;rights</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of <BR> securities <BR> remaining
    <BR> available <BR> for&nbsp;future <BR> issuance <BR> under&nbsp;equity <BR> compensation <BR> plans (1)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%; text-align: left">Equity Compensation Plans approved by security holders</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">10,745,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">5.67</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">11,255,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>Excluding securities reflected in the second column.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In 2010, we adopted our Stock Incentive Plan (the &quot;2010
Plan&quot;) and ratified an amendment to such plan in August 2011. The maximum number of shares of our common stock that may be
issued pursuant to grants or awards under the 2010 Plan, as amended, is 12,000,000 shares to employees, officers, directors and
outside advisors.&nbsp;&nbsp;As of December 31, 2011,&nbsp;10,745,000 options were issued and outstanding under the 2010 Plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In 2011, we adopted a new Stock Incentive Plan (the &ldquo;2011
Plan&rdquo;), under which we approved and reserved 10,000,000 stock options for issuance to our employees, officers, directors
and outside advisors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On March 30, 2012, the Board of Directors approved the restructuring
of stock options as part of a comprehensive review of compensation, compensation expense, and shareholder dilution. As of December
31, 2011, 10,745,000 options to purchase common stock were outstanding. As part of a comprehensive review of compensation, compensation
expense, and shareholder dilution, the Board of Directors approved the restructuring of stock options on March 30, 2012 (the &ldquo;Modification
Date&rdquo;). Due to the modification, 2,400,000 options issued to certain officers were forfeited and 3,200,000 options were
accelerated and became immediately vested. An additional 1,540,000 non-qualified options, 205,760 incentive stock options and
80,000 restricted share of common stock were granted to certain officers, directors, employees and a consultant. All modified
options (including the newly issued options) were priced at the average of the open and closing share price of the Company&rsquo;s
common stock on March 30, 2012, which was $2.43 per share and became fully vested on the Modification Date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DESCRIPTION OF SECURITIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are authorized to issue 100,000,000 shares of our common
stock, par value $0.001 and 1,000,000 shares of preferred stock, par value $0.001. As of August 3, 2012, 50,921,798 shares of
common stock were issued and outstanding and 35,400 shares of Series A Cumulative Convertible Preferred Stock were issued and
outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(a)</TD><TD>Common Stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The holders of the common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders. Our certificate of incorporation and by-laws do not
provide for cumulative voting rights in the election of directors. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are
entitled to receive ratably such dividends as may be declared by the Board out of funds legally available therefore. In the event
of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in the assets remaining after
payment of liabilities. Holders of common stock have no preemptive, conversion or redemption rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(b)</TD><TD>Preferred Stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our board of directors has the authority, within the limitations
and restrictions in our amended articles of incorporation, to issue 1,000,000 shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any
series or the designation of any series, without further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in our control without further action by the stockholders. The issuance
of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of our common stock,
including voting rights, of the holders of our common stock. In some circumstances, this issuance could have the effect of decreasing
the market price of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Undesignated preferred stock may enable our board of directors
to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock may adversely
affect the rights of our common stockholders. For example, any preferred stock issued may rank prior to the common stock as to
dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common
stock. As a result, the issuance of shares of preferred stock, or the issuance of rights to purchase shares of preferred stock,
may discourage an unsolicited acquisition proposal or bids for our common stock or may otherwise adversely affect the market price
of our common stock or any existing preferred stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Series A Cumulative Convertible Preferred Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On June 30, 2012, the Company filed
a Certificate of Designation with the Secretary of State of the State of Delaware amending the Company&rsquo;s Certificate of
Incorporation to designate 38,150 shares of the Company&rsquo;s preferred stock as Series A Cumulative Convertible Preferred Stock
(&ldquo;Series A Preferred Stock&rdquo;), and issued 35,400 shares of the Series A Preferred Stock to Geronimo in exchange for
the cancelation of a $35 million principal amount note made by the Company in favor of Geronimo on March 5, 2012 in connection
with a purchase and sale agreement pursuant to which the Company acquired certain oil and gas leasehold properties, including
any accrued and unpaid interest thereon.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the Certificate of Designation,
the Series A Preferred Stock accrues cumulative dividends semi-annually at a rate per share equal to 7.5% per annum. The holders
of the Series A Preferred Stock shall receive dividends when and if declared by the Company&rsquo;s board of directors in preference
to and priority over dividends declared on the Common Stock. Dividends are payable by the Company in either additional shares
of Series A Preferred Stock for dividends accrued on or before June 30, 2014 or cash. Holders of Series A Preferred Stock shall
be entitled to receive $1,000 per share in the event of a liquidation with priority over the Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series A Preferred Stock is convertible
into shares of common stock at a rate of 333.333 shares of Common Stock per share of Series A Preferred Stock (the &ldquo;Conversion
Rate&rdquo;) or an initial conversion price of $3.00 per share on or after the later of (i) March 6, 2013 and (ii) the date on
which the Company increases the authorized but unissued shares of Common Stock to such number of shares as shall be sufficient
to effect the conversion of all then outstanding shares of the Series A Preferred Stock on a fully-diluted basis. The Company
is entitled to decrease the Conversion Rate one time on or before June 30, 2014 to equal the quotient of $1,000 divided by the
average closing sale price for the ten trading day period after the Company makes the election, the effect of which would be to
increase the conversion price. The Company has the right, in its sole discretion, to cause all Series A Preferred Stock to be
automatically converted into shares of Common Stock at the Conversion Rate if the closing sale price of the Common Stock equals
or exceeds 150% of $3.00 for at least 10 trading days during any 20 consecutive trading day period. Holders of Series A Preferred
Stock are not entitled to any voting rights, except as required by law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(c)</TD><TD>Investor Warrants.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the First PIPE, we issued five-year
Series A Warrants to purchase an aggregate of 1,100,482 shares of common stock at an exercise price of $5.00 and five-year Series
B Warrants to purchase an aggregate of 1,100,482 shares of common stock at an exercise price of $6.50 per share, respectively to
certain accredited investors. The number of shares of common stock to be received upon the exercise of the Warrants and the exercise
price of the Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the common stock that occur after the closing date of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Second PIPE, we issued five-year
Warrants to purchase an aggregate of 1,848,502 shares of common stock excisable at a price of $9.00 per share to certain accredited
investors. The number of shares of common stock to be received upon the exercise of the Warrants and the exercise price of the
Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar
transactions of the common stock that occur after the closing date of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Third PIPE, we issued Series A Warrants
to purchase 1,130,435 shares of common stock which are exercisable immediately after issuance, have a 5-year term and a per share
exercise price of $9.00 per share; and Series&nbsp;B Warrants to purchase a number of shares of common stock, which shall only
be exercisable if (A) the market price (as defined below) of our common stock on the 30th trading day following the earlier of
(i)&nbsp;the effective date of a registration statement to sell the shares of common stock and the Series A Warrant Shares sold
in the Third PIPE, and (ii)&nbsp;the date on which the purchasers in the Third PIPE can freely sell the shares of common stock
pursuant to Rule&nbsp;144 promulgated under the Securities Act without restriction (the &ldquo;Eligibility Date&rdquo;) is less
than the purchase price in the offering or $5.75; and (B) upon certain dilutive occurrences.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If made exercisable pursuant to (A) in
the preceding sentence, the Third PIPE Series&nbsp;B Warrants will become immediately exercisable and will have an exercise price
of $0.001 per share to purchase a number of shares of our common stock such that the aggregate average price per share purchased
by the investors is equal to the market price (defined as the average of volume weighted average price for each of the previous
30 days as reported on the Over-The-Counter Bulletin Board during the 30 trading days preceding the measurement date).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Third PIPE Series A and B Warrants
are exercisable on a cashless basis if the registration statement is not effective by the required effectiveness date.&nbsp;&nbsp;The
number of shares of common stock to be received upon the exercise of the Third PIPE Series A and B Warrants and the exercise price
of the Series A and B Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations
and other similar transactions of the common stock that occur after the issuance date.&nbsp;&nbsp;Additionally, the exercise price
of and the number of shares underlying&nbsp;the Series A Warrants shall be adjusted upon the issuance of certain securities at
a price per share (the &ldquo;New Issuance Price&rdquo;) less than the exercise price then in&nbsp;effect, to an exercise price
equal to 110% of the New Issuance Price; however, the exercise price may never be reduced to lower than $5.00.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Warrant Restructure.</B>
On February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, (&ldquo;Modification Investors&rdquo;),
entered into a modification agreement (the &ldquo;Modification Agreement&rdquo;), pursuant to which the parties agreed to amend
the terms of the Series B warrants issued to the Modification Investors in the Third PIPE in which the Modification Investors
invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed to limit the dilutive effects of
the Series B warrants by including a floor of $3.00 per share in the calculation of the reset provision included in the Series
B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series B warrants held by the Modification
Investors is 1,913,043 shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants
to purchase 2.5 million shares of common stock with a cash exercise price of $3.00 per share (the &ldquo;Pentwater Series C Warrants&rdquo;).
The Pentwater Series C Warrants include a provision under which the warrants must be exercised at the election of the Company
by the Modification Investors for cash if the closing sales price of the common stock is $6.00 per share or greater for 20-consecutive
trading days. As a result of the issuance of the Series B warrants and the Pentwater Series C Warrants, the exercise prices and
number of shares underlying the Series A warrants and Series B warrants held by the remaining investor in the Third PIPE were
adjusted pursuant to their terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 5, 2012, pursuant to the terms
of a second modification agreement, the Company and the Modification Investors agreed to further amend the terms of the Series
B warrant to extend the expiration date to be (i) May 24, 2012 with respect to 1,000,000 shares of common stock underlying the
Series B warrants and (ii) with respect to the remaining 913,043 shares of common stock underlying the Series B Warrants (the
&ldquo;Subsequent Warrant Shares&rdquo;), the date that is the earlier of (a) 300 days from April 5, 2012 and (b) ten business
days after notice from the Company stating that the number of Subsequent Warrant Shares exercisable by the Modification Investors
would result in ownership of less than 9.99% of the Company&rsquo;s common stock after giving effect to such exercise. The Company
may provide multiple notices prior to the expiration of the Subsequent Warrant Shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(d)</TD><TD>Placement Agent Warrants</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Northland Capital Markets (&ldquo;Northland&rdquo;)
acted as our exclusive placement agent in connection with the First PIPE and Second PIPE. For the placement agent services in connection
with the First PIPE, we issued to Northland on the closing date five-year warrants to purchase 317,118 shares of common stock,
which are exercisable at an exercise price of $5.00 per share with respect to 158,178 shares and $6.50 per share with respect to
158,940 shares.&nbsp;&nbsp;For the placement agent services in connection with the Second PIPE, we issued to Northland on the closing
date five-year warrants to purchase 102,425 shares of our common stock which are exercisable at an exercise price of $9.00 per
share.&nbsp;&nbsp;The Agent Warrants have the same terms, including registration rights, as the warrants issued to the investors
in the offering. The number of shares of common stock to be received upon the exercise of the warrants issued to Northland and
the exercise price of the warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations
and other similar transactions of the common stock that occur after the closing date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(e)</TD><TD>Lender Warrants</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the Credit Agreement,
we issued to Macquarie Americas Corp.(&ldquo;Macquarie Bank&rdquo;) a five year warrant (the &ldquo;Lender Warrant&rdquo;) to
purchase five million (5,000,000) shares of our common stock at a per share exercise price of $7.50.&nbsp;&nbsp;The Lender Warrant
is exercisable on a cashless basis if there is no registration statement covering the underlying common stock.&nbsp;&nbsp;The
Lender Warrant is also subject to customary anti-dilution provisions.&nbsp;&nbsp;We granted the holder piggy-back registration
rights on the underlying common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the consent provided
by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated under the Modification Agreement, pursuant
to the terms of the Credit Agreement, the Company agreed to amend and restate the Macquarie Warrant. Accordingly on February 9,
2012, the Company issued an amended and restated Macquarie Warrant (the &ldquo;Amended Macquarie Warrant&rdquo;) to Macquarie
Americas to purchase up to 2,333,000 shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie Warrant
is not subject to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision or combinations.
The Amended Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering the underlying
common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(f)</TD><TD>Pentwater Convertible Note</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 10, 2012, the Company and
ASEN 2 closed on a Note and Warrant Purchase Agreement dated February 9, 2012, (the &ldquo;Purchase Agreement&rdquo;), with Pentwater
Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., (&ldquo;Pentwater&rdquo;) in connection with a $20 million private
financing. The initial funding made by Pentwater to ASEN 2 on February 10, 2012 (&ldquo;Pentwater Closing Date&rdquo;), was in
the amount of $10 million. The second funding for an additional $10 million, which closed on March 5, 2012, occurred concurrently
with the closing of the purchase and sale agreement by and among the Company, Geronimo and XOG.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note (the &ldquo;Pentwater Note&rdquo;), convertible into shares
of the Company&rsquo;s common stock at a conversion price of $9.00 per share and five-year warrants to purchase 3,333,333 shares
of common stock at a per share cash exercise price of $2.50 (the &ldquo;Pentwater February Warrants&rdquo;). The Pentwater February
Warrants are also subject to a mandatory exercise at the Company&rsquo;s option with respect to (i) 50% of the number of shares
underlying the Pentwater February Warrants if the closing sale price of the common stock is equal to or greater than $5.00 per
share for twenty consecutive trading days and (ii) 50% of the number of warrant shares if the closing sale price of the common
stock is equal to or greater than $9.00 per share for twenty consecutive trading days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From the Pentwater Closing Date through
December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On July 23, 2012, the Company, ASEN
2 and Pentwater entered into a First Amendment to Note and Warrant Purchase Agreement (the &ldquo;Purchase Agreement Amendment&rdquo;)
pursuant to which Pentwater made an additional advance to ASEN 2 in the amount of $5 million and ASEN 2 delivered to Pentwater
an Amended and Restated Secured Convertible Promissory Note (the &ldquo;Amended Note&rdquo;) in the amount of $25 million. Pursuant
to the terms of the Purchase Agreement Amendment and a Modification Agreement entered into by the parties, the Company (i) amended
the Pentwater Series C Warrants and the Pentwater February Warrants to reduce the exercise price to $2.25 per share and to change
the expiration date to June 30, 2019 and (ii) issued to Pentwater warrants to purchase an additional 833,333 shares of Common
Stock at an exercise price of $2.25 and an expiration date of June 30, 2019.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DESCRIPTION OF THE BUSINESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We are an independent,
non-operator oil and natural gas company engaged in the acquisition and development of leaseholds of oil and natural gas properties.&nbsp;Our
leasehold acreage is located in the Permian Basin of West Texas and Eastern New Mexico, referred to herein as the Permian Basin,
the Eagle Ford Shale Formation of South Texas, referred to herein as Eagle Ford, the Bakken Shale Formation in North Dakota, referred
to herein as Bakken, the Niobrara Shale Formation of Wyoming and Nebraska, herein referred to as the Niobrara, the Eagle Bine
Shale Formation in South East Texas, herein referred to as the Eagle Bine, and the Gulf Coast of South Texas, herein referred
to as the Gulf Coast.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In the Permian
Basin, the Niobrara, the Eagle Bine and parts of the Eagle Ford, we own a number of leases where we hold the majority working
interest. We have historically contracted and expect to continue to contract with third-party operators, consultants, and other
contractor service providers to operate and drill our majority leasehold acreage. Within this acreage, the Company has historically
contracted to drill conventional, vertical wells. The Company may consider contracting with third parties to selectively drill
unconventional, horizontal wells in areas that may be prospective for oil and gas bearing shale formations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We also hold minority
interest leasehold acreage in the Bakken, parts of the Permian Basin, and parts of the Eagle Ford. In the minority working interest
leaseholds, the Company has historically participated and expects to continue to participate on a non-operated basis in the drilling
and production of acreage operated by independent oil and gas operating companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">While we do rely
on the expertise and resources of the respective operators that are drilling our minority working interest acreage, we believe
that our overall diversification across a large number of small working interests provides a way to participate in two large shale
formations that are being actively developed with less risk than a concentrated acreage position.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">By participating
in drilling activities with larger operators, we seek to leverage their resources and expertise to efficiently gain exposure to
potential new oil and gas production and proven reserves. In the Permian Basin, some of these operators have historically drilled
and operated traditional, vertical wells. In the Eagle Ford and Bakken, we have participated in wells where the operators have
historically drilled unconventional, horizontal wells into prospective oil and gas bearing shale formations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">As of December
31, 2011, we held working interests in approximately 40,100 net acres in the Permian Basin, Bakken, and Eagle Ford regions. After
closing a significant acquisition, as of March 31, 2012, we held working interests in approximately 112,400 net acres in the Permian
Basin, Bakken, Eagle Ford, Niobrara, Eagle Bine and Gulf Coast regions. These working interests grant us the right as the lessee
of the property to explore for, develop and produce oil, natural gas and other minerals, while bearing our portion of related
exploration, development and operating costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Corporate History</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We were incorporated as National Franchise
Directors, Inc. under the laws of the state of Delaware on March 4, 2005.&nbsp;&nbsp;On October 25, 2005, we changed our name to
Famous Uncle Al&rsquo;s Hot Dogs &amp; Grille, Inc. for the purpose of obtaining all existing and future restaurant franchising
rights from Famous Uncle Al&rsquo;s Hot Dogs, Inc., and on October 28, 2010, we changed our name to American Standard Energy Corp.
to reflect our new operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">Nevada ASEC was incorporated in Nevada on
April 2, 2010 for the purposes of acquiring certain oil and natural gas leaseholds from the XOG Group and making capital investments
in acreage acquisitions and working interests in existing or planned hydrocarbon production with a special focus on productive
oil and natural gas prospects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">On October 1, 2010, we entered into a Share
Exchange Agreement by and among our then-controlling stockholder, Nevada ASEC (then a privately-held oil exploration and production
company) and the former stockholders of Nevada ASEC.&nbsp;&nbsp;Pursuant to the Share Exchange Agreement, we (i) sold our former
restaurant franchise rights and related operations to the former controlling stockholder in exchange for the cancellation of 25,000,000
shares of our common stock and (ii) acquired 100% of the outstanding shares of common stock of Nevada ASEC from the former Nevada
ASEC stockholders and received $25,000 of additional consideration.&nbsp;&nbsp;In exchange, the Nevada ASEC stockholders received
approximately 22,000,000 shares of our common stock on the closing date of the Share Exchange Agreement. As a result, the former
stockholders of Nevada ASEC acquired control of the Company and the transaction was accounted for as a recapitalization with Nevada
ASEC as the accounting acquirer of the Company. Accordingly, the financial statements of Nevada ASEC became the historical financial
statements of the Company.&nbsp;&nbsp;As a result of the transactions consummated pursuant to the Share Exchange Agreement, Nevada
ASEC became our wholly-owned subsidiary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">On May 1, 2010, the XOG Group separated certain
oil and gas properties from their operations and contributed them to Nevada ASEC in return for 80% of the common stock of Nevada
ASEC. The acquisition of the oil and natural gas properties from the XOG Group was a transaction under common control and, accordingly,
Nevada ASEC recognized the assets and liabilities acquired from the XOG Group at their historical carrying values and no goodwill
or other intangible assets were recognized.&nbsp;&nbsp;The oil and gas properties contributed by the XOG Group to Nevada ASEC consisted
of seven completed and operating wells within the Permian Basin region of West Texas as well as over approximately 10,600 acres
of undeveloped leasehold rights in three primary regions: (i) the Bakken, (ii) the Eagle Ford and (iii) certain positions in the
Permian Basin leased from the University of Texas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">On December 1, 2010,
we entered into an agreement with Geronimo whereby we acquired certain leasehold interests in oil and natural gas properties located
in North Dakota consisting of 26 wells located in Burke, Divide, Dunn, McKenzie, Mountrail, and Williams Counties referred to
herein as the Bakken 1 Properties for $500,000 cash and 1,200,000 shares of the Company&rsquo;s common stock valued at $3.96 million.&nbsp;&nbsp;The
acquisition was accounted for as a transaction under common control and accordingly, we recorded the Bakken 1 Properties at their
historical carrying values and no goodwill or other intangible assets were recognized.&nbsp;&nbsp;As a result, the historical
assets, liabilities and operations of the Bakken 1 Properties are included retrospectively in our consolidated financial statements
for all periods presented.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">On February 11,
2011, we acquired certain developed oil and natural gas properties on approximately 2,374 net acres located in Texas, Oklahoma
and Arkansas, of which approximately 2,200 net acres are located within the Permian Basin and on which 24 wells are located referred
to herein as the Group 1 &amp; 2 Properties, from Geronimo for $7,000,000 cash. The acquisition was accounted for as a transaction
under common control and accordingly, we recorded the assets and liabilities acquired from Geronimo at their historical carrying
values. As a result, the historical assets, liabilities and operations of the Group 1 &amp; 2 Properties are included retrospectively
in our consolidated financial statements for all periods presented.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">On March 1, 2011,
we acquired certain undeveloped mineral rights leaseholds held on approximately 10,147 net acres in the Bakken Shale Formation
in North Dakota referred to herein as the Bakken 2 Properties from Geronimo in exchange for $3,000,000 cash and the issuance of
883,607 shares of the Company&rsquo;s common stock valued at $5,787,626.&nbsp;&nbsp;Certain of these mineral rights with a historical
cost basis of $1,257,000 were acquired by Geronimo subsequent to December 31, 2010, and, as a result, were not under common control
at that date and have been excluded from the historical consolidated financial statements as of December 31, 2010.&nbsp; These
subsequently-acquired undeveloped mineral rights were first reflected in our March 31, 2011 interim consolidated financial statements,
and are incorporated into our financial statements for the year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">On April 8, 2011,
we acquired undeveloped leasehold acreage consisting of approximately 2,780 net acres located in Mountrail County of North Dakota&rsquo;s
Williston Basin referred to herein as the Bakken 3 Properties from Geronimo for $1.86 million, which includes a $1.0 million down
payment made on March 25, 2011. This acquisition was accounted for as a transaction under common control.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">On August 22, 2011,
we acquired approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks referred to herein as the the Bakken
4 Properties area from Geronimo for approximately $14.6 million. A cash deposit of $13.5 million was made on April 15, 2011, and
the Company subsequently issued 208,200 shares of common stock upon closing, which were valued at an aggregate of $1,093,050&nbsp;based
on a per share&nbsp;price of $5.25 on the closing date. The acquisition was recorded at fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: black">On
March 5, 2012, we acquired leasehold working interests in approximately 72,300 </FONT>net acres across the Permian Basin,
Eagle Ford shale formation and the Eagle Bine in Texas, the Williston Basin in North Dakota, and the Niobrara shale formation
in Wyoming and Nebraska referred to herein as the XOG Properties, from XOG and Geronimo (the &ldquo;Sellers&rdquo;) in exchange
for the delivery by the Company to the Sellers of $10 million in cash, less the $1.5 million cash deposit previously paid by the
Company, a note in the principal amount of $35,000,000 made by the Company in favor of Geronimo and 5,000,000 shares of the common
stock of the Company valued at $2.70 per share, based on the closing price of the common stock on March 5, 2012. On June 30, 2012,
we entered into an Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares (the &ldquo;Geronimo Shares&rdquo;)
of the our newly created Series A Preferred Stock to Geronimo in exchange for the cancelation of the $35 million note issued to
Geronimo.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 45pt">Randall Capps is
the sole owner of XOG and Geronimo and the majority owner of CLW.&nbsp;&nbsp;As of August 3, 2012, he was the beneficial owner
of approximately 56.7% of our common stock through his direct ownership and his indirect ownership interest in the XOG Group.
Mr. Capps is also a member of the Company&rsquo;s board of directors, and the father&ndash;in-law of our Chief Executive Officer,
Scott Feldhacker.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Business Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our wholly-owned
subsidiaries, Nevada ASEC and ASEN 2, were formed for the original purpose of acquiring the oil and natural gas properties from
the XOG Group and making capital investments in, and acquiring of working interests of existing or exploratory hydrocarbon production
with a special focus on productive oil and natural gas prospects.&nbsp;&nbsp;We anticipate that our continuing focus will be on
acquiring and developing additional assets within the Permian Basin, Bakken, Eagle Ford, Niobrara and Eagle Bine regions described
below.&nbsp;&nbsp;Notwithstanding this focus, we also expect to pursue the acquisition of property and assets within other geographic
areas that meet our general investment guidelines and targets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December&nbsp;31,
2011, we held working interests in approximately 40,100 net acres in the Permian Basin, Bakken and Eagle Ford regions.&nbsp;A
summary of the total gross and net oil and gas productive wells and the total gross and net developed acreage by geographic area
is set forth in the section &ldquo;Oil and Gas Properties Wells, Operation and Acreage&rdquo; beginning on page 38 herein.&nbsp;
As of June 30, 2012 we held working interests in approximately 112,400 net acres in the Permian Basin, Bakken and Eagle Ford,
the Niobrara, the Eagle Bine regions and Gulf Coast regions. These working interests grant us the right, as the lessee of the
property, to explore for, develop and produce oil, natural gas and other minerals, while also bearing any related exploration,
development, and operating costs. As of March 15, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Permian
                                                                                                               Basin.</B>
                                                                                                               We have leased
                                                                                                               a portfolio of
                                                                                                               both producing
                                                                                                               and undeveloped
                                                                                                               properties in the
                                                                                                               Permian Basin of
                                                                                                               West Texas, consisting
                                                                                                               of approximately
                                                                                                               29,000 net acres,
                                                                                                               one of which includes
                                                                                                               221 gross (178.2
                                                                                                               net) producing
                                                                                                               wells as well as
                                                                                                               approximately 10,200
                                                                                                               undeveloped acres
                                                                                                               on with leases
                                                                                                               expiring in 1-4
                                                                                                               years.&nbsp;&nbsp;
                                                                                                               We have a contractual
                                                                                                               relationship with
                                                                                                               XOG Operating and
                                                                                                               Cambrian Management,
                                                                                                               referred to herein
                                                                                                               as Cambrian, both
                                                                                                               seasoned exploration
                                                                                                               and production
                                                                                                               operators based
                                                                                                               in Midland, Texas.
                                                                                                               XOG has been operating,
                                                                                                               developing and
                                                                                                               exploiting the
                                                                                                               Permian Basin,
                                                                                                               as well as operating
                                                                                                               in 14 other states,
                                                                                                               for 30 years.&nbsp;&nbsp;Cambrian
                                                                                                               has acted as a
                                                                                                               third party completion
                                                                                                               consulting firm
                                                                                                               and contract operator
                                                                                                               for certain types
                                                                                                               of vertical wells
                                                                                                               in the Permian
                                                                                                               Basin since 2001.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The XOG relationship has
provided acquisition opportunities for us beginning in 2010 and is expected to provide us with additional opportunities for land
acquisition and joint ventures with various operators; however, XOG is not obligated to provide any opportunities to us and there
can be no assurance that any opportunity will be available to us in the future.&nbsp;&nbsp;&nbsp;Randall Capps is the sole owner
of XOG, a member of our board of directors and the father-in-law of our Chief Executive Officer, Scott Feldhacker.&nbsp;&nbsp;Mr.
Capps is the largest beneficial holder of our common stock through his direct and indirect ownership of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Bakken
                                                                                                               Shale.</B>&nbsp;&nbsp;We
                                                                                                               hold primarily
                                                                                                               minority working
                                                                                                               interests in the
                                                                                                               Bakken Shale covering
                                                                                                               approximately 42,200
                                                                                                               net acres located
                                                                                                               in nine counties
                                                                                                               in North Dakota.
                                                                                                               We have participated
                                                                                                               in 140 gross (2.1
                                                                                                               net) wells in the
                                                                                                               Williston Basin,
                                                                                                               prospecting either
                                                                                                               the Bakken Shale
                                                                                                               or Three Forks
                                                                                                               Shale formations
                                                                                                               through March 15,
                                                                                                               2012. The Company
                                                                                                               has elected to
                                                                                                               participate in
                                                                                                               a wide range of
                                                                                                               wells by county
                                                                                                               and operator in
                                                                                                               the Williston Basin.
                                                                                                               Our objective is
                                                                                                               to participate
                                                                                                               in some of the
                                                                                                               overall potential
                                                                                                               growth in production
                                                                                                               and proved reserves
                                                                                                               of the Williston
                                                                                                               Basin through our
                                                                                                               operators in which
                                                                                                               we hold minority
                                                                                                               working interests,
                                                                                                               conduct exploratory
                                                                                                               and in-fill drilling
                                                                                                               activities. We
                                                                                                               have historically
                                                                                                               participated, and
                                                                                                               anticipate continuing
                                                                                                               to participate,
                                                                                                               in these drilling
                                                                                                               activities of our
                                                                                                               operators through
                                                                                                               minority working
                                                                                                               interest participations.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Eagle
                                                                                                               Ford Shale</B>.&nbsp;&nbsp;We
                                                                                                               currently hold
                                                                                                               both majority working
                                                                                                               interests and minority
                                                                                                               working interests
                                                                                                               in the Eagle Ford
                                                                                                               Shale formation
                                                                                                               covering approximately
                                                                                                               7,400 net acres
                                                                                                               and 28 gross (7.1
                                                                                                               net) wells. Of
                                                                                                               the total wells
                                                                                                               in the Eagle Ford,
                                                                                                               we hold working
                                                                                                               interests in 1,200
                                                                                                               net acres in a
                                                                                                               project where we
                                                                                                               have participated
                                                                                                               in 23 gross (2.3
                                                                                                               net) wells in La
                                                                                                               Salle and Frio
                                                                                                               counties on a non-operated
                                                                                                               basis. These wells
                                                                                                               were drilled by
                                                                                                               Cheyenne Petroleum,
                                                                                                               referred to herein
                                                                                                               as Cheyenne, a
                                                                                                               privately-held
                                                                                                               operator based
                                                                                                               in Oklahoma City,
                                                                                                               OK. This acreage
                                                                                                               is subject to an
                                                                                                               area of mutual
                                                                                                               interest agreement,
                                                                                                               referred to herein
                                                                                                               as the AMI, between
                                                                                                               Cheyenne and several
                                                                                                               minority working
                                                                                                               interest partners,
                                                                                                               including our company.
                                                                                                               Cheyenne has informed
                                                                                                               us that it intends
                                                                                                               to have an aggregate
                                                                                                               of 35 wells in
                                                                                                               operation by the
                                                                                                               end of 2012, including
                                                                                                               the 23 wells that
                                                                                                               are currently in
                                                                                                               some stage of drilling,
                                                                                                               completion or production
                                                                                                               as of March 15,
                                                                                                               2012, to hold all
                                                                                                               of the acreage
                                                                                                               in the AMI by production.
                                                                                                               Cheyenne installed
                                                                                                               high-pressure gas
                                                                                                               takeaway facilities
                                                                                                               and sour gas treatment
                                                                                                               facilities in the
                                                                                                               area subject to
                                                                                                               the AMI in late
                                                                                                               2011 and early
                                                                                                               2012. This enabled
                                                                                                               Cheyenne to resume
                                                                                                               production of the
                                                                                                               wells temporarily
                                                                                                               shut in during
                                                                                                               2011 to enable
                                                                                                               production beginning
                                                                                                               in early 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">We also currently hold majority
working interests in a combined 6,200 net acres located in Wilson, Gonzales and Maverick counties within the Eagle Ford. This
acreage is partially developed, with 5 gross (4.25 net) producing wells. We will continue to participate in an evaluation of the
most efficient manner to develop these assets for future potential oil and gas production.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: black"><B>Niobrara</B>.&nbsp;&nbsp;We
                                                                                                               currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               25,700 net acres
                                                                                                               located in the
                                                                                                               Niobrara Shale
                                                                                                               in Nebraska and
                                                                                                               Wyoming. All of
                                                                                                               this acreage is
                                                                                                               undeveloped and
                                                                                                               unproven as of
                                                                                                               March 15, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               There are three
                                                                                                               years remaining
                                                                                                               on our lease, with
                                                                                                               an option to extend
                                                                                                               the lease for five
                                                                                                               additional years.
                                                                                                               In the event we
                                                                                                               drill one or more
                                                                                                               wells and commence
                                                                                                               commercial production,
                                                                                                               we would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities of our
                                                                                                               operators in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: black"><B>Eagle
                                                                                                               Bine.</B>
                                                                                                               We currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               3,000 net acres
                                                                                                               located in the
                                                                                                               Eagle Bine are
                                                                                                               in Anderson County,
                                                                                                               Texas. All of this
                                                                                                               acreage is undeveloped
                                                                                                               and unproven as
                                                                                                               of March 15, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               We hold three years
                                                                                                               remaining on the
                                                                                                               lease, with an
                                                                                                               option to extend
                                                                                                               the lease for one
                                                                                                               additional year.
                                                                                                               In the event we
                                                                                                               elect to drill
                                                                                                               one or more wells
                                                                                                               through our operators
                                                                                                               and commence commercial
                                                                                                               production, we
                                                                                                               would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Additional
                                                                                                               Acreage:</B>
                                                                                                               We also hold additional
                                                                                                               acreage in Oklahoma,
                                                                                                               Arkansas, and on
                                                                                                               the Gulf Coast
                                                                                                               of Texas with a
                                                                                                               total of approximately
                                                                                                               5,000 net acres.
                                                                                                               The acreage includes
                                                                                                               16 gross (2.9 net)
                                                                                                               gas wells in Arkansas,
                                                                                                               1 gross (.06 net)
                                                                                                               producing well
                                                                                                               in Oklahoma and
                                                                                                               28 gross (26.1
                                                                                                               net) producing
                                                                                                               wells on the Gulf
                                                                                                               Coast of Texas.
                                                                                                               The Gulf Coast
                                                                                                               assets are majority
                                                                                                               working interest
                                                                                                               leases<FONT STYLE="color: black">.
                                                                                                               We participate
                                                                                                               in the Arkansas
                                                                                                               and Oklahoma wells
                                                                                                               on a non-operated,
                                                                                                               minority working
                                                                                                               interest basis.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have structured
our operations and staffing model in such a way that we believe limits significant fixed operating expenses. We maintain a limited
in-house employee base outside of the executive team and some administrative personnel.&nbsp; We expect to limit fixed overhead
and staff, as the majority of operational duties have been outsourced to select consultants and independent contractors, including
contract operators for our producing wells, consultants to oversee drilling, completion and initial production for leases where
we control majority working interests and elect to drill a well through our operators, as well as contract geologists and contract
reserve engineers.&nbsp; We currently have two employees other than our&nbsp;three officers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our JOAs with our
operators give full control of all operations for our leasehold properties to the operator. All costs and liabilities incurred
in operations pursuant to the JOA are borne by the non-operator parties and all revenues from the sale of production are divided
among the non-operator parties according to their applicable percentage of interest in the leasehold property. All wells drilled
on the applicable leasehold property are drilled on a competitive contract basis at the usual prevailing rates in the area. If
any party desires to drill any well on the applicable leasehold property other than the initial well, such party must give notice
to all non-operator parties to the JOA, who will then have 30 days to elect to participate in the cost of the proposed operation.
The operator then has 90 days from the end of the notice period to commence the operation. The operator may resign or be removed
at any time upon 90 days prior notice.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For each producing
well, we have historically entered into a contract operating agreement with an operator who is responsible for the management
and day-to-day operation of one or more of our crude oil and/or natural gas wells. In instances where we are a minority working
interest partner, the operator is generally a significant or majority working-interest owner in the well. We believe that the
use of experienced operators should allow us to streamline production and development activities, reducing fixed overhead and
non-leasehold capital investments. As we contract with our operators to drill and produce wells in which we participate, we have
no direct experience in drilling or producing horizontal or vertical wells. For a summary of our gross and net productive oil
wells, see &ldquo;<B>Oil and Gas Properties, Wells, Operations and Acreage</B>&rdquo; on page 55  herein.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Drilling Projects</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For our majority
working interest acreage in the Permian Basin, we expect to continue our relationships with XOG and Cambrian, among other contract
operators, for drilling and operating services through contract operating agreements. We are actively contracting for third party
completion services on wells drilled in 2011 by third party drilling service providers on our acreage. We expect that we will
resume the drilling of our majority interest acreage in the Permian Basin in 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the Bakken and
Eagle Ford, we expect to continue to participate in third party drilling activities on a non-operated basis.&nbsp;In the Eagle
Ford, we primarily participate in a drilling program with Cheyenne, which had defined a 20 net well program through the end of
2012 to hold all of the acreage under an AMI by production. This program has been largely detailed on a predetermined drilling
and completion schedule which provides us with a satisfactory forecast of costs and other demands associated with anticipated
drilling, production, and other activities. In the Bakken, we have over 1,000 leases, with a wide range of minority working interests
across multiple counties, with multiple operators in various stages of permitting, planned drilling, and active development. In
the Bakken, we are uncertain at this time as to the future development plans of the majority working interest operators on this
acreage. However, we do actively monitor the drilling of third party operators in proximity to our acreage, as well as the permitted
status of the leaseholds.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Marketing and Customers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As a non-operator, we rely on outside
operators for the transportation, marketing/sales and account reporting for all production.&nbsp; The operators of our wells are
responsible for the marketing and sales of all production to regional purchasers of petroleum products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Governmental Regulation and Environmental Matters</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company&rsquo;s
operations are subject to various rules, regulations and limitations impacting the oil and natural gas exploration and production
industry as a whole.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Regulation of Crude Oil and Natural
Gas Production</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our crude oil and
natural gas exploration, production and related operations, when developed, are subject to extensive rules and regulations promulgated
by federal, state, tribal and local authorities and agencies. For example, Texas, North Dakota, New Mexico and Wyoming require
permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the
exploration and production of crude oil and natural gas. Such states may also have statutes or regulations addressing conservation
matters, including provisions for the unitization or pooling of crude oil and natural gas properties, the establishment of maximum
rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">While our operating
partners are expected to be in compliance with the extensive rules and regulations promulgated by federal, state, tribal and local
authorities and agencies with regard to exploration and production including acquiring proper permits for drilling operations,
drilling bonds and reports concerning operations, the Company strives to comply with all regulatory burdens it shares as a function
of its interest in oil and gas leaseholds and the potential pooling of oil and natural gas properties.&nbsp;Failure to comply
with any such rules and regulations can result in substantial penalties.&nbsp;The regulatory burden on the oil and gas industry
may increase the Company&rsquo;s cost of doing business and may affect the Company&rsquo;s profitability.&nbsp;Although the Company
believes it is currently in substantial compliance with all applicable laws and regulations, because such rules and regulations
are frequently amended or reinterpreted, the Company is unable to predict the future cost or impact of complying with such laws.&nbsp;Significant
expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on the Company&rsquo;s
financial condition and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Environmental Matters</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our and our operators&rsquo;
operations and properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment,
and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&#9642;</TD><TD STYLE="text-align: justify">require the acquisition of a permit or other authorization before construction or drilling commences
and for certain other activities;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&#9642;</TD><TD STYLE="text-align: justify">limit or prohibit construction, drilling and other activities on certain lands lying within wilderness
and other protected areas; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&#9642;</TD><TD STYLE="text-align: justify">impose substantial liabilities for pollution resulting from its operations.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The permits required
for our operations may be subject to revocation, modification and renewal by issuing authorities. Governmental authorities have
the power to enforce their regulations, and violations are subject to fines or injunctions, or both. In the opinion of management,
we are in substantial compliance with current applicable environmental laws and regulations, and have no material commitments for
capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our company, as well as the crude oil and natural
gas industry in general.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Environmental laws,
regulations and permits, and the enforcement and interpretation thereof, change frequently and generally have become more stringent
over time. For example, various federal, state, provincial and local initiatives have been implemented or are under development
to regulate or further investigate the environmental impacts of hydraulic fracturing, a practice that involves the pressurized
injection of water, chemicals and other substances into rock formations to stimulate hydrocarbon production. In particular, the
EPA has commenced a study to determine the environmental and health impacts of hydraulic fracturing and announced that it will
propose standards for the treatment or disposal of wastewater from certain gas production operations. In addition, certain states
in which we operate have adopted, or are considering adopting, regulations that have imposed, or could impose, more stringent
permitting, transparency, disposal and well construction requirements on hydraulic fracturing operations. In particular, in December
2011, the Railroad Commission of Texas and the Colorado Oil and Gas Conservation Commission finalized regulations requiring public
disclosure of chemicals in fluids used in the hydraulic fracturing process. Local ordinances or other regulations also may regulate
or prohibit the performance of well drilling in general and hydraulic fracturing in particular, and may require baseline water
well sampling. Such laws and regulations may result in increased scrutiny or third-party claims, or otherwise result in operational
delays, liabilities and increased costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Comprehensive
Environmental, Response, Compensation, and Liability Act, referred to hereafter as CERCLA and comparable state statutes impose
strict, joint and several liability on owners and operators of sites and on persons who disposed of or arranged for the disposal
of &ldquo;hazardous substances&rdquo; found at such sites. It is not uncommon for the 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.
The Federal Resource Conservation and Recovery Act, referred to hereafter as RCRA and comparable state statutes govern the disposal
of &ldquo;solid waste&rdquo; and &ldquo;hazardous waste&rdquo; and authorize the imposition of substantial fines and penalties
for noncompliance. Although CERCLA currently excludes petroleum from its definition of &ldquo;hazardous substance,&rdquo; state
laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition,
although RCRA classifies certain crude oil field wastes as &ldquo;non-hazardous,&rdquo; such exploration and production wastes
could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Oil Pollution
Act of 1990, referred to hereafter as OPA and regulations issued under OPA impose strict, joint and several liability on &ldquo;responsible
parties&rdquo; for damages resulting from oil spills into or upon navigable waters, adjoining shorelines or in the exclusive economic
zone of the United States. A &ldquo;responsible party&rdquo; includes the owner or operator of an onshore facility and the lessee
or permittee of the area in which an offshore facility is located. The OPA establishes a liability limit for onshore facilities
of $350.0 million, while the liability limit for offshore facilities is the payment of all removal costs plus up to $75.0 million
in other damages, but these limits may not apply if a spill is caused by a party&rsquo;s gross negligence or willful misconduct;
the spill resulted from violation of a federal safety, construction or operating regulation; or if a party fails to report a spill
or to cooperate fully in a cleanup. We are not aware of any action or event that would subject us to liability under OPA, and
we believe that compliance with OPA&rsquo;s requirements will not have a material adverse effect on us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Endangered
Species Act, referred to hereafter as ESA seeks to ensure that activities do not jeopardize endangered or threatened animal, fish
and plant species, nor destroy or modify the critical habitat of such species. Under ESA, exploration and production operations,
as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat. ESA provides for
criminal penalties for willful violations of ESA. Other statutes that provide protection to animal and plant species and that
may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation
and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act. Although we believe that our operations
will be in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered
could subject our company (directly or indirectly through our operating partners) to significant expenses to modify our operations
or could force discontinuation of certain operations altogether.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Clean Air Act,
as amended, and comparable state laws restrict the emission of air pollutants from many sources, including compressor stations.
These laws and any implementing regulations may require us or our operating partners to obtain pre-approval for the construction
or modification of certain projects or facilities expected to produce air emissions, impose stringent air permit requirements,
or use specific equipment or technologies to control emissions. We may be required (directly or indirectly through our operating
partners) to incur certain capital expenditures in the next few years for air pollution control equipment in connection with maintaining
or obtaining operating permits addressing other air emission-related issues.<FONT STYLE="color: black"> </FONT>In July 2011, the
EPA proposed requirements for sulfur dioxide, volatile organic compound and hazardous air pollutant air emissions from oil and
gas operations, including standards for wells that are hydraulically fractured. In addition, from time to time, initiatives are
proposed that could further regulate certain exploration and production by-products as hazardous wastes and subject them to more
stringent requirements. Any current or future air emission, hazardous waste or other environmental requirements applicable to
our operations could curtail our operations or otherwise result in operational delays, liabilities and increased costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Changes in environmental
laws and regulations sometimes occur, and any changes that result in more stringent and costly waste handling, storage, transport,
disposal or cleanup requirements for any substances used or produced in our operations could materially adversely affect our operations
and financial position, as well as those of the oil and gas industry in general. For instance, recent scientific studies have
suggested that emissions of certain gases commonly referred to as &ldquo;greenhouse gases&rdquo; and including carbon dioxide
and methane, may be contributing to warming of the Earth&rsquo;s atmosphere. See &ldquo;Climate Change&rdquo; below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Federal Water
Pollution Control Act of 1972, or the Clean Water Act , referred to hereafter as the CWA, imposes restrictions and controls on
the discharge of produced waters and other pollutants into navigable waters. Permits must be obtained to discharge pollutants
into state and federal waters and to conduct construction activities in waters and wetlands. The CWA and certain state regulations
prohibit the discharge of produced water, sand, drilling fluids, drill cuttings, sediment and certain other substances related
to the oil and gas industry into certain coastal and offshore waters without an individual or general National Pollutant Discharge
Elimination System discharge permit.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The EPA had regulations
under the authority of the CWA that required certain oil and gas exploration and production projects to obtain permits for construction
projects with storm water discharges. However, the Energy Policy Act of 2005 nullified most of the EPA regulations that required
storm water permitting of oil and gas construction projects. There are still some state and federal rules that regulate the discharge
of storm water from some oil and gas construction projects. Costs may be associated with the treatment of wastewater and/or developing
and implementing storm water pollution prevention plans. The CWA and comparable state statutes provide for civil, criminal and
administrative penalties for unauthorized discharges of oil and other pollutants and impose liability on parties responsible for
those discharges, for the costs of cleaning up any environmental damage caused by the release and for natural resource damages
resulting from the release.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Climate Change</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Significant studies
and research have been devoted to climate change and global warming, and climate change has developed into a major political issue
in the United States and globally. Certain research suggests that greenhouse gas emissions contribute to climate change and pose
a threat to the environment. Recent scientific research and political debate has focused in part on carbon dioxide and methane
incidental to crude oil and natural gas exploration and production. Many states and the federal government have enacted legislation
directed at controlling greenhouse gas emissions, and future legislation and regulation could impose additional restrictions or
requirements in connection with our drilling and production activities and favor use of alternative energy sources, which could
negatively impact operating costs and demand for crude oil products. As such, our business could be materially adversely affected
by domestic and international legislation targeted at controlling climate change.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Competition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The oil and gas
industry is very competitive and the Company competes with numerous other oil and gas exploration and production companies.&nbsp;&nbsp;Many
of these companies have substantially greater resources than those of the Company.&nbsp;&nbsp;Also, many of these companies are
integrated in their approach, which includes not only exploration and production but transportation, sales of resources and refining
capabilities on a regional, national or worldwide basis. The operations of other companies may be able to pay more for exploratory
prospects and productive crude oil and natural gas properties. The larger or integrated competitors may have the resources to
define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The larger or integrated
companies may also be able to better absorb the burden of existing and any changes to federal, state and local laws and regulations,
which would adversely affect the Company&rsquo;s competitive position.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company&rsquo;s
ability to discover reserves and acquire additional properties in the future will be dependent upon its ability and resources
to evaluate and select suitable properties and to consummate transactions in this highly competitive industry.&nbsp;&nbsp;In addition,
the Company may be at a disadvantage in producing oil and natural gas properties and bidding for exploratory prospects because
the Company has fewer financial and human resources than other companies in this industry.&nbsp;&nbsp;Should a larger and better
financed company decide to directly compete with the Company and be successful in its efforts, the Company&rsquo;s business could
be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Competitive Advantage</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company believes
that, through our majority working interest leaseholds in the Permian Basin, the Eagle Ford, the Eagle Bine and the Niobrara,
we hold a large quantity of acreage for the future exploration of potential oil and gas reserves. As the majority working interest
owner, we would be able to, if successful, capture the majority of the economic benefit of the production produced and sold from
those leaseholds. Through our minority working interest acreage in the Bakken, Eagle Ford and select Permian Basin leaseholds,
we are able to participate in the drilling and production activities of many larger oil and gas operators in three large oil and
gas basins.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe this
model provides balanced diversification and acceleration of potential exposure to drilling and production related activities.
As a non-operator, we rely on and typically benefit from the resources dedicated by the majority working interest partners to
ensure their drilling and production activities are successful. As a result, we are able to participate in a greater number of
drilling activities than a company of our size without a non-operated leasehold portfolio. We also believe that by participating
in a greater number of overall wells being drilled, we are better able to diversify our risks of potential unsuccessful drilling
activities. We feel that smaller capital investments in a larger number of wells may reduce our risk of loss overall, making us
less reliant on the success of any one well to our overall growth plans and financial resources.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Office Locations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We lease our 4,092 square foot primary
office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement, dated September 30, 2010, for a 66-month
term.&nbsp;&nbsp;The lease provides for no lease payments during the first six months and a reduced square footage charge for
the first year.&nbsp;&nbsp;The initial rental is $23.00 per square foot, beginning February 1, 2011, and increasing $.50 per square
foot annually thereafter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Employees</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">We currently have a full-time staff of
three executive officers and three additional employees who manage all of our day to day operations.&nbsp; We expect to increase
staff as necessary, specifically in the area of land acquisition and administrative personnel.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Legal Proceedings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">From time to time, we may become involved
in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial
condition or operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DISCLOSURE RELATED TO OIL AND GAS PRODUCING
ACTIVITIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Leasehold Holdings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">As of June 30,
2012 we held working interests in approximately 112,400 net acres in the Permian Basin, Bakken and Eagle Ford, the Niobrara, the
Eagle Bine regions and Gulf Coast regions. These working interests grant us the right, as the lessee of the property, to explore
for, develop and produce oil, natural gas and other minerals, while also bearing any related exploration, development, and operating
costs. As of March 15, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Permian
                                                                                                               Basin.</B>
                                                                                                               We have leased
                                                                                                               a portfolio of
                                                                                                               both producing
                                                                                                               and undeveloped
                                                                                                               properties in the
                                                                                                               Permian Basin of
                                                                                                               West Texas, consisting
                                                                                                               of approximately
                                                                                                               29,000 net acres,
                                                                                                               one of which includes
                                                                                                               221 gross (178.2
                                                                                                               net) producing
                                                                                                               wells as well as
                                                                                                               approximately 10,200
                                                                                                               undeveloped acres
                                                                                                               on with leases
                                                                                                               expiring in 1-4
                                                                                                               years.&nbsp;&nbsp;
                                                                                                               We have a contractual
                                                                                                               relationship with
                                                                                                               XOG Operating and
                                                                                                               Cambrian Management,
                                                                                                               referred to herein
                                                                                                               as Cambrian, both
                                                                                                               seasoned exploration
                                                                                                               and production
                                                                                                               operators based
                                                                                                               in Midland, Texas.
                                                                                                               XOG has been operating,
                                                                                                               developing and
                                                                                                               exploiting the
                                                                                                               Permian Basin,
                                                                                                               as well as operating
                                                                                                               in 14 other states,
                                                                                                               for 30 years.&nbsp;&nbsp;Cambrian
                                                                                                               has acted as a
                                                                                                               third party completion
                                                                                                               consulting firm
                                                                                                               and contract operator
                                                                                                               for certain types
                                                                                                               of vertical wells
                                                                                                               in the Permian
                                                                                                               Basin since 2001.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The XOG relationship has
provided acquisition opportunities for us beginning in 2010 and is expected to provide us with additional opportunities for land
acquisition and joint ventures with various operators; however, XOG is not obligated to provide any opportunities to us and there
can be no assurance that any opportunity will be available to us in the future.&nbsp;&nbsp;&nbsp;Randall Capps is the sole owner
of XOG, a member of our board of directors and the father-in-law of our Chief Executive Officer, Scott Feldhacker.&nbsp;&nbsp;Mr.
Capps is the largest beneficial holder of our common stock through his direct and indirect ownership of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Bakken
                                                                                                                             Shale.</B>&nbsp;&nbsp;We
                                                                                                                             hold
                                                                                                                             primarily
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Bakken
                                                                                                                             Shale
                                                                                                                             covering
                                                                                                                             approximately
                                                                                                                             42,200
                                                                                                                             net
                                                                                                                             acres
                                                                                                                             located
                                                                                                                             in
                                                                                                                             nine
                                                                                                                             counties
                                                                                                                             in
                                                                                                                             North
                                                                                                                             Dakota.
                                                                                                                             We
                                                                                                                             have
                                                                                                                             participated
                                                                                                                             in
                                                                                                                             140
                                                                                                                             gross
                                                                                                                             (2.1
                                                                                                                             net)
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Williston
                                                                                                                             Basin,
                                                                                                                             prospecting
                                                                                                                             either
                                                                                                                             the
                                                                                                                             Bakken
                                                                                                                             Shale
                                                                                                                             or
                                                                                                                             Three
                                                                                                                             Forks
                                                                                                                             Shale
                                                                                                                             formations
                                                                                                                             through
                                                                                                                             March
                                                                                                                             31,
                                                                                                                             2012.
                                                                                                                             The
                                                                                                                             Company
                                                                                                                             has
                                                                                                                             elected
                                                                                                                             to
                                                                                                                             participate
                                                                                                                             in
                                                                                                                             a
                                                                                                                             wide
                                                                                                                             range
                                                                                                                             of
                                                                                                                             wells
                                                                                                                             by
                                                                                                                             county
                                                                                                                             and
                                                                                                                             operator
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Williston
                                                                                                                             Basin.
                                                                                                                             Our
                                                                                                                             objective
                                                                                                                             is
                                                                                                                             to
                                                                                                                             participate
                                                                                                                             in
                                                                                                                             some
                                                                                                                             of
                                                                                                                             the
                                                                                                                             overall
                                                                                                                             potential
                                                                                                                             growth
                                                                                                                             in
                                                                                                                             production
                                                                                                                             and
                                                                                                                             proved
                                                                                                                             reserves
                                                                                                                             of
                                                                                                                             the
                                                                                                                             Williston
                                                                                                                             Basin
                                                                                                                             as
                                                                                                                             the
                                                                                                                             majority
                                                                                                                             working
                                                                                                                             interest
                                                                                                                             operators
                                                                                                                             in
                                                                                                                             which
                                                                                                                             we
                                                                                                                             hold
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interests,
                                                                                                                             conduct
                                                                                                                             exploratory
                                                                                                                             and
                                                                                                                             in-fill
                                                                                                                             drilling
                                                                                                                             activities.
                                                                                                                             We
                                                                                                                             have
                                                                                                                             historically
                                                                                                                             participated,
                                                                                                                             and
                                                                                                                             anticipate
                                                                                                                             continuing
                                                                                                                             to
                                                                                                                             participate,
                                                                                                                             in
                                                                                                                             these
                                                                                                                             drilling
                                                                                                                             activities
                                                                                                                             through
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interest
                                                                                                                             participations.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: black">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Eagle
                                                                                                                             Ford
                                                                                                                             Shale</B>.&nbsp;&nbsp;We
                                                                                                                             currently
                                                                                                                             hold
                                                                                                                             both
                                                                                                                             majority
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             and
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Eagle
                                                                                                                             Ford
                                                                                                                             Shale
                                                                                                                             formation
                                                                                                                             covering
                                                                                                                             approximately
                                                                                                                             7,400
                                                                                                                             net
                                                                                                                             acres
                                                                                                                             and
                                                                                                                             28
                                                                                                                             gross
                                                                                                                             (7.1
                                                                                                                             net)
                                                                                                                             wells.
                                                                                                                             Of
                                                                                                                             the
                                                                                                                             total
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Eagle
                                                                                                                             Ford,
                                                                                                                             we
                                                                                                                             hold
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             in
                                                                                                                             1,200
                                                                                                                             net
                                                                                                                             acres
                                                                                                                             in
                                                                                                                             a
                                                                                                                             project
                                                                                                                             where
                                                                                                                             we
                                                                                                                             have
                                                                                                                             participated
                                                                                                                             in
                                                                                                                             23
                                                                                                                             gross
                                                                                                                             (2.3
                                                                                                                             net)
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             La
                                                                                                                             Salle
                                                                                                                             and
                                                                                                                             Frio
                                                                                                                             counties
                                                                                                                             on
                                                                                                                             a
                                                                                                                             non-operated
                                                                                                                             basis.
                                                                                                                             These
                                                                                                                             wells
                                                                                                                             were
                                                                                                                             drilled
                                                                                                                             by
                                                                                                                             Cheyenne
                                                                                                                             Petroleum,
                                                                                                                             referred
                                                                                                                             to
                                                                                                                             herein
                                                                                                                             as
                                                                                                                             Cheyenne,
                                                                                                                             a
                                                                                                                             privately-held
                                                                                                                             operator
                                                                                                                             based
                                                                                                                             in
                                                                                                                             Oklahoma
                                                                                                                             City,
                                                                                                                             OK.
                                                                                                                             This
                                                                                                                             acreage
                                                                                                                             is
                                                                                                                             subject
                                                                                                                             to
                                                                                                                             an
                                                                                                                             area
                                                                                                                             of
                                                                                                                             mutual
                                                                                                                             interest
                                                                                                                             agreement,
                                                                                                                             referred
                                                                                                                             to
                                                                                                                             herein
                                                                                                                             as
                                                                                                                             the
                                                                                                                             AMI,
                                                                                                                             between
                                                                                                                             Cheyenne
                                                                                                                             and
                                                                                                                             several
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interest
                                                                                                                             partners,
                                                                                                                             including
                                                                                                                             our
                                                                                                                             company.
                                                                                                                             Cheyenne
                                                                                                                             has
                                                                                                                             informed
                                                                                                                             us
                                                                                                                             that
                                                                                                                             it
                                                                                                                             intends
                                                                                                                             to
                                                                                                                             have
                                                                                                                             an
                                                                                                                             aggregate
                                                                                                                             of
                                                                                                                             35
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             operation
                                                                                                                             by
                                                                                                                             the
                                                                                                                             end
                                                                                                                             of
                                                                                                                             2012,
                                                                                                                             including
                                                                                                                             the
                                                                                                                             23
                                                                                                                             wells
                                                                                                                             that
                                                                                                                             are
                                                                                                                             currently
                                                                                                                             in
                                                                                                                             some
                                                                                                                             stage
                                                                                                                             of
                                                                                                                             drilling,
                                                                                                                             completion
                                                                                                                             or
                                                                                                                             production
                                                                                                                             as
                                                                                                                             of
                                                                                                                             March
                                                                                                                             31,
                                                                                                                             2012,
                                                                                                                             to
                                                                                                                             hold
                                                                                                                             all
                                                                                                                             of
                                                                                                                             the
                                                                                                                             acreage
                                                                                                                             in
                                                                                                                             the
                                                                                                                             AMI
                                                                                                                             by
                                                                                                                             production.
                                                                                                                             Cheyenne
                                                                                                                             installed
                                                                                                                             high-pressure
                                                                                                                             gas
                                                                                                                             takeaway
                                                                                                                             facilities
                                                                                                                             and
                                                                                                                             sour
                                                                                                                             gas
                                                                                                                             treatment
                                                                                                                             facilities
                                                                                                                             in
                                                                                                                             the
                                                                                                                             area
                                                                                                                             subject
                                                                                                                             to
                                                                                                                             the
                                                                                                                             AMI
                                                                                                                             in
                                                                                                                             late
                                                                                                                             2011
                                                                                                                             and
                                                                                                                             early
                                                                                                                             2012.
                                                                                                                             This
                                                                                                                             enabled
                                                                                                                             Cheyenne
                                                                                                                             to
                                                                                                                             resume
                                                                                                                             production
                                                                                                                             of
                                                                                                                             the
                                                                                                                             wells
                                                                                                                             temporarily
                                                                                                                             shut
                                                                                                                             in
                                                                                                                             during
                                                                                                                             2011
                                                                                                                             to
                                                                                                                             enable
                                                                                                                             production
                                                                                                                             beginning
                                                                                                                             in
                                                                                                                             early
                                                                                                                             2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">We also currently hold majority
working interests in a combined 6,200 net acres located in Wilson, Gonzales and Maverick counties within the Eagle Ford. This
acreage is partially developed, with 5 gross (4.25 net) producing wells. We will continue to participate in an evaluation of the
most efficient manner to develop these assets for future potential oil and gas production.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Niobrara</B>.&nbsp;&nbsp;We
                                                                                                               currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               25,700 net acres
                                                                                                               located in the
                                                                                                               Niobrara Shale
                                                                                                               in Nebraska and
                                                                                                               Wyoming. All of
                                                                                                               this acreage is
                                                                                                               undeveloped and
                                                                                                               unproven as of
                                                                                                               March 31, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               There are three
                                                                                                               years remaining
                                                                                                               on our lease, with
                                                                                                               an option to extend
                                                                                                               the lease for five
                                                                                                               additional years.
                                                                                                               In the event we
                                                                                                               drill one or more
                                                                                                               wells and commence
                                                                                                               commercial production,
                                                                                                               we would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Eagle
                                                                                                               Bine.</B>
                                                                                                               We currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               3,000 net acres
                                                                                                               located in the
                                                                                                               Eagle Bine are
                                                                                                               in Anderson County,
                                                                                                               Texas. All of this
                                                                                                               acreage is undeveloped
                                                                                                               and unproven as
                                                                                                               of March 31, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               We hold three years
                                                                                                               remaining on the
                                                                                                               lease, with an
                                                                                                               option to extend
                                                                                                               the lease for one
                                                                                                               additional year.
                                                                                                               In the event we
                                                                                                               drill one or more
                                                                                                               wells and commence
                                                                                                               commercial production,
                                                                                                               we would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B>Additional
                                                                                                               Acreage:</B>
                                                                                                               We also hold additional
                                                                                                               acreage in Oklahoma,
                                                                                                               Arkansas, and on
                                                                                                               the Gulf Coast
                                                                                                               of Texas with a
                                                                                                               total of approximately
                                                                                                               5,000 net acres.
                                                                                                               The acreage includes
                                                                                                               16 gross (2.9 net)
                                                                                                               gas wells in Arkansas,
                                                                                                               1 gross (.06 net)
                                                                                                               producing well
                                                                                                               in Oklahoma and
                                                                                                               28 gross (26.1
                                                                                                               net) producing
                                                                                                               wells on the Gulf
                                                                                                               Coast of Texas.
                                                                                                               The Gulf Coast
                                                                                                               assets are majority
                                                                                                               working interest
                                                                                                               leases. We participate
                                                                                                               in the Arkansas
                                                                                                               and Oklahoma wells
                                                                                                               on a non-operated,
                                                                                                               minority working
                                                                                                               interest basis.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Reserves</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Below is a summary of oil and gas reserves as of the fiscal-year
ended December 31, 2011 based on average fiscal-year prices.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 49.5pt">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="14" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Reserves</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">Reserves&nbsp;category</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Oil <BR> (mbbls)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Natural&nbsp;gas <BR>
    (mmcf)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Synthetic&nbsp;oil
    <BR> (mbbls)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Synthetic&nbsp;gas<BR>
    (mmcf)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>PROVED</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Developed:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-align: left; padding-left: 9.9pt">North America</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">1,368.5</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">6,334.0</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">0</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">0</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9.9pt">U.S.A</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,368.5</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,334.0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Undeveloped:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9.9pt">North America</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">805.6</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,171.9</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9.9pt">U.S.A</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">805.6</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,171.9</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9.9pt">TOTAL PROVED</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,174.1</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,505.9</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">As of December
31, 2011, our proved oil and natural gas reserves are all located in the United States, primarily in the Permian Basin of West
Texas, the Eagle Ford shale formation of South Texas and the Williston Basin of North Dakota.&nbsp; The reservoir engineering
reports used herein are calculated as of December 31, 2011. The estimates of proved reserves at December 31, 2011 are based on
reports prepared by DeGolyer and MacNaughton, (the &ldquo;D&amp;M Engineering Report&rdquo;) and an additional report for our
Eagle Ford assets operated by Cheyenne Petroleum prepared by Cawley Gillespie &amp; Associates (the &ldquo;CG&amp;A Engineering
Report&rdquo;) which are included herein as Exhibit 99.5.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Proved reserves
and future net revenue to the evaluated interests were based on economic parameters and operating conditions considered applicable
as of December 31, 2011 and are pursuant to the financial reporting standards of the Securities and Exchange Commission (&ldquo;SEC&rdquo;)
and prepared in accordance with the SPE 2007 Standards promulgated by the Society of Petroleum Engineers.&nbsp; The reserves projections
in this evaluation are based on the use of the available data and accepted industry-engineering methods.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 49.5pt">The following table provides a roll-forward
of the total proved reserves for the years ended December 31, 2011 and 2010, as well as disclosures of proved developed and proved
undeveloped reserves at December 31, 2011 and 2010. Barrels of oil equivalent (BOE) are determined using a ratio of 6 Mcf of natural
gas to 1 Bbl of crude oil.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Natural</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Oil</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Gas</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Total</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Bbls)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Mcf)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Boe)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Total Proved Reserves:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 55%">Balance, January 1, 2011</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">2,290,830</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">14,511,630</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">4,709,436</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Revisions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,431,844</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(8,333,408</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,820,745</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Discoveries</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,414,818</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,872,750</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,726,943</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Purchases of reserves</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,471</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,190</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,836</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Production</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(104,147</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(547,280</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(195,361</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Balance, December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,174,128</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,505,882</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,425,109</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proved developed reserves</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,368,461</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,334,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,424,128</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Proved undeveloped reserves</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">805,669</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,171,884</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,000,983</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 6.75pt">Total proved reserves</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,174,130</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,505,884</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,425,111</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Total Proved Reserves:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Balance, January 1, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,047,616</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,508,944</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,299,107</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Revisions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">173,505</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,527,388</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">428,070</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Discoveries</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">126,366</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,370</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">128,928</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Production</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(56,657</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(540,072</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(146,669</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Balance, December 31, 2010</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,290,830</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">14,511,630</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,709,436</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proved developed reserves</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">759,642</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,370,893</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,321,457</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Proved undeveloped reserves</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,531,188</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,140,737</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,387,979</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 6.75pt">Total proved reserves</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,290,830</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">14,511,630</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,709,436</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total proved reserves as of December
31, 2010 were 4,709,436 BOE including 2,387,979 BOE in proved undeveloped reserves. Our 2010 reserves include reserves acquired
in the Group 1&amp;2 acquisition in February 2011.&nbsp; This transaction was between our Company and XOG Group while we were
under common control.&nbsp; As a result, our proved reserves were recast to include the reserves acquired as if our Company has
owned those reserves at December 31, 2010. &nbsp;Subsequently, we evaluated our proved undeveloped reserves and determined that
1,868,367 BOE in undeveloped reserves were unlikely to be developed in the next three years by the operators of record on which
these reserves were located.&nbsp; As a result, the Company has excluded these locations and the associated reserves from proved
reserves as of December 31, 2011.&nbsp; If these reserves were excluded from all periods presented, total proved reserves as of
December 31, 2011 and 2010 would be 3,425,111 BOE and 2,841,069 BOE, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Qualifications of Technical Persons and Internal Controls
Over Reserves Estimation Process</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our policies regarding
internal controls over the recording of reserves estimates requires reserves to comply with the SEC definitions and guidance and
be prepared in accordance the SPE 2007 Standards promulgated by the Society of Petroleum Engineers.&nbsp;&nbsp;Our procedures
require that our reserve report be prepared by a third-party registered independent engineering firm at the end of every year
based on information we provide to such engineer. We accumulate historical production data for our wells, calculate historical
lease operating expenses and differentials, update working interests and net revenue interests, obtain updated authorizations
for expenditure (&ldquo;AFEs&rdquo;) and obtain geological and geophysical information from operators. This data is forwarded
to our third-party engineering firm for review and calculation. Our Chief Executive Officer and Chief Financial Officer provide
a final review of our reserve report and the assumptions relied upon in such report.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Bryant M. Mook,
B.Sc. M.Eng., Petroleum Engineer and Geological Advisor, was our third party reserve engineer for the preparation of our reserve
report, effective December 31, 2010.&nbsp;&nbsp;Mr. Mook has been a petroleum engineering and geological advisor for more than
35 years with multi-disciplinary experience in the oil and gas industry.&nbsp;&nbsp;He meets or exceeds the education, training,
and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the Society of Petroleum Engineers and is proficient in judiciously applying industry standard practices to engineering
and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our Chief Financial
Officer, Scott Mahoney, was responsible for overseeing the preparation of the reserve estimates.&nbsp;Mr. Mahoney has significant
accounting and financial experience, although not specific to the oil and gas industry.&nbsp;&nbsp;Accordingly, in July 2011,
we hired DeGolyer and MacNaughton of Houston, Texas as our new third-party engineering firm to prepare our reserve estimates going
forward. Cawley, Gillespie and Associates of Houston, Texas was also retained on a specific project to provide third-party engineering
for our Eagle Ford assets being developed with Cheyenne Petroleum in La Salle and Frio Counties, Texas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">DeGolyer and MacNaughton
of Houston, TX, was our third party reserve engineer for the preparation of the majority of our reserve report, effective December
31, 2011.&nbsp;&nbsp;DeGolyer and MacNaughton was established in 1936 and is one of the oldest and largest third party reserve
engineering firms in the US today. This firm meets or exceeds the education, training, and experience requirements set forth in
the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum
Engineers and is proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well
as applying SEC and other industry reserves definitions and guidelines.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Cawley, Gillespie
and Associates, of Fort Worth, Texas, was our third party reserve engineer for the preparation of the Auld Shipman project in
the Eagle Ford within our reserve report, effective December 31, 2011.&nbsp;&nbsp;Cawley, Gillespie and Associates was established
in 1960 and is one of the largest third party reserve engineering firms in the US today. This firm meets or exceeds the education,
training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves
Information promulgated by the Society of Petroleum Engineers and is proficient in judiciously applying industry standard practices
to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Proved Undeveloped Reserves</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in"><FONT STYLE="color: black">As
of December 31, 2011, there were 805,669 barrels of oil and 1,171,884 mcf of natural gas in our proved undeveloped reserves.&nbsp;&nbsp;</FONT>In
2011, the Company evaluated the probability that the operators would drill the undeveloped acreage included in our December 31,
2010 year end reserve reports. The Company found that the operators of this acreage had not committed to drilling the drillable
locations within five years, and therefore we excluded these reserves from our December 31, 2011 reserve report. This resulted
in proved undeveloped reserves as of December 31, 2010 in the amount of 1.25 million barrels of oil and 3,710.2 mcf of natural
gas to be excluded from proved reserves as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">During 2011, we
focused primarily on the acquisition of leasehold properties from the XOG Group, the participation in non-operated exploratory
drilling activities in the Bakken and the Eagle Ford, and the initiation of a self-directed drilling program in the Permian Basin.&nbsp;&nbsp;As
of December 31, 2011, much of our drilling investments in the Bakken, Eagle Ford and Permian Basin remained unproved. Furthermore,
as much of our drilling in 2011 was exploratory, we were not able to provide sufficient production data at year end to generate
significant proven undeveloped reserves in the areas where we drilled or participated in exploratory wells. We believe these exploratory
drilling activities may yield additional proven reserves in 2012. &nbsp;In addition, in 2011 we evaluated many of our non-operated
proven undeveloped reserves and eliminated them from our reserve reporting due solely to the fact that the operators of this non-operated
acreage did not have a clear timetable to drill the undeveloped locations. As a result, we removed these proven undeveloped reserves
from our 2011 year-end reserve reports.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Oil and Gas Production, Production Prices and Production
Costs</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Oil and Gas Production</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.55in">The following table summarizes the
production of oil and natural gas by geographical area&nbsp;for the fiscal year ended December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.55in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">Product</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Permian&nbsp;Basin</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Eagle&nbsp;Ford</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Williston&nbsp;Basin</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right; border-bottom: Black 1pt solid">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-align: left">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">61,928</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">2,083</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">36,944</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">100,955</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">538,646</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,842</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">557,888</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Product (Mcf)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,708</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,775</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,864</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">22,347</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">151,814</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,599</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">39,055</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">194,468</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The following table summarizes the production
of oil and natural gas by geographical area&nbsp;for the fiscal year ended December 31, 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: Black 1pt solid">Product</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Permian&nbsp;Basin</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Eagle&nbsp;Ford</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Williston&nbsp;Basin</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right; border-bottom: Black 1pt solid">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-align: left">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">47,814</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">8,843</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">56,657</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Gas (Mcf)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">536,364</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,708</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">540,072</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>BOE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">137,208</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,461</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">146,669</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
summarizes the production of oil and natural gas by geographical area&nbsp;for the fiscal year ended December 31, 2009:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: justify">Product</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">Permian&nbsp;Basin</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">Eagle&nbsp;Ford</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">Williston&nbsp;Basin</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">Total</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-align: justify">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">56,003</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">56,003</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify; padding-bottom: 1pt">Gas (Mcf)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">610,462</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">610,462</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">BOE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">157,747</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">157,747</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">The following
table summarizes gross and net productive oil wells by state as of December 31, 2011.&nbsp; A net well represents our percentage
ownership of a gross well.&nbsp; The following table includes wells which were awaiting completion, in the process of completion
or awaiting flowback subsequent to fracture stimulation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">As&nbsp;of&nbsp;December&nbsp;31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left">Permian Basin (Texas and New Mexico)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">47</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">33.9</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Bakken (North Dakota)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">121</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.1</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Eagle Ford (Texas)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">23</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.3</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Other (Texas, Oklahoma, Arkansas)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">18</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4.1</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">209</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">42.4</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Production Prices</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table summarizes the average sales price per
unit of oil and natural gas by geographical area&nbsp;for the fiscal years ended December 31, 2011, 2010 and 2009:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid">Product</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">December&nbsp;31, <BR>2011</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">December <BR>31,&nbsp;2010</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">December&nbsp;31, <BR>2009</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Permian Basin</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 43%; text-align: left; padding-left: 0.25in">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 16%; text-align: right">91.22</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 16%; text-align: right">78.47</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 16%; text-align: right">57.16</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.44</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.59</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.81</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Product (Mcf)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1.54</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">BOE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">58.04</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">$</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">$</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Eagle Ford</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Oil (Bbls)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">87.17</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.02</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Product (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20.33</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.25in">BOE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">68.27</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Williston Basin</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Oil (Bbls)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">89.37</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">71.57</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.42</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.54</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Product (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.17</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">BOE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">85.79</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(a)</TD><TD STYLE="text-align: justify">We used the 12 month first
                                                                 day of the month unweighted average prices realized as a basis
                                                                 for all oil calculations and Henry Hub for gas.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes the
weighted average prices utilized in the reserve estimates for 2011 and 2010 as adjusted for location, grade and quality:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">As&nbsp;of&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Prices utilized in the reserve estimates:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Texas oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; padding-left: 0.25in">Oil per Bbl(a)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">92.21</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">75.43</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">57.16</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.25in">Gas per MCF(a)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">6.06</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">6.38</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.81</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">North Dakota oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.25in">Oil per Bbl(a)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">90.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">70.82</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">51.02</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">Gas per MCF(a)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.39</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.66</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(a)</TD><TD STYLE="text-align: justify">The pricing used to estimate
                                                                 our 2011 and 2010 reserves was based on a 12-month unweighted
                                                                 average realized price as adjusted for location, grade and quality.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Average Bench Mark Prices for 2011, 2010 and 2009:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Years&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><B>2011</B></TD><TD STYLE="padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><B>2010</B></TD><TD STYLE="padding-bottom: 1pt"><B>&nbsp;</B></TD><TD STYLE="padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><B>2009</B></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Average NYMEX prices:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 58%; text-align: left">Oil (Bbl)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">95.03</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">79.48</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">62.09</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural gas (MMBtu)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.99</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.37</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.94</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">High / Low NYMEX prices:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Oil (Bbl):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>High</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">113.93</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">91.48</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">81.03</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Low</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">79.2</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">64.78</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">34.03</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Natural gas (MMBtu):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>High</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.92</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7.51</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">6.1</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Low</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.84</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.18</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.83</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Oil and natural gas reserve quantity estimates are subject
to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of
production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available
data and of engineering and geological interpretation and judgment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Costs Incurred for Oil and Natural Gas Producing Activities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Years&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; text-align: left">Unproved property acquisition costs</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">15,258,281</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">7,729,953</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right">1,247,723</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Exploration</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,958,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,787,926</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">930,236</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Development</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">80,409</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,308,484</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">194,814</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">62,296,742</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">17,826,363</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,372,773</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Average production costs per BOE including
ad valorem and severance taxes were $15.77 in 2011.&nbsp;&nbsp;Excluding severance taxes, production costs per BOE were $11.08.
Average production costs per BOE including ad valorem and severance taxes were $14.75 in 2010.&nbsp;&nbsp;Excluding severance
taxes, production costs per BOE were $12.26.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Dry Holes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Through March 31, 2012, we have experienced no dry holes
as of result of our non-operated drilling activities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Drilling Activity and other Exploratory and Development
Activities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Productive and Exploratory Wells
Drilled</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the fiscal year ended December 31,
2011, operators drilled and completed 8 gross (8.0 net) exploratory wells on our leaseholds located in the Permian Basin, including
2 gross (2.0 net) wells in Andrews County and 2 gross (2.0 net) wells in Reagan County. &nbsp;&nbsp;We participated in 18 gross
(1.8 net) exploratory wells in the Eagle Ford shale formation in South Texas, including 16 gross (1.6 net) wells in La Salle County,
and 2 gross (0.2 net) wells in Frio County.&nbsp;&nbsp;Lastly, we participated in 96 gross (1.65 net) exploratory wells in Mountrail,
McKenzie, Williams, Dunn, Burke, and Divide Counties in North Dakota.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the fiscal year ended December 31,
2010, operators drilled and completed 0 gross (0.0 net) exploratory wells on our leaseholds located in the Permian Basin.&nbsp;&nbsp;We
participated in 2 gross (0.2 net) exploratory wells in the Eagle Ford shale formation in La Salle County, Texas.&nbsp;&nbsp;Lastly,
we participated in 23 gross (0.27 net) exploratory wells in the Bakken in Mountrail, McKenzie, Williams and Dunn Counties in North
Dakota.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Productive and Dry Development Wells
Drilled</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the fiscal year ended December 31,
2011, we participated on a non-operated basis in 2 gross (0.1 net) development wells on minority working interest acreage in Glasscock
County, Texas with Trilogy Operating Company.&nbsp;&nbsp;We participated in 0 gross (0.0 net) development wells in the Eagle Ford
shale formation in South Texas.&nbsp;&nbsp;Lastly, we participated in 0 gross (0.0 net) development wells in the Williston Basin
in North Dakota. All of our drilling the Eagle Ford and Bakken in 2010 and 2011 has been exploratory. We have only just begun
to receive notification of development well in-fill drilling on some of our minority working interest acreage in the Bakken in
early 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the fiscal year ended December 31,
2010, operators drilled and completed 2 gross (2.0 net) development wells on our leaseholds located in in the Permian Basin. We
contracted with XOG to oversee the drilling, completion and initial production for these wells drilled in Upton County, Texas.&nbsp;&nbsp;We
participated in no development wells in either the Eagle Ford or Bakken in 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Present Activities</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of March 31, 2012, our third party
operators are in the process of completing 8 gross (8.0 net) exploratory wells on our majority working interest acreage in Andrews,
Reagan, Crockett and Schleicher Counties in the Permian Basin.&nbsp;&nbsp;We also participated in the drilling and completing
of 2 gross (0.2 net) exploratory wells in La Salle Counties in the Eagle Ford.&nbsp;Lastly, we participated in 6 gross (0.1 net)
exploratory wells and 6 gross (0.1 net) development wells in the Bakken.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Oil and Gas Properties, Wells, Operations and Acreage</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes as of
December 31, 2011, the total gross and net productive wells, expressed separately for oil and gas and the total gross and net
developed acreage (<I>i.e.</I>, acreage assignable to productive wells) by geographic area.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Oil&nbsp;Wells</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Gas&nbsp;Wells</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Total&nbsp;Wells</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 22%">Permian</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">45</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">33.8</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">21.2</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">14.6</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">66.2</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">48.4</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Eagle Ford</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.5</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15.0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.5</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Bakken</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">79</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1.3</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">121.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">139</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36.6</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21.2</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14.6</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">202.2</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51.9</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">HBP&nbsp;Acreage</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Total&nbsp;Acreage</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%">Permian</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">7,537</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">6,100</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">8,737</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">6,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Eagle Ford</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,857</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">686</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Bakken</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">134,700</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,830</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">358,810</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">32,400</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">149,094</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,616</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">379,547</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,100</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes as of
March 31, 2012, the total gross and net productive wells, expressed separately for oil and gas and the total gross and net developed
acreage (<I> i.e.</I> , acreage assignable to productive wells) by geographic area.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Oil&nbsp;Wells</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Gas&nbsp;Wells</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Total&nbsp;Wells</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 22%">Permian</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">172</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">138.7</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">49</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">39.1</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">221.0</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">177.8</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Eagle Ford</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.8</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.3</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28.0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.1</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Bakken</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.1</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140.0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.1</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Niobrara</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Eagle Bine</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">16</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12.6</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">32</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">17.2</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">48.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">29.8</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">350</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">157.2</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">87</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">59.6</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">437.0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">216.8</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">HBP&nbsp;Acreage</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Total&nbsp;Acreage</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%">Permian</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">28,226</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">19,855</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">38,752</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">29,019</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Eagle Ford</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,100</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,311</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19,858</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,427</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Bakken</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">134,700</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,830</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">456,110</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42,201</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Niobrara</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,498</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,749</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Eagle Bine</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,052</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,632</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,949</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,310</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,950</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">178,658</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,945</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">574,580</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112,398</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes as of
December 31, 2011, the amount of undeveloped leasehold acreage expressed in both gross and net acres by geographic area and the
minimum remaining terms of leases and concessions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">HBP&nbsp;Acreage</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Total&nbsp;Acreage</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Acreage&nbsp;Subject&nbsp;to&nbsp;Expiration</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Expiration&nbsp;Date&nbsp;Range</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="width: 16%">Permian</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 9%; text-align: right">7,537</TD><TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 9%; text-align: right">6,100</TD><TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 9%; text-align: right">8,737</TD><TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 9%; text-align: right">6,500</TD><TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 9%; text-align: right">1,200</TD><TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 9%; text-align: right">400</TD><TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 9%; text-align: right">Second Quarter
                                                              2012</TD><TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD NOWRAP STYLE="text-align: left">Eagle Ford</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">6,857</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">686</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">12,000</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">1,200</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">5,143</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">514</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">First Quarter 2012</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP>Bakken</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">134,700</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">3,830</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">358,810</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">32,400</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">224,110</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">28,570</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">Range from 2012-2016</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">Total</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">149,094</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">10,616</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">379,547</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">40,100</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">230,453</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">29,484</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Permian Basin, we have approximately
1,000 net acres in Crockett and Schleicher County that have lease expiration dates in April 2012.&nbsp;&nbsp;We are currently
evaluating our options to selectively drill some of these leases to hold this acreage by production.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Eagle Ford, our area of mutual
interest (&ldquo;AMI&rdquo;) requires 35 gross wells to be producing by the second quarter of 2013. We expect Cheyenne to drill
15 incremental wells in 2012 to hold all of the acreage within the AMI by the end of 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Bakken, our non-operated minority
interest acreage is primarily not held by production today, with 28,570 of our 32,400 acres undeveloped or subject to drilling
in progress.&nbsp;&nbsp;Our acreage exposure is very granular, with over 700 leases with a typical working interest ranging from
1-10%. We hold approximately 1,000 and 3,800 net acres that expire in 2012 and 2013, respectively. The majority of our Bakken
acreage has maturity dates in 2012-2014, with the majority of the leases having 1-2 year extension options.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes as of
March 31, 2012, the amount of undeveloped leasehold acreage expressed in both gross and net acres by geographic area and the minimum
remaining terms of leases and concessions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">HBP&nbsp;Acreage</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Total&nbsp;Acreage</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Acreage&nbsp;Subject&nbsp;to&nbsp;Expiration</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Expiration&nbsp;Date&nbsp;Range</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 16%">Permian</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">28,226</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">19,855</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">38,752</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">29,019</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">10,526</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">9,164</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">2012-2016</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Eagle Ford</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,100</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,311</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19,858</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,427</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,758</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,116</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2013-2017</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Bakken</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">134,700</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,830</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">456,110</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42,201</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">321,410</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">38,371</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2012-2017</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Niobrara</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,498</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,749</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,498</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,749</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2020</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Eagle Bine</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2016</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,632</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,949</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,632</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,949</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">178,658</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,945</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">574,902</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112,397</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">396,244</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">80,452</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Permian, we have acquired approximately
9,190 net acres in Crockett and Edwards Counties that were not held by production at March 31, 2012. The leasehold acreage in
both counties has three year lease maturities, with an option to extend the leases by one year. We own the majority working interests
in the acreage in both counties, and we have the ability to direct and contract for the drilling and potential production of these
assets to hold by production in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Eagle Ford, we have acquired
approximately 3,620 net acres in Maverick County that were not held by production at March 15, 2012. This leasehold acreage in
Maverick has a five year lease maturity. We own the majority working interests in this acreage, and contract for the drilling
and potential production of these assets to hold by production in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Bakken, we have acquired an
additional 9,800 net acres in Billings, Burke, Divide, Dunn, Hettinger, McKenzie, Mountrail, Stark and Williams Counties, North
Dakota, and Sheridan, Montana. The expiration of these leases ranges from 2014 to 2016, and in some instances, the acreage has
additional options to extend the lease maturity. We do not own the majority working interest in this acreage, nor do we have any
ability to influence the potential development of this acreage within the terms of the lease.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Delivery Commitments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We do not currently have any delivery commitments for product
obtained from our wells.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The following discussion is intended to assist you in understanding
our business and results of operations together with our financial condition. This section should be read in conjunction with our
historical combined and consolidated financial statements and notes, as well as the selected historical combined and consolidated
financial data included elsewhere in this prospectus. Statements in our discussion may be forward-looking statements. These forward-looking
statements involve risks and uncertainties. We caution that a number of factors could cause future production, revenues and expenses
to differ materially from our expectations. Please see &ldquo;Cautionary Note Regarding Forward-Looking Statements.&rdquo;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are an independent, non-operator oil and natural gas
company engaged in the acquisition of leaseholds in oil and natural gas properties. Our leasehold acreage is located in the Permian
Basin of West Texas and Eastern New Mexico, referred to herein as the Permian Basin, the Eagle Ford Shale Formation of South Texas,
referred to herein as Eagle Ford, the Bakken Shale Formation in North Dakota, referred to herein as Bakken, the Niobrara Shale
Formation of Wyoming and Nebraska, herein referred to as the Niobrara, the Eagle Bine Shale Formation in South East Texas, herein
referred to as the Eagle Bine, and the Gulf Coast of South Texas, herein referred to as the Gulf Coast.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the Permian Basin, the Niobrara,
the Eagle Bine and parts of the Eagle Ford, we own a number of leases where we hold the majority working interest. We have historically
contracted and expect to continue to contract with third-party operators, consultants, and other contractor service providers
to operate and drill our majority leasehold acreage. Within this acreage, the Company has historically contracted to drill conventional,
vertical wells. The Company may consider contracting with third parties to selectively drill unconventional, horizontal wells
in areas that may be prospective for oil and gas bearing shale formations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 53.9pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 53.9pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We also hold minority interest leasehold
acreage in the Bakken, parts of the Permian Basin, and parts of the Eagle Ford. In the minority working interest leaseholds, the
Company has historically participated and expects to continue to participate on a non-operated basis in the drilling and production
of acreage operated by independent oil and gas operating companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 53.9pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">While we do rely on the expertise and
resources of the respective operators that are drilling our minority working interest acreage, we believe that our overall diversification
across a large number of small working interests provides a way to participate in two large shale formations that are being actively
developed with less risk than a concentrated acreage position.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 53.9pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">By participating in drilling activities
with larger operators, we seek to leverage their resources and expertise to efficiently gain exposure to potential new oil and
gas production and proven reserves. In the Permian Basin, some of these operators have historically drilled and operated traditional,
vertical wells. In the Eagle Ford and Bakken, we have participated in wells where the operators have historically drilled unconventional,
horizontal wells into prospective oil and gas bearing shale formations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of March 31, 2012, we held working
interests in approximately 112,400 net acres in the Permian Basin, Bakken, Eagle Ford, Niobrara, Eagle Bine and Gulf Coast regions.
These working interests grant us the right as the lessee of the property to explore for, develop and produce oil, natural gas
and other minerals, while bearing our portion of related exploration, development and operating costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Recent Events</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Payment and Settlement Agreement</B>.
On June 30, 2012, the Company, ASEN 2, Nevada ASEC, and XOG entered into a Payment and Settlement Agreement (the &ldquo;Payment
Agreement&rdquo;) whereby the Company agreed to issue 4,444,445 shares (the &ldquo;XOG Shares&rdquo;) of Common Stock to XOG at
a price per share equal to $2.25 as payment of the $10,000,000 outstanding and owed to XOG pursuant to certain Joint Interest
Billing Statements (&ldquo;JIBs&rdquo;) issued by XOG from January 1, 2012, through and including June 30, 2012 and delivered
to the Company&rsquo;s subsidiaries in connection with certain Joint Operating Agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the terms of the Payment
Agreement, the Company granted piggy-back registration rights with respect to XOG Shares if the Company files a registration statement
in connection with an underwritten public offering within one year from the date of the Payment Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Pentwater</B> <B>Convertible
Note. </B>On February 10, 2012, the Company and ASEN 2., Corp., referred to herein as ASEN 2, a wholly-owned subsidiary of the
Company formed on January 25, 2012, closed on a Note and Warrant Purchase Agreement dated February 9, 2012, referred to herein
as the Purchase Agreement, with Pentwater Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., referred to herein
as Pentwater, in connection with a $20 million private financing. The initial funding made by Pentwater to ASEN 2 on February
10, 2012, referred to as the Pentwater Closing Date, was in the amount of $10 million. The second funding for an additional $10
million, which closed on March 5, 2012, occurred concurrently with the closing of the purchase and sale agreement by and among
the Company, Geronimo Holding Corporation and XOG Operating, LLC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note, referred to herein as the Pentwater Note, convertible into
shares of the Company&rsquo;s common stock at a conversion price of $9.00 per share and five-year warrants to purchase 3,333,333
shares of common stock at a per share cash exercise price of $2.50 (the &ldquo;Pentwater February Warrants&rdquo;). The Pentwater
February Warrants are also subject to a mandatory exercise at the Company&rsquo;s option with respect to (i) 50% of the number
of shares underlying the warrants if the closing sale price of the common stock is equal to or greater than $5.00 per share for
twenty consecutive trading days and (ii) 50% of the number of warrant shares if the closing sale price of the common stock is
equal to or greater than $9.00 per share for twenty consecutive trading days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From the Pentwater Closing Date through
December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On July 23, 2012, the Company, ASEN
2 and Pentwater entered into a First Amendment to Note and Warrant Purchase Agreement (the &ldquo;Purchase Agreement Amendment&rdquo;)
pursuant to which Pentwater made an additional advance to ASEN 2 in the amount of $5 million and ASEN 2 delivered to Pentwater
an Amended and Restated Secured Convertible Promissory Note (the &ldquo;Amended Note&rdquo;) in the amount of $25 million. Pursuant
to the terms of the Purchase Agreement Amendment and a Modification Agreement entered into by the parties, the Company (i) amended
the Pentwater Series C Warrants and the Pentwater February Warrants to reduce the exercise price to $2.25 per share and to change
the expiration date to June 30, 2019 and (ii) issued to Pentwater warrants to purchase an additional 833,333 shares of Common
Stock at an exercise price of $2.25 and an expiration date of June 30, 2019.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Warrant Restructure.</B>
On February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, referred to herein as the Modification
Investors, entered into a modification agreement, referred to herein as the Modification Agreement, pursuant to which the parties
agreed to amend the terms of the Series B warrants, referred to herein as the Series B Warrants, issued to the Modification Investors
in a $13 million private placement offering of the Company&rsquo;s securities in July 2011, referred to herein as the July Offering,
in which the Modification Investors invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed
to limit the dilutive effects of the Series B Warrants by including a floor of $3.00 per share in the calculation of the reset
provision included in the Series B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series
B Warrants held by the Modification Investors is 1,913,043 shares. Due to the elimination of the &ldquo;down-round&rdquo; provisions,
these warrants qualify for equity presentation as of the modification date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants,
referred to herein as Series C Warrants, to purchase 2.5 million shares of common stock, referred to herein as the Series C Warrant
Shares, with a cash exercise price of $3.00 per share. The Series C Warrants include a provision under which the Series C Warrants
must be exercised at the election of the Company by the Modification Investors for cash if the closing sales price of the common
stock is $6.00 per share or greater for 20-consecutive trading days. As a result of the issuance of the Warrants and the Series
C Warrants, the exercise prices and number of shares underlying the Series A warrants and Series B warrants held by the remaining
investor in the July Offering were adjusted pursuant to their terms. As the Series C Warrants are consideration given as part
of the modification, the fair value of these warrants on the modification date were expensed as component of realized and unrealized
expense on warrant derivatives on the consolidated statement of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 5, 2012, pursuant to the terms
of a second modification agreement, the Company and the Modification Investors agreed to further amend the terms of the Series
B warrant to extend the expiration date to be (i) May 24, 2012 with respect to 1,000,000 shares of common stock underlying the
Series B warrants and (ii) with respect to the remaining 913,043 shares of common stock underlying the Series B Warrants (the
&ldquo;Subsequent Warrant Shares&rdquo;), the date that is the earlier of (a) 300 days from April 5, 2012 and (b) ten business
days after notice from the Company stating that the number of Subsequent Warrant Shares exercisable by the Modification Investors
would result in ownership of less than 9.99% of the Company&rsquo;s common stock after giving effect to such exercise. The Company
may provide multiple notices prior to the expiration of the Subsequent Warrant Shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Macquarie Warrant Restructure.</B>
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended
and restated Macquarie Warrant referred to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase 2,333,000
shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie Warrant is not subject to further anti-dilution
provisions other than customary reset provisions for stock splits, subdivision or combinations. The Amended Macquarie Warrant
is exercisable on a cashless basis if there is no registration statement covering the underlying common stock. The Company granted
the holder piggy-back registration rights on the underlying common stock. As the warrant modification fee was consideration given
as part of the modification, it was expensed as component of realized and unrealized expense on warrant derivatives on the consolidated
statement of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Acceleration of Vesting of Founders&rsquo;
Shares.</B> On February 13, 2012, the board of directors of the Company approved the immediate vesting of a total of 1,568,877
restricted shares of the Company&rsquo;s common stock previously issued to the chief executive officer, president and chief financial
officer as founders shares which were to vest in equal portions annually through April 16, 2014.&nbsp;At December 31, 2011, the
unamortized compensation expense for these shares was $1,797,993 which was expensed during the three months ended March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>March Acquisition.</B> On
March 5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across
the Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the &ldquo;March
2012 Properties&rdquo;) in exchange for the delivery by the Company to XOG and Geronimo of $10 million in cash, less a $1.5 million
cash deposit previously paid by the Company, a note in the principal amount of $35,000,000 (the &rdquo;Geronimo Note&rdquo;) made
by the Company in favor of Geronimo and 5,000,000 shares of the common stock of the Company, which had a closing price of $2.70
per share on the closing date of the acquisition. The March 2012 Properties were purchased pursuant to the terms of a Purchase
and Sale Agreement dated as of February 24, 2012 (the &ldquo;PSA&rdquo;) by and among the Company, XOG and Geronimo. The effective
date of this purchase was December 1, 2011. The operating results reflecting the acquisition of the March 2012 Properties are
included in the financial statements for the three months ended March 31, 2012 from March 5, 2012, the closing date of such acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Minimal purchase price was allocated
to well bores acquired. The Company allocated virtually all value to acreage for further development, despite the fact that some
acquired properties were producing from legacy development.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The March 2012 Note bears an interest
rate of 7% per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of
each month commencing on June 1, 2012. The March 2012 Note matures on March 21, 2016. The Company may prepay the March 2012 Note
at any time without penalty.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The PSA provides that if certain defects
are found with the March 2012 Properties within 120 days from closing, or if XOG or Geronimo breach any representation or warranty
in the Agreement within one year from closing, XOG and Geronimo shall, at the option of the Company, in its sole and absolute
discretion, either (i) provide additional or alternative oil and gas properties, subject to the Company&rsquo;s applicable due
diligence review and acceptance or (ii) for as long as the March 2012 Note is outstanding, decrease the principal amount of the
Note in an amount equal to the loss resulting from such property defect or breach.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">XOG and Geronimo have piggyback registration
rights with respect to up to five million shares of common stock held by XOG or Geronimo.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On June 30, 2012, we entered into an
Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares (the &ldquo;Geronimo Shares&rdquo;) of the
our newly created Series A Preferred Stock to Geronimo in exchange for the cancelation of the $35 million note issued to Geronimo.
The terms of the Purchase Agreement provided for a reduction or setoff of the principal amount of the Note under certain conditions.
Pursuant to the terms of the Exchange Agreement, in the event that the Company would have been entitled to any reduction in or
setoff against the principal amount of the Geronimo Note pursuant to the terms of the Purchase Agreement, Geronimo is obligated
to transfer a portion of the Geronimo Shares equal to one share of Series A Preferred Stock and any dividends accrued thereon
for each $1,000 that would have resulted in a reduction in, or setoff against, the principal amount of the Geronimo Note.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Stock Compensation Restructure.
</B><FONT STYLE="color: black">On March 30, 2012, the Board of Directors approved the restructuring of stock options as
part of a comprehensive review of compensation, compensation expense, and shareholder dilution. As of December 31, 2011, 10,745,000
options to purchase common stock were outstanding. As part of a comprehensive review of compensation, compensation expense, and
shareholder dilution, the Board of Directors approved the restructuring of stock options on March 30, 2012 (the &ldquo;Modification
Date&rdquo;). Due to the modification, 2,400,000 options issued to certain officers were forfeited and 3,200,000 options were
accelerated and became immediately vested. An additional 1,540,000 non-qualified options, 205,760 incentive stock options and
80,000 restricted share of common stock were granted to certain officers, directors, employees and a consultant. All modified
options (including the newly issued options) were priced at the average of the open and closing share price of the Company&rsquo;s
common stock on March 30, 2012, which was $2.43 per share and became fully vested on the Modification Date.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the three months ended March 31,
2012 and 2011, the Company recorded non-cash stock-based compensation expense of $31,418,129 and $197,084, respectively, related
to other share based compensation which is included in general and administrative expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Results of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Year-to-year or other periodic comparisons
of the results of our operations can be difficult and may not fully and accurately describe our condition. The following table
shows selected operating data for each of the three months ended March 31, 2012 and&nbsp;2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three Months Ended March
    31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Production volumes:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 70%; text-align: left">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">46,835</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">24,263</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">127,815</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">108,383</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">68,137</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42,327</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>BOE per day</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">749</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">470</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Sales Prices</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Oil (per Bbl)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">95.76</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">72.66</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (per Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.77</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.77</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE Price</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">73.14</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">56.43</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Oil</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,485,051</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,762,965</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Natural Gas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">609,767</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">625,528</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(110,943</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,983,875</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,388,493</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Oil and natural gas production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,390,932</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">807,344</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">General and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36,932,058</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,725,638</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,286,731</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">609,190</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accretion of discount on asset retirement obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6,898</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,165</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">40,616,619</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,146,337</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(35,632,744</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(757,844</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0px">&nbsp;</TD>
    <TD STYLE="width: 38px">(1)</TD>
    <TD>A BOE means one barrel of oil equivalent using the ratio of 6 Mcf of natural gas to one barrel of oil.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our oil and natural gas revenues and
production product mix are displayed in the following table for the current and comparable quarters.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Revenues</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Production</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Q1&nbsp;2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Q1&nbsp;2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Q1&nbsp;2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Q1&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%">Oil</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">90</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">74</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">69</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">57</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Natural Gas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">26</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">43</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table shows our production
volumes, product sales prices and operating revenue for the indicated periods.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three&nbsp;Months&nbsp;Ended&nbsp;March&nbsp;31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">%<BR> Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Production volumes:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 48%; text-align: left">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">46,835</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">24,263</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">22,572</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">93</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">127,815</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">108,383</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19,432</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">68,137</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42,327</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,811</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">61</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>BOE per day</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">749</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">470</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">278</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">59</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Sales Prices</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Oil (per Bbl)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">95.76</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">72.66</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">23.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (per Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.77</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.77</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(1.00</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-17</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE Price</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">73.14</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">56.43</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">16.71</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">30</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Oil</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,485,051</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,762,965</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,722,086</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">154</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Natural Gas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">609,767</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">625,528</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(15,761</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-3</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Gain on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(110,943</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(110,943</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,983,875</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,388,493</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,595,382</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">109</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil revenues.</B> &nbsp;&nbsp;&nbsp;The
Company&rsquo;s oil revenues were $4,485,051 for the three months ended March 31, 2012, an increase of $2,722,086&nbsp;(154%)
from $1,762,965&nbsp;for the three months ended March 31, 2011. Higher average oil prices increased revenues approximately $1,082,000
while increased production increased revenues by approximately $1,640,000. The increase in production volumes was due primarily
to new well development primarily in the Bakken and Permian Basin.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Natural gas revenues.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&rsquo;s natural gas revenues were $609,767 for the three months ended March 31, 2012,
a decrease of $15,761&nbsp;(-3%) from $625,528&nbsp;for the three months ended March 31, 2011. This decrease was due to lower
average prices which accounted for approximately $128,000 of the decrease in gas revenues. Higher volumes of natural gas sold
partially offset the impact of price declines by approximately $112,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three&nbsp;Month&nbsp;Ended&nbsp;March&nbsp;31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">%&nbsp;Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Operating Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 48%; text-align: left">Oil and natural gas production costs</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,390,932</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">807,344</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,583,588</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">196</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36,932,058</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,725,638</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">35,206,420</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2040</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,286,731</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">609,190</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">677,541</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">111</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accretion of discount on asset retirement obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6,898</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,165</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,733</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">66</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">40,616,619</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,146,337</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">37,470,282</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1191</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(35,632,744</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(757,844</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(34,874,900</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4601</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and natural gas production expenses.
</B>Production expenses for the three months ended March 31, 2012 increased $1,583,588&nbsp;(196%) to $2,390,932, compared
to $807,344 for the three months ended March 31, 2011. The increase is due primarily to an increase in production taxes of $313,000
due to increased revenues for the period, and the addition of many new wells in March 2012 which produce low volumes of oil and
natural gas, to which the Company estimates added $216,725 of additional expenses for the current quarter. As a result, the cost
per BOE is expected to increase until new drilling activities and fresh production can offset the higher relative lifting costs
of the acquired wells.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>General and administrative expenses.
<I>&nbsp;</I></B> &nbsp;&nbsp;General and administrative (&ldquo;G&amp;A&rdquo;) expenses were $36,932,058 for the three
months ended March 31, 2012, an increase of $35,206,420&nbsp;from $1,725,638&nbsp;for the three month ended March 31, 2011. The
primary factor for the increase in G&amp;A expenses was an increase in non-cash stock based compensation expense of $33,805,391
for the three months ended March 31, 2012, compared to $564,721 for the three months ended March 31, 2011. <FONT STYLE="color: black">In
addition, the increase was due to the restricted stock agreements for each of the officers, wherein the Company is required to
reimburse a portion of these withholding taxes to the officers.&nbsp;&nbsp;Based upon the agreement, the Company estimates that
it will be required to reimburse in total $2,355,361 to these officers by December 31, 2012 which is included in G&amp;A in the
first quarter of 2012 compared to $0 in the first quarter of 2011. The increases were offset by lower G&amp;A expense due to no
penalties on warrants of $293,226 and slightly lower expenses relating to legal and engineering for the comparative periods.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In 2012 and beyond, the Company anticipates
G&amp;A expenses to decrease in both absolute terms and as a percentage of total revenues. The Company does not expect further
large increases in non-cash stock compensation expenses due to the acceleration of the vesting of equity awards during the three
months ended March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Depreciation, depletion and amortization
expense. <I>&nbsp;</I></B> &nbsp;&nbsp;Depreciation, depletion and amortization (&ldquo;DD&amp;A&rdquo;) expense of proved
oil and natural gas properties was $1,286,731 for the three months ended March 31, 2012, an increase of $677,541 (111%) from $609,190
for the three months ended March 31, 2011. The increase in depletion expense was primarily due to an increase in production volumes
in the Bakken as a result of the addition of the March 2012 Properties. We have invested in new leasehold interests in new basins
over the past year.&nbsp;&nbsp;These assets differ significantly from legacy assets in the Permian Basin included in the 2011
DD&amp;A calculation. Our Bakken production in 2011 was primarily new production, which typically experiences a much more rapid
decline curve than our legacy Permian Basin production. The net effect was to increase depreciation and depletion&nbsp;rates on
a per BOE basis.&nbsp;&nbsp;DD&amp;A per BOE increased 31% for the three months ended March 31, 2012 as compared to the three
months ended March 31, 2011. With the increased development and productivity in unconventional drilling in the Bakken and Eagle
Ford, DD&amp;A per BOE is expected to be higher than historical DD&amp;A for the foreseeable future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Other income (expense), net. <I>&nbsp;</I></B>Other
income (expense) was ($5,147,442) for the three months ended March 31, 2012 and $0 at March 31, 2011.&nbsp;&nbsp;The increase
was due in part to a net expense of $3,258,148 consisting of a decrease of $195,228 in marking the warrant derivatives to market,
offset by a one-time expense relating to the modification of the warrant derivatives of $3,062,920. The Company also recorded
$270,695 in net realized and unrealized loss on the commodity derivatives.&nbsp;&nbsp;Lastly, the increase also included interest
expense for accretion of the debt discount of $822,792 and interest expense of $526,054 incurred in the three months ended March
31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Income tax provision. <I>&nbsp;
</I></B>&nbsp;&nbsp;Prior to their acquisition by the Company, Nevada ASEC and the acquired properties, respectively, were
part of pass-through entities for taxation purposes.&nbsp;&nbsp;As a result, the historical financial statements of Nevada ASEC,
ASEN 2 and the acquired properties do not present any tax expenses, liabilities or assets until their acquisition by the Company.&nbsp;&nbsp;Tax
provisions subsequent to such dates are fully incorporated and presented in the accompanying consolidated financial statements.&nbsp;&nbsp;However,
the income tax provision for the three months ended March 31, 2012 and 2011 were $0 due to net operating losses and a related
valuation allowance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Capital Commitments, Capital Resources
and Liquidity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Capital commitments.&nbsp;&nbsp;<I>&nbsp;</I>&nbsp;&nbsp;&nbsp;&nbsp;
</B>Our primary needs for cash are (i) to fund our share of the drilling and development costs associated with well development
within our leasehold properties, (ii) the&nbsp;further acquisition of additional leasehold assets, and (iii), the payment of contractual
obligations and working capital obligations. Funding for these cash needs will be provided by a combination of internally-generated
cash flows from operations, supplemented by a combination of financing our bank credit facility, proceeds from the disposition
of assets or alternative financing sources, as discussed in &ldquo;Capital resources&rdquo; below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and natural gas properties</B>.<B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></B>Cash
paid for oil and natural gas properties during the three months ended March 31, 2012 and 2011 totaled $18,643,525 and $6,454,426,
respectively. The costs at March 31, 2012 related primarily to purchases of additional acreage in March 2012 from Geronimo, as
well as drilling expenses in the Permian Basin, Bakken and Eagle Ford.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our 2012 capital budget is approximately
$65-$90&nbsp;million assuming additional financing is made available under our existing facility or new financing is obtained.
We expect to be able to fund our remaining 2012 capital budget partially with operating cash flows, asset monetizations, utilization
of our existing credit facility, and the potential issuance of additional equity securities. However, the Company&rsquo;s capital
budget is largely discretionary, and if we experience sustained oil and natural gas prices significantly below the current levels
or substantial increases in its drilling and completion costs, we may reduce our capital spending program to remain substantially
within the Company&rsquo;s operating cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We will selectively seek to acquire
oil and natural gas properties that provide opportunities for the addition of new reserves and production in both its core areas
of operation and in emerging plays throughout the United States.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">While we believe that&nbsp;our available
cash, cash flows and credit facility will fund our 2012 capital expenditures, as adjusted from time to time,&nbsp;we cannot provide
any assurances that&nbsp;we will be successful in securing alternative financing sources to fund such expenditures if needed.
The&nbsp;actual amount and timing of our expenditures may differ materially from&nbsp;our estimates as a result of, among other
things, actual drilling results, the obtaining of debt or equity financing capital, the timing of expenditures by third parties
on projects that we do not operate, the availability of drilling&nbsp;rigs and other services and equipment, regulatory, technological
and competitive developments and market conditions. In addition, under certain circumstances we would consider increasing, decreasing,
or reallocating our 2012 capital budget.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Commodity derivatives.&nbsp;&nbsp;&nbsp;&nbsp;</B>We
began entering into derivative contracts during the three month period ended September 30, 2011, to achieve a more predictable
cash flow by reducing our exposure to crude oil and natural gas price volatility. We have elected not to designate any subsequent
derivative contracts as accounting hedges. As such, all commodity derivative positions are carried at their fair value on the balance
sheet and are marked-to-market at the end of each period. Any realized gains or losses on these derivatives are recorded in realized
and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Capital resources.<I>&nbsp;</I></B>&nbsp;&nbsp;Our
primary sources of liquidity during the first three months of 2012 were cash flows generated from proceeds from our debt offerings
of senior, convertible and subordinated debt from which cash proceeds of $22,688,199&nbsp;were generated.&nbsp;Our primary sources
of liquidity during the first three months of 2011 were cash flows generated from proceeds from our private placement offerings
of our common stock and proceeds from stock subscription receivables from which cash net proceeds of $25,910,169&nbsp;were generated.&nbsp;We
believe that funds from our cash flows from operations, asset monetizations, and any financing under our credit facility should
be sufficient to meet both our short-term working capital requirements and our 2012 capital expenditure plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cash flow from operating activities.<I>&nbsp;</I>&nbsp;
</B>Our net cash provided by (used in) operating activities were $180,824 and ($1,595,133) for the three months ended March
31, 2012 and 2011, respectively. The increase in operating cash flow for the three months ended March 31, 2012 as compared to
March 31, 2011 was due primarily to increases in accounts payable and accrued liabilities. This was offset by a decrease in oil
and gas sales receivables and several other non-cash adjustments to our net loss. See cash flow statement for non-cash adjustments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cash flow used in investing activities.
<I>&nbsp;</I></B> &nbsp;During the three months ended March 31, 2012 and 2011, we invested cash of $20,603,679 and $6,454,426,
respectively, for additions to, and acquisitions of, oil and natural gas properties, inclusive of exploration costs. Cash flows
used in investing activities were substantially higher in 2012 due to the Company&rsquo;s increased leasehold acquisition activities
in the Bakken Shale Formation, Eagle Ford and Permian drilling activities through the acquisition of the March 2012 Properties
from Geronimo in March 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cash flow from financing activities.
<I>&nbsp;</I></B> &nbsp;Net cash provided by financing activities was $21,549,819 and $25,910,169&nbsp;for the three months
ended March 31, 2012 and 2011, respectively. Financing activity was comprised primarily of net proceeds from a $20,000,000 convertible
note issued in February 2012 and proceeds from the credit facility during the three months ended March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Liquidity.<I>&nbsp;</I></B>&nbsp;&nbsp;&nbsp;At
March 31, 2012, we had cash and cash equivalents of $1,860,013. The Company has incurred losses to date of $40,780,186. Further,
we have restrictive covenants that we did not meet for the last two quarters and that required waivers to ensure our debt does
not become payable on demand. To address these concerns we expect to use operating cash flows, asset monetizations, utilization
of our existing credit facility, and the potential issuance of additional equity securities to meet our cash obligations. As the
Company&rsquo;s capital budget is largely discretionary, and if we experience sustained oil and natural gas prices significantly
below the current levels or substantial increases in its drilling and completion costs, we may reduce our capital spending program
to remain substantially within the Company&rsquo;s operating cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Contractual Obligations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employment Agreements.<I> &nbsp;
</I></B>At March 31, 2012, our contractual obligations include employment agreements with executive officers for the remaining
9 months ended December 31, 2012 and the years ending December 31, 2013 through 2014 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2014</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; text-align: left">Scott Feldhacker</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">229,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">306,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">102,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Richard Macqueen</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">229,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">306,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">102,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Scott Mahoney</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">154,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">206,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">68,667</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Contractual Obligations Related to Employment Contracts</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">613,500</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">818,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">272,667</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Operating Leases.&nbsp;&nbsp;</B> We lease&nbsp;our
4,092 square foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement, dated September
30, 2010, for a 66-month term.&nbsp;&nbsp;The lease provides for no lease payments until February 1, 2011 and a reduced square
footage charge for the first year.&nbsp;&nbsp;The initial rental was $23.00 per square foot, beginning February 1, 2011, and increases
$0.50 per square foot annually thereafter.&nbsp;&nbsp;For the three months ended March 31, 2012, the Company recorded&nbsp;lease
expense of $13,992.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At March 31, 2012, the future minimum
lease commitments under the non-cancellable operating leases for the remaining nine months ended December 31, 2012 and each of
the following three years ending December 31 and thereafter are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">46,952</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">97,356</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">99,402</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,448</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">2016</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">42,625</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">387,783</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Pentwater Note.&nbsp;&nbsp;</B>
From the Pentwater Closing Date through December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest
rate of 11% per annum, payable as follows (i) interest at a rate of 9% per annum is payable on the first business day of each
month, commencing on March 1, 2012 and (ii) interest at a rate of 2% per annum is capitalized and added to the then unpaid principal
amount monthly in arrears on the first business day of each month commencing on March 1, 2012. On and after December 9, 2012 through
the maturity date, the Pentwater Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11%
per annum is payable on the first business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5%
per annum is capitalized and added to the then unpaid principal amount monthly on the first business day of each month commencing
on December 1, 2012. The Pentwater Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December
1, 2013. ASEN 2 can prepay the Pentwater Note without penalty prior to December 31, 2012. If the prepayment occurs after December
31, 2012, ASEN 2 must pay to Pentwater 106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At
any time after February 9, 2013, the principal amount and interest of the Pentwater Note may be converted into shares of common
stock at a conversion price of $9.00 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Geronimo Note. </B>On March
5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across the
Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the &ldquo;March 2012
Properties&rdquo;) from a related party. In conjunction with this transaction, the Company entered into a $35,000,000 promissory
note (the &ldquo;Geronimo Note&rdquo;) made by the Company in favor of Geronimo. The Geronimo Note bears an interest rate of 7%
per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of each month
commencing on June 1, 2012. The Geronimo Note matures on March 21, 2016. The Company may prepay the Geronimo Note at any time
without penalty. The Geronimo Note secures certain indemnification and other liabilities under the PSA.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Macquarie Credit Facility.</B>
On September 21, 2011, Nevada ASEC entered into a credit agreement which provided to Nevada ASEC a revolving credit facility in
an amount not to exceed $100 million and a term loan facility in an amount not to exceed $200 million. The interest rate on revolving
loans is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 2.75% to 3.25% per annum (2.75% at March 31, 2012),
based on the borrowing base utilization, and the interest rate on term loans is 30, 60 or 90 day LIBOR, as selected by the Borrower,
plus a margin of 7.50%. The maturity date of the revolving credit facility is September 21, 2015 and the maturity date of the
term loan facility is September 21, 2014.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In order to comply with the terms of
the credit agreement, Nevada ASEC must maintain the following financial ratios:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><U>Current
                                                                                                               Ratio</U>.&nbsp;&nbsp;Commencing
                                                                                                               December 31, 2011,
                                                                                                               Nevada ASEC will
                                                                                                               maintain a Current
                                                                                                               Ratio (the ratio
                                                                                                               of (i) Nevada ASEC&rsquo;s
                                                                                                               current assets
                                                                                                               to (ii) Nevada
                                                                                                               ASEC&rsquo;s current
                                                                                                               liabilities) of
                                                                                                               at least 1.00 to
                                                                                                               1.00.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><U>Debt
                                                                                                               Coverage Ratio</U>.&nbsp;&nbsp;Commencing
                                                                                                               on the last day
                                                                                                               of the fiscal quarter
                                                                                                               following any fiscal
                                                                                                               quarter in which
                                                                                                               there are, on any
                                                                                                               day that fiscal
                                                                                                               quarter, no outstanding
                                                                                                               advances under
                                                                                                               the Term Loan,
                                                                                                               Nevada ASEC shall
                                                                                                               maintain a Debt
                                                                                                               Coverage Ratio
                                                                                                               of no more than
                                                                                                               3.50 to 1.00.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: 1.5pt">&ldquo;Debt Coverage Ratio&rdquo;
shall mean, as of the last day of any fiscal quarter, the ratio of (i) Nevada ASEC&rsquo;s debt to (ii) Nevada ASEC&rsquo;s EBITDA
for the four (4) most recent fiscal quarters occurring in whole or in part after closing; <U>provided</U> that (x) for the first
fiscal quarter after the closing date, the Debt Coverage Ratio will be calculated using Nevada ASEC&rsquo; EBITDA for that first
fiscal quarter <U>multiplied</U> by four; (y) for the second fiscal quarter after the closing date, the Debt Coverage Ratio will
be calculated using Nevada ASEC&rsquo; aggregate EBITDA for those first two fiscal quarters <U>multiplied</U> by two; and (z)
for the third fiscal quarter after the closing date, the Debt Coverage Ratio will be calculated using Nevada ASEC&rsquo; aggregate
EBITDA for those first three fiscal quarters <U>multiplied</U> by one and one-third (1.33).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: 1.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><U>Interest
                                                                                                               Coverage Ratio</U>.&nbsp;&nbsp;Commencing
                                                                                                               December 31, 2011,
                                                                                                               Nevada ASEC will
                                                                                                               maintain an Interest
                                                                                                               Coverage Ratio
                                                                                                               (the ratio of (a)
                                                                                                               Nevada ASEC&rsquo;s
                                                                                                               EBITDA for the
                                                                                                               period which is
                                                                                                               the lesser of (i)
                                                                                                               the actual number
                                                                                                               of fiscal quarters
                                                                                                               which has or have
                                                                                                               elapsed since the
                                                                                                               closing date and
                                                                                                               (ii) the four (4)
                                                                                                               most recent fiscal
                                                                                                               quarters to (b)
                                                                                                               Nevada ASEC&rsquo;s
                                                                                                               aggregate interest
                                                                                                               expense for all
                                                                                                               debt for the same
                                                                                                               period) of at least
                                                                                                               2.50 to 1.00.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Pursuant to the terms of the credit agreement, the Company
implemented the initial Hydrocarbon price risk management program. At the request of the administrative agent, the Company must
dedicate a percentage of the volume of PDP Reserves volumes (not to exceed 85% of those volumes) projected to be produced prior
to the earlier of (a) three years after the closing date or (b) the maturity date to a Hydrocarbon price risk management program
approved by Administrative Agent in its reasonable discretion.&nbsp;&nbsp;Any gain or loss for volume adjustments will be for
Nevada ASEC&rsquo;s account.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The initial borrowing base and amount
drawn on the revolving credit facility was $12 million.&nbsp;&nbsp;Thereafter, the administrative agent will re-determine the
borrowing base not less than every six months based upon the most recent reserve report.&nbsp; Within 30 days following receipt
of each such reserve report, the administrative agent shall, in its sole discretion, make a determination of the borrowing base
which shall become effective upon written notification from administrative agent to Nevada ASEC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The debt was initially recorded net
of a debt discount of $10,917,981 related to warrants issued to the lenders.&nbsp;&nbsp;The debt discount will be amortized over
the term of the credit facility. The outstanding amount on the revolving credit facility at March 31, 2012 was $13.1 million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The outstanding balance on the term loan was $7,858,088
at March 31, 2012. Beginning on March 21, 2013, the Company will begin making monthly payments to amortize the term loan, each
payment equal to the total outstanding term loan balance on that date divided by 18. Based on the outstanding balance of the term
loan on March 31, 2012, the Company expects to pay $3,929,044 in each of the years 2013 and 2014.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At March 31, 2012, our future contractual
obligations under the Pentwater and Geronimo Notes and Macquarie Credit facility for the remaining nine months ended December
31, 2012 and each of the following four years ending December 31 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,966,782</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,009,816</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,030,588</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,934,669</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">2016</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,622,698</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">92,564,553</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Results of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following tables present recast<B>&nbsp;</B>selected
historical financial and operating information for the years ended December 31:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year Ended December 31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Production volumes:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 61%; text-align: left">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">100,955</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">56,657</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">56,003</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">561,080</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">540,072</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">610,462</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">194,468</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">146,669</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">157,747</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>BOE per day</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">533</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">401.83</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">432.18</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Sales Prices</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Oil (per Bbl)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">89.93</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">74.45</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">57.58</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (per Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.93</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.89</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.00</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE Price</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">63.80</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">47.02</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">35.92</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Oil</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">9,079,267</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,218,075</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,224,862</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Natural Gas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,328,507</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,643,310</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,441,848</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Gain on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,560</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,407,774</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6,896,945</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,666,710</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Oil and natural gas production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,067,087</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,163,887</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,786,280</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Exploration expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,463</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">240,382</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,387,633</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,674,985</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">553,542</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Impairment of oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,027,552</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,553</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">253,258</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,313,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,556,288</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,490,926</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accretion of discount on asset retirement obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">20,951</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,607</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,399</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">23,816,473</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,704,783</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,336,787</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Income (loss) from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(11,408,699</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,807,838</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,329,923</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>A BOE means one barrel of oil equivalent using the ratio of
                                                            6 Mcf of gas to one barrel of oil</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year Ended December
    31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">% Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Production volumes:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 48%; text-align: left">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">100,955</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">56,657</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">44,298</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">78</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">561,080</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">540,072</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21,008</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">194,468</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">146,669</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">47,799</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>BOE per day</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">533</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">401.83</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">130.96</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Sales Prices</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Oil (per Bbl)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">89.93</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">74.45</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">15.48</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (per Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.93</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.89</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.04</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE Price</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">63.80</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">47.02</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">16.78</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Oil</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">9,079,267</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,218,075</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,861,192</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">115</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Natural Gas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,328,507</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,643,310</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">685,197</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">26</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Gain on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,560</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(35,560</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,407,774</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6,896,945</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,510,829</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Oil and natural gas production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,067,087</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,163,887</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">903,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Exploration expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,463</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(247,463</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-100</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,387,633</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,674,985</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,712,648</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">189</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Impairment of oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,027,552</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,553</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">980,999</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2107</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,313,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,556,288</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,756,962</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">113</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accretion of discount on asset retirement obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">20,951</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,607</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,344</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">34</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">23,816,473</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,704,783</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">14,111,690</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">145</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Income (loss) from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(11,408,699</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,807,838</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(8,600,861</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">306</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">A BOE means one barrel of oil equivalent
                                                            using the ratio of 6 Mcf of gas to one barrel of oil</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 72; Value: 1 -->
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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year Ended December
    31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">% Increase</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Decrease)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Production volumes:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 48%; text-align: left">Oil (Bbls)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">56,657</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">56,003</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">654</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">1</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">540,072</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">610,462</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(70,390</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-12</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">146,669</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">157,747</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(11,078</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-7</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>BOE per day</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">401.83</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">432.18</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(30.35</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-7</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Sales Prices</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Oil (per Bbl)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">74.45</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">57.58</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">16.87</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Natural Gas (per Mcf)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.89</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.89</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>BOE Price</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">47.02</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">35.92</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">11.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Oil</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,218,075</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,224,862</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">993,213</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Natural Gas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,643,310</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,441,848</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">201,462</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Gain on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,560</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,560</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6,896,945</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,666,710</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,230,235</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">21</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Operating Expenses</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Oil and natural gas production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,163,887</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,786,280</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">377,607</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Exploration expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,463</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">240,382</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,081</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,674,985</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">553,542</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,121,443</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">925</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Impairment of oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,553</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">253,258</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(206,705</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-82</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,556,288</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,490,926</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">65,362</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accretion of discount on asset retirement obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,607</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,399</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,208</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">26</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,704,783</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,336,787</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,367,996</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">124</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Income (loss) from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,807,838</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,329,923</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,137,761</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-314</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">A BOE means one barrel of oil equivalent
                                                            using the ratio of 6 Mcf of gas to one barrel of oil</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Revenues</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Production</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 34%; text-align: left">Oil</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">73</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">61</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">57</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">52</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">39</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">36</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Natural Gas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">38</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">43</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">48</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">61</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">64</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Gain on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Year Ended December 31, 2011 Compared to Years Ended
December 31, 2010 and December 31, 2009</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil revenues.</B> &nbsp;&nbsp;&nbsp;The
Company&rsquo;s oil revenues were $9,079,267 for the year ended December 31, 2011, an increase of $4,861,192&nbsp;(115%) from
$4,218,075&nbsp;for the year ended December 31, 2010. Higher average oil prices increased revenues approximately $877,304 while
increased production increased revenues by approximately $3,983,888. The increase in production volumes was due primarily to new
well development primarily in the Bakken. In 2011 <FONT STYLE="color: black">we participated in 96 gross (1.65 net) exploratory
wells in the Bakken compared to 23 gross (0.27 net) exploratory wells in the Bakken in 2010. The Company&rsquo;s oil revenues
increased by $993,213 (30.8%) in 2010 from $3,224,862 in 2009 primarily related to higher average oil prices in 2010 compared
to 2009.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Natural gas revenues.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&rsquo;s natural gas revenues were $3,328,507 for the year ended December 31, 2011, an increase of $685,197&nbsp;(26%)
from $2,643,310&nbsp;for the year ended December 31, 2010. This increase was due to slightly higher average prices which accounted
for approximately $560,571 of the increase in gas revenues. Higher volumes of natural gas sold increased revenue by approximately
$124,626. The Company&rsquo;s natural gas revenues increased in 2010 by $201,462 (8.25%) from $2,441,848 in 2009. Higher average
prices increased revenue and offset the slight decrease in gas production from 2009 to 2010. The decrease in production was mainly
due to depletion on existing wells.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and natural gas production expenses.
<I>&nbsp;</I></B> &nbsp;&nbsp;Production expenses for the year ended December 31, 2011 increased $903,200&nbsp;(42%) to
$3,067,087, compared to $2,163,887 for the year ended December 31, 2010. The increase is due to an increase in production taxes
of $313,000 due to increased revenues for the period and a slight increase in lease operating expenses primarily due to an increase
in 132 gross wells (26.9 net wells) partially offset by less rework in the current period versus 2010. Production expenses increased
$377,607 (21%) in December 31, 2010 from $1,786,280 for the year ended December 31, 2009 mainly due to newly developed wells and
well repair costs incurred during the year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>General and administrative expenses.
<I>&nbsp;</I></B> &nbsp;&nbsp;General and administrative (&ldquo;G&amp;A&rdquo;) expenses were $16,387,633 for the year
ended December 31, 2011, an increase of $10,712,648&nbsp;(189%) from $5,674,985&nbsp;for the year ended December 31, 2010. The
primary factor for the increase in G&amp;A expenses was the recognition of&nbsp;$2,019,943 in non-cash penalties related to the
delayed registration of the February 1, 2011 and March 31, 2011 equity private placements and an increase in non-cash stock compensation
expense of $6,693,548. The remainder of the increase relates to an increase of approximately $630,000 in payroll and taxes and
an increase of approximately $1,400,000 in legal and professional fees due to acquisitions and the S-1 registration filing. G&amp;A
expenses for December 31, 2010 increased by $5,121,443 (925%) from $553,542 at December 31, 2009 primarily due to the recognition
of $4,227,274 in non-cash stock compensation expense, as well as accounting, legal and consulting fees incurred related the formation
of Nevada ASEC and the share exchange agreement with FDOG entered into on October 1, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In 2012 and beyond, the Company anticipates
G&amp;A expenses to decrease in both absolute terms and as a percentage of total revenues. The Company took on several activities
that may be considered non-recurring, including three capital raises, four acquisitions, and an S-1 registration statement. These
activities may have contributed significantly to an increase in legal and accounting expenses that may not be incurred at comparable
levels in the future. In addition, non-cash stock compensation expenses may also decrease in the future as one-time historical
grants are amortized and not re-incurred in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Exploration expenses.<I> &nbsp;
</I></B>&nbsp;Exploratory expenses for the year ended December 31, 2011 were $0, compared to $247,463 for the year ended
December 31, 2010.&nbsp;&nbsp;This expense was primarily attributable to an unsuccessful exploratory well located in the Eagle
Ford shale formation drilled in 2007 and reworked as a shale formation well in 2010.&nbsp;&nbsp;The well was intended to generate
petroleum production from the shale formation, but due to a mechanical failure during the drilling process this was unable to
be completed. All intangible and tangible costs related to this well have been expensed. Exploration expenses in 2009 were relatively
consistent with 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Depreciation, depletion and amortization
expense.<I> &nbsp;</I></B> &nbsp;&nbsp;Depreciation, depletion and amortization (&ldquo;DD&amp;A&rdquo;) expense of proved
oil and natural gas properties was $3,313,250 for the year ended December 31, 2011, an increase of $1,756,962 (113%) from $1,556,288
for the year ended December 31, 2010. The increase in depletion expense was primarily due to an increase in production volumes
in the Bakken. We have invested in new assets in new basins over the past year.&nbsp;&nbsp;These assets differ significantly from
legacy assets in the Permian Basin included in the 2010 DD&amp;A calculation. Our Bakken production in 2011 was primarily new
production, which typically experiences a much more rapid decline curve than our legacy Permian Basin production. The net effect
was to increase depreciation and depletion&nbsp;rates on a per BOE basis.&nbsp;&nbsp;DD&amp;A per BOE increased 61% for the year
ended December 31, 2011 as compared to the year ended December 31, 2010. With the increased development and productivity in unconventional
drilling in the Bakken and Eagle Ford, DD&amp;A per BOE is expected to be higher than historical DD&amp;A for the year ended December
31, 2010 per BOE for the traditional Permian Basin producing assets. DD&amp;A increased by $65,362 (4%) from $1,490,426 at December
31, 2009.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Impairment of oil and natural gas
properties. </B>Impairment expense for the year ended December 31, 2011 was $1,027,522 compared to $46,533 at December
31, 2010. The Company impaired approximately $447,552 related to its unproved leaseholds for the year ended December 31, 2011.
The impairment consisted of several expired leases and an estimate of leases where expiration is probable in the foreseeable future.
In addition to the unproved property impairment, the Company impaired approximately $580,000 of its proved properties as the carrying
value of the properties was higher than the estimated fair value at December 31, 2011. Impairment expense at December 31, 2010
decreased $206,705 (81.6%) from $253,258 at December 31, 2009 primarily due to higher estimated reserve values in the Bakken formation
for the period ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Other income, net.<I> &nbsp;</I></B>
&nbsp;&nbsp;Other income (expense) increased to ($2,265,189) for the year ended December 31, 2011 from $0 at December 31, 2010
and 2009.&nbsp;&nbsp;The increase was due to the unrealized loss on warrant derivatives of $409,668 relating to the Macquarie
warrants and the Series A and Series B warrants and marking them to market and $670,659 net realized and unrealized loss on the
commodity derivatives.&nbsp;&nbsp;The increase also included interest expense for accretion of the debt discount of $1,010,924,
and interest expense of $173,938 incurred in the year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Income tax provision.<I> &nbsp;
</I></B>&nbsp;&nbsp;Prior to their acquisition by the Company, Nevada ASEC and the Acquired Properties, respectively, were
part of pass-through entities for taxation purposes.&nbsp;&nbsp;As a result, the historical financial statements of Nevada ASEC
and the Acquired Properties do not present any tax expenses, liabilities or assets until their acquisition by the Company.&nbsp;&nbsp;Tax
provisions subsequent to such dates are fully incorporated and presented in the accompanying consolidated financial statements.&nbsp;&nbsp;However,
the income tax provision for the year ended December 31, 2011, 2010 and 2009 was $0 due to net operating losses and a related
valuation allowance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Capital Commitments, Capital Resources
and Liquidity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Capital commitments.&nbsp;&nbsp;<I>&nbsp;</I>&nbsp;&nbsp;&nbsp;&nbsp;
</B>Our primary needs for cash are (i) to fund our share of the drilling and development costs associated with well development
within its leasehold properties, (ii) the&nbsp;further acquisition of additional leasehold assets, and (iii), the payment of contractual
obligations and working capital obligations. Funding for these cash needs will be provided by a combination of internally-generated
cash flows from operations, supplemented by a combination of financing our bank credit facility, proceeds from the disposition
of assets or alternative financing sources, as discussed in &ldquo;Capital resources&rdquo; below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and natural gas properties</B>.<B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></B>Cash
paid for oil and natural gas properties during the years ended December 31, 2011, 2010 and 2009 totaled $54,372,042, $13,021,284
and $2,393,249, respectively. The 2011 costs related primarily to new drilling activities in the Permian and Eagle Ford and additional
Bakken undeveloped leases. The 2010 costs related primarily to purchases of additional Bakken leases and drilling in the Bakken,
Permian and South Texas leases.&nbsp;&nbsp;The 2009 costs related primarily to purchases of Bakken undeveloped leases, the drilling
of four Bakken wells, and the drilling of one South Texas well.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our 2012 capital budget for drilling
(excluding any acquisitions) is approximately $125&nbsp;million assuming additional financing is made available under our existing
facility or new financing is obtained. We expect to be able to fund our remaining 2012 capital budget partially with operating
cash flows, and utilization of our existing credit facility. However, the Company&rsquo;s capital budget is largely discretionary,
and if we experience sustained oil and natural gas prices significantly below the current levels or substantial increases in its
drilling and completion costs, we may reduce our capital spending program to remain substantially within the Company&rsquo;s operating
cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">While we believe that&nbsp;our available
cash, cash flows and credit facility will fund our 2012 capital expenditures, as adjusted from time to time,&nbsp;we cannot provide
any assurances that&nbsp;we will be successful in securing alternative financing sources to fund such expenditures if needed.
The&nbsp;actual amount and timing of our expenditures may differ materially from&nbsp;our estimates as a result of, among other
things, actual drilling results, the obtaining of debt or equity financing capital, the timing of expenditures by third parties
on projects that we do not operate, the availability of drilling&nbsp;rigs and other services and equipment, regulatory, technological
and competitive developments and market conditions. In addition, under certain circumstances we would consider increasing, decreasing,
or reallocating our 2012 capital budget.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Commodity derivatives.&nbsp;&nbsp;&nbsp;&nbsp;</B>We
began entering into derivative contracts during the three month period ended September 30, 2011, to achieve a more predictable
cash flow by reducing our exposure to crude oil and natural gas price volatility. We have elected not to designate any subsequent
derivative contracts as accounting hedges. As such, all commodity derivative positions are carried at their fair value on the
balance sheet and are marked-to-market at the end of each period. Any realized gains or losses on these derivatives are recorded
in realized and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Capital resources.<I>&nbsp;</I></B>&nbsp;&nbsp;Our
primary sources of liquidity during 2011 were cash flows generated from proceeds from our private placement offerings of our common
stock and proceeds from stock subscription receivables from which cash net proceeds of $47,892,172 were generated.&nbsp;&nbsp;We
also borrowed $17,169,889 under our credit facility. We believe that funds from our cash flows and any financing under our credit
facility should be sufficient to meet both our short-term working capital requirements and our 2012 capital expenditure plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cash flow from operating activities.<I>&nbsp;</I>&nbsp;
</B>Our net cash provided by operating activities were $4,402,749, $3,739,625 and $2,936,683 for the year ended December
31, 2011, 2010 and 2009, respectively. The decrease in operating cash flow for the year ended December 31, 2011 was due primarily
to increased general and administrative costs and the reduction in working capital through increases in oil and gas sales receivables
and the non-cash accounts payable and accrued liabilities for oil and natural gas additions. The increase in operating cash flow
from 2009 to 2010 was due primarily to changes in operating assets and liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cash flow used in investing activities.
<I>&nbsp;</I></B> &nbsp;During the year ended December 31, 2011, 2010 and 2009, we invested $58,462,398, $12,878,375 and
$2,393,249, respectively, for additions to, and acquisitions of, oil and natural gas properties, inclusive of exploration costs.
Cash flows used in investing activities were substantially higher in 2011, 2010 and 2009 due to the Company&rsquo;s increased
leasehold acquisition activities in the Bakken Shale Formation, Eagle Ford and Permian drilling activities, prepaid drilling costs
and a $1.5 million deposit with XOG relating to the 2012 acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cash flow from financing activities.
<I>&nbsp;</I></B> &nbsp;Net cash provided by (used in) financing activities was $54,272,702, $9,658,746 and ($543,434)&nbsp;for
the year ended December 31, 2011, 2010 and 2009, respectively. Financing activity was comprised primarily of net proceeds from
the sale of common stock and warrants and proceeds from the credit facility during the year ended December 31, 2011. Financing
activities for 2010 comprised primarily of equity provided by the XOG Group to support leasehold acquisitions and new drilling
activities and $5,374,907 of net proceeds from the sales of stock and warrants during the year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>February Private Placement.</B>
On February 1, 2011, we closed on a private placement offering of securities raising proceeds of $15,406,755 through the issuance
of (i) 4,401,930 shares of our common stock at a price of $3.50 per share and (ii) two series of five-year warrants each exercisable
into 1,100,482 shares of common stock at exercise prices of $5.00 and $6.50 per share, respectively, subject to certain adjustments.&nbsp;&nbsp;The
Company also issued to the placement agents warrants to purchase up to 220,097 shares of common stock, the terms and exercise
price correspond to the terms of warrants issued to investors in the private placement.&nbsp;&nbsp;The shares and warrants were
sold to certain accredited investors.&nbsp;&nbsp;Subject to certain conditions, we have&nbsp;the right to call for the exercise
of such warrants.&nbsp;We incurred costs of $0.8 million with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>March Private Placement.</B>
&nbsp;&nbsp;On March 31, 2011, we closed a private placement offering of securities raising proceeds of $21,257,778 through the
issuance of (i) 3,697,005 shares of common stock at a price of $5.75 per share and (ii) five-year warrants exercisable into 1,848,502
shares of common stock at exercise prices of $9.00 per share, subject to certain adjustments.&nbsp;&nbsp;The Company also issued
to the placement agents warrants to purchase up to 96,957 shares of common stock at an exercise price of $9.00.&nbsp;&nbsp;The
shares and warrants were sold to certain accredited investors.&nbsp;&nbsp;Subject to certain conditions, we have the right to
call for the exercise of such warrants.&nbsp;&nbsp;We incurred costs of $1.5 million in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>July Private Placement.</B>&nbsp;&nbsp;&nbsp;
On July 15, 2011, we completed a closing of an offering of securities for total subscription proceeds of approximately $13 million
through the issuance of (i) 2,260,870 shares of our common stock at a price of $5.75 per share, (ii) Series A warrants to purchase
1,130,435 shares of common stock at a per share exercise price of $9.00 subject to certain adjustment provisions, and (iii) Series
B warrants to purchase a number of shares of common stock, which shall only be exercisable if (A) the market price (as defined
below) of our common stock on the 30th trading day following the earlier of (i) the effective date of a registration statement
to sell the shares of common stock and the Series A warrant shares, and (ii) the date on which the purchasers in the private placement
can freely sell the shares of common stock pursuant to Rule 144 promulgated under the Securities Act without restriction, referred
to herein as the Eligibility Date is less than the purchase price in the offering or $5.75, and (B) upon certain dilutive occurrences.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 10, 2012, the Company,
Pentwater and two affiliated entities of Pentwater (the &ldquo;Modification Investors&rdquo;) entered into a modification agreement
(the &ldquo;Modification Agreement&rdquo;) pursuant to which the parties agreed to amend the terms of the Series B warrants to
include a floor of $3.00 per share in the calculation of the reset provision included in the Series B warrants. Accordingly, the
aggregate maximum number of shares of Common Stock underlying the Series B Warrants held by the Modification Investors is 1,913,043
shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As additional consideration for the modification
of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants (&ldquo;Series
C Warrants&rdquo;) to purchase 2.5 million shares of Common Stock with a cash exercise price of $3.00 per share. The Series C Warrants
include a provision under which the Series C Warrants must be exercised at the election of the Company by the Modification Investors
for cash if the closing sales price of the Common Stock is $6.00 per share or greater for 20-consecutive trading days. As a result
of the issuance of the Warrants and the Series C Warrants, the exercise prices and number of shares underlying the Series A warrants
and Series B warrants held by the remaining investor in the July Offering were adjusted pursuant to their terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the July 15, 2011 private
placement offering, we granted to the investors registration rights pursuant to a Registration Rights Agreement, dated July 15,
2011, in which we agreed to register all of the related private placement common shares and common shares underlying the Series
A warrants within forty-five (45) calendar days after July 15, 2011, and use its best efforts to have the registration statement
declared effective within one hundred twenty (120) calendar days (or 150 calendar days upon a full review by the SEC). We will
be required to pay to each investor an amount in cash equal to 3% of the investor&rsquo;s purchase price in the event the Company
fails to file the initial registration statement with the SEC, or otherwise, 1% of the aggregate purchase price paid by such investor,
as applicable if we fail to comply with the terms of the Registration Rights Agreement and certain other conditions, on each monthly
anniversary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The net proceeds from these private placements
have been and will be used for operating purposes and to fund drilling and development activities, and acquisitions from the XOG
Group.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition,&nbsp;we may also seek to utilize
various financing sources, including the issuance of (i)&nbsp;fixed and floating rate debt, (ii)&nbsp;convertible securities, (iii)&nbsp;preferred
stock, (iv) common stock and (v)&nbsp;other securities. We may also sell assets and issue securities in exchange for oil and natural
gas related assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Credit Agreement.&nbsp;&nbsp;</B>On
September 21, 2011, Nevada ASEC, referred to herein as the Borrower, entered into a Credit Agreement (the &ldquo;Credit Agreement&rdquo;)
with the lenders party thereto and Macquarie Bank Limited as administrative agent, referred to herein as Macquarie Bank. The Credit
Agreement provides to the Borrower a revolving credit facility in an amount not to exceed $100 million and a term loan facility
in an amount not to exceed $200 million. The interest rate on revolving loans is 30, 60 or 90 day LIBOR, as selected by the Borrower,
plus a margin of 2.75% to 3.25% per annum, based on the borrowing base utilization, and the interest rate on term loans is 30,
60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 7.50%. The maturity date of the revolving credit facility is
September 21, 2015 and the maturity date of the term loan facility is September 21, 2014. The Borrower also has the option to
borrow at the Base Rate plus margins from 1.75% to 2.25%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Borrower&rsquo;s obligations under
the Credit Agreement are secured by the Borrower&rsquo;s interest in certain oil and gas properties and the hydrocarbons produced
from such properties, as well as the proceeds of the sale of such hydrocarbons. We guaranteed the Borrower&rsquo;s obligations
under the Credit Agreement and pledged to the administrative agent a security interest in 100% of the capital stock of the Borrower
as security for our obligations under the guaranty. At December 31, 2011, $17,169,889 was the outstanding borrowings under the
Credit Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the Credit Agreement,
we issued to Macquarie Americas Corp., referred to herein as Macquarie Americas, a five year warrant (the &ldquo;Macquarie Warrant&rdquo;)
to purchase five million (5,000,000) shares of our common stock&nbsp;at a per share exercise price of $7.50, subject to certain
adjustments. The warrant is exercisable on a cashless basis if there is no registration statement covering the underlying common
stock. The warrant is also subject to customary anti-dilution provisions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Macquarie Warrant Restructure.</B>
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended
and restated Macquarie Warrant referred to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase two million
three hundred thirty-three thousand (2,333,000) shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie
Warrant is not subject to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision
or combinations. The Amended Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering
the underlying common stock. The Company granted the holder piggy-back registration rights on the underlying common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Liquidity.<I>&nbsp;</I></B>&nbsp;&nbsp;Our
principal sources of short-term liquidity are cash on hand, operational cash flow, and incremental borrowing under our Credit
Agreement.&nbsp;&nbsp;At December 31, 2011, we had cash and cash equivalents of $733,049. Our short term cash commitments are
primarily for drilling costs. These drilling costs are discretionary in nature; however, if the Company elects not to participate
in such drilling costs, the Company could forfeit certain rights to receive revenues from production from the proposed well or
to participate in and receive revenues from future wells in the related contract area. See Note N in the Notes to Consolidated
Financial Statements for a discussion of recent financings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Contractual Obligations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employment Agreements.<I> &nbsp;
</I></B>At December 31, 2011, our contractual obligations include employment agreements with executive officers for the
years ending December 31, 2012 through 2014 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: right; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: right; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: right; border-bottom: Black 1pt solid">2014</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 49%; text-align: left">Scott Feldhacker</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">231,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">231,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">77,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Richard Macqueen</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">231,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">231,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">77,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Scott Mahoney</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">206,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">206,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">68,667</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -9.9pt; padding-left: 9.9pt">Total Contractual Obligations
    Related to Employment Contracts</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">668,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">668,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">222,667</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Operating Leases.&nbsp;&nbsp;</B>
We lease&nbsp;our 4,092 square foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement,
dated December 31, 2010, for a 66-month term.&nbsp;&nbsp;The lease provides for no lease payments during the first six months
and a reduced square footage charge for the first year.&nbsp;&nbsp;The initial rental is $23.00 per square foot, beginning February
1, 2011, and increasing $0.50 per square foot annually thereafter.&nbsp;&nbsp;For the year ended December 31, 2011, the Company
recorded&nbsp;lease expense of $90,214.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At December 31, 2011, the future minimum
lease commitments under the non-cancellable operating leases for each of the following five years ending December 31 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 83%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">67,606</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">97,356</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">99,402</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,448</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">2016</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">42,625</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">408,437</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Critical Accounting Policies and Practices</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our consolidated financial
statements and related notes thereto contain information that is pertinent to our management&rsquo;s discussion and analysis of
financial condition and results of operations. Preparation of the Company&rsquo;s consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires that management make estimates, judgments and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.
However, the accounting principles used by the Company generally do not change the Company&rsquo;s reported cash flows or liquidity.
Interpretation of the existing rules must be done and judgments made on how the specifics of a given rule apply to the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In management&rsquo;s
opinion, the more significant reporting areas impacted by management&rsquo;s judgments and estimates are revenue recognition, the
choice of accounting method for oil and natural gas activities, oil and natural gas reserve estimation, asset retirement obligations,
impairment of long-lived assets and valuation of stock-based compensation. Management&rsquo;s judgments and estimates in these
areas are based on information available from both internal and external sources, including engineers, geologists and historical
experience in similar matters. Actual results could differ from the estimates, as additional information becomes known.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Successful Efforts Method of Accounting</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Company utilizes
the successful efforts method of accounting for its oil and natural gas properties. Under this method all costs associated with
productive wells and nonproductive development wells are capitalized, while nonproductive exploration costs are expensed. Capitalized
acquisition costs relating to proved properties are depleted using the unit-of-production method based on proved reserves. The
depletion of capitalized exploratory drilling and development costs is based on the unit-of-production method using proved developed
reserves on a field basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Proceeds from the
sales of individual properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively,
to accumulated depletion. Generally, no gain or loss is recognized until the entire amortization base is sold. However, a gain
or loss is recognized from the sale of less than an entire amortization base if the disposition is significant enough to impact
the depletion rate of the remaining properties in the amortization base materially. Ordinary maintenance and repair costs are expensed
as incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Costs of unproved
properties, wells in the process of being drilled and significant development projects are excluded from depletion until such
time as the related project is developed and proved reserves are established or impairment is determined. These unproved oil and
natural gas properties are periodically assessed for impairment by considering future drilling plans, the results of exploration
activities, commodity price outlooks, planned future sales or expiration of all or a portion of such projects. Amounts capitalized
to oil and natural gas properties, but excluded from depletion at December 31, 2011 and 2010 were approximately $25,213,000 and
$9,954,000, respectively.&nbsp; Such costs are related to drilling in progress and wells recently drilled and in various stages
of testing and completion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Company reviews
its long-lived assets to be held and used, including proved oil and natural gas properties, whenever events or circumstances indicate
that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected undiscounted
future cash flows is less than the carrying amount of the assets. In this circumstance, the Company would recognize an impairment
loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Company reviews
its oil and natural gas properties by amortization base or by individual well for those wells not constituting part of an amortization
base. For each property determined to be impaired, an impairment loss equal to the difference between the carrying value of the
properties and the estimated fair value (discounted future cash flows) of the properties would be recognized at that time. Estimating
future cash flows involves the use of judgments, including estimation of the proved and unproved oil and natural gas reserve quantities,
timing of development and production, expected future commodity prices, capital expenditures and production costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Asset Retirement Obligations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">There are legal obligations
associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal
operation of a long-lived asset. The primary impact of this on the Company relates to oil and natural gas wells on which we have
a legal obligation to plug and abandon. The Company records the fair value of a liability for an asset retirement obligation in
the period in which it is incurred and, generally, a corresponding increase in the carrying amount of the related long-lived asset.
The determination of the fair value of the liability requires the Company to make numerous judgments and estimates, including judgments
and estimates related to future costs to plug and abandon wells, future inflation rates and estimated lives of the related assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Impairment of Long-Lived Assets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">All of the Company&rsquo;s
long-lived assets are monitored for potential impairment when circumstances indicate that the carrying value of an asset may be
greater than its future net cash flows, including cash flows from risk adjusted proved reserves. The evaluations involve a significant
amount of judgment since the results are based on estimated future events, such as future sales prices for oil and natural gas,
future costs to produce these products, estimates of future oil and natural gas reserves to be recovered and the timing thereof,
the economic and regulatory climates and other factors. The need to test an asset for impairment may result from significant declines
in sales prices or downward revisions to estimated quantities of oil and natural gas reserves. Any assets held for sale are reviewed
for impairment when the Company approves the plan to sell. Estimates of anticipated sales prices are highly judgmental and subject
to material revision in future periods. Because of the uncertainty inherent in these factors, the Company cannot predict when or
if future impairment charges will be recorded.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Valuation of Stock-Based Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Company is required
to expense all options and other stock-based compensation that vested during the year based on the fair value of the award on the
grant date. The calculation of the fair value of stock-based compensation requires the use of estimates to derive the inputs necessary
for using the various valuation methods utilized by us. The Company utilizes the Black-Scholes option pricing model to measure
the fair value of stock options.&nbsp; Expected volatilities are based on implied volatilities from the historical volatility of
companies similar to the Company.&nbsp; The expected term of the options granted used in the Black-Scholes model represent the
period of time that options granted are expected to be outstanding.&nbsp; The Company utilizes the simplified method for calculating
the expected life of its options as the Company does not have sufficient historical data to provide a basis upon which to estimate
the term.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Recent Accounting Pronouncements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt"><B>Reserve Estimation.&nbsp;</B>
In January 2010, the FASB issued an update to the Oil and Gas Topic, which aligns the oil and natural gas reserve estimation and
disclosure requirements with the requirements in the SEC&rsquo;s final rule,<I> &nbsp;&nbsp;Modernization of the Oil and Gas Reporting
Requirements</I> &nbsp;&nbsp;(the &ldquo;Final Rule&rdquo;). The Final Rule was issued on December 31, 2008. The Final Rule is
intended to provide investors with a more meaningful and comprehensive understanding of oil and natural gas reserves, which should
help investors evaluate the relative value of oil and natural gas companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Final Rule
permits the use of new technologies to determine proved reserves estimates if those technologies have been demonstrated empirically
to lead to reliable conclusions about reserve volume estimates. The Final Rule also allows, but does not require, companies to
disclose their probable and possible reserves to investors in documents filed with the SEC. In addition, the new disclosure requirements
require companies to: (i) report the independence and qualifications of its reserves preparer or auditor; (ii) file reports when
a third party is relied upon to prepare reserves estimates or conduct a reserves audit; and (iii) report oil and natural gas reserves
using an average price based upon the prior 12-month period rather than a year-end price. The Final Rule became effective for fiscal
years ending on or after December 31, 2009.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our consolidated financial statements and supplementary financial
data are included in this report beginning with page F-1.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On July 28, 2010, Michael Cronin declined to stand for re-appointment
as the independent registered public accounting firm for the Company. Mr. Cronin, as a sole practitioner, notified us that certain
SEC and PCAOB independence rules state that an accountant is not independent if he or she serves as a lead partner for more than
five consecutive years. &nbsp;Mr. Cronin further advised us that his continued service would be in violation of the independence
rules and cause his independence to be impaired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The reports of Michael Cronin on our financial statements for
each of the past two years prior to electing not to stand for re-appointment, were unqualified and contained no adverse opinion
or disclaimer of opinion and no report was qualified as to uncertainty, audit scope, or accounting principles.&nbsp; Mr. Cronin
did include an emphasis paragraph in the financial statements for the past two years relating to a going concern uncertainty.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">There were no disagreements on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure, between us and Michael Cronin during our two most
recent fiscal years or for the period through the date that Michael Cronin elected not to stand for re-appointment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(a) Engagement of&nbsp;New Independent Registered Public Accounting
Firm.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">i. On October 1, 2010, our Board of Directors
appointed BDO USA, LLP (&ldquo;BDO&rdquo;), as our new independent registered public accounting firm. The decision to engage BDO
was approved by the our Board of Directors on October 1, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">ii. Prior to October 1, 2010, we did not
consult with&nbsp;BDO&nbsp;regarding (1) the application of accounting principles to a specified transaction, (2) the type of audit
opinion that might be rendered on our financial statements, (3) written or oral advice that would be an important factor considered
by us in reaching a decision as to an accounting, auditing or financial reporting issue, or (4) any matter that was the subject
of a disagreement between us and our predecessor auditor as described in Item 304(a)(1)(iv) or a reportable event as described
in Item 304(a)(1)(v) of Regulation S-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Directors and Executive Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">The following table sets forth the names,
ages, positions and dates of appointment of our directors and executive officers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 27%; border-bottom: Black 1pt solid; font-weight: bold">Name</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 9%; border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Age</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 37%; border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Position</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center; width: 24%">Date&nbsp;Appointed</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Scott&nbsp;Feldhacker</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">44</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Chief&nbsp;Executive&nbsp;Officer&nbsp;and&nbsp;Director</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">October&nbsp;1,&nbsp;2010</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Richard&nbsp;MacQueen</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">45</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">President&nbsp;and&nbsp;Director</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">October&nbsp;1,&nbsp;2010</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Scott&nbsp;Mahoney</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">37</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Chief&nbsp;Financial&nbsp;Officer</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">October&nbsp;1,&nbsp;2010</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Robert&nbsp;J.&nbsp;Thompson</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">69</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Chairman&nbsp;of&nbsp;the&nbsp;Board</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">November 23,&nbsp;2010</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Randall&nbsp;Capps</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">56</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Director</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">October&nbsp;11,&nbsp;2010</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>James&nbsp;R.&nbsp;Leeton,&nbsp;Jr.</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">60</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Director</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">March&nbsp;15,&nbsp;2011</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Scott&nbsp;David</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">46</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Director</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">April&nbsp;4,&nbsp;2011</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>William&nbsp;&ldquo;Bill&rdquo;&nbsp;Killian</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">47</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Director</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">April&nbsp;4,&nbsp;2011</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 45pt">The business background descriptions of our
directors and officers are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>SCOTT FELDHACKER</B> &mdash;
<I>Chief Executive Officer and Director</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Feldhacker is co-founder of
Nevada ASEC in April 2010.&nbsp;&nbsp;He has worked as a consultant in the family oil and gas exploration and production
businesses with XOG Operating, LLC and Geronimo Holding Corporation, exploration and production operators based in Midland,
Texas since 2001 by assisting with financial relationships, the structuring of both acquisitions and sales of producing
assets, leaseholds and rights of way, new development, and field operation activities including auditing utility usage per
leasehold.&nbsp; Since April 2011, Mr. Feldhacker has also served as an officer and director of McCaFe Energy Partners Inc.
(&ldquo;McCaFe&rdquo;), a development stage infrastructure, natural gas exploration and alternative energy investment
company. Mr. Feldhacker devotes his full professional time to the Company&rsquo;s business and fewer than five hours of his
personal time per week to McCaFe&rsquo;s business. From January 2009 to December 2010, he co-founded and served as a managing
member of Fusion Capital LLC, a consulting firm that consulted for both private and public companies in various industries
including oil and gas E&amp;P companies that provided general business consulting and advisory services.&nbsp;&nbsp;From
February 2005 to December 2010, Mr. Feldhacker co-founded and served as the Managing Member of DreamTick LLC, a consulting
firm which placed its focus on emerging markets, consulting with  companies entering the U.S. capital markets, providing
post-listing public relation services.&nbsp; From 1995 to 2004, he gained entrepreneurial success over diverse industries as an owner
and officer. In 1991, Mr. Feldhacker began as a Wealth Manager for Allmerica Financial then Mass Mutual Oppenheimer. Mr.
Feldhacker attended University of Arizona from 1985 to 1986, Arizona State University from 1987 to 1988, and Santa Barbara
City College from 1989 to 1991.&nbsp; Mr. Feldhacker began his post-secondary education in business management before
switching to Engineering and Computer Science.&nbsp; Mr. Feldhacker left to accept an offer with Allmerica Financial in 1991.
We believe Mr. Feldhacker&rsquo;s extensive business and leadership experience makes him an important member of the Board of
Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>RICHARD MACQUEEN</B> &mdash;<I> President and
Director</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. MacQueen is the co-founder of
Nevada ASEC in April 2010. Since April 2011, Mr. MacQueen has also served as an officer and director of McCaFe Energy
Partners Inc., a development stage infrastructure, natural gas exploration and alternative energy investment company. Mr.
MacQueen devotes his full professional time to the Company&rsquo;s business and fewer than five hours of his personal time
per week to McCaFe&rsquo;s business. From January 2009 to December 2010, he co-founded and served as a managing member of
Fusion Capital LLC, a consulting firm that consulted for both private and public companies in various industries including
oil and gas E&amp;P companies that provided general business consulting and advisory services. From February 2005 to December
2010, Mr. MacQueen co-founded and served as a member of DreamTick LLC, a consulting firm which placed its focus on emerging
markets, consulting with  companies entering the U.S. capital markets, providing post-listing public relation services.&nbsp; From
July 2005 to June 2008, Mr. MacQueen served as the Western Regional Territory Manager for UltraRad Corp., a radiology
software company he previously represented through his technical sales firm.&nbsp;&nbsp;From 2001 to 2005, Mr.
MacQueen operated a technical sales firm which supported companies in the aerospace, medical, high speed low skew and
automotive industries, including Fortune 500 companies.&nbsp; Prior to 2011, Mr. MacQueen developed, owned and operated a
restaurant chain covering three states throughout the Southwest. Mr. MacQueen attended Western Illinois University from 1984
to 1986 and Arizona State University (ASU) in the business track from 1988 to 1990.&nbsp; Mr. MacQueen left ASU to devote his
time to the development of his restaurant business. We believe that Mr. MacQueen&rsquo;s extensive business and
entrepreneurial&nbsp;experience brings important experience and leadership to the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>SCOTT MAHONEY</B> &mdash;
<I>Chief Financial Officer</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Prior to joining Nevada ASEC as a founding
executive, from September 2008 to April 2010, Mr. Mahoney was the founder and served as the managing partner of Catalyst Corporate
Solutions, LLC, a consulting firm based in Phoenix, Arizona, focused on strategic financial and accounting consulting for companies
in rapid growth.&nbsp; In this capacity, Mr. Mahoney served as the interim Chief Financial Officer for Phoenix Group Metals, Phoenix
Stair, ITX Technology Solutions, and Aspire Design from September 2008 to April 2010. Mr. Mahoney was responsible for all operational
finance matters, strategic capital raises, and the structuring of mergers and acquisitions opportunities. Mr. Mahoney has more
than 15 years of experience in the finance industry, primarily in commercial and investment banking. From April 2005 to September
2008, Mr. Mahoney worked for JP Morgan Chase, where he held a leadership role on more than $1.5 billion in debt facilities.&nbsp;
Prior to JPMorgan Chase, Mr. Mahoney worked for Key Bank&rsquo;s Technology Investment Banking Group in Seattle, Washington, where
he worked in a similar role with small and mid-cap publicly held companies primarily in the information technology services and
software industries. Mr. Mahoney is a graduate of Thunderbird International School of Business and the University of New Hampshire.&nbsp;
Mr. Mahoney is also a Chartered Financial Analyst and has been nationally recognized by the Risk Management Association of America
for white papers on equity research applied to non-public companies and specialty small-cap investing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>ROBERT J. THOMPSON</B> &mdash;<I> Chairman
of the Board of Directors</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Thompson has served as Chairman of
the Board of Algae Biosciences Corporation from November 2007 to the present and as Chairman of the Board of QuoteMedia, Inc. from
June 2000 to the present.&nbsp; He has also served as Managing Director of CanAm Capital Partners, LLC, a corporate finance advisory
firm, from May 2006 to the present and has been President of Corpus Investments Inc., a private equity firm, since December 2002.
Mr. Thompson previously served as Chairman of the Board from 1991 through 2001 of C.M. Oliver Inc., a Canadian publicly traded
investment dealer/broker involved since 1907, in investment banking activities throughout North America and Europe, particularly
in the oil and gas and mineral resource sectors. His professional involvements concentrated on corporate finance and merger and
acquisition advisory services. Mr. Thompson is a Canadian Chartered Accountant (C.A. designation basically equivalent to CPA).&nbsp;
Mr. Thompson also holds Canadian Certified Management Consultant designation (CMC). Mr. Thompson attended the University of British
Columbia, enrolled in an accelerated B.Comm./C.A. combined program requiring students to complete 8 years of class work in 6 years.&nbsp;
He completed all courses with distinction.&nbsp; He however did not submit a final B.Comm thesis and therefore did not receive
the B.Comm degree.&nbsp; Mr. Thompson also chairs the Company&rsquo;s Compensation, Audit, and Nominating and Corporate Governance
Committees. We believe that Mr. Thompson&rsquo;s extensive financial experience, as well as his experience on the boards of directors
of numerous companies, bring substantial leadership skill and experience to the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>RANDALL CAPPS</B> &mdash;
<I>Director</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Capps is the largest stockholder
of the Company and has more than 30 years of experience in the E&amp;P oil and gas industry.&nbsp; His experience began with Texaco
Inc. and more recently as owner of several E&amp;P companies.&nbsp; Since August 2004, Mr. Capps has served as the managing member
and sole owner of XOG Operating, LLC, a seasoned exploration and operation company based in Midland, Texas, which develops and
operates oil and gas properties in 14 states.&nbsp; Since August 1996, he has also served as the president and sole owner of Geronimo
Holding Corporation, which holds vast mineral rights and several supporting oil and gas companies.&nbsp; Mr. Capps graduated from
the University of Texas with an undergraduate degree in business in 1975. Mr. Capps&rsquo; thirty-plus years in the oil and gas
industry brings important experience and leadership skills to the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>JAMES R. LEETON, JR.</B> &mdash;<I>
Director</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Leeton has served as a partner at Bullock
Scott, PC, a Midland, Texas based law firm from July 2005 to the present.&nbsp; Mr. Leeton focuses his practice on oil and gas,
banking and business law. Prior to joining Bullock Scott in 2005, Mr. Leeton was a partner at several law firms with an emphasis
of practice in oil and gas related industries: Morgan &amp; Leeton, PC (1988-2005), James R. Leeton, Jr. Attorney at Law (1985-1988),
and Leeton &amp; Leeton, PC (1978-1985).&nbsp; Mr. Leeton was also employed as a Landman for ExxonMobil Corporation from 1977-1978.
Mr. Leeton earned a Bachelor of Arts Degree from University of Texas, Austin and his Doctor of Jurisprudence from Texas Tech University.
We believe that Mr. Leeton&rsquo;s extensive legal experience in the oil and gas industry brings additional experience and expertise
to the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>SCOTT DAVID</B> &mdash;<I> Director</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Since 1991, Mr. David has held progressive
positions of responsibility within Shell Oil Company, most recently&nbsp;as Joint Venture Formation Manager with a focus on the
retail sector in the downstream oil and gas industry.&nbsp; Mr. David has held various positions over the years at Shell including
Pricing Manager for the U.S. Wholesale gasoline business, Equity Investments Manager, Business Acquisitions Manager, and most recently
Joint Ventures Formation Manager. Mr. David earned a Bachelor of Business Administration in Finance as well as a minor in Information
Systems from Baylor University.&nbsp; Mr. David also holds a Master of Business Administration with a concentration in Finance
from St. Mary&rsquo;s College. Mr. David&rsquo;s extensive experience in the oil and gas industry makes him a valuable member of
the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>WILLIAM &ldquo;BILL&rdquo; KILLIAN</B>
&mdash;<I> Director</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From July 2010 to the present, Mr. Killian
has served as the General Manager of Texas Operations at Texas Jack Waste Holdings and has oversight of all Texas operations for
this solid waste management company focusing on growth and expansion.&nbsp; Mr. Killian previously served as General Manager/Managing
Partner of Pima Waste of Tucson from April 2006 through December 2009 prior to selling the company to Waste Management.&nbsp; He
also served as General Manager of West Valley Business Units at Allied Waste from 2002-2006, General Manager/Managing Partner of
City-Waste of Arizona from 2000 until its successful sale to Allied Waste in 2002 and as Operations Manager/General Manager of
Laidlaw/Allied Waste Lake Havasu from 1994-2000.&nbsp; Mr. Killian attended Mohave Community College in Lake Havasu, Arizona from
1995 to 1997. We believe that Mr. Killian&rsquo;s extensive entrepreneurial and business experience brings important experience
and leadership to the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Code of Ethics</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have adopted a Code of Ethics that applies to our principal
executive officer, principal financial and accounting officer, controller and persons performing similar functions. We will provide
to any person, without charge, upon request, a copy of such Code of Ethics, as amended. Requests should be addressed to Mr. Scott
Mahoney, Chief Financial Officer at our address appearing on the cover page of this Annual Report on Form 10-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Corporate Governance</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Term of Office</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our directors are
appointed for a one-year term to hold office until the next annual meeting of our stockholders until their successors are duly
appointed and qualified or until removed from office in accordance with our bylaws. Our officers are appointed by our board of
directors and hold office until removed by our board of directors.&nbsp; Except as set forth in the section entitled &quot;Executive
Compensation,&quot; there are no agreements with respect to the election of directors.&nbsp; Our bylaws provide that officers are
appointed annually by our board of directors and each executive officer serves at the discretion of our board of directors.&nbsp;
However, we have entered into employment agreements with each of our executive officers for a term of four years and automatic
extension period of one year (provided the agreement has not been terminated earlier).&nbsp; Please refer to &ldquo;Executive Compensation&mdash;Employment
Agreements&rdquo; for a discussion of the material terms of the employment agreements between the Company and each of the named
executive officers identified in the &ldquo;Executive Compensation&ndash;Summary Compensation Table.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Director Independence</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We use the definition
of &ldquo;independence&rdquo; of The NASDAQ Stock Market to make this determination.&nbsp; NASDAQ Listing Rule 5605(a)(2) provides
that an &ldquo;independent director&rdquo; is a person other than an officer or employee of the company or any other individual
having a relationship which, in the opinion of the Company&rsquo;s board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.&nbsp; The NASDAQ listing rules provide that a director cannot be considered
independent if:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the
                                                                                                               director is, or
                                                                                                               at any time during
                                                                                                               the past three
                                                                                                               years was, an employee
                                                                                                               of the company;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               accepted any compensation
                                                                                                               from the company
                                                                                                               in excess of $120,000
                                                                                                               during any period
                                                                                                               of 12 consecutive
                                                                                                               months within the
                                                                                                               three years preceding
                                                                                                               the independence
                                                                                                               determination (subject
                                                                                                               to certain exclusions,
                                                                                                               including, among
                                                                                                               other things, compensation
                                                                                                               for board or board
                                                                                                               committee service);</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">a
                                                                                                               family member of
                                                                                                               the director is,
                                                                                                               or at any time
                                                                                                               during the past
                                                                                                               three years was,
                                                                                                               an executive officer
                                                                                                               of the company;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               is a partner in,
                                                                                                               controlling stockholder
                                                                                                               of, or an executive
                                                                                                               officer of an entity
                                                                                                               to which the company
                                                                                                               made, or from which
                                                                                                               the company received,
                                                                                                               payments in the
                                                                                                               current or any
                                                                                                               of the past three
                                                                                                               fiscal years that
                                                                                                               exceed 5% of the
                                                                                                               recipient&rsquo;s
                                                                                                               consolidated gross
                                                                                                               revenue for that
                                                                                                               year or $200,000,
                                                                                                               whichever is greater
                                                                                                               (subject to certain
                                                                                                               exclusions);</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               is employed as
                                                                                                               an executive officer
                                                                                                               of an entity where,
                                                                                                               at any time during
                                                                                                               the past three
                                                                                                               years, any of the
                                                                                                               executive officers
                                                                                                               of the company
                                                                                                               served on the compensation
                                                                                                               committee of such
                                                                                                               other entity; or</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               is a current partner
                                                                                                               of the company&rsquo;s
                                                                                                               outside auditor,
                                                                                                               or at any time
                                                                                                               during the past
                                                                                                               three years was
                                                                                                               a partner or employee
                                                                                                               of the company&rsquo;s
                                                                                                               outside auditor,
                                                                                                               and who worked
                                                                                                               on the company&rsquo;s
                                                                                                               audit.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">We have determined
that Messrs. Thompson, David, Killian and Leeton are &ldquo;independent&rdquo; directors as defined by applicable SEC rules and
NASDAQ Stock Market listing standards.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Board Committees</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Our board of directors
has an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. Each committee&rsquo;s members
and certain other information regarding each committee are described below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Audit Committee</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Audit Committee
is comprised entirely of &ldquo;independent&rdquo; directors as defined by applicable SEC rules and NASDAQ Stock Market listing
standards. The current members of our Audit Committee are Messrs. Thompson, David and Killian. Mr. Thompson is the chairperson
of the Audit Committee and serves as its &ldquo;audit committee financial expert&rdquo; as defined by SEC rules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Compensation Committee</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Compensation Committee
is comprised entirely of &ldquo;independent&rdquo; directors as defined by applicable SEC rules and NASDAQ Stock Market listing
standards. The current members of our Compensation Committee are Messrs. Thompson, Killian and Leeton. Mr. Thompson is the chairperson
of the Compensation Committee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Corporate Governance and Nominating
Committee</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The Corporate Governance
and Nominating Committee (&ldquo;CGNC&rdquo;) is comprised entirely of &ldquo;independent&rdquo; directors as defined by applicable
SEC rules and NASDAQ Stock Market listing standards. The current members of our Corporate Governance and Nominating Committee are
Messrs. Thompson, David, Killian and Leeton. Mr. Thompson is the chairperson of the Corporate Governance and Nominating Committee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The CGNC of the Board
of Directors has established the Fairness Committee as a standing sub-committee of the NCGC.<B> &nbsp;</B> The Fairness Committee
is appointed by the NCGC to complete independent assessments of the fairness to non-related party stockholders, and other non-affiliated
stakeholders, of proposed or completed transactions by the Company that might represent conflicts of interests between the company
and its affiliates and other related parties. The current members of this subcommittee are Messrs. Thompson, David, Killian and
Leeton.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Board Leadership Structure and Role
in Risk Oversight</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Leadership of our
board of directors is vested in a Chairman of the Board.&nbsp;Although our Chief Executive Officer currently does not serve as
Chairman of the Board of Directors, we currently have no policy prohibiting our current or any future chief executive officer from
serving as Chairman of the Board. The board of directors, in recognizing the importance of its ability to operate independently,
determined that separating the roles of Chairman of the Board and Chief Executive Officer is advantageous for us and our shareholders.
Our board of directors has also determined that having the Chief Executive Officer serve as director could enhance understanding
and communication between management and the board of directors, allows for better comprehension and evaluation of our operations,
and ultimately improves the ability of the board of directors to perform its oversight role. The management of enterprise-level
risk may be defined as the process of identification, management and monitoring of events that present opportunities and risks
with respect to the creation of value for our shareholders. The board of directors has delegated to management the primary responsibility
for enterprise-level risk management, while retaining responsibility for oversight of our executive officers in that regard.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Family Relationships</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Scott Feldhacker,
our Chief Executive Officer and a member of our board of directors, is the son-in-law of Randall Capps.&nbsp; Mr. Capps is a member
of our board of directors and the sole owner of XOG and Geronimo and the majority owner of CLW.&nbsp; Through these indirect ownership
interests and through his direct ownership interests, Mr. Capps is currently the majority holder of our common stock.<B> &nbsp;
</B>Additionally, our director Scott David is the first cousin of Richard MacQueen, our President and director. For a list of
specific transactions, see the section entitled<I> &ldquo;Transactions with Related Persons, Promoters, and Certain Control Persons.&rdquo;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Involvement in Certain Legal Proceedings</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">To our knowledge,
during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">had any bankruptcy petition filed by or against the business or property of the person, or of any
partnership, corporation or business association of which he was a general partner or executive officer, either at the time of
the bankruptcy filing or within two years prior to that time;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending
or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings
and loan, or insurance activities, or to be associated with persons engaged in any such activity;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity
Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">been
                                                                                                               the subject of,
                                                                                                               or a party to,
                                                                                                               any federal or
                                                                                                               state judicial
                                                                                                               or administrative
                                                                                                               order, judgment,
                                                                                                               decree, or finding,
                                                                                                               not subsequently
                                                                                                               reversed, suspended
                                                                                                               or vacated (not
                                                                                                               including any settlement
                                                                                                               of a civil proceeding
                                                                                                               among private litigants),
                                                                                                               relating to an
                                                                                                               alleged violation
                                                                                                               of any federal
                                                                                                               or state securities
                                                                                                               or commodities
                                                                                                               law or regulation,
                                                                                                               any law or regulation
                                                                                                               respecting financial
                                                                                                               institutions or
                                                                                                               insurance companies
                                                                                                               including, but
                                                                                                               not limited to,
                                                                                                               a temporary or
                                                                                                               permanent injunction,
                                                                                                               order of disgorgement
                                                                                                               or restitution,
                                                                                                               civil money penalty
                                                                                                               or temporary or
                                                                                                               permanent cease-and-desist
                                                                                                               order, or removal
                                                                                                               or prohibition
                                                                                                               order, or any law
                                                                                                               or regulation prohibiting
                                                                                                               mail or wire fraud
                                                                                                               or fraud in connection
                                                                                                               with any business
                                                                                                               entity; or</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">been
                                                                                                               the subject of,
                                                                                                               or a party to,
                                                                                                               any sanction or
                                                                                                               order, not subsequently
                                                                                                               reversed, suspended
                                                                                                               or vacated, of
                                                                                                               any self-regulatory
                                                                                                               organization (as
                                                                                                               defined in Section
                                                                                                               3(a)(26) of the
                                                                                                               Exchange Act),
                                                                                                               any registered
                                                                                                               entity (as defined
                                                                                                               in Section 1(a)(29)
                                                                                                               of the Commodity
                                                                                                               Exchange Act),
                                                                                                               or any equivalent
                                                                                                               exchange, association,
                                                                                                               entity or organization
                                                                                                               that has disciplinary
                                                                                                               authority over
                                                                                                               its members or
                                                                                                               persons associated
                                                                                                               with a member.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>EXECUTIVE COMPENSATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt"><I>The following
sets forth information with respect to the compensation awarded or paid to our Chief Executive Officer and the two most highly
compensated executive officers during the fiscal years ended December 31, 2011 and 2010 (collectively, the &ldquo;named executive
officers&rdquo;) for all services rendered in all capacities to us and our subsidiaries in fiscal 2011 and 2010.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Summary Compensation Table</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The following
table sets forth information regarding each element of compensation that we paid or awarded to our named executive officers for
fiscal years 2011 and 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">Non-equity</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Stock</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Option</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">incentive<BR> plan</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">Nonqualified<BR> deferred</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">Name&nbsp;and&nbsp;Principal</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Salary</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Awards</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Awards</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">compensation</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">compensation</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">All&nbsp;Other</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Total</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Position</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Year</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">($)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Bonus
    ($)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">($)(1)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">($)(2)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">($)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">earnings
    ($)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Compensation</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">($)</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 19%; text-align: left"><FONT STYLE="font-size: 8pt">Scott Feldhacker</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">210,750</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">16,001,333</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">16,212,083</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Chief Executive Officer</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,425,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,489,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,914,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Richard MacQueen</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">210,750</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">16,001,333</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">16,212,083</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">President</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,500,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,489,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,989,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Scott Mahoney</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">159,333</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,892,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,051,333</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Chief Financial Officer</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">50,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">(3)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">150,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">411,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">611,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">The amounts reported in this column
                                                            reflect the aggregate grant date fair value of restricted stock share
                                                            or unit awards computed in accordance with FASB Topic ASC 718 for
                                                            restricted stock granted in 2010 and 2011 to each named executive
                                                            officer. The amounts do not reflect compensation actually received
                                                            by the named executive officers.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify"><FONT STYLE="color: black">The
                                                            amounts reported in this column reflect the aggregate grant date fair
                                                            value of option awards computed in accordance with FASB ASC Topic
                                                            718 for stock options granted in 2010 and 2011 to each named executive
                                                            officer. The amounts do not reflect compensation actually received
                                                            by the named executive officers.&nbsp; The amounts reported in this
                                                            column for Messrs. Feldhacker and MacQueen reflect the grant date
                                                            fair market value of option awards to purchase (i) 3,200,000 shares
                                                            of our common stock granted pursuant to their respective employment
                                                            agreements in 2011, and (ii) </FONT>600,000 shares of our common
                                                            stock granted pursuant to their respective employment agreements and
                                                            option awards to purchase 800,000 shares of our common stock pursuant
                                                            to their respective deferred compensation plans in 2010<FONT STYLE="color: black">.&nbsp;
                                                            The amounts reported in this column for Mr. Mahoney reflect the grant
                                                            date fair market value of option awards granted pursuant to his employment
                                                            agreement.&nbsp; Please see &ldquo;Employment Agreements&rdquo; and
                                                            &ldquo;Deferred Compensation Plan&rdquo; below.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(3)</TD><TD STYLE="text-align: justify">Mr. Mahoney received no salary
                                                            until September 1, 2010.&nbsp; Commencing on September 1, 2010, Mr.
                                                            Mahoney began receiving monthly salary of $12,500 pursuant to the
                                                            terms of his employment agreement.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employment Agreements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">Each of the named
executive officers executed employment agreements on April 15, 2010 with Nevada ASEC, which we adopted on October 1, 2010 pursuant
to the Share Exchange. All stock options and deferred stock option compensation plans were subject to a 2-for-1 forward split
when we entered into the share exchange agreement (the &ldquo;Share Exchange&rdquo;) with Nevada ASEC on October 1, 2010.&nbsp;The
founders&rsquo; stock grants were subject to a 2-for-1 forward split pursuant to the Share Exchange. The terms of the employment
agreements for each named executive officer are summarized below on a post-split basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Scott Feldhacker</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">On April 15, 2010,
Nevada ASEC entered into an employment agreement with Scott Feldhacker which we adopted on October 1, 2010 pursuant to the Share
Exchange.&nbsp; The term of the employment agreement is four years. Unless earlier terminated, the agreement shall be automatically
extended for an additional one-year period unless either party notifies the other in writing at least 30 days prior to the expiration
of the original term of its or his election not to extend the agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">The agreement provides
for a monthly base salary of $12,000 which began in January 2011. Effective as of April 1, 2011, the Compensation Committee approved
an increase in Mr. Feldhacker&rsquo;s monthly base salary to $18,750.&nbsp; In accordance with his agreement, on April 15, 2010,&nbsp;Mr.
Feldhacker was granted 600,000 stock options which vest at a rate of 20% annually, commencing on January 1, 2011 and thereafter
on August 15 of each year of the term of the employment agreement.&nbsp; In addition, on April 1, 2011, Mr. Feldhacker received
(i) 800,000 stock options, of which 400,000 options vest every six months beginning on October 15, 2011 and (ii) 2,400,000 stock
options under the Equity Incentive Plan, of which 600,000 options vest every six months beginning on October 15, 2012. The agreement
further provides that Mr. Feldhacker will be entitled to all benefits of employment provided to other employees of the Company
in comparable positions during the employment term. In addition, Mr. Feldhacker is entitled to an automobile allowance of $500
per month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Pursuant to the agreement,
in the event Mr. Feldhacker is terminated by the Company due to his disability or in the event of his death, Mr. Feldhacker, or
his estate in the case of his death, shall be entitled to the following: any unpaid base salary and any accrued vacation and holidays
through the date of termination; any unpaid bonus accrued with respect to the fiscal year ending on or preceding the date of termination;
reimbursement for any unreimbursed expenses properly incurred through the date of termination; and all other payments or benefits
to which Mr. Feldhacker may be entitled under the terms of any applicable employee benefit plan and all granted but unvested stock
awards shall become immediately fully vested (collectively, the &ldquo;Accrued Benefits&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If Mr. Feldhacker&rsquo;s
employment is terminated for &ldquo;Cause&rdquo;, Mr. Feldhacker will not be entitled to any of the Accrued Benefits or any other
benefits under his employment agreement.&nbsp; &ldquo;Cause&rdquo; shall mean, as determined by the Board (or its designee) (1)
conduct by the executive in connection with his employment duties or responsibilities that is fraudulent, unlawful or grossly negligent;
(2) the willful misconduct of the executive; (3) the willful and continued failure of the executive to perform the executive&rsquo;s
duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness); (4) the commission
by the executive of any felony or any crime involving moral turpitude; (5) violation of any material policy of the Company or any
material provision of the Company&rsquo;s code of conduct, employee handbook or similar documents; or (6) any material breach by
the executive of any provision of the agreement or any other written agreement entered into by the executive with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In the event that
Mr. Feldhacker&rsquo;s employment is terminated without Cause or Mr. Feldhacker resigns for &ldquo;Good Reason&rdquo; (as such
term is defined in his employment agreement), Mr. Feldhacker would be entitled to the Accrued Benefits through the date of termination
or resignation, as applicable, plus an additional one (1) year of base salary, stock awards and medical benefits under his employment
agreement. If Mr. Feldhacker resigns without Good Reason, he will be entitled only to the Accrued Benefits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If the event of a
&ldquo;Change in Control&rdquo; (i) the Company shall pay to Mr. Feldhacker the Accrued Benefits and (ii) all stock awards that
Mr. Feldhacker would have been entitled to receive through the expiration of his employment term and such stock awards shall be
fully vested as of the date of the Change in Control.&nbsp; A &ldquo;Change in Control&rdquo; shall be deemed to have occurred
if, during the term of the agreement: (i) the beneficial ownership of at least 50% of Nevada ASEC&rsquo;s voting securities or
all or substantially all of the assets of Nevada ASEC&rsquo;s shall have been acquired, directly or indirectly by a single person
or a group of affiliated persons, other than Mr. Feldhacker or a group in which Mr. Feldhacker is a member, or (ii) as the result
of or in connection with any cash tender offer, exchange offer, sale of assets, merger, consolidation or other business combination
with another corporation or entity and the new board of directors is comprised of majority directors chosen or elected by the members
of the new/combined entity who were not members of Nevada ASEC before such cash tender offer, exchange offer, sale of assets, merger,
consolidation or other business combination of Nevada ASEC with another corporation or entity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The agreement contains
customary confidentiality provisions and provides that Mr. Feldhacker will be subject to noncompetition and non-solicitation covenants
for a period of one year following the termination of his employment period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Richard MacQueen</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">On April 15, 2010,
Nevada ASEC entered into an employment agreement with Richard MacQueen which we adopted on October 1, 2010 pursuant to the Share
Exchange.&nbsp; The term of the employment agreement is four years.&nbsp; Unless earlier terminated, the agreement shall be automatically
extended for an additional one-year period unless either party notifies the other in writing at least 30 days prior to the expiration
of the original term of its election not to extend the agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The agreement provides
for a monthly base salary of $12,000 which began in January 2011. Effective as of April 1, 2011, the Compensation Committee approved
an increase in Mr. MacQueen&rsquo;s monthly base salary to $18,750.&nbsp; In accordance with his agreement, on April 15, 2010,&nbsp;Mr.
MacQueen was granted 600,000 stock options which vest at a rate of 20% annually, commencing on January 1, 2011 and thereafter on
August 15 of each year of the term of the employment agreement.&nbsp; In addition, on April 1, 2011, Mr. MacQueen received (i)
800,000 stock options, of which 400,000 options vest every six months beginning on October 15, 2011 and (ii) 2,400,000 stock options,
of which 600,000 options vest every six months beginning on October 15, 2012.&nbsp;&nbsp;The agreement further provides that Mr.
MacQueen will be entitled to all benefits of employment provided to other employees of the Company in comparable positions during
the employment term. In addition, Mr. MacQueen is entitled to an automobile allowance of $500 per month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Pursuant to the agreement,
in the event Mr. MacQueen is terminated by the Company due to his disability or in the event of his death, Mr. MacQueen, or his
estate in the case of his death, shall be entitled to the following: any unpaid base salary and any accrued vacation and holidays
through the date of termination; any unpaid bonus accrued with respect to the fiscal year ending on or preceding the date of termination;
reimbursement for any unreimbursed expenses properly incurred through the date of termination; and all other payments or benefits
to which Mr. MacQueen may be entitled under the terms of any applicable employee benefit plan and all granted but unvested stock
awards shall become immediately fully vested (collectively, the &ldquo;Accrued Benefits&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If Mr. MacQueen&rsquo;s
employment is terminated for &ldquo;Cause&rdquo;, Mr. MacQueen will not be entitled to any of the Accrued Benefits or any other
benefits under his employment agreement.&nbsp; &ldquo;Cause&rdquo; shall mean, as determined by the Board (or its designee) (1)
conduct by the executive in connection with his employment duties or responsibilities that is fraudulent, unlawful or grossly negligent;
(2) the willful misconduct of the executive; (3) the willful and continued failure of the executive to perform the executive&rsquo;s
duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness); (4) the commission
by the executive of any felony or any crime involving moral turpitude; (5) violation of any material policy of the Company or any
material provision of the Company&rsquo;s code of conduct, employee handbook or similar documents; or (6) any material breach by
the executive of any provision of the agreement or any other written agreement entered into by the executive with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In the event that
Mr. MacQueen&rsquo;s employment is terminated without Cause or Mr. MacQueen resigns for &ldquo;Good Reason&rdquo; (as such term
is defined in his employment agreement), Mr. MacQueen would be entitled to the Accrued Benefits through the date of termination
or resignation, as applicable, plus an additional one (1) year of base salary, stock awards and medical benefits under his employment
agreement.&nbsp; If Mr. MacQueen resigns without Good Reason, he will be entitled only to the Accrued Benefits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If the event of a
&ldquo;Change in Control&rdquo; (i) the Company shall pay to Mr. MacQueen the Accrued Benefits and (ii) all stock awards that Mr.
MacQueen would have been entitled to receive through the expiration of his employment term and such stock awards shall be fully
vested as of the date of the Change in Control.&nbsp; A &ldquo;Change in Control&rdquo; shall be deemed to have occurred if, during
the term of the agreement: (i) the beneficial ownership of at least 50% of Nevada ASEC&rsquo;s voting securities or all or substantially
all of the assets of Nevada ASEC&rsquo;s shall have been acquired, directly or indirectly by a single person or a group of affiliated
persons, other than Mr. MacQueen or a group in which Mr. MacQueen is a member, or (ii) as the result of or in connection with any
cash tender offer, exchange offer, sale of assets, merger, consolidation or other business combination with another corporation
or entity and the new board of directors is comprised of majority directors chosen or elected by the members of the new/combined
entity who were not members of Nevada ASEC before such cash tender offer, exchange offer, sale of assets, merger, consolidation
or other business combination of Nevada ASEC with another corporation or entity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The agreement contains
customary confidentiality provisions and provides that Mr. MacQueen will be subject to noncompetition and non-solicitation covenants
for a period of one year following the termination of his employment period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Scott Mahoney</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">On April 15, 2010,
Nevada ASEC entered into an employment agreement with Scott Mahoney which we adopted on October 1, 2010 pursuant to the Share Exchange.&nbsp;
The term of the employment agreement is four years.&nbsp; Unless earlier terminated, the agreement shall be automatically extended
for an additional one-year period unless either party notifies the other in writing at least 30 days prior to the expiration of
the original term of its election not to extend the agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The agreement provides
for a monthly base salary of $12,000 which began in September 2010.&nbsp;&nbsp;Effective as of April 1, 2011, the Compensation
Committee approved an increase in Mr. Mahoney&rsquo;s monthly base salary to $16,667.&nbsp;&nbsp;In accordance with his agreement,
on April 15, 2010,&nbsp;Mr. Mahoney was granted 400,000 stock options which vest at a rate of 20% annually, commencing on January
1, 2011 and thereafter on August 15 of each year of the term of the employment agreement. In addition, Mr. Mahoney is entitled
to receive a minimum of 600,000 stock options per year under the Equity Incentive Plan on each anniversary of the date of his employment
agreement, which shall vest semi-annually over one year beginning 180 days following the date of initial issuance. Mr. Mahoney
was granted an additional 600,000 options on April 15, 2011. The agreement further provides that Mr. Mahoney will be entitled to
all benefits of employment provided to other employees of the Company in comparable positions during the employment term. In addition,
Mr. Mahoney is entitled to an automobile allowance of $500 per month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">Pursuant to the agreement,
in the event Mr. Mahoney is terminated by the Company due to his disability or in the event of his death, Mr. Mahoney, or his estate
in the case of his death, shall be entitled to the following: any unpaid base salary and any accrued vacation and holidays through
the date of termination; any unpaid bonus accrued with respect to the fiscal year ending on or preceding the date of termination;
reimbursement for any unreimbursed expenses properly incurred through the date of termination; and all other payments or benefits
to which Mr. Mahoney may be entitled under the terms of any applicable employee benefit plan and all granted but unvested stock
awards shall become immediately fully vested (collectively, the &ldquo;Accrued Benefits&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">If Mr. Mahoney&rsquo;s
employment is terminated for &ldquo;Cause&rdquo;, Mr. Mahoney will not be entitled to any of the Accrued Benefits or any other
benefits under his employment agreement.&nbsp; &ldquo;Cause&rdquo; shall mean, as determined by the Board (or its designee) (1)
conduct by the executive in connection with his employment duties or responsibilities that is fraudulent, unlawful or grossly negligent;
(2) the willful misconduct of the executive; (3) the willful and continued failure of the executive to perform the executive&rsquo;s
duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness); (4) the commission
by the executive of any felony or any crime involving moral turpitude; (5) violation of any material policy of the Company or any
material provision of the Company&rsquo;s code of conduct, employee handbook or similar documents; or (6) any material breach by
the executive of any provision of the agreement or any other written agreement entered into by the executive with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In the event that
Mr. Mahoney&rsquo;s employment is terminated without Cause or Mr. Mahoney resigns for &ldquo;Good Reason&rdquo; (as such term is
defined in his employment agreement), Mr. Mahoney would be entitled to the Accrued Benefits through the date of termination or
resignation, as applicable, plus an additional one (1) year of base salary, stock awards and medical benefits under his employment
agreement.&nbsp; If Mr. Mahoney resigns without Good Reason, he will be entitled only to the Accrued Benefits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In the event of a
&ldquo;Change in Control&rdquo; (i) the Company shall pay to Mr. Mahoney the Accrued Benefits and (ii) all stock awards that Mr.
Mahoney would have been entitled to receive through the expiration of his employment term and such stock awards shall be fully
vested as of the date of the Change in Control.&nbsp; A &ldquo;Change in Control&rdquo; shall be deemed to have occurred if, during
the term of the agreement: (i) the beneficial ownership of at least 50% of Nevada ASEC&rsquo;s voting securities or all or substantially
all of the assets of Nevada ASEC&rsquo;s shall have been acquired, directly or indirectly by a single person or a group of affiliated
persons, other than Mr. Mahoney or a group in which Mr. Mahoney is a member, or (ii) as the result of or in connection with any
cash tender offer, exchange offer, sale of assets, merger, consolidation or other business combination with another corporation
or entity and the new board of directors is comprised of majority directors chosen or elected by the members of the new/combined
entity who were not members of Nevada ASEC before such cash tender offer, exchange offer, sale of assets, merger, consolidation
or other business combination of Nevada ASEC with another corporation or entity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The agreement contains
customary confidentiality provisions and provides that Mr. Mahoney will be subject to noncompetition and non-solicitation covenants
for a period of one year following the termination of his employment period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Bonus Pool</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">We set aside a bonus
pool equal to 5% of our net income for discretionary awards payable in cash to our employees including our executive officers.
Allocations of the bonus pool among participants are made by the Chief Executive Officer. There is no formal plan with respect
to the bonus pool.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Equity Incentive Plan</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In connection
with the acquisition of Nevada ASEC on October 1, 2010, we adopted our Equity Incentive Plan (the &ldquo;2010 Plan&rdquo;) and
ratified&nbsp;an amendment to&nbsp;such 2010 Plan on August 29, 2011, subject to the effectiveness of the shareholder approval.&nbsp;
The 2010 Plan is designed to attract, retain and motivate&nbsp;our officers, employees, non-management directors and consultants.&nbsp;
The maximum number of shares of our common stock that may be issued pursuant to grants or awards under the 2010 Plan, as amended,
is 12,000,000 shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The 2010 Plan is administered
by the Compensation Committee. The Compensation Committee may make awards under the Plan in the form of stock options (both qualified
and non-qualified) and restricted stock.&nbsp; The Compensation Committee has authority to designate the recipients of such awards,
to grant awards, to determine the form of award and to fix all terms of awards granted all in accordance with the 2010 Plan.&nbsp;
Incentive stock options intended to qualify under Section 422A of the Internal Revenue Code may be granted only to employees of
the Company and must have an exercise price equal to 100% of the fair market value of our common stock on the grant date (110%
in the case of incentive options granted to any 10% stockholder of the Company) and may not exceed a term of ten years (five years
in the case of incentive options granted to any 10% stockholder of the Company).&nbsp; Non-qualified stock options and other awards
may be granted on such terms as the Compensation Committee may determine.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">In 2011, we adopted
a new Stock Incentive Plan (the &ldquo;2011 Plan&rdquo;), pursuant to which we approved and reserved 10,000,000 shares of common
stock for issuance to our employees, officers, directors and outside advisors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Deferred Compensation Program</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On April 15, 2010, the Company&rsquo;s Board of Directors
approved the 2010&nbsp;Deferred Compensation Program. Under this plan, the President and CEO are entitled to receive a one-time
fee consisting of common stock options in lieu of salary through June 30, 2011. The total number of options granted under the
plan was 1,600,000 in lieu of salary through December 31, 2010. The exercise price of the options is $1.50 and the options vest
over 26.5 months.&nbsp;&nbsp;These options have a ten year life and had a grant date fair value of $1.09 per share.&nbsp;&nbsp;400,000
of these shares were exercised and converted to shares of stock as of June 30, 2011.&nbsp; The rescission of the exercise of such
option was approved by our board on August 29, 2011 and the exercised shares have been returned to the Company.&nbsp; For the
years ended December 31, 2011 and 2010, the Company recorded non-cash stock compensation expense of $789,736 and $559,396, respectively,
related to the amortization of the fair value of these options which is included in general and administrative expenses. On March
30, 2012 the vesting on all remaining deferred compensation was accelerated and fully-vested at that date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Restricted Stock Awards</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 13, 2012, our board of
directors approved the immediate vesting of a total of 1,568,877 restricted shares of the Company&rsquo;s common stock previously
issued to the chief executive officer, president and chief financial officer as founders shares which were to vest in equal portions
annually through April 16, 2014.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As part of a comprehensive review of compensation, compensation
expense, and shareholder dilution, the Board of Directors granted 20,000 shares of restricted Common Stock to each of our three
executive officers and one of our employees on March 30, 2012. The restricted stock was valued on the date of grant at $2.43 per
share and recorded as stock-based compensation expense of $194,400 for the three months ended March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Outstanding Equity Awards at Fiscal Year-End</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="17" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Option
    Awards</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="9" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Stock
    Awards</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Equity incentive<BR>
    plan</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Equity incentive plan<BR>
    awards:<BR></FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Number&nbsp;of</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Number&nbsp;of</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">awards: Number</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Market</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; font-size: 7pt">Market or payout</TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">securities</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">securities</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">of</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Number of</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">value</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">value</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">underlying</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">underlying</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">securities</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Option</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">shares</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">of&nbsp;shares or units
    of</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">of unearned shares,</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">unexercised</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">unexercised</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">underlying</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">exercise</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">or units of</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">stock</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">units or</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">options</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">options</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">unexercised</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">price&nbsp;per</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">Option</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">stock</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">that&nbsp;have</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">other rights that have</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">exercisable</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">unexercisable</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">unearned</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">share</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">expiration</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">that have</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">not&nbsp;vested</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 7pt">not vested</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">Name</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">(#)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">(#)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">options
    (#)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">($)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">date</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">not
    vested (#)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">($)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 7pt">($)(12)</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; width: 31%"><FONT STYLE="font-size: 7pt">Scott Feldhacker</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt">400,000</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">(1)</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt">400,000</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt">1.5</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center; width: 6%"><FONT STYLE="font-size: 7pt">15-Apr-20</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt">727,040</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt">2,290,176</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 6%; text-align: center"><FONT STYLE="font-size: 7pt">3,635,201</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">240,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(2)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">360,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">1.5</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Aug-20</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">400,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(3)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">2,800,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">7.71</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">1-Apr-21</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">Richard MacQueen</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">400,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(4)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">400,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">1.5</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Apr-20</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">765,306</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">2,410,714</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">3,826,530</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">240,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(5)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">360,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">1.5</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Aug-20</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">400,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(6)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">2,800,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">7.71</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">1-Apr-21</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">Scott Mahoney</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">160,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(7)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">240,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">1.5</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Apr-20</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">76,531</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">241,073</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">382,654</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">300,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(8)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">300,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">7.45</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Apr-21</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(9)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">600,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Apr-22</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(10)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">600,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Apr-23</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">(11)</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">600,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">15-Apr-24</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt">&nbsp;</FONT></TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 91; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->87<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">Vests in installments of 200,000
                                                            shares of common stock every six months beginning on January 1, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">Vests in installments of 120,000
                                                            shares of common stock beginning on January 1, 2011, August 15, 2011
                                                            and then in yearly installments thereafter.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(3)</TD><TD STYLE="text-align: justify">Vests in installments of 400,000
                                                            shares of common stock on October 15, 2011 and April 15, 2012; the
                                                            remainder vests in installments of 600,000 shares of common stock
                                                            every six months beginning on October 15, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(4)</TD><TD STYLE="text-align: justify">Vests in installments of 200,000
                                                            shares of common stock every six months beginning on January 1, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(5)</TD><TD STYLE="text-align: justify">Vests in installments of 120,000
                                                            shares of common stock beginning on January 1, 2011, August 15, 2011
                                                            and then in yearly installments thereafter.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(6)</TD><TD STYLE="text-align: justify">Vests in installments of 400,000
                                                            shares of common stock on October 15, 2011 and April 15, 2012; the
                                                            remainder vests in installments of 600,000 shares of common stock
                                                            every six months beginning on October 15, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(7)</TD><TD STYLE="text-align: justify">Vests in installments of 80,000
                                                            shares of common stock beginning on January 1, 2011, August 15, 2011
                                                            and then in yearly installments thereafter.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(8)</TD><TD STYLE="text-align: justify">Vests in installments of 300,000
                                                            shares of common stock on October 15, 2011 and April 15, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(9)</TD><TD STYLE="text-align: justify">Vests in installments of 300,000
                                                            shares of common stock on October 15, 2012 and April 15, 2013.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(10)</TD><TD STYLE="text-align: justify">Vests in installments of 300,000
                                                             shares of common stock on October 15, 2013 and April 15, 2014.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(11)</TD><TD STYLE="text-align: justify">Vests in installments of 300,000
                                                             shares of common stock on October 15, 2014 and April 15, 2015.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(12)</TD><TD STYLE="text-align: justify">Market values reflect the closing
                                                             price of our common stock on the OTCBB on December 30, 2011 (the
                                                             last business day of the fiscal year), which was $3.15 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Compensation of Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table lists the compensation
paid to our directors as of our last fiscal year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Name</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fees<BR> earned<BR>
    or&nbsp;paid<BR> in&nbsp;cash<BR> ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Stock<BR> awards<BR>
    ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option <BR>awards
    <BR>($)&nbsp;(1)(2)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Non-equity <BR>incentive
    <BR>plan <BR>compensation <BR>($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonqualified<BR> deferred<BR>
    compensation<BR> earnings&nbsp;($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">All&nbsp;other<BR>
    compensation</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total&nbsp;($)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 23%; text-align: left">Robert Thompson</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">32,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">32,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Jim Leeton</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">155,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">174,400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">William Killian</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">149,700</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">167,700</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Scott David</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">149,700</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">167,700</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Randall Capps</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>On&nbsp;March 15, 2011, Mr. Leeton was granted options to purchase
                                                            30,000 shares of our common stock which expire 120 months from March
                                                            15, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD>On&nbsp;April 1, 2011, Mr. David and Mr. Killian were each
                                                            granted options to purchase 30,000 shares of our common stock which
                                                            expire 120 months from April 1, 2010.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table lists the compensation
paid to our directors as of our previous fiscal year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Name</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fees<BR> earned<BR>
    or&nbsp;paid<BR> in&nbsp;cash<BR> ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Stock<BR> awards<BR>
    ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option<BR> awards<BR>
    ($)&nbsp;(1)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Non-equity<BR> incentive<BR>
    plan<BR> compensation<BR> ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonqualified <BR>deferred
    <BR>compensation <BR>earnings&nbsp;($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">All&nbsp;other<BR>
    compensation</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total&nbsp;($)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Robert Thompson</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">2,500</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">-</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">627,179</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">-</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">-</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">-</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">629,679</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 23%; text-align: left">Jim Leeton</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">William Killian</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Scott David</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Randall Capps</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>On&nbsp;December 1, 2010, Mr. Thompson was granted options
                                                            to purchase 300,000 shares of our common stock which expire 120 months
                                                            from December 1, 2010.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Directors are permitted to receive fixed fees and other compensation
for their services as directors. The board of directors has the authority to fix the compensation of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Mr. Thompson received $2,500 per month for his serves rendered
as our director, which increased to $5,000 per month on December 1, 2011. Our other independent directors receive a monthly fee
of $2,000 and are entitled to receive an annual option grant to purchase 30,000 shares of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Director Agreements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Scott C. David</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 4, 2011, we entered into a director
agreement with Mr. David. Mr. David was appointed as a non-executive member of the Board of Directors (the &ldquo;Board&rdquo;)
on April 1, 2011. The agreement provides for compensation and benefits as follows: a cash payment of $2,000 per month; an option
to purchase 30,000 shares of the Company&rsquo;s common stock upon execution of the agreement and upon each anniversary of the
agreement during the directorship term; and reimbursement for all reasonable out-of-pocket expenses incurred by Mr. David by attending
any in-person meetings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The directorship term commenced on April
4, 2011 and terminates upon the earliest of the following to occur: (a) one (1) year from April 4, 2011, subject to a one (1) year
renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. David; (c) the termination
of Mr. David from the position of member of the Board by mutual agreement of the company and Mr. David; (d) the removal of Mr.
David from the Board by the shareholders of the Company; (e) the resignation by Mr. David from the Board if after April 4, 2011,
the Chief Executive Officer of Mr. David&rsquo;s current employer determines that Mr. David&rsquo;s continued serviced on the Board
conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. David from the Board if the board
of directors or the Chief Executive Officer of his current employer requires Mr. David to resign and such resignation is not a
fiduciary resignation as described in (e) above.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. David will not interfere with the Company&rsquo;s relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>William Killian</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 4, 2011, we entered into a director
agreement with Mr. Killian. Mr. Killian was appointed as a non-executive member of the Board on April 1, 2011. The agreement provides
for compensation and benefits as follows: a cash payment of $2,000 per month; 30,000 stock options of the Company&rsquo;s common
stock upon execution of the agreement and upon each anniversary of the agreement during the directorship term; and reimbursement
for all reasonable out-of-pocket expenses incurred by Mr. Killian by attending any in-person meetings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The directorship term commenced on April
4, 2011 and terminates upon the earliest of the following to occur: (a) one (1) year from April 4, 2011, subject to a one (1) year
renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. Killian; (c) the termination
of Mr. Killian from the position of member of the Board by mutual agreement of the company and Mr. Killian; (d) the removal of
Mr. Killian from the Board by the shareholders of the Company; (e) the resignation by Mr. Killian from the Board if after April
4, 2011, the Chief Executive Officer of Mr. Killian&rsquo;s current employer determines that Mr. Killian&rsquo;s continued serviced
on the Board conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. Killian from the
Board if the board of directors or the Chief Executive Officer of his current employer requires Mr. Killian to resign and such
resignation is not a fiduciary resignation as described in (e) above.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. Killian will not interfere with the Company&rsquo;s relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>James R. Leeton, Jr.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 4, 2011, we entered into a director
agreement with Mr. Leeton. Mr. Leeton was appointed as a non-executive member of the Board on March 15, 2011. The agreement provides
for compensation and benefits as follows: a cash payment of $2,000 per month; an option to purchase 30,000 shares of the Company&rsquo;s
common stock upon execution of the agreement and upon each anniversary of the agreement during the directorship term; and reimbursement
for all reasonable out-of-pocket expenses incurred by Mr. Leeton by attending any in-person meetings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The directorship term commenced on April
4, 2011 and terminates upon the earliest of the following to occur: (a) one (1) year from April 4, 2011, subject to a one (1) year
renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. Leeton; (c) the termination
of Mr. Leeton from the position of member of the Board by mutual agreement of the company and Mr. Leeton; (d) the removal of Mr.
Leeton from the Board by the shareholders of the Company; (e) the resignation by Mr. Leeton from the Board if after April 4, 2011,
the Chief Executive Officer of Mr. Leeton&rsquo;s current employer determines that Mr. Leeton&rsquo;s continued serviced on the
Board conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. Leeton from the Board if
the board of directors or the Chief Executive Officer of his current employer requires Mr. Leeton to resign and such resignation
is not a fiduciary resignation as described in (e) above.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. Leeton will not interfere with the Company&rsquo;s relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Robert Thompson</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On May 23, 2011, we entered into a
director agreement with Mr. Thompson. Mr. Thompson was appointed as a non-executive member of the Board on December 1, 2010. The
agreement provides for a cash payment of $2,500 per month paid on the first of each month beginning December 2010. On December
1, 2011, Mr. Thompson&rsquo;s monthly pay increased to $5,000. The agreement further references the stock option award for services
rendered on December 1, 2010 pursuant to which Mr. Thompson was granted an option to purchase 300,000 shares of the Company&rsquo;s
common stock exercisable for 10 years from the grant date at an exercise price equal to the closing trading price of the Company&rsquo;s
stock as of the grant date. Of the shares underlying this option, 60,000 fully vested upon issuance, and the remaining shares
underlying such option shall vest&nbsp;as to 30,000 shares on June 1 and December 1 of each year beginning June 1, 2011; provided,
however, that if Mr. Thompson is no longer serving as a director, any unvested shares underlying such stock options shall be cancelled.
In the event of a change in control the Company shall accelerate all stock awards that Mr. Thompson would have been entitled to
receive through the expiration of the employment term whether or not vested as of the date of the change in control. During the
directorship term, the Company shall reimburse Mr. Thompson for all reasonable out-of-pocket expenses incurred by Mr. Thompson
in performance of his duties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The directorship term commenced on May
23, 2011 and terminates upon the earliest of the following to occur: (a) five (5) years from May 23, 2011, subject to a one (1)
year renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. Thompson; (c) the termination
of Mr. Thompson from the position of member of the Board by mutual agreement of the Company and Mr. Thompson; (d) the removal of
Mr. Thompson from the Board by the shareholders of the Company; (e) the resignation by Mr. Thompson from the Board if after May
23, 2011 the Chief Executive Officer of Mr. Thompson&rsquo;s current employer determines that Mr. Thompson&rsquo;s continued serviced
on the Board conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. Thompson from the
Board if the board of directors or the Chief Executive Officer of his current employer requires Mr. Thompson to resign and such
resignation is not a fiduciary resignation as described in (e) above.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. Thompson will not interfere with the Company&rsquo;s relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>TAX CONSIDERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Section&nbsp;162(m) of the Internal Revenue Code, or &ldquo;Section&nbsp;162(m),&rdquo;
disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1&nbsp;million in any taxable
year for a company&rsquo;s named executive officers, other than its chief financial officer, unless such compensation qualifies
as &ldquo;performance-based compensation&rdquo; under such section.&nbsp;&nbsp;Section&nbsp;162(m) does not apply to companies
that are not publicly held&nbsp;&nbsp;and did not apply to compensation paid and awards granted by the company prior to its becoming
a public company.&nbsp;&nbsp;Therefore, neither our Company Compensation Committee nor the Board of Directors took the deductibility
limit imposed by Section&nbsp;162(m) into consideration in setting compensation prior to the Company&rsquo;s becoming publicly
held.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Several awards granted after the Company
became a public company may not comply with the &ldquo;performance based compensation&rdquo; exemption and, therefore, the Company
may not be able to deduct amounts&nbsp;relating to such awards for Federal income tax purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Following this offering, we expect that
our Compensation Committee will seek to qualify the variable compensation paid to our named executive officers for an exemption
from the deductibility limitations of Section&nbsp;162(m).&nbsp;&nbsp;However, our Compensation Committee may, in its judgment,
authorize compensation payments that do not comply with the exemptions in Section&nbsp;162(m) when it believes that such payments
are appropriate to attract and retain executive talent.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">The following
table sets forth certain information regarding our shares of common stock beneficially owned as of August 3, 2012, for (i) each
stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive
officer and director, and (iii) all executive officers and directors as a group.&nbsp; A person is considered to beneficially
own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii)
of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options
or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors
and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner&rsquo;s spouse or children.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">For purposes of
this table, a person or group of persons is deemed to have &ldquo;beneficial ownership&rdquo; of any shares of common stock that
such person has the right to acquire within 60 days of August 3, 2012.&nbsp; For purposes of computing the percentage of outstanding
shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the
right to acquire within 60 days of August 3, 2012 is deemed to be outstanding, but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person.&nbsp; The inclusion herein of any shares listed as beneficially owned
does not constitute an admission of beneficial ownership.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: fuchsia">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: fuchsia">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The address for each beneficial owner, unless otherwise
noted, is c/o American Standard Energy Corp. at 4800 North Scottsdale Road, Suite 1400, Scottsdale, AZ 85251.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: fuchsia">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Name and Address of Beneficial Owner</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount and<BR> Nature of
    <BR> Beneficial<BR> Ownership(1)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Percentage<BR>
    of Class(2)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: justify">Executive Officers and Directors</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 66%; text-align: left">Scott Feldhacker</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">4,264,210</TD><TD STYLE="width: 1%; text-align: left">(3)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">7.8</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Chief Executive Officer and Director</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Richard MacQueen</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,310,424</TD><TD STYLE="text-align: left">(4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.9</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">President and Director</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Scott Mahoney</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,645,579</TD><TD STYLE="text-align: left">(5)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.1</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Chief Financial Officer</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Randall Capps</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,937,522</TD><TD STYLE="text-align: left">(6)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">56.7</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Director</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Scott David</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">80,000</TD><TD STYLE="text-align: left">(8)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Director</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">William &ldquo;Bill&rdquo; Killian</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">129,014</TD><TD STYLE="text-align: left">(7)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Director</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">James R. Leeton, Jr.</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">80,000</TD><TD STYLE="text-align: left">(8)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Director</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Robert J. Thompson</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">700,000</TD><TD STYLE="text-align: left">(8)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.4</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Director</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: justify">All Executive Officers and Directors as a group (8&nbsp;persons)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,146,749</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">66.4</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: justify">5% Shareholders</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Geronimo Holding Corporation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21,642,821</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42.5</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">1801 West Texas</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Midland, TX 79701</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">XOG Operating LLC <BR>1801 West Texas <BR>Midland, TX 79701</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right; vertical-align: top">5,832,199</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right; vertical-align: top">11.5</TD><TD STYLE="text-align: left; vertical-align: top">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Pentwater Capital Management LP</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,572,996</TD><TD STYLE="text-align: left">(9)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">227 West Monroe Suite 4000</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Chicago, IL 60606</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">* less than 1%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: fuchsia"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: fuchsia">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: fuchsia"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: fuchsia">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD STYLE="text-align: justify">Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the
power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the
disposition of shares.&nbsp;&nbsp;Certain shares may be deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares).&nbsp;&nbsp;In addition, shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60&nbsp;days
of the date as of which the information is provided.&nbsp;&nbsp;In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason
of these acquisition rights.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">Percentages are rounded to
                                                                the nearest one-tenth of one percent.&nbsp;&nbsp;The percentage
                                                                of class is based on 50,921,798 shares of Common Stock issued
                                                                and outstanding as of August 3, 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(3)</TD><TD STYLE="text-align: justify">Includes (a) 3,441,152 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof; and (b)&nbsp;823,058 shares of Common
                                                                Stock.&nbsp;&nbsp;Mr. Feldhacker is the son-in-law of Mr. Capps.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(4)</TD><TD STYLE="text-align: justify">Includes (a) 3,441,152 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof; and (b)&nbsp;869,272 shares of Common
                                                                Stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(5)</TD><TD STYLE="text-align: justify">Includes (a) 1,541,152 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof; and (b)&nbsp;104,427 shares of Common
                                                                Stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(6)</TD><TD STYLE="text-align: justify">Includes (a) 21,642,821 shares
                                                                of Common Stock held by Geronimo; (b) 5,832,199 shares of Common
                                                                Stock held by XOG; (c) 587,755 shares of Common Stock held by
                                                                CLW; (d) 61,224 shares of Common Stock as legal guardian of Hayden
                                                                Pitts;&nbsp;(e) 653,062 shares of Common Stock and 142,858 shares
                                                                of Common Stock underlying warrants purchased in private placements
                                                                and (f) 17,603 Registration Shares.&nbsp;&nbsp;Mr. Capps is the
                                                                sole owner of Geronimo and XOG and is the majority owner of CLW.&nbsp;&nbsp;Mr.
                                                                Capps is the father-in-law of Mr. Feldhacker.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(7)</TD><TD STYLE="text-align: justify">Includes (a) 90,000 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof and (b) 39,014 shares of Common Stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(8)</TD><TD STYLE="text-align: justify">Represents shares of Common
                                                                Stock underlying options that were exercisable within 60 days
                                                                of the date hereof.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(9)</TD><TD STYLE="text-align: justify">Based on Schedule 13G filed
                                                                by Pentwater Capital Management on February 14, 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Changes in Control</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are not aware of any arrangements
that may result in a change in control of the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>TRANSACTIONS WITH RELATED
PERSONS, PROMOTERS AND CERTAIN RELATED CONTROL PERSONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 1, 2010,
we entered into a Share Exchange Agreement by and among our then-controlling stockholder, Nevada ASEC (then a privately-held oil
exploration and production company) and the former stockholders of Nevada ASEC.&nbsp;&nbsp;Pursuant to the Share Exchange Agreement,
we (i) sold our former restaurant franchise rights and related operations to the former controlling stockholder in exchange for
the cancellation of 25,000,000 shares of our common stock and (ii) acquired 100% of the outstanding shares of common stock of
Nevada ASEC from the former Nevada ASEC stockholders and received $25,000 of additional consideration.&nbsp;&nbsp;In exchange,
the Nevada ASEC stockholders received approximately 22,000,000 shares of our common stock on the closing date of the Share Exchange
Agreement. As a result, the former stockholders of Nevada ASEC acquired control of the Company and the transaction was accounted
for as a recapitalization with Nevada ASEC as the accounting acquirer of the Company. Accordingly, the financial statements of
Nevada ASEC became the historical financial statements of the Company.&nbsp;&nbsp;As a result of the transactions consummated
pursuant to the Share Exchange Agreement, Nevada ASEC became our wholly-owned subsidiary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>The XOG Group.</B><I>&nbsp;</I>We
are affiliated with and have a working relationship with XOG, a seasoned exploration and production operator based in Midland,
Texas.&nbsp; As an operator, XOG has been operating, developing and exploiting the Permian Basin as well as operating in 14 other
states for 30 years. XOG has been in the Bakken area for the past three years procuring mineral leasehold rights and participating
in wells.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">XOG is currently
contracted to operate the existing wells currently held by us in the Permian Basin region. XOG historically performed this service
for Geronimo and CLW.&nbsp; Randall Capps, our majority shareholder and director, has controlling ownership of Geronimo, XOG and
CLW. Accordingly, these companies are considered related parties to the Company.&nbsp; As a result, all historical accounts payable
related to accrued lease operating expenses and accrued drilling expenses presented are recorded as payables due to a related
party. Additionally, as one of our operators, XOG is contractually obligated to sell the oil and natural gas on our behalf pursuant
to joint operating agreements. For the year ended December 31, 2011, sales through XOG were $8,349,028 and lease operating expenses
were $1,626,332.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Randall Capps is the sole owner of XOG
and Geronimo and the majority owner of CLW.&nbsp; As of August 3, 2012, through his direct ownership and his indirect ownership
interest in the XOG Group, Mr. Capps beneficially owns approximately 56.7% of our outstanding common stock. Mr. Capps is also
a member of the Company&rsquo;s board of directors, and the father &ndash;in-law of our Chief Executive Officer, Scott Feldhacker.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have acquired the
following oil and natural gas properties from Geronimo, XOG and CLW:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Nevada ASEC was incorporated
on April 2, 2010 for the purposes of acquiring certain oil and gas properties&nbsp;from Geronimo, XOG and CLW.&nbsp; On May 1,
2010, the XOG Group contributed certain oil and natural gas properties located in Texas and North Dakota to Nevada ASEC in return
for 80% of the common stock of Nevada ASEC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">XOG continued to
serve as operator of such properties.&nbsp;The oil and gas properties contributed by the XOG Group to Nevada ASEC consisted of
seven completed and operating wells within the Permian Basin region of West Texas as well as approximately 10,600 acres of undeveloped
leasehold rights in three primary regions: (i) the Bakken, (ii) the Eagle Ford and (iii) certain positions in the Permian Basin
leased from the University of Texas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 1,
2010, we entered into an agreement with Geronimo whereby we acquired certain leasehold interests in oil and natural gas properties
located in North Dakota consisting of 26 wells located in Burke, Divide, Dunn, McKenzie, Mountrail, and Williams Counties referred
to herein as the Bakken 1 Properties, for $500,000 cash and 1,200,000 shares of the our common stock, which were valued at $3,960,000
based on a closing price of $3.30 on the closing date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 11,
2011, we acquired certain developed oil and natural gas properties on approximately 2,374 net acres located in Texas, Oklahoma
and Arkansas, of which approximately 2,200 net acres are located within the Permian Basin and on which 24 wells are located, referred
to herein as the Group 1 &amp; 2 Properties, from Geronimo for $7,000,000 cash.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 1, 2011,
we acquired certain undeveloped mineral rights leaseholds held on approximately 10,147 net acres in the Bakken Shale Formation
in North Dakota, referred to herein as the Bakken 2 Properties, from Geronimo in exchange for $3,000,000 cash and the issuance
of 883,607 shares of the Company&rsquo;s common stock valued at $5,787,626.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 8, 2011,
we acquired undeveloped leasehold acreage consisting of approximately 2,780 net acres located in Mountrail County of North Dakota&rsquo;s
Williston Basin from Geronimo for $1.86 million paid in cash, which includes a $1.0 million down payment made on March 25, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 22, 2011,
we acquired approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks (the &ldquo;Bakken 4 Properties&rdquo;)
area from Geronimo for approximately $14.6 million. A cash deposit of $13.5 million was made on April 15, 2011, and the Company
subsequently issued 208,200 shares of common stock upon closing, which were valued at an aggregate of $1,093,050 based on a per
share&nbsp;price of $5.25 on the closing date. The acquisition was recorded at fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 5, 2012,
we acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across the Permian Basin,
Eagle Ford shale formation and the Eagle Bine in Texas, the Williston Basin in North Dakota, and the Niobrara shale formation
in Wyoming and Nebraska referred to herein as the XOG Properties, from XOG and Geronimo (the &ldquo;Sellers&rdquo;) in exchange
for the delivery by the Company to the Sellers of $10 million in cash, less the $1.5 million cash deposit previously paid by the
Company, a note in the principal amount of $35,000,000 made by the Company in favor of Geronimo and 5,000,000 shares of the common
stock of the Company valued at $2.70 per share based on the closing price of the common stock on March 5, 2012. On June 30, 2012,
we entered into an Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares (the &ldquo;Geronimo Shares&rdquo;)
of the our newly created Series A Preferred Stock to Geronimo in exchange for the cancelation of the $35 million note issued to
Geronimo. The terms of the Purchase Agreement provided for a reduction or setoff of the principal amount of the Note under certain
conditions. Pursuant to the terms of the Exchange Agreement, in the event that the Company would have been entitled to any reduction
in or setoff against the principal amount of the Geronimo Note pursuant to the terms of the Purchase Agreement, Geronimo is obligated
to transfer a portion of the Geronimo Shares equal to one share of Series A Preferred Stock and any dividends accrued thereon
for each $1,000 that would have resulted in a reduction in, or setoff against, the principal amount of the Geronimo Note.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 30, 2012,
the Company, ASEN 2, Nevada ASEC, and XOG entered into a Payment and Settlement Agreement (the &ldquo;Payment Agreement&rdquo;)
whereby we agreed to issue 4,444,445 shares (the &ldquo;XOG Shares&rdquo;) of Common Stock to XOG at a price per share equal to
$2.25 as payment of the $10,000,000 outstanding and owed to XOG pursuant to certain Joint Interest Billing Statements (&ldquo;JIBs&rdquo;)
issued by XOG from January 1, 2012, through and including June 30, 2012 and delivered to our subsidiaries in connection with certain
Joint Operating Agreements. Pursuant to the terms of the Payment Agreement, we granted piggy-back registration rights with respect
to XOG Shares if we file a registration statement in connection with an underwritten public offering within one year from the
date of the Payment Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>Overriding royalty
and royalty interests.&nbsp;</B> In some instances, XOG or Geronimo and CLW may hold overriding royalty and royalty interests (&ldquo;ORRI&rdquo;)
in wells acquired by the Company. All revenues and expenses presented herein are net of any effects of ORRI.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Policies Related to Related Party Transactions</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Corporate Governance and Nominating
Committee (&ldquo;CGNC&rdquo;) of the Board of Directors has established the Fairness Committee as a standing sub-committee of
the NCGC.<B> &nbsp;</B> The Fairness Committee is appointed by the NCGC to complete independent assessments of the fairness to
non-related party stockholders, and other non-affiliated stakeholders, of proposed or completed transactions by the Company that
might represent conflicts of interests between the company and its affiliates and other related parties. The Fairness Committee
ensures that any concerns about fairness that are identified are brought fully to the attention of the Board.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Board of Directors may also establish
a special committee of the Board comprised solely of directors disinterested in the the related party transaction (the &ldquo;Special
Committee&rdquo;) to, among other things, conduct an independent review and investigation of any and all issues raised by related
party transactions, including the fairness to the Company and the Company&rsquo;s non-affiliated stockholders as of the time that
each related party transaction is approved.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Conflicts of Interest and Fiduciary
Duties</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Conflicts of interest may arise as
a result of the relationship between Randall Capps, who is a member of the Company&rsquo;s board of directors and the majority
stockholder of the Company, and the XOG Group, of which Mr. Capps owns all or a majority. All of our directors and officers have
fiduciary duties to manage the Company in a manner beneficial to our stockholders. At the same time, Mr. Capps may also owe fiduciary
duties to the equity holders of the XOG Group , to the extent the entities are not wholly-owned by Mr. Capps. The XOG Group is
not restricted from competing with us. Our arrangement with Mr. Capps and the XOG Group may not prohibit Mr. Capps from engaging
in any activities, including oil and natural gas exploration and production related activities, which are in direct competition
with the Company. Therefore, affiliates of Mr. Capps, including the XOG Group, may compete with us for investment opportunities
and may own an interest in entities that compete with us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Indemnification of Directors, Officers and Consultants</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s Articles of Incorporation
provide that no director, officer of or consultant to the corporation past, present or future, shall be personally liable to the
corporation or any of its shareholders for damages for breach of fiduciary duty as a director or officer; provided, however, that
the liability of a director for acts or omissions which involve intentional misconduct, fraud or knowing violation of law and
for the payment of dividends is not so eliminated.&nbsp; The corporation shall advance or reimburse reasonable expenses incurred
by an affected officer, director or consultant without regard to the above limitations, or any other limitation which may hereafter
be enacted to the extent such limitation may be disregarded if authorized by the Articles of Incorporation. The Company&rsquo;s
bylaws provide for the indemnification of our directors and officers, as to those liabilities and on those terms and conditions
as appropriate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>INTERESTS OF NAMED EXPERTS AND COUNSEL</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">No expert or counsel named in this prospectus as having prepared
or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon
other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or
had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of
its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director, officer, or employee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Legal Matters</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Blank Rome LLP, New York, New York, has issued a legal opinion
as to the validity of the issuance of the shares of common stock offered under this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Experts</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The financial statements as of December 31, 2011 and 2010
and for each of the three years in the period ended December 31, 2011 included in this prospectus and in the registration statement
have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere
herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Certain information relating to our reserves included in this
prospectus has been prepared by Bryant M. Mook, B.Sc. M.Eng., Petroleum Engineer and Geological Advisor, independent petroleum
engineering consultants retained by us, and has been so included in reliance on the opinion and analysis of Mr. Mook, given upon
the authority of Mr. Mook as expert in reserve engineering. Mr. Mook does not beneficially own, directly or indirectly, any of
our securities of any class.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Certain information relating to our reserves for the
year ended December 31, 2011 included in this prospectus has been prepared by DeGolyer and MacNaugton
(&ldquo;DeGolyer&rdquo;), independent third-party reserve engineer retained by us, and has been so included in reliance on
the opinion and analysis of DeGolyer, given upon the authority of DeGolyer as expert in reserve engineering. DeGolyer does
not beneficially own, directly or indirectly, any of our securities of any class. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>FINANCIAL STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Index to Unaudited Consolidated Financial
Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 90%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">PAGE</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2012 and December 31,
    2011</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">F-2</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Condensed Consolidated Statements of Operations (unaudited) for the three months ended
    March 31, 2012 and 2011</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">F-3</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended
    March 31, 2012 and 2011</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">F-4</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Condensed Consolidated Statements of Stockholders&rsquo; Equity (unaudited) for the three
    months ended March 31, 2012</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">F-5</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Notes to Unaudited Condensed Consolidated Financial Statements</TD>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">F-6&nbsp;&ndash; F-24</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Balance Sheets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(Unaudited)</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">March&nbsp;31,</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">December&nbsp;31,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Current assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left; padding-left: 9pt">Cash and cash equivalents</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,860,013</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">733,049</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Oil and gas sales receivables - related parties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,616,940</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,556,414</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Oil and gas sales receivables</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,031,365</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">639,714</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">34,935</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">308,208</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,543,253</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,237,385</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Oil and natural gas properties at cost, successful efforts method</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Proved</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">86,893,989</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">76,919,789</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Unproved</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">89,369,312</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,212,635</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Accumulated depletion and depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(15,595,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(14,310,006</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total oil and natural gas properties, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">160,668,189</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">87,822,418</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Debt issuance costs, net of amortization of $196,438</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,731,301</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">720,175</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Prepaid drilling costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,549,660</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,590,356</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Deposit on properties with affiliate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,500,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Other assets, net of accumulated depreciation of $9,005 and $7,380</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">22,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">24,403</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">170,515,181</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">95,894,737</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Current liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Accounts payable - trade</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,627,187</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,373,262</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Accounts payable and accrued liabilities - related parties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,704,450</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,574,017</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Accrued compensation expense and withholding taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,693,669</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,338,308</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Commodity derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">354,422</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">243,996</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other accrued liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">178,132</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">36,665</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total current liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">19,557,860</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">13,566,248</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Term loan and revolving credit facility, net of discount of $9,333,118</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11,624,970</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,262,832</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Pentwater note, net of discount of $5,163,700</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,878,522</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Geronimo note</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">35,171,237</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Asset retirement obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">419,503</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">394,177</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Commodity derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">517,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">421,964</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Warrant derivative liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,157,894</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,298,658</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">83,327,653</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">36,943,879</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Commitments and contingencies</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stockholders' equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Preferred stock, $.001 par value; 1,000,000 shares authorized; None issued
    and outstanding</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Common stock, $.001 par value; 100,000,000 shares authorized, 45,584,046 shares issued and
    45,377,353 shares outstanding at March 31, 2012 and 40,178,060 shares issued and 39,971,367 shares outstanding at December
    31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,584</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,178</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Additional paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">144,515,693</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">75,504,243</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Treasury stock, 206,693 shares at cost</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,116,514</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,116,514</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Accumulated deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(56,257,235</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(15,477,049</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total stockholders' equity</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">87,187,528</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">58,950,858</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.25in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total liabilities and stockholders' equity</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">170,515,181</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">95,894,737</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three&nbsp;Months&nbsp;Ended&nbsp;March&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Operating revenues:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left; padding-left: 0.25in">Oil &amp; natural gas revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">5,094,818</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,388,493</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Loss on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(110,943</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,983,875</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,388,493</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Operating costs and expenses:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Oil and natural gas production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,390,932</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">807,344</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">General and administrative (including non-cash stock-based compensation
    of $33,805,391 and $564,721)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36,932,058</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,725,638</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,286,731</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">609,190</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Accretion of discount on asset retirement obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6,898</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,165</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 24pt">Total operating costs and expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">40,616,619</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,146,337</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Loss from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(35,632,744</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(757,844</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Other income (expense), net:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Realized and unrealized loss on commodity derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(270,695</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Interest expense (including accretion of debt discount of $822,792)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,618,599</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Realized and unrealized expense on warrant derivatives</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,258,148</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 24pt">Total other income (expense), net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(5,147,442</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Loss before income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(40,780,186</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(757, 844</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Income tax benefit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Net loss</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(40,780,186</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(757,844</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Weighted average common shares outstanding</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">41,515,450</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">32,154,300</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss per share-basic and diluted</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(0.98</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(0.02</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<!-- Field: Page; Sequence: 103; Value: 1 -->
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Cash Flows</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Three&nbsp;Months&nbsp;Ended&nbsp;March&nbsp;31,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">CASH FLOWS FROM OPERATING ACTIVITIES:</TD><TD STYLE="color: #99CC00; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: #99CC00; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: #99CC00; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: #99CC00; font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left">Net loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(40,780,186</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(757,844</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Adjustments to reconcile net loss&nbsp;to net cash provided by (used in) operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,286,731</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">609,190</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accretion of debt discount</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">822,792</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Amortization of debt issue costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">127,254</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Unrealized loss on commodity derivative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">206,129</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Unrealized expense on warrant derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">195,228</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Capitalized interest on notes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">213,459</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accretion of asset retirement obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,898</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,165</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Loss on sale of oil and natural gas leases</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">110,943</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Warrant modification consideration including $1.1m note increase</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,062,920</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33,805,391</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">564,721</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Changes in operating assets and liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Oil and natural gas sales receivables</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,452,177</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,054,017</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,526</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,850</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Accounts payable and accrued liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,562,916</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">30,802</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net cash provided by (used in) operating activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">180,824</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,595,133</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">CASH FLOWS FROM INVESTING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Oil and natural gas property additions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(18,643,525</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,454,426</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Prepaid drilling costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,549,660</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proceeds from sale of oil and natural gas leases</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">589,506</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deposit on properties with affiliate</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net cash used in investing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(20,603,679</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,454,426</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">CASH FLOWS FROM FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Cash payment to Geronimo - deemed distribution</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(10,000,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from the sale of stock, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34,352,471</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proceeds from stock subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,557,698</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from draws on term loan</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,688,199</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proceeds from Penwater note</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Debt issuance costs paid</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,138,380</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net cash provided by financing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">21,549,819</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,910,169</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Net increase in cash and cash equivalents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,126,964</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,860,610</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cash and cash equivalents at beginning of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">733,049</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">519,996</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Cash and cash equivalents at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,860,013</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">18,380,606</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Supplemental disclosure of cash flow information</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Cash paid during the period for interest</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">312,595</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">NON-CASH INVESTING AND FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounts payable and accrued liabilities for oil and natural gas properties additions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,318,270</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Reclassification of pre-paid drilling costs to oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,590,356</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Additions and revisions to asset retirement cost and related obligation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">18,428</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Issuance of Geronimo Note for purchase of oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">35,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Reclassification of warrants' value previously recorded as a liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">14,335,992</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Discount on debt - Pentwater warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,412,553</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Property acquired from Geronimo for shares of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">13,500,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,787,626</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Stock and warrants subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,912,063</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deemed contribution for properties acquired</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,257,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Deemed distribution for acquisition of properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">641,701</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deemed distribution for working capital no acquired in property acquisitions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">688,050</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Stockholders'
Equity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Three months ended March 31, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(Unaudited)</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Common&nbsp;Stock</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Treasury&nbsp;Stock</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Shares</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Value</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Additional&nbsp;paid-in<BR>
    capital</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Shares</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Value</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Accumulated<BR>
    (deficit)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Total&nbsp;stockholders'<BR>
    equity</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 30%"><FONT STYLE="font-size: 8pt">Balance at December 31, 2011</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">40,178,060</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">40,178</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">75,504,243</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">206,693</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">(1,116,514</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">(15,477,049</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">58,950,858</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt"><FONT STYLE="font-size: 8pt">Cashless exercise of warrants</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">325,986</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">326</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(326</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Shares issued in March 2012 for acquisition
    of properties from Geronimo recorded at fair value</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">5,000,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">5,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">13,495,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">13,500,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Issuance of Restricted Stock</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">80,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">80</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">194,320</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">194,400</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Reclassification of warrants' value previously
    recorded as a liability</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">14,335,992</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">14,335,992</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Modification consideration (Series C warrants)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,962,920</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,962,920</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Assigned value of warrants issued with Pentwater
    note</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">5,412,553</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">5,412,553</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Stock-based compensation expense</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">33,610,991</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">33,610,991</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Net loss</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(40,780,186</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(40,780,186</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">Balance at March 31, 2012</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">45,584,046</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">45,584</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">144,515,693</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">206,693</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(1,116,514</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(56,257,235</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">87,187,528</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Notes to Consolidated Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>March 31, 2012 and December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note A. Organization and Basis of
Presentation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">American Standard Energy Corp., a Nevada
corporation (&ldquo;Nevada ASEC&rdquo;) was incorporated on April 2, 2010 for the purposes of acquiring certain oil and gas leasehold
properties from Geronimo Holding Corporation (&ldquo;Geronimo&rdquo;), XOG Operating, LLC (&ldquo;XOG&rdquo;) and CLW South Texas
2008, LP&nbsp;(&ldquo;CLW&rdquo;) (collectively, the &quot;XOG Group&quot;).&nbsp; Randall Capps is the sole owner of XOG and
Geronimo, and the majority owner of CLW.&nbsp; Nevada ASEC's principal business is the acquisition, development and exploration
of oil and natural gas leasehold properties primarily in the Permian Basin of west Texas and eastern New Mexico, the Eagle Ford
Shale formation of South Texas, the Bakken Shale formation in North Dakota and certain other oil and natural gas properties in
Arkansas and Oklahoma.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Uncle Al&rsquo;s Famous Hot Dogs &amp;
Grille, Inc. (&ldquo;FDOG&rdquo;) was incorporated as National Franchise Directors, Inc., under the laws of the State of Delaware
on March 4, 2005.&nbsp; On October 1, 2010, FDOG entered into a Share Exchange Agreement (the &ldquo;Agreement&rdquo;), dated
October 1, 2010, with its then controlling shareholder and Nevada ASEC, a privately-held oil exploration and production company
owned substantially by the XOG Group.&nbsp; Pursuant to the Agreement, FDOG (1) spun-off its franchise rights and related operations
to its controlling shareholder in exchange for and cancellation of 25,000,000 shares of FDOG&rsquo;s common stock and (2) acquired
100% of the outstanding shares of common stock of ASEC and additional consideration of $25,000 from the ASEC shareholders. In
exchange for the ASEC stock and the additional consideration, the XOG Group was issued approximately 22,000,000 shares of FDOG&rsquo;s
common stock on the closing date of the Share Exchange Agreement. As a result, Nevada ASEC owners acquired control of FDOG and
the transaction was accounted for as a recapitalization with Nevada ASEC as the accounting acquirer of FDOG. Accordingly, as a
result of the recapitalization, the financial statements of Nevada ASEC became the historical financial statements of FDOG. In
connection with the Share Exchange Agreement, FDOG changed its name to American Standard Energy Corp., a Delaware corporation
(the &ldquo;Company&rdquo;).&nbsp; Nevada ASEC and ASEN 2, Corp. (&ldquo;ASEN 2&rdquo;) are wholly-owned subsidiary of the Company.
ASEN 2 was incorporated on January 25, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A history of the Company&rsquo;s property
acquisitions from the XOG Group accounted for as a transaction under common control through March 31, 2012 is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">Formation acquisition - On May 1, 2010, the XOG Group contributed certain developed and
    undeveloped oil and natural gas properties located in Texas and North Dakota (the &ldquo;Formation Properties&rdquo;) to Nevada
    ASEC in exchange for 80% of Nevada ASEC&rsquo;s common stock. The exchange was accounted for as a transaction under common
    control and accordingly, the Company recognized the assets and liabilities acquired at their historical carrying values with
    no goodwill or other intangible assets recognized.&nbsp; As a result, the historical assets, liabilities and operations of
    the Formation Properties are included in the accompanying consolidated financial statements retrospectively for all periods
    presented.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">On December 1, 2010, the Company acquired certain developed and undeveloped oil and natural
    gas properties located in North Dakota (the &ldquo;Bakken 1 Properties&rdquo;) from XOG Group for $500,000 cash and 1,200,000
    shares of the Company&rsquo;s common stock valued at approximately $3,960,000 based on the December 1, 2010 closing price
    of the Company&rsquo;s stock.&nbsp; The acquisition was accounted for as a transaction under common control and accordingly,
    the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values.&nbsp; As a result,
    the historical assets, liabilities and operations of the Bakken 1 Properties are included in the accompanying consolidated
    financial statements retrospectively for all periods presented.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">On February 11, 2011, the Company acquired certain developed oil and natural gas properties
    located in Texas, Oklahoma and Arkansas (the &ldquo;Group 1 &amp; 2 Properties&rdquo;) from XOG Group for $7,000,000 cash.&nbsp;
    The acquisition was accounted for as a transaction under common control and accordingly, the Company recorded the assets and
    liabilities acquired from XOG Group at their historical carrying values.&nbsp; As a result, the historical assets, liabilities
    and operations of the Group 1 &amp; 2 Properties are included in the accompanying consolidated financial statements retrospectively
    for all periods presented.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">On March 1, 2011, the Company acquired certain undeveloped mineral rights leaseholds held
    on properties in the Bakken Shale Formation in North Dakota (the &ldquo;Bakken 2 Properties&rdquo;) from XOG Group in exchange
    for $3,000,000 cash and the issuance of 883,607 shares of the Company&rsquo;s common stock valued at $5,787,626 based on the
    March 1, 2011 closing price of the Company&rsquo;s stock.&nbsp; The acquisition was accounted for as a transaction under common
    control and accordingly, the Company recorded the Bakken 2 Properties at their historical carrying values.&nbsp; As a result,
    the historical cost basis of the Bakken 2 Properties is included in the accompanying consolidated financial statements from
    the period they were originally acquired by XOG Group. Certain of these mineral rights with a historical cost basis of $1,257,000
    were acquired by Geronimo subsequent to December 31, 2010, and, as a result, were not under common control at that date and
    have been excluded from the historical consolidated financial statements as of December 31, 2010.&nbsp; These subsequently-acquired
    undeveloped mineral rights are reflected in our December 31, 2011 consolidated financial statements.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD STYLE="text-align: justify">On April 8, 2011, the Company acquired undeveloped leasehold acreage consisting of approximately 2,780 net acres located in Mountrail County of North Dakota&rsquo;s Williston Basin (the &ldquo;Bakken 3 Properties&rdquo;) from XOG Group for $1.86 million. The acquisition was accounted for as a transaction under common control and accordingly, the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values. The historical assets, liabilities and operations of the Bakken 3 Properties have been included retrospectively in the consolidated financial statements of the Company from the acquisition dates by XOG Group during 2011.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All of the acquisitions described above
are collectively referred to as the &ldquo;Acquired Properties.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (&ldquo;U.S.
GAAP&rdquo;). For the periods prior to the acquisition dates of the Acquired Properties, the financial statements have been prepared
primarily on a &ldquo;carve out&rdquo; basis from the XOG Group&rsquo;s combined financial statements using historical results
of operations, assets and liabilities attributable to the Acquired Properties, including allocations of expenses from the XOG Group.
This carve-out presentation basis reflects the fact that the Acquired Properties represented only a portion of the XOG Group and
did not constitute separate legal entities. The consolidated financial statements including the carve outs may not be indicative
of the Company&rsquo;s future performance and may not reflect what its results of operations, financial position and cash flows
would have been had the Company owned the Acquired Properties on a stand-alone basis during all of the periods presented. To the
extent that an asset, liability, revenue or expense is directly associated with the Acquired Properties or the Company, it is reflected
in the accompanying consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Prior to the Company&rsquo;s acquisition
of the Acquired Properties, the XOG Group provided corporate and administrative functions to the Acquired Properties including
executive management, oil and gas property management, information technology, tax, insurance, accounting, legal and treasury
services. The costs of such services were allocated to the Acquired Properties based on the most relevant allocation method to
the service provided, primarily based on relative net book value of assets. Management believes such allocations are reasonable;
however, they may not be indicative of the actual expense that would have been incurred had the Acquired Properties been operating
as a separate entity for all of the periods presented. The charges for these functions are included in general and administrative
expenses for all periods presented.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to the above, see Note
J for recent acquisitions from XOG Group accounted for at fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Note B. Summary of Significant Accounting Policies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Principles of Consolidation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements
of the Company include the accounts of the Company and its wholly-owned subsidiaries.&nbsp; All material intercompany balances
and transactions have been eliminated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Use of Estimates in the Preparation
of Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from these estimates.&nbsp; Such estimates include
the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation, depletion and amortization
of oil and natural gas properties are determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties
inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing
of development expenditures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Impairment evaluation of proved and
unproved oil and natural gas properties is subject to numerous uncertainties including, among others, estimates of future recoverable
reserves, future prices, operating and development costs, and estimated cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Other significant estimates include,
but are not limited to, the asset retirement costs and obligations, accrued revenue and expenses, and fair values of stock-based
compensation, commodity derivatives and warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and Gas Sales Receivable</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Through the Company&rsquo;s ownership
of leasehold interests, oil and natural gas production is sold to purchasers generally on an unsecured basis. Allowances for doubtful
accounts are determined based on management's assessment of the creditworthiness. Receivables are considered past due if full
payment is not received by the contractual due date. Past due accounts will be generally written off against the allowance for
doubtful accounts only after all collection attempts have been exhausted. Management concluded that no allowance for doubtful
accounts was necessary at March 31, 2012 and December 31, 2011. Management believes that the lack of allowance for doubtful accounts
is adequate; however, actual write-offs may exceed the recorded allowance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and Natural Gas Properties</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company utilizes the successful
efforts method of accounting for its oil and natural gas properties. Under this method, all costs associated with productive wells
and nonproductive development wells are capitalized, while nonproductive exploration costs are expensed. Capitalized acquisition
costs relating to proved properties are depleted using the unit-of-production method based on total proved reserves. The depletion
of capitalized exploratory drilling and development costs (wells and related equipment) is based on the unit-of-production method
using proved developed reserves on a field basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Proceeds from the sales of individual
properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated
depletion. Generally, no gain or loss is recognized until the entire amortization base is sold. However, a gain or loss is recognized
from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion
rate of the remaining properties in the amortization base.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Ordinary maintenance and repair costs
are expensed as incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Costs of significant nonproducing properties,
wells in the process of being drilled and development projects are excluded from depletion until such time as the related project
is developed and proved reserves are established or impairment is determined. These unproved oil and natural gas properties are
periodically assessed for impairment by considering future drilling plans, the results of exploration activities, commodity price
outlooks, planned future sales or expiration of all or a portion of such projects. Amounts capitalized to oil and natural gas
properties excluded from depletion at March 31, 2012 and December 31, 2011 were $89,369,312 and $25,212,635, respectively. During
the three months ended March 31, 2012 and 2011 the Company recorded no impairment of unproved properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Management of the Company reviews its
oil and natural gas properties for impairment by amortization base or by individual well for those wells not constituting part
of an amortization base whenever events or circumstances indicate that the carrying value of those assets may not be recoverable.
An impairment loss is indicated if the sum of the expected undiscounted future cash flows is less than the carrying amount of
the assets. For each property determined to be impaired, an impairment loss equal to the difference between the carrying value
of the properties and the estimated fair value (discounted future cash flows) of the properties is recognized at that time. Estimating
future cash flows involves the use of judgments, including estimation of the proved and unproved oil and natural gas reserve quantities,
timing of development and production, expected future commodity prices, capital expenditures and production costs. During the
three months ended March 31, 2012 and 2011 the Company recorded no impairments of proved properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Environmental</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company is subject to extensive federal,
state and local environmental laws and regulations. These laws, which are often changing, regulate the discharge of materials into
the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum
or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits
are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation
is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments
is fixed and readily determinable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and Natural Gas Sales and Imbalances</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Oil and natural gas revenues are recorded
at the time of delivery of such products to pipelines for the account of the purchaser or at the time of physical transfer of
such products to the purchaser. The Company follows the sales method of accounting for oil and natural gas sales, recognizing
revenues based on the Company's share of actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas
imbalances are generated on properties for which two or more owners have the right to take production &quot;in-kind&quot; and
in doing so take more or less than their respective entitled percentage. The Company does not have any oil and natural gas imbalances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Debt Issuance Costs</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September 2011, the Company entered
into a $300 million credit facility with Macquarie Bank Limited (&ldquo;Macquarie&rdquo;). In February 2012, the Company entered
into a $20 million convertible note with Pentwater Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd. (collectively,
&ldquo;Pentwater&rdquo;). The Company incurred costs related to these facilities that were capitalized on the Consolidated Balance
Sheet as &ldquo;Debt Issuance Costs&rdquo;. Included in the Debt Issuance Costs are direct costs paid to third parties for broker
fees and legal fees. The total amount capitalized for Debt Issuance Costs is $1,927,739 for the combined Macquarie and Pentwater
debt issuances. The capitalized costs will be amortized over the term of the facility using the effective interest rate method.
The amortization for the three months ended March 31, 2012 and 2011 was $127,254 and $0, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Warrant Derivative Liabilities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Warrants that contain &ldquo;down-round
protection&rdquo; and therefore, do not meet the scope exception for treatment as a derivative under Financial Accounting Standards
Board&rsquo;s Accounting Standards Codification (&ldquo;ASC&rdquo;) Topic 815 are measured at fair value and liability-classified
under ASC 815, Derivatives and Hedging. Since &ldquo;down-round protection&rdquo; is not an input into the calculation of the
fair value of the warrants, the warrants cannot be considered indexed to the Company&rsquo;s own stock which is a requirement
for the scope exception as outlined under ASC 815. The fair value of these warrants is determined using a Monte Carlo Simulation
Analysis&nbsp;and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the
contractual term, and the risk-free interest rate. The Company will continue to classify the fair value of the warrants as a liability
until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified
as a liability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Asset Retirement Obligations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company records the fair value of a
liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying
amount of the related oil and gas properties. Subsequently, the asset retirement cost included in the carrying amount is allocated
to expense through depreciation, depletion and amortization. Changes in the liability due to passage of time are recognized as
an increase in the carrying amount of the liability and as corresponding accretion expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>General and Administrative Expense</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to general and administrative
(&ldquo;G&amp;A&rdquo;) costs incurred directly by the Company, the accompanying financial statements include an allocated portion
of the actual costs incurred by the XOG Group for G&amp;A expenses. The amounts allocated to the properties are for the period
prior to ownership by Nevada&nbsp;ASEC and ASEN 2.&nbsp; These allocated costs are intended to provide the reader with a reasonable
approximation of what historical administrative costs would have been related to the Acquired Properties had the Acquired Properties
existed as a stand-alone company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the view of management, the most
accurate and transparent method of allocating G&amp;A expenses is by using the historical cost basis of the Acquired Properties
divided by the cost basis of the total oil and gas assets of the XOG Group.&nbsp; Using this method, G&amp;A expense allocated
to the Acquired Properties for the three months ended March 31, 2012 and 2011 was approximately $0 and $36,129, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Treasury Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Company utilizes the cost method for accounting for
its treasury stock acquisitions and dispositions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Stock-Based Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company accounts for stock-based
compensation at fair value in accordance with the provisions of ASC Topic 718, &ldquo;Stock Compensation&rdquo;, which establishes
accounting for stock-based payment transactions for employee services and goods and services received from non-employees. Under
the provisions of ASC Topic 718, stock-based compensation cost is measured at the date of grant, based on the calculated fair
value of the award, and is recognized as expense in the consolidated statements of operations&nbsp;&nbsp;pro ratably over the
employee&rsquo;s or non-employee&rsquo;s requisite service period, which is generally the vesting period of the equity grant.
The fair value of stock option awards is generally determined using the Black-Scholes option-pricing model. Restricted stock awards
and units are valued using the market price of the Company&rsquo;s common stock on the grant date. Additionally, stock-based compensation
cost is recognized based on awards that are ultimately expected to vest, therefore, the compensation cost recognized on stock-based
payment transactions is reduced for estimated forfeitures based on the Company&rsquo;s historical forfeiture rates. Additionally,
no stock-based compensation costs were capitalized for the three months ended March 31, 2012 and 2011. The Company provides compensation
benefits to employees and non-employee directors under share-based payment arrangements, including various employee stock option
plans. See Note&nbsp;C for further discussion of the Company&rsquo;s stock-based compensation plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Income Taxes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Prior to the Company&rsquo;s acquisition
of the acquired properties, the acquired properties were part of a pass-through entity for federal income tax purposes with taxes
being the responsibility of the XOG Group owners.&nbsp; As a result, the accompanying financial statements do not present any
income tax liabilities or assets related to the acquired properties prior to the Company&rsquo;s acquisition of the acquired properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company recognizes deferred tax
assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that
includes the enactment date. A valuation allowance is established to reduce deferred tax assets if it is more likely than not
that the related tax benefits will not be realized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company evaluates uncertain tax
positions for recognition and measurement in the consolidated financial statements. To recognize a tax position, the Company determines
whether it is more likely than not that the tax positions will be sustained upon examination, including resolution of any related
appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold
is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The amount of tax benefit
recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely
of being realized upon settlement. The Company had no uncertain tax positions that required recognition in the accompanying financial
statements. Any interest or penalties would be recognized as a component of income tax expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Fair Value of Financial Instruments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current transaction between two willing parties. The carrying amount
of cash, oil and gas sales receivable, other current assets, accounts payable and accrued liabilities approximates fair value
because of the short maturity of these instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Loss per Common Share</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Basic loss per share is computed on
the basis of the weighted-average number of common shares outstanding during the periods. Diluted earnings (loss) per share is
computed based upon the weighted-average number of common shares outstanding plus the assumed issuance of common shares for all
potentially dilutive securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Weighted-average number of shares for
the three months ended March 31, 2011 was computed on a pro forma basis as if the 883,607 common shares issued to the XOG Group
in connection with the Company&rsquo;s acquisition of the Acquired Properties during 2011, and the 285,716 shares purchased by
Randall Capps in the February 2011 private placement were issued and outstanding for all periods presented.&nbsp; As of March
31, 2012, 10,090,760 stock options and 15,259,275 shares of common stock underlying warrants were excluded from the calculation
due to being anti-dilutive. As of March 31, 2011, 3,755,000 stock options and 4,049,464 warrants were excluded from the calculation
due to being anti-dilutive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Derivative Instruments and Price Risk Management</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company uses derivative instruments
from time to time to manage market risks resulting from fluctuations in the prices of crude oil and natural gas. The Company may
periodically enter into derivative contracts, including price swaps, caps and floors, which require payments to (or receipts from)
counterparties based on the differential between a fixed price and a variable price for a fixed quantity of crude oil or natural
gas without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production
from existing wells. The Company has, and may continue to use, exchange-traded futures contracts and option contracts to hedge
the delivery price of crude oil at a future date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has elected not to designate
derivative contracts as accounting hedges under FASB ASC 815-20-25. As such, all derivative positions are carried at their fair
value on the balance sheet and are marked-to-market at the end of each period.&nbsp;&nbsp;Any realized gains or losses on derivatives
are recorded in realized and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Note&nbsp;C.&nbsp; Stockholders' Equity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Founders Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 13, 2010, the Company issued
1,887,755 shares of its common stock to non-management individuals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 13, 2010, the Company issued
2,193,877 shares of its common stock to management.&nbsp; These shares are restricted and were originally scheduled to vest over
four years.&nbsp; The Company valued these shares at $1.47 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 16, 2011, 548,655 shares of
founder&rsquo;s stock issued to management vested.&nbsp;&nbsp;The Company estimated that $1,338,308 in federal and state withholding
taxes is due related to this vesting, which has been recorded as an accrued liability on the accompanying balance sheet as of
March 31, 2012 and December 31, 2011.&nbsp; The holders of these shares have remitted to the Company 206,693 shares of the Company&rsquo;s
common stock valued&nbsp;with a market price of&nbsp;$5.40 per share when remitted to cover the withholding requirements.&nbsp;&nbsp;The
stock remittance is included in the accompanying statement of stockholders&rsquo; equity as treasury stock at March 31, 2012 and
December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 13, 2012, the board of
directors of the Company approved the immediate vesting of a total of 1,568,877 restricted shares of the Company&rsquo;s common
stock previously issued to the chief executive officer, president and chief financial officer as founders stock which were to
vest in equal portions annually through April 16, 2014. The Company recorded compensation expense for these shares of $1,797,993
for the three months ended March 31, 2012 and $201,563 for the three months ended March 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company subsequently completed
the evaluation of the taxable amount due and remitted the appropriate tax to the IRS in April 2012.&nbsp;&nbsp;In addition, in
accordance with the founder&rsquo;s stock agreements for each of the officers, the Company is required to reimburse a portion
of these withholding taxes to the officers.&nbsp;&nbsp;Based upon the agreements, the Company estimates that it will be required
to reimburse a total of $3,135,413 to these officers by December 31, 2012.&nbsp;&nbsp;Of this amount, $1,797,105 is included in
general and administrative expenses and in accrued compensation due to officers as of March 31, 2012. Additionally, $558,256 was
paid to the IRS in April 2012 and was included in accrued liabilities as of March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Restricted Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As part of a comprehensive review of
compensation, compensation expense, and shareholder dilution, the Board of Directors granted 20,000 shares of restricted Common
Stock to each of our three executive officers and one of our employees on March 30, 2012. The restricted stock was valued on the
date of grant at $2.43 per share and recorded as stock-based compensation expense of $194,400 for the three months ended March
31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Private Placements of Common Stock
and Warrants</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 1, 2011, the Company closed
a private placement offering raising proceeds of $15,406,755 through the issuance of (i) 4,401,930 shares of common stock at a
price of $3.50 per share and (ii) two series of five-year warrants each exercisable into 1,100,482 shares of common stock at exercise
prices of $5.00 and $6.50 per share, respectively.&nbsp; The Company also issued to the placement agents warrants to purchase
up to 317,117 shares of common stock, the terms and exercise price are the same as investors under this private placement offering.&nbsp;
The shares and warrants were sold to certain accredited investors.&nbsp; Subject to certain conditions, the Company has the right
to call for the exercise of such warrants.&nbsp; The Company incurred costs of $0.8 million in connection with this offering.
On February 9, 2012, the investors agreed to waive certain anti-dilution rights with respect to the warrants and certain participation
rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 31, 2011, the Company closed
a private placement offering of securities raising proceeds of $21,257,778 through the issuance of (i) 3,697,005 shares of common
stock at a price of $5.75 per share and (ii) five-year warrants exercisable into 1,848,502 shares of common stock at exercise
prices of $9.00 per share, subject to certain adjustments.&nbsp; The Company also issued to the placement agents warrants to purchase
up to 96,957 shares of common stock at an exercise price of $9.00.&nbsp; The shares and warrants were sold to certain accredited
investors.&nbsp; Subject to certain conditions, the Company has the right to call for the exercise of such warrants.&nbsp; The
Company incurred costs of $1.5 million in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On July 15, 2011, the Company closed a private placement
offering of $12,980,003 through the issuance of (i) 2,260,870 shares of our common stock at a price of $5.75 per share, (ii) Series
A warrants to purchase 1,130,435 shares of common stock at a per share exercise price of $9.00 subject to certain adjustment provisions;
and (iii) Series B warrants at a per share exercise price of $0.001 to purchase a number of shares of common stock, which became
exercisable on the 30th trading day following the date on which the purchasers in the private placement were able to freely sell
the shares of common stock pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction
(the Eligibility Date&rdquo;) as the market price of the common stock was less than the purchase price in the offering or $5.75.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the terms of the Series
B warrants, on the Eligibility Date the investors had the right to purchase a number of shares of our common stock such that the
aggregate average price per share purchased by the investors was equal to the market price (defined as the average of volume weighted
average price for each of the previous 30 days as reported on the Over-The-Counter Bulletin Board during the 30 trading days preceding
the measurement date).&nbsp;&nbsp;Certain holders of Series B warrants agreed to limit their right to adjustments in certain circumstances
such that the total number of shares of common stock underlying the Series B warrants was set at 2,239,029. See<B> </B>Note&nbsp;G.&nbsp;&nbsp;Derivative
warrant instruments (liabilities) and warrants&mdash;Warrant Adjustments. Exclusive of the non-cash warrant expense, the Company
incurred costs of approximately $1.0 million in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the February 1,
2011 and March 31, 2011 private placement offerings, the Company granted to the investors registration rights pursuant to Registration
Rights Agreements, dated February 1, 2011 and March 31, 2011, in which the Company agreed to register all of the related private
placement common shares and shares of common stock underlying the warrants within thirty (30) calendar days after February 1,
2011 and March 31, 2011, and use its best efforts to have the registration statement declared effective within one hundred twenty
(120) calendar days of the applicable filing date.&nbsp; Upon the Company&rsquo;s failure to comply with the terms of the Registration
Rights Agreement and certain other conditions, the Company was required to pay to each investor an amount in common stock equal
to one percent (1%) per month of the aggregate purchase price paid by such investor, up to 6% of the aggregate stock purchase
price.&nbsp; As the Company did not register the shares within thirty calendar days of February 1, 2011 and March 31, 2011, the
Company was required to pay in common stock 1% of the aggregate purchase price. Shares distributed were calculated based on the
price of issuance of $3.50 per share for the February 1, 2011 private placement offering and $5.75 per share for the March 31,
2011 placement.&nbsp; In November 2011, the Company remitted 459,074 additional shares, calculated by dividing the respective
cash value of each private placements penalty by the respective unit price under which each private placement was funded.&nbsp;For
the year ended December 31, 2011, the Company recognized $2,019,943 of delinquent registration penalties. No additional penalties
were incurred and no additional expense was recognized in the current period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Deferred Compensation Program</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 15, 2010 and ratified on August
29, 2011, the Nevada ASEC&rsquo;s Board of Directors approved the Nevada ASEC 2010&nbsp;Deferred Compensation Program. Under this
plan, the President and CEO are entitled to receive a one-time retainer fee consisting of options to purchase common stock in
lieu of salary through December 31, 2010. The total number of shares underlying options granted under the plan was 1,600,000 in
lieu of salary through December 31, 2010. The exercise price of the options is $1.50 and the options were to vest over 26.5 months.&nbsp;
These options have a ten-year life and had a grant date fair value of $1.09 per share. On March 30, 2012 the vesting on all remaining
deferred compensation was accelerated and fully-vested at that date. For the three months ended March 31, 2012 and 2011, the Company
recorded non-cash stock compensation expense of $394,868 and $197,434, respectively, related to the amortization of the fair value
of these options which is included in general and administrative expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Other Share Based Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 29, 2011, the Company's Board
of Directors adopted the Amended and Restated 2010 Equity Incentive Plan initially approved on April 15, 2010.&nbsp;&nbsp;The
amended plan provides for 12,000,000 shares to be eligible for issuance to officers, other key employees, directors and consultants.&nbsp;&nbsp;Since
April 15, 2010, the Board of Directors authorized the grants of 11,265,000 stock options under the 2010 Plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As part of a comprehensive review of
compensation, compensation expense, and shareholder dilution, the Board of Directors approved the restructuring of stock options
on March 30, 2012 (the &ldquo;Modification Date&rdquo;). Due to the modification, 2,400,000 options issued to certain officers
were forfeited and 3,200,000 options were accelerated and became immediately vested. An additional 1,540,000 non-qualified options,
205,760 incentive stock options and 80,000 restricted shares (previously discussed) of common stock were granted to certain officers,
directors, employees and a consultant. All modified options (including the newly issued options) were priced at the average of
the open and closing share price of the Company&rsquo;s common stock on March 30, 2012, which was $2.43 per share and became fully
vested on the Modification Date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the three months ended March 31,
2012 and 2011, the Company recorded non-cash stock-based compensation expense of $31,418,129 and $197,084, respectively, related
to other share based compensation which is included in general and administrative expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes the
stock options available and outstanding as of March 31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted&nbsp;Average&nbsp;<BR> Exercise&nbsp;Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted&nbsp;Average&nbsp;<BR> Remaining&nbsp;Contract&nbsp;<BR>
    Term</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Aggregate&nbsp;<BR> Intrinsic&nbsp;Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left">Prior Outstanding as-of 12/31/2011:</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">10,745,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">5.67</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">8.48</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">2,788,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Grants:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,745,760</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.43</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Exercises:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Forfeitures:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,400,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7.51</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Expirations:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total Outstanding as-of 3/31/2012:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,090,760</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.13</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.70</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,720,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total Exercisable as-of 3/31/2012:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,090,760</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.13</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.70</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,720,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total Unvested as-of 3/31/2012:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total Vested as-of 3/31/2012:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,090,760</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.13</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.70</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,720,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Black-Scholes option valuation method
and the assumptions noted in the following table for March 31, 2012.&nbsp; Expected volatilities are based on implied volatilities
from the historical volatility of companies similar to the Company.&nbsp; The expected term of the options granted used in the
Black-Scholes model represent the period of time that options granted are expected to be outstanding.&nbsp; The Company utilizes
the simplified method for calculating the expected life of its options as the Company does not have sufficient historical data
to provide a basis upon which to estimate the term.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right; border-bottom: Black 1pt solid">Range</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right; border-bottom: Black 1pt solid">Weighted&nbsp;Average</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%">Volatility:</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 10%; text-align: right">77.00</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">77</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Risk-Free Interest Rate:</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">0.88% - 1.01</TD><TD STYLE="text-align: left">%&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.94</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected Term (years):</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">4.34 - 5.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.51</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Dividend Rate:</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">0.00</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.00</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Fair Value Per Share on Grant Date:</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">$1.36 - $1.44</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.38</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of option grants during
the three months ended March 31, 2012 was $585,899.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;D.&nbsp; Long term debt</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Macquarie Credit Facility.</B>
On September 21, 2011,&nbsp;Nevada ASEC (the &ldquo;Borrower&rdquo;), entered into a Credit Agreement (the &ldquo;Credit Agreement&rdquo;)
with the lenders party thereto and Macquarie Bank Limited (&ldquo;Macquarie&rdquo;) as administrative agent. The Credit Agreement
is fully and unconditionally guaranteed by the Company (the &ldquo;Guarantor&rdquo;).&nbsp;&nbsp;The Guarantor has pledged as
collateral 100% of its stock in the Borrower.&nbsp;&nbsp;&nbsp;The Borrower&rsquo;s obligations under the Credit Agreement are
secured by, among other assets, the Borrower&rsquo;s interest in certain oil and gas properties and the hydrocarbons produced
from such properties, as well as the proceeds of the sale of such hydrocarbons.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Credit Agreement provides to the
Borrower a revolving credit facility in an amount not to exceed $100 million and a term loan facility in an amount not to exceed
$200 million. The interest rate on revolving loans is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 2.75%
to 3.25% per annum (2.75% at March 31, 2012), based on the borrowing base utilization, and the interest rate on term loans is
30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 7.50%. The maturity date of the revolving credit facility
is September 21, 2015 and the maturity date of the term loan facility is September 21, 2014.&nbsp;&nbsp;As part of the Credit
Agreement, the Borrower is required to comply with the financial covenants set forth in the Credit Agreement, including an interest
coverage ratio, a current ratio, and a debt coverage ratio, as of the end of each calendar quarter.&nbsp;&nbsp;&nbsp;The Company
was in default under certain provisions of the Credit Agreement, for the calendar quarter ended on March 31, 2012. The defaults
were waived by Macquarie on May 10, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The initial borrowing base and amount
drawn on the revolving credit facility was $12 million.&nbsp;&nbsp;The debt was initially recorded net of a debt discount of $10,917,981
related to warrants issued to the lenders as disclosed below.&nbsp;&nbsp;The debt discount will be amortized over the term of
the credit facility. The outstanding amount on the revolving credit facility at March 31, 2012 was $13.1 million.&nbsp; The borrowing
base is re-determined semiannually based on the reserve reports by category, oil and gas future sales prices as determined by
the lenders, and amount of expenses necessary to produce the oil and gas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The table below reflects the breakdown
of the components of the revolving credit facility at March 31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">Cash proceeds from revolver</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">13,100,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cash proceeds from term loan</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7,858,088</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total cash proceeds</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">20,958,088</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Discount on debt</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(10,917,981</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accretion of debt discount</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,584,863</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 8.65pt">Net revolving facility and term loan</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11,624,970</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The term loan draws are subject to
approval by Macquarie on a case by case basis. Each drilling program is submitted for approval and Macquarie may approve the program
in its reasonable discretion. After Macquarie approves a program, the lenders are obligated to advance funds for development,
subject to the satisfaction of the conditions precedent to advances set forth in the Credit Agreement. Alternatively, the Company
may elect to submit successfully completed wells to the bank for review and reimbursement under the term loan. The outstanding
balance on the term loan was $7,858,088 at March 31, 2012. Beginning on March 21, 2013, the Company will begin making monthly
payments to amortize the term loan, each payment equal to the total outstanding term loan balance on that date divided by 18.
Based on the outstanding balance of the term loan on March 31, 2012, the Company expects to pay $3,929,044 in each of the years
2013 and 2014.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the Credit Agreement,
the Company issued to Macquarie Americas Corp. a five year warrant to purchase 5,000,000 shares of the Company&rsquo;s common
stock at a per share exercise price of $7.50. The warrant is exercisable on a cashless basis if there is no registration statement
covering the underlying common stock. The warrant is also subject to customary anti-dilution provisions. The fair value of the
5,000,000 warrants issued to Macquarie was calculated using the Monte Carlo valuation model based on factors present at the time
of closing. Macquarie can exercise these warrants at any time until the warrants expire in July 2016. The exercise price of the
warrants is $7.50 per warrant, subject to down round&rdquo; adjustments.&nbsp;&nbsp;The fair value at issuance date of $10,917,981
was recorded as a discount on the debt as described above.&nbsp;&nbsp;See Note G for discussion of the modification of the terms
of these warrants in February 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Convertible Note. </B>On
February 10, 2012, the Company and ASEN 2, Corp. (&ldquo;ASEN 2&rdquo;), a wholly-owned subsidiary of the Company formed on January
25, 2012, closed on a Note and Warrant Purchase Agreement dated February 9, 2012, (the &ldquo;Purchase Agreement&rdquo;), with
Pentwater Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., (&ldquo;Pentwater&rdquo;) in connection with a $20
million private financing. The initial funding made by Pentwater to ASEN 2 on February 10, 2012 (&ldquo;Pentwater Closing Date&rdquo;),
was in the amount of $10 million. The second funding for an additional $10 million, which closed on March 5, 2012, occurred concurrently
with the closing of the purchase and sale agreement by and among the Company, Geronimo and XOG.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note (the &ldquo;Pentwater Note&rdquo;), convertible into shares
of the Company&rsquo;s common stock at a conversion price of $9.00 per share and five-year warrants to purchase 3,333,333 shares
of common stock at a per share cash exercise price of $2.50. The Warrants are also subject to a mandatory exercise at the Company&rsquo;s
option with respect to (i) 50% of the number of shares underlying the Warrants if the closing sale price of the common stock is
equal to or greater than $5.00 per share for twenty consecutive trading days and (ii) 50% of the number of Warrant Shares if the
closing sale price of the common stock is equal to or greater than $9.00 per share for twenty consecutive trading days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From the Pentwater Closing Date through
December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The convertible note was $20 million.&nbsp;&nbsp;The
debt was initially recorded net of a debt discount of $5,412,553 related to warrants issued as discussed above.&nbsp;&nbsp;The
debt discount will be amortized over the term of the Pentwater Note. The outstanding amount on the Pentwater Note at March 31,
2012 was $20 million with $42,222 in capitalized interest.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The table below reflects the breakdown
of the components of the Pentwater Note at March 31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">Cash proceeds from Pentwater</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">20,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Discount on debt</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,412,553</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accretion of debt discount</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">248,853</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Capitalized interest</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">42,222</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Net amount of Pentwater Note</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">14,878,522</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Geronimo Note. </B>On March
5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across the
Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the &ldquo;March 2012
Properties&rdquo;) from a related party. In conjunction with this transaction, the Company entered into a $35,000,000 promissory
note (the &ldquo;Geronimo Note&rdquo;) made by the Company in favor of Geronimo. The Geronimo Note bears an interest rate of 7%
per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of each month
commencing on June 1, 2012. The Geronimo Note matures on March 21, 2016. The Company may prepay the Geronimo Note at any time
without penalty.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">Debt proceeds from Geronimo</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">35,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Capitalized interest</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">171,237</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Amount of Geronimo Note</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">35,171,237</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;E.&nbsp; Asset Retirement
Obligations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's asset retirement obligations
represent the estimated present value of the estimated cash flows the Company will incur to plug, abandon and remediate its producing
properties at the end of their productive lives, in accordance with applicable state laws. The Company has no assets that are
legally restricted for purposes of settling asset retirement obligations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's asset retirement obligation
activity for the three months ended March 31, 2012 and the year ended December 31, 2011 is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March 31, 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31,<BR>
    2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%">Balance at beginning of period</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">394,177</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">242,632</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Liabilities incurred from new wells</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18,428</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">94,880</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accretion expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,898</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,951</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Revisions due to increase in well life estimates</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,714</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Balance at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">419,503</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">394,177</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Note&nbsp;F.&nbsp;Commodity derivatives</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">To mitigate a portion of the exposure
to potentially adverse market changes in oil and natural gas prices and the associated impact on cash flows, the Company has entered
into various derivative commodity contracts.&nbsp; The Company&rsquo;s derivative contracts in place include swap arrangements
for oil and natural gas.&nbsp; As of March 31, 2012, the Company has commodity derivative contracts in place through the third
quarter of 2014 for a total of approximately 95,554&nbsp;Bbls of anticipated crude oil production and 579,693 MMBtu of anticipated
natural gas production.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s oil and natural
gas derivatives are measured at fair value and are included in the accompanying balance sheets as commodity derivative assets
and liabilities.&nbsp; The Company derives internal valuation estimates taking into consideration the counterparties&rsquo; credit
ratings, the Company&rsquo;s credit rating, and the time value of money.&nbsp; These valuations are then compared to the respective
counterparties&rsquo; mark-to-market statements.&nbsp; The pertinent factors result in an estimated exit-price that management
believes provides a reasonable and consistent methodology for valuing derivative instruments.&nbsp; The derivative instruments
utilized by the Company are not considered by management to be complex, structured or illiquid.&nbsp; The oil and natural gas
derivative markets are highly active.&nbsp; The fair value of oil and natural gas commodity derivative contracts was a net liability
of $872,089 and $665,960 at March 31, 2012 and December 31, 2011, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company recognizes all gains and
losses from changes in commodity derivative fair values immediately in earnings. For the three months ended March 31, 2012, the
Company had a realized loss on commodity derivatives of $64,566 and an unrealized loss of $206,129 included in other income (expense).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of our commodity derivatives
at March 31, 2012 is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Period&nbsp;of&nbsp;time</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Barrels&nbsp;of&nbsp;Oil</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted <BR> Average&nbsp;Oil <BR> Prices&nbsp;per&nbsp;Barrel</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Estimated&nbsp;Fair <BR> Market&nbsp;Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%">April 1, 2012 through October 31, 2014</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">95,554</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">86.34</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">669,670</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Period&nbsp;of&nbsp;time</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">MMBtu&nbsp;of <BR> Natural&nbsp;Gas</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted <BR> Average&nbsp;Gas <BR> Prices&nbsp;per&nbsp;MMBtu</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Estimated&nbsp;Fair <BR> Market&nbsp;Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; padding-bottom: 1pt">April 1, 2012 through September 26, 2014</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; padding-bottom: 1pt; text-align: right">579,693</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">$</TD><TD STYLE="width: 10%; padding-bottom: 1pt; text-align: right">4.4</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">(1,541,759</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Total fair market value</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(872,089</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table details the fair
value of derivatives recorded in the accompanying balance sheets, by category:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">As&nbsp;of March
    31,&nbsp;2012</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD COLSPAN="4" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Derivative&nbsp;Assets</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD COLSPAN="4" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Derivative&nbsp;Liabilities</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 32%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 20%; font-weight: bold; text-align: center">Balance&nbsp;Sheet</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 10%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 20%; font-weight: bold; text-align: center">Balance&nbsp;Sheet</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 10%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Classification</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Fair&nbsp;Value</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Classification</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Fair&nbsp;Value</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Commodity Contracts</TD>
    <TD>&nbsp;</TD>
    <TD>Current Assets</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Current Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">(354,422</TD>
    <TD>)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Commodity Contracts</TD>
    <TD>&nbsp;</TD>
    <TD>Noncurrent Assets</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Noncurrent Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">(517,667</TD>
    <TD>)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Total commodity derivatives</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">(872,089</TD>
    <TD>)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;G.&nbsp;&nbsp;&nbsp;&nbsp;Derivative
warrant instruments (liabilities) and warrants</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As part of the July 15, 2011, private
placement, the Company issued Series A and Series B Warrants to purchase common stock&nbsp;to certain accredited investors in
connection with its sale of 2,260,870 share-based units for gross proceeds of approximately $13.0 million.&nbsp;&nbsp;There are
1,130,435 Series A warrants with an exercise price of $9.00 per share, subject to &ldquo;down round&rdquo; adjustments with a
floor price of $5.00.&nbsp;&nbsp;There are 2,239,029 of Series B warrants at an exercise price of $0.001 per share.&nbsp;&nbsp;Of
these Series B warrants, 325,386 were exercised in February of 2012 and 1,000,000 were exercised in April of 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September of 2011, the Company issued
warrants that will allow Macquarie the right to purchase up to 5,000,000 shares of fully-paid and non-assessable common stock
at a per share purchase price of $7.50, subject to certain &ldquo;down round&rdquo; adjustments events.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Because there were adjustment events,
the warrants described above were not deemed to be indexed to the Company&rsquo;s own stock and, therefore, do not qualify for
the scope exception in ASC 815-40-15-5.&nbsp;&nbsp;As such, the Company has concluded that such warrants are deemed to be derivative
instruments and are recorded as liabilities at&nbsp;fair value, and marked-to-market at each financial statement reporting date,
pursuant to the guidance in ASC 815-10 until such time that these warrants are exercised, expire or are amended in a way that
would no longer require liability accounting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the three months ended March
31, 2012 the fair value of the liability of the warrant derivative instruments increased by $195,228, from the fair values at
December 31, 2011. Such changes were recorded as unrealized losses on fair value of derivative warrant instruments in the accompanying
consolidated statements of operations. The fair value of these warrants is determined using a Monte Carlo Simulation Analysis
and is affected by changes in inputs to that model including our stock price, expected stock volatility, the contractual term,
and the risk-free interest rate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The fair value of the derivative warrant instruments is
estimated using a probability-weighted scenario analysis model with the following assumptions as of March 31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">For&nbsp;the&nbsp;Three&nbsp;Months <BR> Ended&nbsp;March&nbsp;31,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">Common stock issuable upon exercise of warrants</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">6,130,435</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Estimated market value of common stock on measurement date (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.00</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Exercise price</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.00</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Expected volatility (2)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">72.53</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected term (in months)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">53.9</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Risk-free rate (3)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.81</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected dividend yields</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Future financing event</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px">&nbsp;</TD>
    <TD STYLE="width: 24px">(1)</TD>
    <TD STYLE="text-align: justify">The estimated market value of the stock is measured each period-end and is based on the
    reported public market prices.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px">&nbsp;</TD>
    <TD STYLE="width: 24px">(2)</TD>
    <TD STYLE="text-align: justify">The volatility factor was estimated by management using the historical volatilities of
    comparable companies in the same industry and region.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px">&nbsp;</TD>
    <TD STYLE="width: 24px">(3)</TD>
    <TD STYLE="text-align: justify">The risk-free rate of return associated with the remaining term.<I> Source: The Federal
    Reserve Board</I></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Warrant Restructure.</B>
On February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, (&ldquo;Modification Investors&rdquo;),
entered into a modification agreement (the &ldquo;Modification Agreement&rdquo;), pursuant to which the parties agreed to amend
the terms of the Series B warrants issued to the Modification Investors in July 13, 2011 offering in which the Modification Investors
invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed to limit the dilutive effects of
the Series B warrants by including a floor of $3.00 per share in the calculation of the reset provision included in the Series
B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series B warrants held by the Modification
Investors is 1,913,043 shares. Due to the elimination of the &ldquo;down-round&rdquo; provisions, these warrants qualify for equity
presentation as of the modification date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants
to purchase 2.5 million shares of common stock with a cash exercise price of $3.00 per share. The Series C warrants include a
provision under which the Series C warrants must be exercised at the election of the Company by the Modification Investors for
cash if the closing sales price of the common stock is $6.00 per share or greater for 20-consecutive trading days. As a result
of the issuance of the Series B warrants and the Series C warrants, the exercise prices and number of shares underlying the Series
A warrants and Series B warrants held by the remaining investor in the July 13, 2011 offering were adjusted pursuant to their
terms. As the Series C Warrants were consideration given pursuant to the Modification Agreement, the fair value of these warrants
on the modification date were expensed as a component of realized and unrealized expense on warrant derivatives in the consolidated
statement of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 5, 2012, pursuant to the terms
of a second modification agreement, the Company and the Modification Investors agreed to further amend the terms of the Series
B warrant to extend the expiration date to be (i) May 24, 2012 with respect to 1,000,000 shares of common stock underlying the
Series B warrants and (ii) with respect to the remaining 913,043 shares of common stock underlying the Series B Warrants (the
&ldquo;Subsequent Warrant Shares&rdquo;), the date that is the earlier of (a) 300 days from April 5, 2012 and (b) ten business
days after notice from the Company stating that the number of Subsequent Warrant Shares exercisable by the Modification Investors
would result in ownership of less than 9.99% of the Company&rsquo;s common stock after giving effect to such exercise. The Company
may provide multiple notices prior to the expiration of the Subsequent Warrant Shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Macquarie Warrant Restructure.</B>
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly on February 9, 2012, the Company
issued an amended and restated Macquarie Warrant (the &ldquo;Amended Macquarie Warrant&rdquo;) to Macquarie Americas to purchase
up to 2,333,000 shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie Warrant is not subject
to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision or combinations. The Amended
Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering the underlying common stock.
The Company granted the holder piggy-back registration rights on the underlying common stock. As the warrant modification fee
was consideration given as part of the modification, it was expensed as a component of realized and unrealized expense on warrant
derivatives in the consolidated statement of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Activity for derivative warrant instruments during the three
months ended March 31, 2012 was as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair&nbsp;value <BR>
    as&nbsp;of <BR> December <BR> 31,&nbsp;2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Increase <BR> (decrease)&nbsp;in&nbsp;fair
    <BR> value&nbsp;of <BR> derivative <BR> liability</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Reclassification&nbsp;to&nbsp;equity
    <BR> due&nbsp;to&nbsp;Modification</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair&nbsp;value <BR>
    March <BR> 31,&nbsp;2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left">Derivative warrant instruments for Series A and Series B Warrants</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">8,119,453</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(36,199</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(6,925,360</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,157,894</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Derivative warrant instruments for Macquarie warrants</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7,179,205</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">231,427</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(7,410,632</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">15,298,658</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">195,228</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(14,335,992</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,157,894</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;H.&nbsp;&nbsp;&nbsp;&nbsp;Fair
value measurements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company follows fair value measurement
authoritative guidance for all assets and liabilities measured at fair value.&nbsp; That guidance defines fair value as the price
that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market
participants at the measurement date.&nbsp; Market or observable inputs are the preferred sources of values, followed by assumptions
based on hypothetical transactions in the absence of market inputs.&nbsp; The hierarchy for grouping these assets and liabilities
is based on the significance level of the following inputs:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD>Level 1 -&nbsp;quoted prices in active markets for identical assets or liabilities</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD>Level 2 - quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar
    instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant
    value drivers are observable</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 96px">&nbsp;</TD>
    <TD STYLE="width: 24px; font-family: Symbol">&middot;</TD>
    <TD>Level 3 - significant inputs to the valuation model are unobservable</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following is a listing of the Company&rsquo;s
financial assets and liabilities that are measured at fair value on a recurring basis and where they are classified within the
hierarchy as of March&nbsp;31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Level&nbsp;1</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Level&nbsp;2</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Level&nbsp;3</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Liabilities:</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="width: 61%; padding-left: 9pt">Commodity derivatives</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 10%; text-align: right">-</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 10%; text-align: right">872,089</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 10%; text-align: right">-</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-left: 9pt">Warrant derivatives</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1,157,894</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company uses Level 2 inputs to
measure the fair value of its commodity derivatives. &nbsp;Fair values are based upon interpolated data.&nbsp; The Company derives
internal valuation estimates taking into consideration the counterparties&rsquo; credit ratings, the Company&rsquo;s credit rating,
and the time value of money.&nbsp; These valuations are then compared to the respective counterparties&rsquo; mark-to-market statements.&nbsp;
The considered factors result in an estimated exit-price that management believes provides a reasonable and consistent methodology
for valuing derivative instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table reflects the activity
for warrant derivative liabilities measured at fair value using Level 3 inputs:&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">For&nbsp;the&nbsp;three<BR> months<BR> ended</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">For&nbsp;the&nbsp;year<BR> ended</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left">Beginning balance</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(15,298,658</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Additions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(14,888,990</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Net decrease (increase) in liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(195,228</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(409,668</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Transfers out of Level 3</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">14,335,992</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Ending balance</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,157,894</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(15,298,658</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Generally, market quotes assume that
all counterparties have near zero, or low, default rates and have equal credit quality.&nbsp; However, an adjustment may be necessary
to reflect the credit quality of a specific counterparty to determine the fair value of the instrument.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The methods described above may result
in a fair value estimate that may not be indicative of net realizable value or may not be reflective of future fair values and
cash flows.&nbsp; While the Company believes that the valuation methods utilized are appropriate and consistent with accounting
authoritative guidance and with other marketplace participants, the Company recognizes that third parties may use different methodologies
or assumptions to determine the fair value of certain financial instruments that could result in a different estimate of fair
value at the reporting date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of the warrants was
calculated using the Monte Carlo simulation valuation model based on factors present at the time of closing of the private placement
offering on July 15, 2011 and the credit facility on September 21, 2011 and updated for the periods ended March 31, 2012 and December
31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Assets and Liabilities Measured
at Fair Value on a Nonrecurring Basis</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Certain assets and liabilities are
reported at fair value on a nonrecurring basis in the Company's consolidated balance sheets. The following methods and assumptions
were used to estimate the fair values:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Impairments of Long-Lived Assets.&nbsp;
</B>The Company reviews its long-lived assets to be held and used, including proved oil and natural gas properties, whenever
events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated
if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. In this circumstance,
the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. The Company reviews its oil and natural gas properties by amortization base or by individual well for those
wells not constituting part of an amortization base. For each property determined to be impaired, an impairment loss equal to
the difference between the carrying value of the properties and the estimated fair value (discounted future cash flows) of the
properties is recognized at that time. Estimating future cash flows involves the use of judgments, including estimation of the
proved and unproved oil and natural gas reserve quantities, timing of development and production, expected future commodity prices,
capital expenditures and production costs.&nbsp; During the three months ended March 31, 2012 and 2011, the Company recorded impairments
of $0 and $0, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Asset Retirement Obligations (&ldquo;ARO&rdquo;).&nbsp;
</B>The initial recognition of AROs is based on fair value.&nbsp; The Company estimates the fair value of AROs based on
discounted cash flow projections using numerous estimates, assumptions and judgments regarding such factors as the existence of
a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted, risk-free rate to be used; and inflation
rates. See Note&nbsp;E for a summary of changes in ARO for the periods ended March 31, 2012 and 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Acquisitions.&nbsp;&nbsp;&nbsp;</B>Acquisitions
not under common control are recorded at fair value.&nbsp;&nbsp;The Company closed acquisitions on August 22, 2011, November 1,
2011 and March 5, 2012 which were recorded at fair value as described in Note J.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Long-Term Notes Payable and Debt<FONT STYLE="color: black">.
</FONT></B><FONT STYLE="color: black">The carrying amount of the long-term notes payable to Geronimo and Pentwater as of
March 31, 2012 approximates fair value because the Company&rsquo;s current borrowing rate does not materially differ from market
rates for similar bank borrowings.&nbsp; The long-term notes payable have only been outstanding for a short period of time and
as such, the carrying value approximates fair value.&nbsp; The book value of our term loan and credit facility with Macquarie
approximates fair value because of its floating rate structure. &nbsp;The Company has classified the long-term notes payable and
credit facility as Level 2 items within the fair value hierarchy.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note I.&nbsp; Major Customers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's producing oil and natural
gas properties are located in Texas, New Mexico, Arkansas, Oklahoma, North Dakota, Nebraska and Wyoming.&nbsp; At March 31, 2012,
the Company contracts with a number of operators and notes one operator, XOG, in which revenues received by the Company were greater
than 10% of the Company&rsquo;s total revenues.&nbsp;&nbsp;During the first three months of 2012 and 2011, revenue through XOG
accounted for approximately 63% and 77%, respectively.&nbsp;&nbsp;Although operators are not the end purchasers of oil and natural
gas, the Company is of the opinion that the loss of any one purchaser other than XOG would not have a material adverse effect
on the ability of the Company to sell its oil and natural gas production as such production can be sold to other purchasers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;J.&nbsp; Acquisitions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 22, 2011, the Company acquired
approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks (the &ldquo;Bakken 4 Properties&rdquo;) area from
XOG Group for approximately $14.6 million. A cash deposit of $13,500,000 was made on April 15, 2011, and the Company subsequently
issued 208,200 shares of common stock upon closing, which were valued at $1,093,050 using the stock price of $5.25 per share on
the closing date. The acquisition was recorded at fair value as the XOG Group and the Company were not under common control at
the time of the asset acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 1, 2011, the Company acquired
approximately 391 net undeveloped leasehold acres in the Bakken/Three Forks area from the XOG Group for approximately $1.2 million
dollars in cash. The acquisition was recorded at fair value as the XOG Group and the Company were not under common control at
the time of the asset acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 5, 2012, the Company acquired
the March 2012 Properties in exchange for the delivery by the Company to the Sellers of $10 million in cash, less a $1.5 million
cash deposit previously paid by the Company, the Geronimo Note (as discussed in Note D) made by the Company in favor of Geronimo
and 5,000,000 shares of the common stock of the Company, which had a closing price of $2.70 per share on the closing date of the
acquisition. The March 2012 Properties were purchased pursuant to the terms of a Purchase and Sale Agreement dated as of February
24, 2012, (the &ldquo;PSA&rdquo;), by and among the Company, XOG and Geronimo. The effective date of this purchase was December
1, 2011. The operating results from these March 2012 Properties have been included from their acquisition on March 5, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Minimal purchase price was allocated
to well bores acquired. The Company allocated virtually all value to acreage for further development, despite the fact that some
acquired properties were producing from legacy development.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Pro Forma Operating Results</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table reflects the unaudited
pro forma results of operations as though the acquisition of the March 2012 Properties had occurred on January 1, 2012 and 2011.
The pro forma amounts are not necessarily indicative of the results that may be reported in the future:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three&nbsp;Months<BR>
    Ended&nbsp;March<BR> 31,&nbsp;2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Pro&nbsp;Forma<BR>
    Combined</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; padding-bottom: 2.5pt; text-indent: 30pt; padding-left: 5.4pt">Revenues</TD><TD STYLE="width: 1%; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 2.5pt double; text-align: right">6,093,688</TD><TD STYLE="width: 1%; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt; text-indent: 10pt; padding-left: 5.4pt">Net loss
    (1)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(41,545,987</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Loss per share basic and diluted</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.92</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 5.4pt">Shares used in computing income (loss) per share:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Basic and diluted (2)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">45,086,879</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three&nbsp;Months<BR>
    Ended&nbsp;March<BR> 31,&nbsp;2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Pro&nbsp;Forma<BR>
    Combined</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; padding-bottom: 2.5pt; text-indent: 30pt; padding-left: 5.4pt">Revenues</TD><TD STYLE="width: 1%; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 2.5pt double; text-align: right">3,404,760</TD><TD STYLE="width: 1%; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt; text-indent: 10pt; padding-left: 5.4pt">Net loss
    (1)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,359,160</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Loss per share basic and diluted</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.04</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 5.4pt">Shares used in computing income (loss) per share:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Basic and diluted (2)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">37,154,300</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 100%">(1) Includes pro forma interest expense of $857,157</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>(2) Includes pro forma shares of 5,000,000</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The amount of revenues and revenues
in excess of direct operating expenses included in our consolidated statements of operations and attributable to the March 2012
Properties is shown in the table that follows. Direct operating expenses include lease operating expenses and production and other
taxes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three&nbsp;Months<BR>
    Ended <BR> March&nbsp;31,&nbsp;2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; padding-bottom: 2.5pt">Revenues</TD><TD STYLE="width: 1%; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 2.5pt double; text-align: right">390,567</TD><TD STYLE="width: 1%; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Excess direct operating expenses over revenues</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(216,725</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The PSA provides that if certain defects
are found with the March 2012 Properties within 120 days from closing, or if XOG or Geronimo breaches any representation or warranty
in the Agreement within one year from closing, XOG and Geronimo shall, at the option of the Company, in its sole and absolute
discretion, either (i) provide additional or alternative oil and gas properties, subject to the Company&rsquo;s applicable due
diligence review and acceptance or (ii) for as long as the Geronimo Note is outstanding, decrease the principal amount of the
Note in an amount equal to the loss resulting from such property defect or breach.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">XOG and Geronimo have piggyback registration
rights with respect to up to five million shares of common stock held by XOG or Geronimo.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;K.&nbsp; Related Party
Transactions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>The XOG Group</B><I>.&nbsp;
</I>XOG is currently contracted to operate the existing wells held by the Company in the Permian Basin region. XOG historically
performed this service for Geronimo and CLW. XOG, Geronimo, CLW and Randall Capps&nbsp;combine as&nbsp;the largest shareholder
in the Company and these&nbsp;entities are considered related parties to the Company. As a result, accounts receivable and accounts
payable due from/to XOG are classified as accounts receivable and payables due from/to a related party.&nbsp;&nbsp;&nbsp;For the
three months ended March 31, 2012 and 2011, sales through XOG were $3,194,904 and $2,311,335, respectively. Lease operating expenses
were $1,590,325 and $459,284 for the three months ended March 31, 2012 and 2011. Net cash paid to XOG (other than in connection
with acquisitions) for the three months ended March 31, 2012 and 2011 was $7,607,715 and $2,544,574, respectively, of which $6,017,390
and $2,085,290 was for drilling costs, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Randall Capps has controlling ownership
of XOG, Geronimo and CLW and is a member of the Company&rsquo;s board of directors.&nbsp;&nbsp;Through his ownership interest
in the XOG Group, Mr. Capps is the largest and majority shareholder of our common stock.&nbsp;&nbsp;Mr. Capps is also the father-in-law
of Scott Feldhacker, our chief executive officer and director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Overriding Royalty and Royalty Interests.
</B><I>&nbsp;</I> &nbsp;&nbsp;In some instances, the XOG Group may hold overriding royalty and royalty interests (&ldquo;ORRI&rdquo;)
in wells acquired by the Company. All revenues and expenses presented herein are net of any ORRI effects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>XOG Group Acquisitions.&nbsp;</B>
The Company has made significant acquisitions of oil and natural gas properties and undeveloped leases&nbsp;from the XOG Group
as discussed in Note A and Note J. On March 5, 2012, the Company acquired the March 2012 Properties in exchange for the delivery
by the Company to the Sellers of $10 million in cash, less a $1.5 million cash deposit previously paid by the Company, the Geronimo
Note of $35,000,000 (as discussed in Note D) made by the Company in favor of Geronimo and 5,000,000 shares of the common stock
of the Company, which had a closing price of $2.70 per share on the closing date of the acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;L.&nbsp; Commitments and
Contingencies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employment Agreements.<I> &nbsp;
</I></B>&nbsp;At March 31, 2012, the Company&rsquo;s cash contractual obligations related to its employment agreements
with executive officers for each of the following three years ending December 31 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">613,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">818,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">2014</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">272,667</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,704,167</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Operating Leases.&nbsp;</B> The Company leases
its 4,092 square-foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement, dated
September 30, 2010, for a 66-month term.&nbsp; The lease provides for no lease payments until February 1, 2011 and a reduced square
footage charge for the first year.&nbsp; The initial rental was $23.00 per square foot, beginning February 1, 2011, and increases
$.50 per square foot annually thereafter.&nbsp; For the three months ended March 31, 2012 and 2011, the Company recorded lease
expense of $13,991 and $21,840, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At March 31, 2012, the future minimum
lease commitments under the non-cancellable operating leases for each of the following five years ending December 31 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">46,952</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">97,356</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">99,402</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,448</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">2016</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">42,625</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">387,783</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Drilling Commitments.&nbsp;</B>
At March 31, 2012, the Company had various oil and natural gas wells in multiple stages of drilling and completion of which the
balance of the Company&rsquo;s unpaid approval for expenditures was estimated to be approximately $15,592,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Index to Consolidated Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD COLSPAN="2" STYLE="font-weight: bold">Consolidated Financial Statements of American Standard Energy Corp.</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD COLSPAN="2" STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Report of Independent Registered Public Accounting Firm</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">F-26</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Consolidated Balance Sheets as of December 31, 2011 and 2010</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">F-27</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">F-28</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">F-29</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Consolidated Statements of Stockholders&rsquo; Equity for the years ended December 31,
    2011, 2010 and 2009</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">F-30</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Notes to Consolidated Financial Statements</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; text-align: right">F-31 &ndash; F-49</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Unaudited Supplementary Information</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; text-align: right">F-50 &ndash; F-53</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Board of Directors and Stockholders</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">American Standard Energy Corp.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Scottsdale, Arizona</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have audited the accompanying consolidated
balance sheets of American Standard Energy Corp. and subsidiary (the &ldquo;Company&rdquo;) as of December 31, 2011 and 2010 and
the related consolidated statements of operations, stockholders&rsquo; equity, and cash flows for each of the three years in the
period ended December 31, 2011. These financial statements are the responsibility of the Company&rsquo;s management. Our responsibility
is to express an opinion on these financial statements based on our audits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As described in Notes A, K, L, and
N, the Company engages in significant transactions with related parties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of American Standard Energy Corp.
at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2011<B>,</B> in conformity with accounting principles generally accepted in the United States of America.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), American Standard Energy Corp.'s internal
control over financial reporting as of December 31, 2011, based on criteria established in <I>Internal Control &ndash; Integrated
Framework </I>issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March
20, 2012 expressed an adverse opinion thereon.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">/s/ BDO USA, LLP</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Houston, Texas</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">March 20, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary &nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Balance Sheets &nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">December<BR> 31,</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">December<BR> 31,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Current assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left; padding-left: 8.65pt">Cash and cash equivalents</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">733,049</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">519,996</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Oil and gas sales receivables</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,556,414</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">701,754</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Oil and gas sales receivables - related parties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">639,714</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">89,630</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.65pt">Stock subscriptions receivable and other current
    assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">308,208</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,565,548</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 34.55pt">Total current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,237,385</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,876,928</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Oil and natural gas properties at cost, successful efforts method</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.65pt">Proved</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">76,919,789</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,881,328</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt">Unproved</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,212,635</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,954,354</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.65pt">Accumulated depletion and depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(14,310,006</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(10,044,746</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 34.55pt">Total oil and natural gas properties, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">87,822,418</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">29,790,936</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Debt issuance costs, net of amortization of $69,184</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">720,175</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Prepaid drilling costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,590,356</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,946</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Deposit on properties with affiliate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,500,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Other assets, net of accumulated depreciation of $7,380 and $1,023</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">24,403</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">29,670</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">95,894,737</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">32,799,480</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Current liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Accounts payable - trade</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,373,262</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">925,654</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Accounts payable and accrued liabilities - related parties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,574,017</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,856,312</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Accrued withholding tax</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,338,308</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Commodity derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">243,996</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.65pt">Other accrued liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">36,665</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,708,695</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 34.55pt">Total current liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">13,566,248</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,490,661</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Term loan and revolving credit facility, net of discount of $9,907,057</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,262,832</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Asset retirement obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">394,177</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">242,632</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Commodity derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">421,964</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.65pt">Warrant derivative liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,298,658</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 34.55pt">Total liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">36,943,879</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,733,293</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stockholders' equity</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -17.3pt; padding-left: 25.9pt">Preferred stock, $.001 par value; 1,000,000 shares
    authorized; None issued and outstanding</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt">Common stock, $.001 par value; 100,000,000 shares
    authorized, 40,178,060 shares issued and 39,971,367 shares outstanding at December 31, 2011 and 28,343,905 shares issued and
    outstanding at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,178</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,344</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Additional paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">75,504,243</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,841,004</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Treasury stock, 206,693 shares at cost</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,116,514</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.65pt">Accumulated deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(15,477,049</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,803,161</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 25.9pt">Total stockholders' equity</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">58,950,858</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">27,066,187</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 25.9pt">Total liabilities and stockholders' equity</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">95,894,737</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">32,799,480</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Years&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Operating revenues:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 61%; text-align: left; padding-left: 17.3pt">Oil &amp; natural gas revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">12,407,774</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">6,861,385</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">5,666,710</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 17.3pt">Gain on sale of oil and natural gas leases</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,560</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,407,774</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,896,945</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,666,710</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Operating costs and expenses:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 17.3pt">Oil and natural gas production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,067,087</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,163,887</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,786,280</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 17.3pt">Exploration expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,463</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">240,382</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 25.9pt">General and administrative (including non cash
    stock-based compensation of $10,401,110, $4,227,274 and none)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,387,633</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,674,985</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">553,542</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 17.3pt">Impairment of oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,027,552</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,553</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">253,258</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 17.3pt">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,313,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,556,288</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,490,926</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 17.3pt">Accretion of discount on asset retirement obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">20,951</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,607</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,399</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 34.55pt">Total operating costs and expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">23,816,473</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,704,783</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,336,787</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">Income (loss) from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(11,408,699</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,807,838</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,329,923</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Other income (expense), net:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 17.3pt">Realized and unrealized loss on commodity derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(670,659</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 17.3pt">Interest expense, including accretion of debt discount</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,184,862</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 17.3pt">Unrealized expense on warrant derivatives</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(409,668</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 34.55pt">Total other income (expense), net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,265,189</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 17.3pt; padding-bottom: 1pt">Income tax benefit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">92,000</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt; padding-left: 8.65pt">Net income (loss)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(13,673,888</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(2,807,838</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,421,923</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Weighted average common shares outstanding</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,413,541</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">23,755,750</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">18,695,849</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss per share basic and diluted (1)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(0.39</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(0.12</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.08</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1)&nbsp;&nbsp;&nbsp;&nbsp; Proforma presentation for 2010
and 2009, refer to Note B</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary &nbsp; &nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Cash Flows
&nbsp; &nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center">Years&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 0.75pt">CASH FLOWS FROM OPERATING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 61%; text-align: left; padding-left: 0.75pt">Net income (loss)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(13,673,888</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(2,807,838</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,329,923</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Adjustments to reconcile net loss&nbsp;to net cash provided by operating
    activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Depreciation, depletion and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,313,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,556,288</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,490,926</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Amortization of debt discount</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,010,924</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Unrealized loss on commodity derivative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">665,960</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Unrealized expense on warrant derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">409,668</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Exploration expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,463</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">240,382</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Accretion of asset retirement obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,951</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,607</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,399</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Gain on sale of oil and natural gas leases</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(35,560</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Common stock issued for services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">26,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Impairment of oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,027,552</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,553</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">253,258</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Non-cash stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,401,110</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,227,274</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Penalties for delayed registration, paid for by common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,019,943</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Changes in operating assets and liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 7pt; padding-left: 6.75pt">Oil and natural gas sales receivables</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,411,823</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(104,466</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(266,341</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 7pt; padding-left: 6.75pt">Other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(300,358</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">26,282</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(100,617</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: 7pt; padding-left: 6.75pt">Accounts payable and accrued
    liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,919,460</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">541,522</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(23,247</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Net cash provided by operating activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,402,749</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,739,625</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,936,683</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 0.75pt">CASH FLOWS FROM INVESTING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Oil and natural gas property additions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(54,372,042</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(13,021,284</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,393,249</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Prepaid drilling costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,590,356</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(101,946</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Proceeds from sale of oil and natural gas leases</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">244,855</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Deposit on properties with affiliate</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,500,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Net cash used in investing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(58,462,398</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(12,878,375</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,393,249</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 0.75pt">CASH FLOWS FROM FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Net proceed from changes in predecessor net investment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,783,839</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(543,434</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Cash payment to Geronimo - deemed distribution</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(10,000,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(500,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Proceeds from the sale of stock, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,334,474</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,506,985</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.75pt">Proceeds from exercise of warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,867,922</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Proceeds from stock subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,557,698</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Proceeds from revolving credit facility</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,169,889</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Debt issuance costs paid</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(789,359</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Net cash provided by financing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">54,272,702</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,658,746</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(543,434</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Net increase in cash and cash equivalents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">213,053</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">519,996</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Cash and cash equivalents at beginning of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">519,996</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0.75pt">Cash and cash equivalents at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">733,049</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">519,996</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 0.75pt">Supplemental disclosure of cash flow information</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Cash paid during the period for interest</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">144,456</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-left: 0.75pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 0.75pt">NON-CASH INVESTING AND FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Accounts payable and accrued liabilities for oil and natural gas properties
    additions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,623,612</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,744,180</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(13,994</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Stock and warrants subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,557,698</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Additions and revisions to asset retirement cost and related obligation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">130,594</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(10,353</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(6,482</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Property acquired from Geronimo for shares of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,350,050</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Founders shares remitted for accrued withholding tax</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,116,514</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Non-Cash Deemed Dividend</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">459,495</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">Discount on debt - derviative warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">10,917,981</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Stockholders'
Equity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Year ended December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Common&nbsp;Stock</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Treasury&nbsp;Stock</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Shares</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Value</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Additional<BR>
    paid-in&nbsp;capital</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Shares</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Value</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Accumulated<BR>
    (deficit)</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Net<BR>
    Investment</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Total<BR>
    stockholders'<BR> equity</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 20%"><FONT STYLE="font-size: 8pt">Balance at January 1, 2009</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">(325,246</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">13,942,564</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">13,617,318</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Transfer from XOG Group</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(543,434</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(543,434</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Net income</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">1,329,923</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">1,329,923</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">Balance at December 31, 2009</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,004,677</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">13,399,130</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">14,403,807</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Transfer from XOG Group</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,783,839</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,783,839</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Initial capitalization of ASEC</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">17,526,526</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">17,527</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">18,165,442</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(18,182,969</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Shares of shell treated
    as issued in connection with reverse merger</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,540,290</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,540</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(3,540</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Issuance of common
    stock for compensation</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,081,632</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,082</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,342,012</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,346,094</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Stock-based compensation expense</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">881,180</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">881,180</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Issuance of common stock for cash</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,275,442</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,275</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,254,713</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,256,988</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Exercise of warrants</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">910,015</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">910</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,674,707</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,675,617</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Issuance of common stock for services</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">10,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">10</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">26,490</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">26,500</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Cash paid to Geronimo
    - deemed distribution</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(500,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(500,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 8.65pt"><FONT STYLE="font-size: 8pt">Net loss</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(2,807,838</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(2,807,838</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">Balance at December 31, 2010</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">28,343,905</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">28,344</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">28,841,004</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(1,803,161</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">27,066,187</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">February 2011, common
    stock sold in private placement offering at $3.50 per share, less offering costs totaling $774,687</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,401,930</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,402</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">14,627,666</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">14,632,068</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Property acquired
    from XOG Group recorded at historical cost</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,257,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,257,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Shares issued for
    acquisition of properties from XOG Group recorded at historical cost</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">883,607</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">884</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(884</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Cash paid and deemed
    distribution for acquisition of properties from Geronimo recorded at historical cost</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(10,000,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(10,000,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Deemed distribution
    for working capital not acquired in acquisition of properties</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(459,495</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(459,495</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">March 2011, common
    stock sold in private placement offering at $5.75 per share, less offering costs totaling $1,537,375</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,697,005</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,697</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">19,716,706</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">19,720,403</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">July 2011, common
    stock and warrants sold in private placement offering at $5.75 per share, less offering costs totaling $998,000</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,260,870</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,261</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">8,008,733</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">8,010,994</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Shares issued in
    August 2011 for acquisition of properties from XOG Group recorded at fair value</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">208,200</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">208</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,092,842</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,093,050</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Shares issued for
    delayed registration penalties for shares of February and March 2011 private placements at $4.40 per share</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">459,074</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">460</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,019,483</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,019,943</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Founder's Stock withheld
    for taxes at $5.40 per share</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(206,693</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(1,116,514</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(1,116,514</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Forfeited unvested
    Founder's Stock</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(76,531</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(78</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">78</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Stock-based compensation
    expense</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">10,401,110</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">10,401,110</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -8.65pt; padding-left: 17.3pt"><FONT STYLE="font-size: 8pt">Net
    loss</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(13,673,888</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(13,673,888</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">Balance at December 31, 2011</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">40,178,060</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">40,178</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">75,504,243</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(206,693</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(1,116,514</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(15,477,049</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">58,950,858</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp. and
Subsidiary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Notes to Consolidated Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note A. Organization and Basis of
Presentation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">American Standard Energy Corp., a Nevada
corporation (&ldquo;Nevada ASEC&rdquo;) was incorporated on April 2, 2010 for the purposes of acquiring certain oil and gas leasehold
properties from Geronimo Holding Corporation (&ldquo;Geronimo&rdquo;), XOG Operating, LLC (&ldquo;XOG&rdquo;) and CLW South Texas
2008, LP&nbsp;(&ldquo;CLW&rdquo;) (collectively, the &quot;XOG Group&quot;).&nbsp; Randall Capps is the sole owner of XOG and
Geronimo, and the majority owner of CLW.&nbsp; Nevada ASEC's principal business is the acquisition, development and exploration
of oil and natural gas leasehold properties primarily in the Permian Basin of west Texas and eastern New Mexico, the Eagle Ford
Shale formation of South Texas, the Bakken Shale formation in North Dakota and certain other oil and natural gas properties in
Arkansas and Oklahoma.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Uncle Al&rsquo;s Famous Hot Dogs &amp;
Grille, Inc. (&ldquo;FDOG&rdquo;) was incorporated as National Franchise Directors, Inc., under the laws of the State of Delaware
on March 4, 2005.&nbsp; On October 1, 2010, FDOG entered into a Share Exchange Agreement (the &ldquo;Agreement&rdquo;), dated
October 1, 2010, with its then controlling shareholder and Nevada ASEC, a privately-held oil exploration and production company
owned substantially by the XOG Group.&nbsp; Pursuant to the Agreement, FDOG (1) spun-off its franchise rights and related operations
to its controlling shareholder in exchange for and cancellation of 25,000,000 shares of FDOG&rsquo;s common stock and (2) acquired
100% of the outstanding shares of common stock of ASEC and additional consideration of $25,000 from the ASEC shareholders. In
exchange for the ASEC stock and the additional consideration, the XOG Group was issued approximately 22,000,000 shares of FDOG&rsquo;s
common stock on the closing date of the Share Exchange Agreement. As a result, Nevada ASEC owners acquired control of FDOG and
the transaction was accounted for as a recapitalization with Nevada ASEC as the accounting acquirer of FDOG. Accordingly, as a
result of the recapitalization, the financial statements of Nevada ASEC became the historical financial statements of FDOG. In
connection with the Share Exchange Agreement, FDOG changed its name to American Standard Energy Corp, a Delaware Company (the
&ldquo;Company&rdquo;).&nbsp; Nevada ASEC is a wholly-owned subsidiary of the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A history of the Company&rsquo;s property
acquisitions from the XOG Group accounted for as a transaction under common control through December 31, 2011 is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 94%; text-align: justify">Formation acquisition - On May 1, 2010, the XOG Group contributed certain developed
    and undeveloped oil and natural gas properties located in Texas and North Dakota (the &ldquo;Formation Properties&rdquo;)
    to Nevada ASEC in exchange for 80% of Nevada ASEC&rsquo;s common stock. The exchange was accounted for as a transaction under
    common control and accordingly, the Company recognized the assets and liabilities acquired at their historical carrying values
    with no goodwill or other intangible assets recognized.&nbsp; As a result, the historical assets, liabilities and operations
    of the Formation Properties are included in the accompanying consolidated financial statements retrospectively for all periods
    presented.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 94%; text-align: justify">On December 1, 2010, the Company acquired certain developed and undeveloped
    oil and natural gas properties located in North Dakota (the &ldquo;Bakken 1 Properties&rdquo;) from XOG Group for $500,000
    cash and 1,200,000 shares of the Company&rsquo;s common stock valued at approximately $3,960,000 based on the December 1,
    2010 closing price of the Company&rsquo;s stock.&nbsp; The acquisition was accounted for as a transaction under common control
    and accordingly, the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values.&nbsp;
    As a result, the historical assets, liabilities and operations of the Bakken 1 Properties are included in the accompanying
    consolidated financial statements retrospectively for all periods presented.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 94%; text-align: justify">On February 11, 2011, the Company acquired certain developed oil and natural
    gas properties located in Texas, Oklahoma and Arkansas (the &ldquo;Group 1 &amp; 2 Properties&rdquo;) from XOG Group for $7,000,000
    cash.&nbsp; The acquisition was accounted for as a transaction under common control and accordingly, the Company recorded
    the assets and liabilities acquired from XOG Group at their historical carrying values.&nbsp; As a result, the historical
    assets, liabilities and operations of the Group 1 &amp; 2 Properties are included in the accompanying consolidated financial
    statements retrospectively for all periods presented.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 94%; text-align: justify">On March 1, 2011, the Company acquired certain undeveloped mineral rights leaseholds
    held on properties in the Bakken Shale Formation in North Dakota (the &ldquo;Bakken 2 Properties&rdquo;) from XOG Group in
    exchange for $3,000,000 cash and the issuance of 883,607 shares of the Company&rsquo;s common stock valued at $5,787,626 based
    on the March 1, 2011 closing price of the Company&rsquo;s stock.&nbsp; The acquisition was accounted for as a transaction
    under common control and accordingly, the Company recorded the Bakken 2 Properties at their historical carrying values.&nbsp;
    As a result, the historical cost basis of the Bakken 2 Properties is included in the accompanying consolidated financial statements
    from the period they were originally acquired by XOG Group. Certain of these mineral rights with a historical cost basis of
    $1,257,000 were acquired by Geronimo subsequent to December 31, 2010, and, as a result, were not under common control at that
    date and have been excluded from the historical consolidated financial statements as of December 31, 2010.&nbsp; These subsequently-acquired
    undeveloped mineral rights are reflected in our December 31, 2011 consolidated financial statements.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 94%; text-align: justify">On April 8, 2011, the Company acquired undeveloped leasehold acreage consisting
    of approximately 2,780 net acres located in Mountrail County of North Dakota&rsquo;s Williston Basin (the &ldquo;Bakken 3
    Properties&rdquo;) from XOG Group for $1.86 million. The acquisition was accounted for as a transaction under common control
    and accordingly, the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values.
    The historical assets, liabilities and operations of the Bakken 3 Properties have been included retrospectively in the consolidated
    financial statements of the Company from the acquisition dates by XOG Group during 2011.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All of the acquisitions described above
are collectively referred to as the &ldquo;Acquired Properties.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (&ldquo;U.S.
GAAP&rdquo;). For the periods prior to the acquisition dates of the Acquired Properties, the financial statements have been prepared
primarily on a &ldquo;carve out&rdquo; basis from the XOG Group&rsquo;s combined financial statements using historical results
of operations, assets and liabilities attributable to the Acquired Properties, including allocations of expenses from the XOG
Group. This carve-out presentation basis reflects the fact that the Acquired Properties represented only a portion of the XOG
Group and did not constitute separate legal entities. The consolidated financial statements including the carve outs may not be
indicative of the Company&rsquo;s future performance and may not reflect what its results of operations, financial position and
cash flows would have been had the Company owned the Acquired Properties on a stand-alone basis during all of the periods presented.
To the extent that an asset, liability, revenue or expense is directly associated with the Acquired Properties or the Company,
it is reflected in the accompanying consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Prior to the Company&rsquo;s acquisition
of the Acquired Properties, the XOG Group provided corporate and administrative functions to the Acquired Properties including
executive management, oil and gas property management, information technology, tax, insurance, accounting, legal and treasury
services. The costs of such services were allocated to the Acquired Properties based on the most relevant allocation method to
the service provided, primarily based on relative net book value of assets. Management believes such allocations are reasonable;
however, they may not be indicative of the actual expense that would have been incurred had the Acquired Properties been operating
as a separate entity for all of the periods presented. The charges for these functions are included in general and administrative
expenses for all periods presented.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to the above, see Note
K for recent acquisitions from XOG Group accounted for at fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Note B. Summary of Significant Accounting Policies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Principles of Consolidation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements
of the Company include the accounts of the Company and its wholly-owned subsidiary.&nbsp; All material intercompany balances and
transactions have been eliminated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Use of Estimates in the Preparation
of Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.&nbsp; Such estimates
include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation, depletion and amortization
of oil and natural gas properties are determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties
inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing
of development expenditures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Impairment evaluation of proved and
unproved oil and natural gas properties is subject to numerous uncertainties including, among others, estimates of future recoverable
reserves, future prices, operating and development costs, and estimated cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Other significant estimates include,
but are not limited to, the asset retirement costs and obligations, accrued revenue and expenses, and fair values of stock-based
compensation, commodity derivatives and warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and Gas Sales Receivable</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Through the Company&rsquo;s operations,
oil and natural gas production is sold to purchasers generally on an unsecured basis. Allowances for doubtful accounts are determined
based on management's assessment of the creditworthiness. Receivables are considered past due if full payment is not received
by the contractual due date. Past due accounts will be generally written off against the allowance for doubtful accounts only
after all collection attempts have been exhausted. Management concluded that no allowance for doubtful accounts was necessary
at December 31, 2011, 2010 and 2009. Management believes that the allowance for doubtful accounts is adequate; however, actual
write-offs may exceed the recorded allowance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and Natural Gas Properties</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company utilizes the successful
efforts method of accounting for its oil and natural gas properties. Under this method, all costs associated with productive wells
and nonproductive development wells are capitalized, while nonproductive exploration costs are expensed. Capitalized acquisition
costs relating to proved properties are depleted using the unit-of-production method based on total proved reserves. The depletion
of capitalized exploratory drilling and development costs (wells and related equipment) is based on the unit-of-production method
using proved developed reserves on a field basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Proceeds from the sales of individual
properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated
depletion. Generally, no gain or loss is recognized until the entire amortization base is sold. However, a gain or loss is recognized
from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion
rate of the remaining properties in the amortization base.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Ordinary maintenance and repair costs
are expensed as incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Costs of significant nonproducing properties,
wells in the process of being drilled and development projects are excluded from depletion until such time as the related project
is developed and proved reserves are established or impairment is determined. These unproved oil and natural gas properties are
periodically assessed for impairment by considering future drilling plans, the results of exploration activities, commodity price
outlooks, planned future sales or expiration of all or a portion of such projects. Amounts capitalized to oil and natural gas
properties excluded from depletion at December 31, 2011, 2010 and 2009 were $25,212,635, $9,954,354 and $1,322,628, respectively.
During the years ended December 31, 2011, 2010 and 2009 the Company recorded unproved properties impairment of $447,552, $0, and
$0, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Management of the Company reviews its
oil and natural gas properties for impairment by amortization base or by individual well for those wells not constituting part
of an amortization base whenever events or circumstances indicate that the carrying value of those assets may not be recoverable.
An impairment loss is indicated if the sum of the expected undiscounted future cash flows is less than the carrying amount of
the assets. For each property determined to be impaired, an impairment loss equal to the difference between the carrying value
of the properties and the estimated fair value (discounted future cash flows) of the properties is recognized at that time. Estimating
future cash flows involves the use of judgments, including estimation of the proved and unproved oil and natural gas reserve quantities,
timing of development and production, expected future commodity prices, capital expenditures and production costs. During the
years ended December 31, 2011, 2010 and 2009 the Company recorded proved properties impairment of $580,000, $46,553 and $253,258,
respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Environmental</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company is subject to extensive
federal, state and local environmental laws and regulations. These laws, which are often changing, regulate the discharge of materials
into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic
benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation
is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments
is fixed and readily determinable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Oil and Natural Gas Sales and Imbalances</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Oil and natural gas revenues are recorded
at the time of delivery of such products to pipelines for the account of the purchaser or at the time of physical transfer of
such products to the purchaser. The Company follows the sales method of accounting for oil and natural gas sales, recognizing
revenues based on the Company's share of actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas
imbalances are generated on properties for which two or more owners have the right to take production &quot;in-kind&quot; and
in doing so take more or less than their respective entitled percentage. At December 31, 2011, 2010 and 2009 the Company did not
have any oil and natural gas imbalances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Debt Issuance Costs</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September 2011, the Company entered
into a $300 million credit facility with Macquarie Bank Limited (&ldquo;Macquarie&rdquo;). The Company incurred costs related
to this facility that were capitalized on the Balance Sheet as Debt Issuance Costs. Included in the Debt Issuance Costs are direct
costs paid to third parties for broker fees and legal fees. The total amount capitalized for Debt Issuance Costs is $789,359.
The capitalized costs will be amortized over the term of the facility. The amortization for the year ended December 31, 2011 was
$69,184.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Warrant Derivative Liabilities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Warrants that contain &ldquo;down-round
protection&rdquo; and therefore, do not meet the scope exception for treatment as a derivative under Financial Accounting Standards
Board&rsquo;s Accounting Standards Codification (&ldquo;ASC&rdquo;) Topic 815 are measured at fair value and liability-classified
under ASC 815, Derivatives and Hedging. Since &ldquo;down-round protection&rdquo; is not an input into the calculation of the
fair value of the warrants, the warrants cannot be considered indexed to the Company&rsquo;s own stock which is a requirement
for the scope exception as outlined under ASC 815. The fair value of these warrants is determined using a Monte Carlo Stimulation
Analysis&nbsp;&nbsp;and is affected by changes in inputs to that model including our stock price, expected stock price volatility,
the contractual term, and the risk-free interest rate. The Company will continue to classify the fair value of the warrants as
a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be
classified as a liability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Asset Retirement Obligations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company records the fair value
of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying
amount of the related oil and gas properties. Subsequently, the asset retirement cost included in the carrying amount is allocated
to expense through depreciation, depletion and amortization. Changes in the liability due to passage of time are recognized as
an increase in the carrying amount of the liability and as corresponding accretion expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>General and Administrative Expense</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to general and administrative
(&ldquo;G&amp;A&rdquo;) costs incurred directly by the Company, the accompanying financial statements include an allocated portion
of the actual costs incurred by the XOG Group for G&amp;A expenses. The amounts allocated to the properties are for the period
prior to ownership by Nevada&nbsp;ASEC.&nbsp; These allocated costs are intended to provide the reader with a reasonable approximation
of what historical administrative costs would have been related to the Acquired Properties had the Acquired Properties existed
as a stand-alone company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the view of management, the most
accurate and transparent method of allocating G&amp;A expenses is by using the historical cost basis of the Acquired Properties
divided by the cost basis of the total oil and gas assets of the XOG Group.&nbsp; Using this method, G&amp;A expense allocated
to the Acquired Properties for the years ended December 31, 2011, 2010 and 2009 was approximately $36,129, $416,827 and $553,542,
respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Treasury Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Company utilizes the cost method for accounting for
its treasury stock acquisitions and dispositions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Stock-Based Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company accounts for stock-based
compensation at fair value in accordance with the provisions of ASC Topic 718, &ldquo;Stock Compensation&rdquo;, which establishes
accounting for stock-based payment transactions for employee services and goods and services received from non-employees. Under
the provisions of ASC Topic 718, stock-based compensation cost is measured at the date of grant, based on the calculated fair
value of the award, and is recognized as expense in the consolidated statements of operations&nbsp;&nbsp;pro ratably over the
employee&rsquo;s or non-employee&rsquo;s requisite service period, which is generally the vesting period of the equity grant.
The fair value of stock option awards is generally determined using the Black-Scholes option-pricing model. Restricted stock awards
and units are valued using the market price of the Company&rsquo;s common stock on the grant date. Additionally, stock-based compensation
cost is recognized based on awards that are ultimately expected to vest, therefore, the compensation cost recognized on stock-based
payment transactions is reduced for estimated forfeitures based on the Company&rsquo;s historical forfeiture rates. Additionally,
no stock-based compensation costs were capitalized for the years ended December 31, 2011 and 2010. The Company provides compensation
benefits to employees and non-employee directors under share-based payment arrangements, including various employee stock option
plans. See Note&nbsp;C for further discussion of the Company&rsquo;s stock-based compensation plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Income Taxes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Prior to the Company&rsquo;s acquisition
of the Acquired Properties, the Acquired Properties were part of a pass-through entity for federal income tax purposes with taxes
being the responsibility of the XOG Group owners.&nbsp; As a result, the accompanying financial statements do not present any
income tax liabilities or assets related to the Acquired Properties prior to the Company&rsquo;s acquisition of the Acquired Properties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Subsequent to the Company&rsquo;s acquisition
of the properties from the XOG Group, the Company recognizes deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance is established
to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company evaluates uncertain tax
positions for recognition and measurement in the consolidated financial statements. To recognize a tax position, the Company determines
whether it is more likely than not that the tax positions will be sustained upon examination, including resolution of any related
appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold
is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The amount of tax benefit
recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely
of being realized upon settlement. The Company had no uncertain tax positions that required recognition in the accompanying financial
statements. Any interest or penalties would be recognized as a component of income tax expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Fair Value of Financial Instruments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current transaction between two willing parties. The carrying amount
of cash, oil and gas sales receivable, stock subscription receivable and other current assets, accounts payable and accrued liabilities
approximates fair value because of the short maturity of these instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Reclassifications</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Certain prior year information has
been reclassified to conform to current year presentation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Earnings (Loss) per Common Share</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Basic earnings (loss) per share is
computed on the basis of the weighted-average number of common shares outstanding during the periods. Diluted earnings per share
is computed based upon the weighted-average number of common shares outstanding plus the assumed issuance of common shares for
all potentially dilutive securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Weighted-average number of shares for
the years ended December 31, 2011, 2010 and 2009 was computed on a pro forma basis as if the 17,520,526 and 883,607 common shares
issued to the XOG Group in connection with the Company&rsquo;s acquisition of the Acquired Properties during 2010 and 2011, respectively,
and the 285,716 shares purchased by Randall Capps in the February 2011 private placement were issued and outstanding for all periods
presented.&nbsp; As of December 31, 2011, 2,194,621 shares were excluded from the calculation due to being anti-dilutive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Derivative Instruments and Price Risk Management</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company uses derivative instruments
from time to time to manage market risks resulting from fluctuations in the prices of crude oil and natural gas. The Company may
periodically enter into derivative contracts, including price swaps, caps and floors, which require payments to (or receipts from)
counterparties based on the differential between a fixed price and a variable price for a fixed quantity of crude oil or natural
gas without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production
from existing wells. The Company has, and may continue to use exchange traded futures contracts and option contracts to hedge
the delivery price of crude oil at a future date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has elected not to designate
derivative contracts as accounting hedges under FASB ASC 815-20-25. As such, all derivative positions are carried at their fair
value on the balance sheet and are marked-to-market at the end of each period.&nbsp;&nbsp;Any realized gains or losses on derivatives
are recorded in realized and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Note&nbsp;C.&nbsp; Stockholders' Equity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Founders Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 13, 2010, the Company issued
1,887,755 shares of its common stock to non-management individuals valued at $1.47 per share and recorded non-cash stock compensation
expense of $2,775,000 for the year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 13, 2010, the Company issued
2,193,877 shares of its common stock to management.&nbsp; These shares are restricted and vest over four years.&nbsp; The Company
valued these shares at $1.47 per share and recorded non-cash stock compensation expense of $787,413 and $571,094 for the years
ended December 31, 2011 and 2010, respectively. On April 16, 2011, 548,655 shares of founder&rsquo;s stock issued to management
vested.&nbsp;&nbsp;The Company has estimated that $1,116,513 in federal and state withholding taxes is due related to this vesting,
which has been recorded as an accrued liability on the accompanying balance sheet as of December 31, 2011.&nbsp; The officers
of the Company have remitted to the Company 206,693 shares of the Company&rsquo;s common stock valued&nbsp;with a market price
of&nbsp;$5.40 per share when remitted to cover the withholding requirements.&nbsp;&nbsp;The stock remittance is included in the
accompanying statement of stockholders&rsquo; equity as treasury stock at December 31, 2011.&nbsp;&nbsp;The Company is working
with its tax advisors to evaluate the taxable amount due and expects to remit the appropriate tax to the IRS in the first quarter
2012.&nbsp;&nbsp;In addition, in accordance with the restricted stock agreements for each of the officers, the Company is to reimburse
a portion of these withholding taxes to the officers.&nbsp;&nbsp;Based upon the agreement, the company estimates that it will
be required to reimburse in total $221,794 to these officers by December 31, 2012.&nbsp;&nbsp;This amount is included in general
and administrative expenses for the year ended December 31, 2011 and in accrued withholding tax as of December 31, 2011. On February
13, 2012, the Company approved the immediate vesting of the remaining unvested founders shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Private Placements of Common Stock
and Warrants</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October 1, 2010, the Company sold
to accredited investors 1,591,842 shares of common stock for cash of $2,340,008.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October 20, 2010, the Company closed
a private placement offering raising proceeds of $3,034,900, net of offering costs, through the sale of 452,830 shares of the
Company's common stock at a price of $2.65 per share and the issuance and exercise of four-month warrants exercisable into 679,245
shares of common stock at an exercise price of $2.75 per share.&nbsp; The shares and warrants were acquired by two accredited
investors.&nbsp; All of the warrants were exercised in 2010.&nbsp; The Company incurred costs of $33,022 related to this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 23, 2010, the Company&nbsp;closed
a private placement offering raising proceeds of $1,557,698, which were received in January 2011, through the sale of 230,770
shares of the Company&rsquo;s common stock at a price of $3.25 per share and the issuance and exercise of four-month warrants
exercisable into 230,770 shares of common stock at an exercise price of $3.50 per share.&nbsp; The shares and warrants were sold
to an accredited investor.&nbsp; All of the warrants were exercised in 2010.&nbsp; At December 31, 2010 the $1,557,698 was classified
as a stock subscription receivable on the balance sheet.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 1, 2011, the Company closed
a private placement offering raising proceeds of $15,406,755 through the issuance of (i) 4,401,930 shares of common stock at a
price of $3.50 per share and (ii) 2 series of five-year warrants each exercisable into 1,100,482 shares of common stock at exercise
prices of $5.00 and $6.50 per share, respectively, subject to certain adjustments.&nbsp; The Company also issued to the placement
agents warrants to purchase up to 220,097 shares of common stock, the terms and exercise price are the same as investors under
this private placement offering.&nbsp; The shares and warrants were sold to certain accredited investors.&nbsp; Subject to certain
conditions, the Company has the right to call for the exercise of such warrants.&nbsp; The Company incurred costs of $0.8 million
in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 94%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 90%">Par value of common stock issued</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 7%; text-align: right">4,402</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,627,666</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Offering expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">774,687</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9.9pt">Total gross proceeds</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">15,406,755</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 31, 2011, the Company closed
a private placement offering of securities raising proceeds of $21,257,778 through the issuance of (i) 3,697,005 shares of common
stock at a price of $5.75 per share and (ii) five-year warrants exercisable into 1,848,502 shares of common stock at exercise
prices of $9.00 per share, subject to certain adjustments.&nbsp; The Company also issued to the placement agents warrants to purchase
up to 96,957 shares of common stock at an exercise price of $9.00.&nbsp; The shares and warrants were sold to certain accredited
investors.&nbsp; Subject to certain conditions, the Company has the right to call for the exercise of such warrants.&nbsp; The
Company incurred costs of $1.5 million in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 94%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 90%">Par value of common stock issued</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 7%; text-align: right">3,697</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19,716,706</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Offering expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,537,375</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9.9pt">Total gross proceeds</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">21,257,778</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>
<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>



<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On July 15, 2011, the Company closed
a private placement offering of $12,980,003 through the issuance of (i) 2,260,870 shares of our common stock at a price of $5.75
per share, (ii) Series A warrants to purchase 1,130,435 shares of common stock at a per share exercise price of $9.00 subject
to certain adjustment provisions; and (iii) Series B warrants to purchase a number of shares of common stock, which shall only
be exercisable if (A) the market price (as defined below) of our common stock on the 30th trading day following the earlier of
(i) the effective date of a registration statement to sell the shares of common stock and the Series A warrant shares, and (ii)
the date on which the purchasers in the private placement can freely sell the shares of common stock pursuant to Rule 144 promulgated
under the Securities Act of 1933, as amended, without restriction (the &ldquo;Eligibility Date&rdquo;) is less than the purchase
price in the offering or $5.75; and (B) upon certain dilutive occurrences.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If made exercisable pursuant to (A)
in the preceding sentence, the Series B warrants will become immediately exercisable and will have an exercise price of $0.001
per share to purchase a number of shares of our common stock such that the aggregate average price per share purchased by the
investors is equal to the market price (defined as the average of volume weighted average price for each of the previous 30 days
as reported on the Over-The-Counter Bulletin Board during the 30 trading days preceding the measurement date).&nbsp;&nbsp;Exclusive
of the non-cash warrant expense, the Company incurred costs of approximately $1.0 million in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 95%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%">Par value of common stock issued</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,261</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,008,733</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Derivative warrant instruments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,971,009</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Offering expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">998,000</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total gross proceeds</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">12,980,003</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the February 1,
2011 and March 31, 2011 private placement offerings, the Company granted to the investors registration rights pursuant to Registration
Rights Agreements, dated February 1, 2011 and March 31, 2011, in which the Company agreed to register all of the related private
placement common shares and warrants within thirty (30) calendar days after February 1, 2011 and March 31, 2011, and use its best
efforts to have the registration statement declared effective within one hundred twenty (120) calendar days.&nbsp; Upon the Company&rsquo;s
failure to comply with the terms of the Registration Rights Agreement and certain other conditions, the Company was required to
pay to each investor an amount in common stock equal to one percent (1%) per month of the aggregate purchase price paid by such
investor, up to 6% of the aggregate stock purchase price.&nbsp; As the Company did not register the shares within thirty calendar
days of February 1, 2011 and March 31, 2011, they were required to pay in common stock 1% of the aggregate purchase price. Shares
distributed were calculated based on the price of issuance of $3.50 per share for the February 1, 2011 private placement offering
and $5.75 per share for the March 31, 2011 placement.&nbsp; In November 2011, the Company remitted 459,074 penalty shares, calculated
by dividing the respective cash value of each private placements penalty by the respective unit price under which each private
placement was funded.&nbsp;For the year ended December 31, 2011, the Company recognized $2,019,943 of delinquent registration
penalties which are included in general and administrative expenses in the accompanying consolidated statement of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Deferred Compensation Program</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 15, 2010, the Nevada ASEC&rsquo;s
Board of Directors approved the Nevada ASEC 2010&nbsp;Deferred Compensation Program. Under this plan, the President and CEO are
entitled to receive a one-time retainer fee consisting of common stock options in lieu of salary through June 30, 2011. The total
number of options granted under the plan was 1,600,000 in lieu of salary through December 31, 2010. The exercise price of the
options is $1.50 and the options vest over 26.5 months.&nbsp; These options have a ten year life and had a grant date fair value
of $1.09 per share.&nbsp; 400,000 of these shares were exercised and converted to shares of stock on&nbsp;April 13,&nbsp;2011.&nbsp;&nbsp;The
rescission of the exercise of such options was approved by our board on August 29, 2011.&nbsp;For the year ended December 31,
2011 and 2010, the Company recorded non-cash stock compensation expense of $789,736 and $559,396, respectively, related to the
amortization of the fair value of these options which is included in general and administrative expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Other Share Based Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 29, 2011, the Company's Board
of Directors adopted the Amended and Restated 2010 Equity Incentive Plan initially approved April 15, 2010.&nbsp;&nbsp;The amended
plan provides for 12,000,000 shares to be eligible for issuance to officers, other key employees, directors and consultants.&nbsp;&nbsp;Since
April 15, 2010, the Board of Directors authorized the grants of 11,265,000 stock options under the 2010 plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As part of management's employment
agreements, 7,400,000 options were granted to officers of the Company on April 15, 2011 under the 2010 Equity Incentive Plan with
an exercise price of $7.45. 120,000 options granted in 2010 and 400,000 options granted in 2011 were forfeited in August 2011,
relating to the departure of an employee from the Company.&nbsp;&nbsp;2,200,000 of these options vest semiannually in equal installments
through April 2012, and the remaining 4,800,000 options vest over the subsequent 48 months thereafter in equal semiannual installments
per their original vesting schedule. These options have a ten year life and had a grant date fair value ranging from $4.59 to
$5.04 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the years ended December 31, 2011
and 2010, the Company recorded non-cash stock-based compensation expense of $8,855,320 and $375,169, respectively, related to
other share based compensation which is included in general and administrative expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes the
stock options available and outstanding as of December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options <BR> Available<BR>
    for Grant<BR> Under 2010<BR> Plan</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Outstanding<BR> Options</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR> Average<BR>
    Exercise<BR> Price</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%">Balance at December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">6,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Granted</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,725,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,725,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">$</TD><TD STYLE="padding-bottom: 1pt; text-align: right">1.65</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Balance at December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,275,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,725,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.65</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Additional options authorized under amended plan</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(7,540,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,540,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7.68</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(520,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">$</TD><TD STYLE="padding-bottom: 1pt; text-align: right">6.08</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Balance at December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">735,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">10,745,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">$</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">5.67</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The options outstanding as of December
31, 2011 have been segregated into 2 ranges for additional disclosure as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Outstanding
    Options</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Options
    Exercisable</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Range of<BR>
    Exercise<BR> Price</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Number<BR>
    Outstanding</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Weighted<BR>
    Average<BR> Exercise<BR> Price</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Weighted<BR>
    Average<BR> Remaining<BR> Contractual<BR> Term</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Number<BR>
    Exercisable</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Weighted<BR>
    Average<BR> Exercise<BR> Price</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Weighted<BR>
    Average<BR> Remaining<BR> Contractual<BR> Term</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 22%; text-align: center">$1.50 - $3.30</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">3,605,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">1.66</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">8.33</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">1,665,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1.65</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">8.33</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: center">$7.00 - $8.00</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7,140,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.69</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.55</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,195,556</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7.65</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.96</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">10,745,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.67</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.48</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,860,556</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.59</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The aggregate intrinsic value of the
$1.50 to $3.00 options outstanding and options exercisable was $5,378,250 at December 31, 2011. The aggregate intrinsic value
of the $7.00 to $8.00 options outstanding and options exercisable was $0 and $0 at December 31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table presents the future
non-cash stock compensation expense for the Company&rsquo;s outstanding restricted stock grants and stock options at December
31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 95%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">11,674,375</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,613,486</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,354,095</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">2015</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,336,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">30,977,956</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The weighted average period over which the compensation
costs not yet recognized is expected to be 2.04 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of each option award
is estimated on the date of grant.&nbsp; The fair values of stock options were determined using the Black-Scholes option valuation
method and the assumptions noted in the following table for 2011 and 2010.&nbsp; Expected volatilities are based on implied volatilities
from the historical volatility of companies similar to the Company.&nbsp; The expected term of the options granted used in the
Black-Scholes model represent the period of time that options granted are expected to be outstanding.&nbsp; The Company utilizes
the simplified method for calculating the expected life of its options as the Company does not have sufficient historical data
to provide a basis upon which to estimate the term.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 95%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.35in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 0">Expected volatility</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">68.96%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD COLSPAN="2" STYLE="text-align: center">74.39% - 83.99%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 0">Expected dividends</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 0">Expected term (in years)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">5.5 - 6.5</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;6.0 - 7.3</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 0">Risk-free rate &nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">3.43%&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;2.77% - 3.86%&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 0; width: 66%"></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="text-align: left; width: 1%">&nbsp;</TD><TD STYLE="text-align: center; width: 15%"></TD><TD STYLE="text-align: left; width: 1%"></TD><TD STYLE="width: 0%">&nbsp;</TD>
    <TD STYLE="text-align: center; width: 15%"></TD><TD STYLE="text-align: right; width: 1%"></TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;The fair value of option grants during the year ended
December 31, 2011 and 2010 was $35,608,467 and $4,295,323, respectively.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;D.&nbsp; Long term debt</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 21, 2011,&nbsp;Nevada
ASEC (the &ldquo;Borrower&rdquo;), entered into a Credit Agreement (the &ldquo;Credit Agreement&rdquo;) with the lenders party
thereto and Macquarie Bank Limited (&ldquo;Macquarie&rdquo;) as administrative agent. The Credit Agreement is fully and unconditionally
guaranteed by the Company (the &ldquo;Guarantor&rdquo;).&nbsp;&nbsp;The Guarantor has pledged as collateral 100% of their stock
in the Borrower.&nbsp;&nbsp;&nbsp;The Borrower&rsquo;s obligations under the Credit Agreement are secured by the Borrower&rsquo;s
interest in certain oil and gas properties and the hydrocarbons produced from such properties, as well as the proceeds of the
sale of such hydrocarbons.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Credit Agreement provides to the
Borrower a revolving credit facility in an amount not to exceed $100 million and a term loan facility in an amount not to exceed
$200 million. The interest rate on revolving loans is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 2.75%
to 3.25% per annum (2.75% at December 31, 2011), based on the borrowing base utilization, and the interest rate on term loans
is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 7.50%. The maturity date of the revolving credit facility
is September 21, 2015 and the maturity date of the term loan facility is September 21, 2014.&nbsp;&nbsp;As part of the Credit
Agreement, the Borrower is required to comply with the financial covenants set forth in the Credit Agreement, including an interest
coverage ratio, a current ratio, and a debt coverage ratio, as of the end of each calendar quarter.&nbsp;&nbsp;Further, the Credit
Agreement also limits the amount of general and administrative expenses the Company is permitted to incur in any calendar quarter.&nbsp;&nbsp;The
Company failed to comply with the current ratio covenant and incurred general and administrative expenses in excess of the limit
contained in the Credit Agreement, in each case for the calendar quarter ended on December 31, 2011. The covenant violations were
waived by Macquarie on March14, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The initial borrowing base and amount
drawn on the revolving credit facility was $12 million.&nbsp;&nbsp;The debt was initially recorded net of a debt discount of $10,917,981
related to warrants issued to the lenders as disclosed below.&nbsp;&nbsp;The debt discount will be amortized over the term of
the credit facility. The outstanding amount on the revolving credit facility at December 31, 2011 was $12 million.&nbsp; The borrowing
base is re-determined semiannually based on the reserve reports by category, oil and gas future sales prices as determined by
the lenders, and amount of expenses necessary to produce the oil and gas.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The table below reflects the breakdown
of the components of the revolving credit facility at December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 86%; padding-left: 0.75pt">Debt proceeds from revolver</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 10%; text-align: right">12,000,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 0.75pt">Debt proceeds from term loan</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">5,169,889</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-left: 0.75pt">Total debt proceeds</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">17,169,889</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 0.75pt">Discount on debt</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">(10,917,981</TD>
    <TD>)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-left: 0.75pt">Amortization of debt discount</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">1,010,924</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 6.75pt; text-indent: 9.5pt">Net revolving facility and term loan</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">$</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">7,262,832</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The term loan draws are subject to
approval by Macquarie on a case by case basis. Each drilling program is submitted for approval and Macquarie may approve the program
in its reasonable discretion. After Macquarie approves a program, the lenders are obligated to advance funds for development,
subject to the satisfaction of the conditions precedent to advances set forth in the Credit Agreement. Alternatively, the Company
may elect to submit successfully completed wells to the bank for review and reimbursement under the term loan. The outstanding
balance on the term loan was $5,169,889 at December 31, 2011. Beginning on March 21, 2013, the Company will begin making monthly
payments to amortize the term loan, each payment equal to the total outstanding term loan balance on that date divided by 18.
Based on the outstanding balance of the term loan on December 31, 2011, the Company expects to pay $2,584,944 in each of the years
2013 and 2014.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the Credit Agreement,
the Company issued to Macquarie Americas Corp. a five year warrant to purchase 5,000,000 shares of the Company&rsquo;s common
stock at a per share exercise price of $7.50. The warrant is exercisable on a cashless basis if there is no registration statement
covering the underlying common stock. The warrant is also subject to customary anti-dilution provisions. The fair value of the
5,000,000 warrants issued to Macquarie was calculated using the Monte Carlo valuation model based on factors present at the time
of closing. Macquarie can exercise these warrants at any time until the warrants expire in July 2016. The exercise price of the
warrants is $7.50 per warrant, subject to &ldquo;down round&rdquo; adjustments.&nbsp;&nbsp;The fair value at issuance date of
$10,917,981 was recorded as a discount on the debt as described above.&nbsp;&nbsp;See Note H for discussion of the modification
of the terms of these warrants in February 2012.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;E.&nbsp; Asset Retirement
Obligations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's asset retirement obligations
represent the estimated present value of the estimated cash flows the Company will incur to plug, abandon and remediate its producing
properties at the end of their productive lives, in accordance with applicable state laws. The Company has no assets that are
legally restricted for purposes of settling asset retirement obligations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's asset retirement obligation
activity for the years ended December 31, 2011 and 2010 is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; text-align: justify">Balance at beginning of period</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">242,632</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">237,378</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">231,461</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Liabilities incurred from new wells</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">94,880</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,273</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,108</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Accretion expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,951</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,607</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,399</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify; padding-bottom: 1pt">Revisions due to changes in well life estimates</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">35,714</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(22,626</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(11,590</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Balance at end of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">394,177</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">242,632</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">237,378</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Note&nbsp;F.&nbsp;Income taxes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table reconciles the
Company&rsquo;s provision for income taxes for the year ended December 31, 2011 and 2010, included in the consolidated statements
of operations with the provision which would result from the application of the statutory federal tax rate to pre-tax financial
loss:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B>&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left">Loss before tax</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(13,673,888</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(2,807,838</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Statutory rate</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">35</TD><TD STYLE="text-align: left; padding-bottom: 1pt">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">34</TD><TD STYLE="text-align: left; padding-bottom: 1pt">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected benefit at federal statutory rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,785,861</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(954,665</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Increase (decrease) resulting from:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">State income taxes, net of federal income tax effect</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(255,042</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(220,475</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Pass-through income not subject to federal tax</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(874,465</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Accretion of debt discount</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">372,679</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Book income not subject to tax</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(164,221</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Non-deductible stock compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">448,192</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">One time charge for conversion to taxable entity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">845,248</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Change in valuation allowance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,881,820</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">756,165</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt; padding-bottom: 1pt">Other perm items and adjustments</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(49,375</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in; padding-bottom: 1pt">Provision for income taxes</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: red; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Effective rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The components of the Company's net deferred tax assets
as of December 31, 2011 and 2010 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred tax assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left; padding-left: 9pt">Equity compensation</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">4,957,972</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,101,723</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Asset retirement obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">145,292</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,295</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Unrealized loss on derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">396,532</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Net operating loss carry forward</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">23,801,479</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,742,764</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Other</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">516</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt; padding-bottom: 1pt">Valuation allowance</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(7,082,769</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(2,158,748</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22,219,022</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,687,034</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred tax liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Differences between book and tax basis of property</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(22,219,022</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,687,034</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;<B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s net operating loss
carry forward (NOL) at December 31, 2011 was $64,563,585 and will expire beginning in the year 2030. The Company continually assesses
both positive and negative evidence to determine whether it is more likely that not that deferred tax assets can be realized prior
to their expiration. Management monitors Company-specific, oil and natural gas industry and worldwide economic factors and assesses
the likelihood that the Company&rsquo;s NOLs and other deferred tax attributes in the United States, state, and local tax jurisdictions
will be utilized prior to their expiration. At December 31, 2011, the Company has a valuation allowance of $7,082,769 related
to its deferred tax assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2011, the company
had no unrecognized tax benefits. 2011 and 2010 are the only taxable years that are open to examination by the major taxing jurisdictions
to which the Company is subject.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Note&nbsp;G.&nbsp;Commodity derivatives</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">To mitigate a portion of the exposure
to potentially adverse market changes in oil and natural gas prices and the associated impact on cash flows, the Company has entered
into various derivative commodity contracts.&nbsp; The Company&rsquo;s derivative contracts in place include swap arrangements
for oil and natural gas.&nbsp; As of December 31, 2011, and through the filing date of this report, the Company has commodity
derivative contracts in place through the third quarter of 2014 for a total of approximately 74,726&nbsp;Bbls of anticipated crude
oil production and 655,074 MMBtu of anticipated natural gas production.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s oil and natural
gas derivatives are measured at fair value and are included in the accompanying balance sheets as commodity derivative assets
and liabilities.&nbsp; The Company derives internal valuation estimates taking into consideration the counterparties&rsquo; credit
ratings, the Company&rsquo;s credit rating, and the time value of money.&nbsp; These valuations are then compared to the respective
counterparties&rsquo; mark-to-market statements.&nbsp; The pertinent factors result in an estimated exit-price that management
believes provides a reasonable and consistent methodology for valuing derivative instruments.&nbsp; The derivative instruments
utilized by the Company are not considered by management to be complex, structured, or illiquid.&nbsp; The oil and natural gas
derivative markets are highly active.&nbsp; The fair value of oil and natural gas commodity derivative contracts was a net liability
of $665,960 and $0 at December 31, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company recognizes all gains and
losses from changes in commodity derivative fair values immediately in earnings. For the year ended December 31, 2011, the Company
had a realized loss on commodity derivatives of $4,699 and an unrealized loss of $665,960 included in other income (expense).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of our commodity derivatives
at December 31, 2011 is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Period&nbsp;of&nbsp;time</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Barrels&nbsp;of&nbsp;Oil</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR> Average&nbsp;Oil<BR>
    Prices</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Estimated&nbsp;Fair<BR>
    Market&nbsp;Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%">January 1, 2012 through October 31, 2014</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">74,726</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">81.7</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">443,054</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Period&nbsp;of&nbsp;time</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">MMBtu&nbsp;of <BR>
    Natural&nbsp;Gas</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR> Average&nbsp;Gas
    <BR> Prices</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Estimated&nbsp;Fair<BR>
    Market&nbsp;Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; padding-bottom: 1pt">January 1, 2012 through September 26, 2014</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; padding-bottom: 1pt; text-align: right">655,074</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">$</TD><TD STYLE="width: 10%; padding-bottom: 1pt; text-align: right">4.4</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">(1,109,014</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 19.8pt">Total fair market value</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(665,960</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table details the fair
value of derivatives recorded in the accompanying balance sheets, by category:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold"></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="14" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">As&nbsp;of December 31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold"></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Derivative&nbsp;Assets</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="text-align: center; border-bottom: Black 1pt solid"><B>&nbsp;Derivative&nbsp;Liabilities</B></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold"></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Balance&nbsp;Sheet</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Balance&nbsp;Sheet</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt"></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">&nbsp;Classification</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-bottom: 1pt; text-align: center; border-bottom: Black 1pt solid"><B>Fair&nbsp;Value</B></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-bottom: 0; text-align: center; border-bottom: Black 1pt solid"><B>&nbsp;&nbsp;Classification</B></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-bottom: 1pt; text-align: center; border-bottom: Black 1pt solid"><B>Fair&nbsp;Value</B>&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Commodity Contracts</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: left">Current Assets</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: left">Current Liabilities</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(243,996</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Commodity Contracts</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-bottom: 1pt; text-align: left">Noncurrent Assets</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="padding-bottom: 1pt; text-align: left">Noncurrent Liabilities</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(421,964</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; width: 38%">Total commodity derivatives</TD><TD STYLE="padding-bottom: 2.5pt; width: 1%">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left; width: 6%">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right; width: 10%"></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left; width: 1%">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; width: 1%">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left; width: 1%">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right; width: 10%">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left; width: 1%">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; width: 1%">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left; width: 4%">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right; width: 12%"></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left; width: 1%">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; width: 1%">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left; width: 1%">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right; width: 10%">(665,960</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left; width: 1%">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;H.&nbsp;&nbsp;&nbsp;&nbsp;Derivative
warrant instruments (liabilities)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As part of the July 15, 2011, private
placement, the Company issued Series A and Series B Warrants to purchase common stock&nbsp;to certain accredited investors in
connection with its sale of 2,260,870 share-based units for gross proceeds of approximately $13.0 million.&nbsp;&nbsp;There are
1,130,435 Series A warrants with an exercise price of $9.00 per share, subject to &ldquo;down round&rdquo; adjustments.&nbsp;&nbsp;There
are an undermined amount of Series B warrants at an exercise price of $0.001 per share.&nbsp;&nbsp;Exercise of these warrants
is subject to certain adjustment events.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September of 2011, the Company issued
warrants that will allow Macquarie the right to purchase up to 5,000,000 shares of fully-paid and non-assessable common stock
at a per share purchase price of $7.50, subject to certain &ldquo;down round&rdquo; adjustments events. See Note N for discussion
of the modification of the terms of the Macquarie warrants in February 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Because of the adjustment events, the
Warrants are not deemed to be &ldquo;indexed to the Company&rsquo;s own stock&rdquo; and, therefore, do not qualify for the scope
exception in ASC 815-40-15-5.&nbsp;&nbsp;As such, the Company has concluded that these warrants are deemed to be derivative instruments
and are recorded as liabilities at&nbsp;fair value, and marked-to-market at each financial statement reporting date, pursuant
to the guidance in ASC 815-10.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">During the year ended December 31, 2011 the fair value of
the liability of the warrant derivative instruments increased by $409,668, from their initial fair values. Such changes were recorded
as unrealized losses on fair value of derivative warrant instruments in the accompanying consolidated statements of operations.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Activity for derivative warrant instruments during the year
ended December 31, 2011 was as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Initial fair<BR> value as
    of<BR> July<BR> 15,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Initial fair<BR> value as
    of<BR> September<BR> 21,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Increase<BR> (decrease)<BR>
    in fair value<BR> of<BR> derivative<BR> liability</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair value<BR> &nbsp;December<BR>
    31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left; padding-left: 0.75pt">Derivative warrant instruments for Series A and Series B
    Warrants</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">3,971,009</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">4,148,444</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">8,119,453</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Derivative warrant instruments for Macquarie warrants</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,917,981</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,738,776</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7,179,205</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 0.75pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,971,009</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">10,917,981</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">409,668</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">15,298,658</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The fair value of the derivative warrant instruments is
estimated using a probability-weighted scenario analysis model with the following assumptions as of December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">For&nbsp;the&nbsp;Years<BR> Ended December 31,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 82%; text-align: left">Common stock issuable upon exercise of warrants</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">6,130,435</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Estimated market value of common stock on measurement date (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"></TD><TD STYLE="text-align: right">$3.15</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Exercise price</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">$7.50 - $9.00</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Expected volatility (2)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">66.9% - 74</TD><TD STYLE="text-align: left">%&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected term (in months)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10.3 - 60</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Risk-free rate (3)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.02% - 0.83%</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected dividend yields</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Future financing event</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50%</TD><TD STYLE="text-align: left"></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%">(1)</TD>
    <TD STYLE="width: 91%; text-align: justify">The estimated market value of the stock is measured each period-end and is
    based on the reported public market prices.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>(2)</TD>
    <TD STYLE="text-align: justify">The volatility factor was estimated by management using the historical volatilities of
    comparable companies in the same industry and region.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>(3)</TD>
    <TD STYLE="text-align: justify">The risk-free rate of return associated with the remaining term.<I> Source: The Federal
    Reserve Board&nbsp;</I></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;I.&nbsp;&nbsp;&nbsp;&nbsp;Fair
value measurements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company follows fair value measurement
authoritative guidance for all assets and liabilities measured at fair value.&nbsp; That guidance defines fair value as the price
that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market
participants at the measurement date.&nbsp; Market or observable inputs are the preferred sources of values, followed by assumptions
based on hypothetical transactions in the absence of market inputs.&nbsp; The hierarchy for grouping these assets and liabilities
is based on the significance level of the following inputs:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 12%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 85%">Level 1 &mdash;&nbsp;quoted prices in active markets for identical assets or liabilities</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 12%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 85%">Level 2 &mdash; quoted prices in active markets for similar assets and liabilities, quoted prices
    for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable
    or whose significant value drivers are observable</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 12%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 85%">Level 3 &mdash; significant inputs to the valuation model are unobservable</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following is a listing of the Company&rsquo;s
financial assets and liabilities that are measured at fair value on a recurring basis and where they are classified within the
hierarchy as of December&nbsp;31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 85%; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Level&nbsp;1</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Level&nbsp;2</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Level&nbsp;3</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline">Assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 0; padding-left: 0.12in">Commodity derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline">Liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 0; padding-left: 0.12in; width: 61%">Commodity derivatives</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">665,959</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 0; padding-left: 0.12in">Warrant derivatives</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">15,298,658</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 0; padding-left: 0.12in">Term loan and credit facility</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7,262,832</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company uses Level 2 inputs to
measure the fair value of its commodity derivatives. &nbsp;Fair values are based upon interpolated data.&nbsp; The Company derives
internal valuation estimates taking into consideration the counterparties&rsquo; credit ratings, the Company&rsquo;s credit rating,
and the time value of money.&nbsp; These valuations are then compared to the respective counterparties&rsquo; mark-to-market statements.&nbsp;
The considered factors result in an estimated exit-price that management believes provides a reasonable and consistent methodology
for valuing derivative instruments. The book value of our term loan and credit facility approximates fair value because of it&rsquo;s
floating rate structure.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table reflects the activity
for warrant derivative liabilities measured at fair value using Level 3 inputs:&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 85%; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">For&nbsp;the&nbsp;Years</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Ended&nbsp;December
    31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Beginning balance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 0; padding-left: 0.12in; width: 61%">Additions</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">(14,888,990</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: 0; padding-left: 0.12in">Net increase in liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(406,668</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: 0; padding-left: 0.12in">Transfers in (out) of Level 3</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Ending balance</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(15,295,658</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Generally, market quotes assume that
all counterparties have near zero, or low, default rates and have equal credit quality.&nbsp; However, an adjustment may be necessary
to reflect the credit quality of a specific counterparty to determine the fair value of the instrument.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The methods described above may result
in a fair value estimate that may not be indicative of net realizable value or may not be reflective of future fair values and
cash flows.&nbsp; While the Company believes that the valuation methods utilized are appropriate and consistent with accounting
authoritative guidance and with other marketplace participants, the Company recognizes that third parties may use different methodologies
or assumptions to determine the fair value of certain financial instruments that could result in a different estimate of fair
value at the reporting date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of the warrants was
calculated using the Monte Carlo valuation model based on factors present at the time of closing of the private placement offering
on July 15, 2011 and the credit facility on September 21, 2011 and updated as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Assets and Liabilities Measured
at Fair Value on a Nonrecurring Basis</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Certain assets and liabilities are
reported at fair value on a nonrecurring basis in the Company's consolidated balance sheets. The following methods and assumptions
were used to estimate the fair values:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Impairments of Long-Lived Assets.&nbsp;
</B>The Company reviews its long-lived assets to be held and used, including proved oil and natural gas properties, whenever
events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated
if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. In this circumstance,
the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. The Company reviews its oil and natural gas properties by amortization base or by individual well for those
wells not constituting part of an amortization base. For each property determined to be impaired, an impairment loss equal to
the difference between the carrying value of the properties and the estimated fair value (discounted future cash flows) of the
properties is recognized at that time. Estimating future cash flows involves the use of judgments, including estimation of the
proved and unproved oil and natural gas reserve quantities, timing of development and production, expected future commodity prices,
capital expenditures and production costs.&nbsp; During the years ended December 31, 2011, 2010 and 2009, the Company recorded
impairments of $1,027,552, $46,553 and $253,258.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Asset Retirement Obligations (&ldquo;ARO&rdquo;).&nbsp;
</B>The initial recognition of AROs is based on fair value.&nbsp; The Company estimates the fair value of AROs based on
discounted cash flow projections using numerous estimates, assumptions and judgments regarding such factors as the existence of
a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation
rates. See Note&nbsp;E for a summary of changes in ARO for the periods ended December 31, 2011, 2010 and 2009.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Acquisitions.&nbsp;&nbsp;&nbsp;</B>Assets
acquisitions not under common control are recorded at fair value.&nbsp;&nbsp;The Company closed asset&nbsp;acquisitions on August
22, 2011 and November 1, 2011, which were recorded at fair value as described in Note K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note J.&nbsp; Major Customers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's producing oil and natural
gas properties are located in Texas, New Mexico, Arkansas, Oklahoma and North Dakota.&nbsp; At December 31, 2011, the Company
contracts with a number of various operators and notes one operator in which revenues received were greater than 10% of total
revenues.&nbsp;&nbsp;During 2011, 2010 and 2009, revenue through XOG accounted for approximately 67%, 48% and 60%, respectively.&nbsp;&nbsp;Although
operators are not the end purchasers of oil and natural gas, the Company is of the opinion that the loss of any one purchaser
would not have a material adverse effect on the ability of the Company to sell its oil and natural gas production as such production
can be sold to other purchasers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;K.&nbsp; Asset Acquisitions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 22, 2011, the Company acquired
approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks (the &ldquo;Bakken 4 Properties&rdquo;) area from
XOG Group for approximately $14.6 million. A cash deposit of $13,500,000 was made on April 15, 2011 and the Company subsequently
issued 208,200 shares of common stock upon closing, which was valued at $1,093,050 using the stock price of $5.25 on the closing
date. The acquisition was recorded at fair value as XOG Group and the Company were not under common control at the time of the
asset acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 1, 2011, the Company acquired
approximately 391 net undeveloped leasehold acres in the Bakken/Three Forks are from XOG Group for approximately $1.2 million
dollars paid in cash. The acquisition was recorded at fair value as XOG Group and the Company were not under common control at
the time of the asset acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;L.&nbsp; Related Party
Transactions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>XOG</B><I>.&nbsp;</I> XOG
is currently contracted to operate the existing wells held by the Company in the Permian Basin region. XOG historically performed
this service for Geronimo and CLW. XOG, Geronimo, CLW and Randall Capps&nbsp;combine as&nbsp;the largest shareholder in the Company
and these&nbsp;entities are considered related parties to the Company. As a result, accounts receivable and accounts payable due
from/to XOG are classified as accounts receivable and payables due from/to a related party.&nbsp;&nbsp;&nbsp;For the year ended
December 31, 2011, sales through XOG were $8,349,028 and lease operating expenses were $1,626,332. Net cash paid to XOG in 2011
was $18,763,680 of which $17,137,348 was for drilling costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Randall Capps has controlling ownership
of XOG, Geronimo and CLW, and is a member of the Company&rsquo;s board of directors.&nbsp;&nbsp;Through his ownership interest
in the XOG Group, Mr. Capps is the largest shareholder of our common stock.&nbsp;&nbsp;Mr. Capps is also the father-in-law of
Scott Feldhacker, our chief executive officer and director.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Overriding Royalty and Royalty Interests.
</B><I>&nbsp;</I> &nbsp;&nbsp;In some instances, the XOG Group may hold overriding royalty and royalty interests (&ldquo;ORRI&rdquo;)
in wells acquired by the Company. All revenues and expenses presented herein are net of any ORRI effects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>XOG Group Acquisitions.&nbsp;</B>
The Company has made significant acquisitions of oil and gas properties and undeveloped leases&nbsp;from the XOG Group as discussed
in Note A and Note K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note&nbsp;M.&nbsp; Commitments and
Contingencies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employment Agreements.<I> &nbsp;
</I></B>&nbsp;At December 31, 2011, the Company&rsquo;s cash contractual obligations related to its employment agreements
with executive officers for each of the following three years ending December 31 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left; padding-left: 0.75pt">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">668,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">668,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">2014</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">222,667</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 0.75pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,558,667</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;<B>Operating Leases.&nbsp;</B>
The Company leases its 4,092 square foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease
agreement, dated September 30, 2010, for a 66-month term.&nbsp; The lease provides for no lease payments during the first six
months and a reduced square footage charge for the first year.&nbsp; The initial rental is $23.00 per square foot, beginning February
1, 2011, and increasing $.50 per square foot annually thereafter.&nbsp; For the years ended December 31, 2011 and 2010, the Company
recorded lease expense of $90,214 and $14,495, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At December 31, 2011, the future minimum
lease commitments under the non-cancellable operating leases for each of the following five years ending December 31 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left; padding-left: 0.75pt">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">67,606</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">97,356</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.75pt">2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">99,402</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.75pt">2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,448</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">2016</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">42,625</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 0.75pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">408,437</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Drilling Commitments.&nbsp;</B>
At December 31, 2011, the Company had various oil and natural gas wells in multiple stages of drilling and completion of which
the balance of the Company&rsquo;s unpaid approval for expenditures was estimated to be approximately $14,548,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note N.&nbsp; Subsequent Events</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Convertible Note. </B>On
February 10, 2012, the Company and ASEN 2, Corp., a wholly-owned subsidiary of the Company formed on January 25, 2012, closed
on a Note and Warrant Purchase Agreement dated February 9, 2012, referred to herein as the Purchase Agreement, with Pentwater
Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., referred herein to as Pentwater, in connection with a $20 million
private financing. The initial funding made by Pentwater to ASEN 2 on February 10, 2012, referred to as the Pentwater Closing
Date, was in the amount of $10 million. The second funding for an additional $10 million, which closed on March 5, 2012, occurred
concurrently with the closing of the purchase and sale agreement by and among the Company, Geronimo and XOG .</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note, referred to herein as the Pentwater Note, convertible into
shares of the Company&rsquo;s common stock at a conversion price of $9.00 per share and five year warrants to purchase 3,333,333
shares of common stock at a per share cash exercise price of $2.50. The Warrants are also subject to a mandatory exercise at the
Company&rsquo;s option with respect to (i) 50% of the number of shares underlying the Warrants if the closing sale price of the
common stock is equal to or greater than $5.00 per share for twenty consecutive trading days and (ii) 50% of the number of Warrant
Shares if the closing sale price of the common stock is equal to or greater than $9.00 per share for twenty consecutive trading
days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From the Pentwater Closing Date through
December 9, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.
The Pentwater Note was issued with an original discount in the amount of $350,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Warrant Restructure. </B>On
February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, referred to herein as the Modification Investors,
entered into a modification agreement, referred to herein as the Modification Agreement, pursuant to which the parties agreed
to amend the terms of the Series B warrants, referred to herein as the Series B Warrants, issued to the Modification Investors
in a $13 million private placement offering of the Company&rsquo;s securities in July 2011, referred to herein as the July Offering,
in which the Modification Investors invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed
to limit the dilutive effects of the Series B Warrants by including a floor of $3.00 per share in the calculation of the reset
provision included in the Series B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series
B Warrants held by the Modification Investors is 1,913,043 shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants,
referred to herein as Series C Warrants, to purchase 2.5 million shares of common stock, referred to herein as the Series C Warrant
Shares, with a cash exercise price of $3.00 per share. The Series C Warrants include a provision under which the Series C Warrants
must be exercised at the election of the Company by the Modification Investors for cash if the closing sales price of the common
stock is $6.00 per share or greater for 20-consecutive trading days. As a result of the issuance of the Warrants and the Series
C Warrants, the exercise prices and number of shares underlying the Series A warrants and Series B warrants held by the remaining
investor in the July Offering were adjusted pursuant to their terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Macquarie Warrant Restructure.</B>
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended
and restated Macquarie Warrant referred to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase two million
three hundred thirty-three thousand (2,333,000) shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie
Warrant is not subject to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision
or combinations. The Amended Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering
the underlying common stock. The Company granted the holder piggy-back registration rights on the underlying common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Acceleration of Vesting of Founder&rsquo;s
Shares. </B>On February 13, 2012, the board of directors of American Standard Energy Corp. (the &ldquo;Company&rdquo;)
approved the immediate vesting of a total of 1,568,877 restricted shares of the Company&rsquo;s common stock previously issued
to the chief executive officer, president and chief financial officer as founders shares which were to vest in equal portions
annually through April 16, 2014.&nbsp;At December 31, 2011, the unamortized compensation expense for these shares was $1,797,995
which will be expensed in the 1<SUP>st</SUP> quarter of 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>March Acquisition.</B> On
March 5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across
the Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the &ldquo;March
2012 Properties&rdquo;) in exchange for the delivery by the Company to the Sellers of $10 million in cash, less a $1.5 million
cash deposit previously paid by the Company, a note in the principal amount of $35,000,000 (the &ldquo;March 2012 Note&rdquo;)
made by the Company in favor of Geronimo and 5,000,000 shares of the common stock of the Company, which has a closing price of
$2.70 on the closing date of the acquisition. The March 2012 Properties were purchased pursuant to the terms of a Purchase and
Sale Agreement dated as of February 24, 2012, referred to hereafter as the PSA, by and among the Company, XOG and Geronimo. The
Company is currently evaluating the accounting treatment for this transaction.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The March 2012 Note bears an interest
rate of 7% per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of
each month commencing on June 1, 2012. The March 2012 Note matures on March 21, 2016. The Company may prepay the March 2012 Note
at any time without penalty.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The PSA provides that if certain defects
are found with the March 2012 Properties, or if XOG or Geronimo breach any representation or warranty in the Agreement within
one year from closing, XOG and Geronimo shall, at the option of the Company, in its sole and absolute discretion, either (i) provide
additional or alternative oil and gas properties, subject to the Company&rsquo;s applicable due diligence review and acceptance
or (ii) for as long as the March 2012 Note is outstanding, decrease the principal amount of the Note in an amount equal to the
loss resulting from such property defect or breach.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">XOG and Geronimo have piggyback registration
rights with respect to up to five million shares of common stock held by XOG or Geronimo in such registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>American Standard Energy Corp.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Unaudited Supplementary Information</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Selected Quarterly Financial Data (Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>For the three-month periods ended:&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September <BR>
    30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December <BR>
    31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 48%; padding-left: 8.65pt">Revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,388,493</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">3,182,364</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,995,287</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">3,841,630</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.65pt">Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,146,337</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,048,436</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,881,655</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,740,045</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Loss from operations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(757,844</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,866,072</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,886,368</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,898,415</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Other income (expense)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,047,266</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,312,455</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Net income (loss)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(757,844</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,866,072</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,839,102</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(7,210,870</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Loss per share basic and diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.02</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.10</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.05</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.19</TD><TD STYLE="text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>For the three-month periods ended:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September <BR>
    30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December <BR>
    31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 48%; padding-left: 8.65pt">Revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,841,918</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,540,820</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,787,571</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,726,636</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 8.65pt">Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,218,570</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,272,383</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,855,393</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,358,437</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Loss from operations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">623,348</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,731,563</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(67,822</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(631,801</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Other income (expense)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Income tax benefit (expense)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">96,228</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(96,228</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Net income (loss)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">623,348</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,731,563</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,406</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(728,029</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 8.65pt">Loss per share basic and diluted (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.03</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.12</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.03</TD><TD STYLE="text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 5%">(1)</TD>
    <TD STYLE="width: 92%; text-align: justify; text-indent: 0in; padding-left: -0.24in">Proforma presentation for 2010, refer
    to Note B</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Costs Incurred</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Costs incurred for oil and natural
gas producing activities during the year ended December 31, 2011 and 2010 was as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Years&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left">Unproved property acquisition costs</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">15,258,281</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">7,729,953</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Exploration</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,958,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,787,926</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Development</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">80,409</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,308,484</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">62,296,742</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">17,826,363</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Reserve Quantity Information</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following information represents
estimates of the proved reserves as of December&nbsp;31, 2011 and 2010.&nbsp;&nbsp;The Company&rsquo;s proved reserves as of December
31, 2011 and 2010 have been prepared and presented under new SEC rules. These new rules are effective for fiscal years ending
on or after December&nbsp;31, 2009, and require SEC reporting companies to prepare their reserves estimates using revised reserve
definitions and revised pricing based on a 12-month unweighted average of the first-day-of-the-month pricing. The previous rules
required that reserve estimates be calculated using last-day-of-the-period pricing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes the
average prices utilized in the reserve estimates for 2011 and 2010 as adjusted for location, grade and quality:&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 92%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.35in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">As&nbsp;of&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Prices utilized in the reserve estimates:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9.9pt">Texas oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; padding-left: 19.8pt">Oil per Bbl(a)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">92.21</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">75.43</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 19.8pt">Gas per MCF(b)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">6.06</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">6.38</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9.9pt">North Dakota oil and natural gas properties</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 19.8pt">Oil per Bbl(a)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">90.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">70.82</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 19.8pt">Gas per MCF(b)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.39</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">a)</TD>
    <TD STYLE="width: 95%; text-align: justify">The pricing used to estimate our 2011 and 2010 reserves was based on a 12-month
    unweighted average first-day-of-the-month West Texas Intermediate posted price as adjusted for location, grade and quality.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">b)</TD>
    <TD STYLE="width: 95%; text-align: justify">The pricing used to estimate our 2011 and 2010 reserves was based on a 12-month
    unweighted average first-day-of-the-month Henry Hub spot price as adjusted for location, grade and quality.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The SEC has released only limited interpretive
guidance regarding reporting of reserve estimates under the new rules and may not issue further interpretive guidance on the new
rules. Accordingly, while the estimates of the proved reserves and related estimated discounted future net cash flows at December&nbsp;31,
2011 and 2010 included in this report have been prepared based on what we and our independent reserve engineers believe to be
reasonable interpretations of the new SEC rules, those estimates could differ materially from any estimates prepared applying
more specific SEC interpretive guidance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s proved oil and
natural gas reserves are located primarily in the Permian Basin of West Texas and in the Bakken Shale formation located primarily
in North Dakota. The estimates of the proved reserves at December&nbsp;31, 2011 and 2010 are based on reports prepared by an independent
petroleum engineer. Proved reserves were estimated in accordance with the guidelines established by the SEC and the FASB.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Oil and natural gas reserve quantity
estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection
of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the
quality of available data and of engineering and geological interpretation and judgment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Results of subsequent drilling, testing
and production may cause either upward or downward revision of previous estimates. Further, the volumes considered to be commercially
recoverable fluctuate with changes in prices and operating costs. Reserve estimates are inherently imprecise and estimates of
new discoveries are more imprecise than those of currently producing oil and natural gas properties. Accordingly, these estimates
are expected to change as additional information becomes available in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table provides a roll
forward of the total net proved reserves for the years ended December&nbsp;31, 2011 and 2010, as well as disclosure of proved
developed and proved undeveloped reserves at December 31, 2011 and 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 49.5pt">The following table provides a roll-forward
of the total proved reserves for the years ended December 31, 2011 and 2010, as well as disclosures of proved developed and proved
undeveloped reserves at December 31, 2011 and 2010. Barrels of oil equivalent (BOE) are determined using a ratio of 6 Mcf of natural
gas to 1 Bbl of crude oil.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 49.5pt">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 49.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Natural</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Oil</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Gas</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Total</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Bbls)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Mcf)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">(Boe)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Total Proved Reserves:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 61%">Balance, January 1, 2011</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">2,290,830</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">14,511,630</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">4,709,436</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Revisions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,431,844</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(8,333,408</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,820,745</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Discoveries</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,414,818</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,872,750</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,726,943</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Purchases of reserves</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,471</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,190</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,836</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Production</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(104,147</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(547,280</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(195,361</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Balance, December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,174,128</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,505,882</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,425,109</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proved developed reserves</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,368,461</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,334,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,424,128</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Proved undeveloped reserves</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">805,669</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,171,884</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,000,983</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9.9pt">Total proven reserves</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,174,130</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,505,884</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,425,111</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Total Proved Reserves:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Balance, January 1, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,047,616</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,508,944</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,299,107</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Revisions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">173,505</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,527,388</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">428,070</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Discoveries</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">126,366</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,370</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">128,928</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Production</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(56,657</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(540,072</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(146,669</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Balance, December 31, 2010</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,290,830</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">14,511,630</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,709,436</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proved developed reserves</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">759,642</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,370,893</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,321,457</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Proved undeveloped reserves</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,531,188</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,140,737</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,387,979</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9.9pt">Total proven reserves</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,290,830</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">14,511,630</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,709,436</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 49.5pt">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total proved reserves as of December
31, 2010 were 4,709,436 BOE including 2,387,979 BOE in proved undeveloped reserves. Our 2010 reserves include reserves acquired
in the Group 1&amp;2 acquisition in February 2011.&nbsp; This transaction was between our Company and XOG Group while we were
under common control.&nbsp; As a result, our proved reserves were recast to include the reserves acquired as if our Company has
owned those reserves at December 31, 2010. &nbsp;Subsequently, we evaluated our proved undeveloped reserves and determined that
1,868,367 BOE in undeveloped reserves were unlikely to be developed in the next three years by the operators of record on which
these reserves were located.&nbsp; As a result, the Company has excluded these locations and the associated reserves from proved
reserves as of December 31, 2011.&nbsp; If these reserves were excluded from all periods presented, total proven reserves as of
December 31, 2011 and 2010 would be 3,425,111 BOE and 2,841,069 BOE, respectively.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Standardized Measure of Discounted Future Net Cash Flows</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The standardized measure of discounted
future net cash flows is computed by applying at December&nbsp;31, 2011 the 12-month unweighted average of the first-day-of-the-month
pricing for oil and natural gas (with consideration of price changes only to the extent provided by contractual arrangements)
to the estimated future production of proved oil and natural gas reserves less estimated future expenditures (based on year-end
costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the
estimated timing of the future cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Future income taxes are calculated
by comparing undiscounted future cash flows to the tax basis of oil and natural gas properties plus available carry forwards and
credits and applying the current tax rates to the difference.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Discounted future cash flow estimates
like those shown herein are not intended to represent estimates of the fair value of oil and natural gas properties. Estimates
of fair value would also consider probable and possible reserves, anticipated future oil and natural gas prices, interest rates,
changes in development and production costs and risks associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table provides the standardized
measure of discounted future net cash flows at December&nbsp;31, 2011 and 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-style: italic">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left">Future production revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">241,879,576</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">249,528,763</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Future costs:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Production</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(72,479,264</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(69,359,315</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Development</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(24,822,048</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(15,618,950</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(41,401,226</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(50,368,060</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">10% annual discount factor</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(53,375,271</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(64,504,117</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt">Standardized measure of discounted cash flows</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">49,801,767</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">49,678,321</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Changes in Standardized Measure of Discounted Future
Net Cash Flows</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table provides a roll
forward of the standardized measure of discounted future net cash flows for the years ended December&nbsp;31, 2011 and 2010:&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Increase (decrease):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt; width: 74%">Extensions and discoveries</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">23,024,041</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">4,626,389</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Net changes in sales prices and production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,230,290</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19,421,293</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Oil and gas sales, net of production costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(9,340,687</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,697,498</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Change in estimated future development costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,786,697</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,871,994</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Revision of quantity estimates</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(67,025,217</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,483,274</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Purchases of mineral interests</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">128,684</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Previously estimated development costs incurred in the current period</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,832,253</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Changes in income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(904,315</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,290,341</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Accretion of discount</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,272,969</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,351,883</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Changes in production rates, timing and other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,118,731</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,607,493</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 19.8pt">Net (decrease) increase</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">123,446</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">26,159,501</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Standardized measure of discounted future cash flows:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 19.8pt">Beginning of year</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">49,678,321</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">23,518,820</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 19.8pt">End of year</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">49,801,767</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">49,678,321</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><img src="logo.jpg"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>AMERICAN STANDARD ENERGY CORP.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>6,666,666 SHARES OF COMMON STOCK</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT
OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS
IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Until _____________, all dealers that effect transactions in
these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to
the dealer&rsquo;s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or
subscriptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>The Date of This Prospectus is [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;],
2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PART II&nbsp;&nbsp;&nbsp;INFORMATION
NOT REQUIRED IN THE PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 13.Other Expenses of Issuance and Distribution</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">Securities and Exchange Commission Registration Fee</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">787</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accounting fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,000</TD><TD STYLE="text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Legal fees and expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Printing and miscellaneous expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">31,787</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">*</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">* Estimated. We are paying all expenses of the offering listed
above. No portion of these expenses will be borne by the selling shareholders. The selling shareholders, however, will pay any
other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 14.Indemnification of Directors and Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Under Section 145 of the General Corporation Law of the State
of Delaware, the registrant may indemnify its directors and officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act. The registrant&rsquo;s certificate of incorporation provides that, pursuant to Delaware law,
its directors shall not be liable for monetary damages for breach of the directors&rsquo; fiduciary duty of care to the registrant
and its stockholders. This provision does not eliminate the duty of care, and in appropriate circumstances equitable remedies such
as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue
to be subject to liability for breach of the director&rsquo;s duty of loyalty to the registrant or its stockholders for acts or
omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director&rsquo;s responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The registrant&rsquo;s bylaws provide for the indemnification
of its directors to the fullest extent permitted by the Delaware General Corporation Law. The registrant&rsquo;s bylaws further
provide that its Board of Directors has discretion to indemnify its officers and other employees. The registrant is required to
advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or executive
officer in connection with that proceeding on receipt of an undertaking by or on behalf of that director or executive officer to
repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under the bylaws or
otherwise. The registrant is not, however, required to advance any expenses in connection with any proceeding if a determination
is reasonably and promptly made by its Board of Directors by a majority vote of a quorum of disinterested Board members that (i)
the party seeking an advance acted in bad faith or deliberately breached his or her duty to the registrant or its stockholders
and (ii) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined
that such party is not entitled to indemnification pursuant to the applicable sections of the registrant&rsquo;s bylaws.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The registrant has been advised that in the opinion of the Securities
and Exchange Commission, insofar as indemnification for liabilities arising under the Securities Act may be permitted to its directors,
officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities
(other than the registrant&rsquo;s payment of expenses incurred or paid by an director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such indemnification by the registrant is against public
policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The registrant carries directors&rsquo; and officers&rsquo;
liability insurance covering its directors and officers for a period of one year commencing on October 2010. The limit of liability
of such insurance is $5,000,000 in the aggregate for the insured period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The registrant is a party to indemnification agreements with
each of its directors and officers that are, in some cases, may be broader than the specific indemnification provisions permitted
by Delaware law, and that may provide additional procedural protection. Such indemnification agreements may require the registrant,
among other things, to indemnify officers and directors against certain liabilities that may arise because of their status as officers
or directors and advance expenses, as incurred, to officers and directors in connection with a legal proceeding, subject to limited
exceptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 15. Recent Sales of Unregistered Securities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On April 1, 2012, the Company issued 100,000 shares of
common stock to ERC Holding Corp. for consulting services rendered pursuant to a Consulting Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On June 30, 2012, the Company, ASEN 2, Nevada ASEC, and
XOG entered into the Payment Agreement whereby we agreed to issue 4,444,445 shares of Common Stock to XOG at a price per share
equal to $2.25 as payment of the $10,000,000 outstanding and owed to XOG pursuant to certain JIBs issued by XOG from January 1,
2012, through and including June 30, 2012 and delivered to our subsidiaries in connection with certain Joint Operating Agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On April 11, 2012, the Modification Investors exercised
Series B warrants for the purchase of 1,000,000 shares of common stock at an exercise price of $0.001 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 30, 2012, we issued 20,000
shares of restricted Common Stock to each of our three executive officers and one of our employees as compensation for services
rendered.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In February 2012, an investor exercised
Series B warrants for the purchase of 325,986 shares of common stock at an exercise price of $0.001.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Such Securities were not registered
under the Securities Act of 1933.&nbsp; The issuance of the Securities was exempt from registration, pursuant to Section 4(2)
of the Securities Act of 1933.&nbsp; These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933
since the issuance of the Securities by us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo;
as defined in Section 4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and
the manner of the offering and number of the Securities offered. We did not undertake an offering in which we sold a high number
of securities to a high number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required
by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted
pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed
into the market and therefore not be part of a &ldquo;public offering.&rdquo; Based on an analysis of the above factors, we have
met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Geronimo Acquisition</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 5, 2012, we issued 5,000,000
shares of common stock as partial consideration for the acquisition of leasehold working interests in approximately 72,300 net
acres pursuant to a purchase and sale agreement with XOG Operating LLC and Geronimo Holding Corporation The shares were valued
at $2.70 per share based on the closing price of the Company&rsquo;s Common Stock on March 5, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On June 30, 2012, we entered into an
Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares of the our newly created Series A Preferred
Stock to Geronimo, which are convertible into shares of our Common Stock at a rate of 333.333 shares of Common Stock per share
of Series A Preferred Stock, in exchange for the cancelation of the $35 million note issued to Geronimo.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such Securities were not registered under the Securities
Act of 1933.&nbsp; The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.&nbsp; These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high
number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required by Section 4(2) since
they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144
of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed into the market
and therefore not be part of a &ldquo;public offering.&rdquo; Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Pentwater</I></B><I> <B>Convertible
Note </B></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 10, 2012, the Company and
ASEN 2 closed on a Note and Warrant Purchase Agreement dated February 9, 2012 with Pentwater in connection with a $20 million
private financing.&nbsp;The borrowings under the Purchase Agreement are evidenced by a $20 million secured convertible promissory
note (&ldquo;Pentwater Note&rdquo;) convertible into shares of the Company&rsquo;s common stock at a conversion price of $9.00
per share and five-year warrants (the &ldquo;Pentwater February Warrants&rdquo;) to purchase 3,333,333 shares of common stock
at a per share cash exercise price of $2.50. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On July 23, 2012, the Company, ASEN
2 and Pentwater entered into the Purchase Agreement Amendment pursuant to which Pentwater made an additional advance to ASEN 2
in the amount of $5 million. Pursuant to the terms of the Purchase Agreement Amendment, (i) the Pentwater Note was amended to
increase the principal amount to $25 million; (ii) the Pentwater Series C Warrants and the Pentwater February Warrants were amended
to reduce the exercise price to $2.25 per share and to change the expiration date to June 30, 2019 and (iii) we issued to Pentwater
warrants to purchase an additional 833,333 shares of Common Stock at an exercise price of $2.25 and an expiration date of June
30, 2019.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Such Securities were not registered
under the Securities Act of 1933.&nbsp; The issuance of the Securities was exempt from registration, pursuant to Section 4(2)
of the Securities Act of 1933.&nbsp; These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933
since the issuance of the Securities by us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo;
as defined in Section 4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and
the manner of the offering and number of the Securities offered. We did not undertake an offering in which we sold a high number
of securities to a high number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required
by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted
pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed
into the market and therefore not be part of a &ldquo;public offering.&rdquo; Based on an analysis of the above factors, we have
met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Modification Agreement</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 10, 2012, the Modification
Investors entered into the Modification Agreement pursuant to which the parties agreed to amend the terms of the Series B warrants
pursuant to which the parties agreed to limit the dilutive effects of the Series B Warrants by including a floor of $3.00 per
share in the calculation of the reset provision included in the Series B Warrants. Accordingly, the aggregate number of shares
of common stock underlying the Series B Warrants held by the Modification Investors is 1,913,043 shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants
to purchase 2.5 million shares of common stock with a cash exercise price of $3.00 per share, which were subsequently amended
on July 23, 2012 to reduce the exercise price to $2.25.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such Securities were not registered under the Securities
Act of 1933.&nbsp; The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.&nbsp; These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high
number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required by Section 4(2) since
they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144
of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed into the market
and therefore not be part of a &ldquo;public offering.&rdquo; Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction. </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Credit Facility</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On September 21, 2011, in connection with the credit agreement,
we issued to Macquarie Americas Corp. a five year warrant to purchase five million (5,000,000) shares of our common stock at a
per share exercise price of $7.50. In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater
Note and the transactions contemplated under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company
agreed to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended and restated Macquarie Warrant referred
to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase 2,333,000 shares of common stock, at an exercise
price of $3.25 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such Securities were not registered under the Securities
Act of 1933.&nbsp; The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.&nbsp; These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high number
of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required by Section 4(2) since they
agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of
the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed into the market and
therefore not be part of a &ldquo;public offering.&rdquo; Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Leasehold Acquisitions</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On August 22, 2011, we acquired approximately 13,324 net undeveloped
leasehold acres in the Bakken/Three Forks area from Geronimo for approximately $14.8 million which comprised of $13.5 million in
cash on April 15, 2011 and 208,200 shares of the Company&rsquo;s common stock at a price per share of $6.435.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On March 1, 2011, we entered into a Purchase of Partial
Leaseholds Agreement with Geronimo, dated February 28, 2010, whereby we purchased certain mineral rights leaseholds held on properties
in the Bakken Shale Formation in North Dakota (the &ldquo;Bakken Properties&rdquo;). In consideration for the Bakken Properties,
we paid Geronimo $3,000,000 and issued 883,607 shares of common stock valued at $5,787,626, for a total transaction value of $8,787,626.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On December 1, 2010, we entered into an agreement with Geronimo
whereby we acquired certain oil and natural gas properties located in North Dakota for $500,000 cash and 1,200,000 shares of the
our common stock.&nbsp;&nbsp;&nbsp;This transaction was valued at $4,460,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such Securities were not registered under the Securities
Act of 1933.&nbsp; The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.&nbsp; These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high number
of investors. In addition, the investor had the necessary investment intent as required by Section 4(2) since they agreed to and
received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 Securities
Act. This restriction ensures that the Securities would not be immediately redistributed into the market and therefore not be part
of a &ldquo;public offering.&rdquo; Based on an analysis of the above factors, we have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Private Placement Offerings</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp; </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On July 15, 2011, we completed a closing of an offering of our
securities for total subscription proceeds of approximately $13 million through the issuance of (i) 2,260,870 shares of our common
stock at a price of $5.75 per share,<B> &nbsp;</B> (ii) Series A Warrants to purchase 1,130,435 shares of common stock at a per
share exercise price of $9.00; and (iii) Series&nbsp;B Warrants to purchase a number of shares of common stock, which shall only
be exercisable if (A) the market price (as defined below) of the our common stock on the 30th trading day following the earlier
of (i)&nbsp;the effective date of a registration statement to sell the shares of common stock and the Series A Warrant Shares sold
in the Third PIPE, and (ii)&nbsp;the date on which the purchasers in the Third PIPE can freely sell the shares of common stock
pursuant to Rule&nbsp;144 promulgated under the Securities Act without restriction (the &ldquo;Eligibility Date&rdquo;) is less
than the purchase price in the offering or $5.75; and (B) upon certain dilutive occurrences. If made exercisable pursuant to (A)
in the preceding sentence, the Series&nbsp;B Warrants will become immediately exercisable and will have an exercise price of $0.001
per share to purchase a number of shares of our common stock such that the aggregate average price per share purchased by the investors
is equal to the market price (defined as the average of volume weighted average price for each of the previous 30 days as reported
on the Over-The-Counter Bulletin Board during the 30 trading days preceding the measurement date).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On March 31, 2011, pursuant to a securities purchase agreement
we completed the closing of the offering of our securities for total subscription proceeds of $21,257,778 through the issuance
of (i) 3,697,005 shares of our common stock at a price of $5.75 per share and (ii) five-year warrants of 1,848,502 shares of common
stock at an exercise price of $9.00 per share, to certain accredited investors.&nbsp; We also issued to Northland Capital Markets,
as placement agent, warrants to purchase 102,425 shares of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On February 1, 2011, pursuant to a securities purchase agreement,
we completed the closing of the offering of our securities for total subscription proceeds of $15,406,755 through the issuance
of (i) 4,401,930 shares of our common stock at a price of $3.50 per share and (ii) 2 series of five-year warrants each exercisable
into an aggregate of 1,100,482 shares of common stock at exercise prices of $5.00 and $6.50 per share, respectively to certain
accredited investors.&nbsp; &nbsp; We also issued to Northland Capital Markets, as placement agent, warrants to purchase 317,118
shares of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Issuance of securities to the investors and the Placement
Agent were not registered under the Securities Act of 1933 (the &ldquo;Securities Act&rdquo;). Such issuance of securities was
exempt from registration under the safe harbor provided by Regulation D Rule 506 and Section 4(2) of the Securities Act. We made
this determination in part based on the representations of investors, which included, in pertinent part, that such investors were
an &ldquo;accredited investor&rdquo; as defined in Rule 501(a) under the Securities Act, and upon such further representations
from the investors that (a) the investor is acquiring the securities for his, her or its own account for investment and not for
the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution
within the meaning of the Securities Act, (b) the investor agrees not to sell or otherwise transfer the purchased securities unless
they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such
registration are available, (c) the investor either alone or together with its representatives has knowledge and experience in
financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and
(d) the investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment.&nbsp;
Our determination is made based further upon our action of (a) making written disclosure to each investor in the Securities Purchase
Agreement prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot
be resold unless they are registered or unless an exemption from registration is available and (b) making write description of
the securities being offered, the use of the proceeds from the offering and any material changes in the Company&rsquo;s affairs
that are not disclosed in the documents furnished and (b) placement of a legend on the certificate that evidences the securities
stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability
and sale of the securities, and upon such inaction of&nbsp;&nbsp;the Company of any general solicitation or advertising for securities
herein issued in reliance upon Regulation D Rule 506 and Section 4(2) of the Securities Act.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On December 23, 2010, we&nbsp;closed a private placement offering
by raising proceeds of $750,000, through the sale of 230,770 shares of our common stock at a price of $3.25 per share and a number
of four-month warrants exercisable into a number of shares of common stock equal to 100% of the number of common shares underlying
the Placement at an exercise price of $3.50 per share to an accredited investor</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such Securities were not registered under the Securities
Act of 1933.&nbsp; The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.&nbsp; These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high number
of investors. In addition, the investor had the necessary investment intent as required by Section 4(2) since they agreed to and
received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 Securities
Act. This restriction ensures that the Securities would not be immediately redistributed into the market and therefore not be part
of a &ldquo;public offering.&rdquo; Based on an analysis of the above factors, we have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On October 20, 2010, we closed on a private placement offering
by raising proceeds of $1,200,000, through the sale of 452,830 shares of our common stock at a price of $2.65 per share and a number
of four-month warrants exercisable into a number of shares of common stock equal to 150% of the number of common shares underlying
the placement at an exercise price of $2.75 per share to two accredited investors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such securities were not registered under the Securities
Act. The issuance of these securities was exempt from registration under the safe harbor provided by Section 4(2) of the Securities
Act. We made this determination based on the representations of investors, which included, in pertinent part, that such shareholders
were either (a) &ldquo;accredited investors&rdquo; within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, or (b) not a &ldquo;U.S. person&rdquo; as that term is defined in Rule 902(k) of Regulation S under the Act, and upon such
further representations from the investors that (a) the investor is acquiring the securities for his, her or its own account for
investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection
with any distribution within the meaning of the Securities Act, (b) the investor agrees not to sell or otherwise transfer the purchased
shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions
from such registration are available, (c) the investor has knowledge and experience in financial and business matters such that
he, she or it is capable of evaluating the merits and risks of an investment in us, (d) the investor had access to all of our documents,
records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding
the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without
unreasonable effort and expense, and (e) the investor has no need for the liquidity in its investment in us and could afford the
complete loss of such investment. In addition, there was no general solicitation or advertising involved in the sale securities.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">October 1, 2010, we issued to the Nevada ASEC shareholders approximately
22,000,000 common shares pursuant to a Share Exchange Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such securities were not registered under the Securities
Act.&nbsp; These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a &ldquo;public offering.&rdquo;
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">During the first quarter of 2008 we issued 414,000 shares at
$ 0.25 per share for a total of $103,500 cash as follows:&nbsp;&nbsp;January 30, 2008 we issued 44,000 shares for $11,000; February
12, 2008 we issued 160,000 shares for $40,000; February 29, 2008 we issued 200,000 shares for $50,000; and on March 25, 2008 issued
10,000 shares for $2,500.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such securities were not registered under the Securities
Act.&nbsp; These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a &ldquo;public offering.&rdquo;
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">During the second quarter of 2008 211,000 shares of common stock
of the Company were issued as payment of $59,080 for services. During the second quarter of 2008 we received $50,000 for 200,000
shares at $ 0.25 per share, to be issued.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such securities were not registered under the Securities
Act.&nbsp; These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a &ldquo;public offering.&rdquo;
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">During the third quarter of 2008, we issued 614,000 shares of
common stock in exchange for $153,500 in cash. &nbsp;We also issued 716,000 shares of stock in receipt of services valued at $261,080
or about $0.36 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Such securities were not registered under the Securities
Act.&nbsp; These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a &ldquo;public offering&rdquo; as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a &ldquo;public offering.&rdquo;
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.</I></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 16. Exhibits and Financial Statement Schedules</B></P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10%">Exhibit&nbsp;No. &nbsp;&nbsp;</TD>
    <TD STYLE="width: 90%">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>2.1 &nbsp;</TD>
    <TD STYLE="text-align: justify">Share Exchange Agreement by and between the Company, American Standard and the American
    Standard Shareholders, dated October 1, 2010 (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.1 &nbsp;</TD>
    <TD STYLE="text-align: justify">Articles of Incorporation (incorporated by reference in the Registration Statement on Form
    SB-2 filed on April 3, 2006)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.2</TD>
    <TD STYLE="text-align: justify">Certificate of Amendment of the Certificate of Incorporation (19)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.3 &nbsp;</TD>
    <TD STYLE="text-align: justify">Bylaws (incorporated by reference in the Registration Statement on Form SB-2 filed on April
    3, 2006)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.1</TD>
    <TD STYLE="text-align: justify">Certificate of Designation of Series A Cumulative Convertible Preferred Stock (23)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>5.1 &nbsp;</TD>
    <TD>Opinion of Blank Rome LLP #</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.1 &nbsp;</TD>
    <TD>Scott Feldhacker Employment Agreement (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.2 &nbsp;</TD>
    <TD>Richard Macqueen Employment Agreement (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.3 &nbsp;</TD>
    <TD>Not used</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.4 &nbsp;</TD>
    <TD>Scott Mahoney Employment Agreement (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.5 &nbsp;</TD>
    <TD>Scott Feldhacker Deferred Compensation Agreement (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.6 &nbsp;</TD>
    <TD>Richard Macqueen Deferred Compensation Agreement (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.7 &nbsp;</TD>
    <TD>2010 Equity Compensation Plan (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.8 &nbsp;</TD>
    <TD STYLE="text-align: justify">Lease Purchase Agreement by and between American Standard Energy Corp. and Geronimo Holding
    Corp. dated April 28, 2010 (Bakken, ND) (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.9 &nbsp;</TD>
    <TD STYLE="text-align: justify">Lease Purchase Agreement by and between American Standard Energy Corp. and CLW South Texas
    2008, LP dated April 28, 2010 (Eagle Ford, TX) (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.10 &nbsp;</TD>
    <TD STYLE="text-align: justify">Lease Purchase Agreement by and between American Standard Energy Corp. and XOG Operating
    LLC dated April 28, 2010 (University, TX) (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.11 &nbsp;</TD>
    <TD STYLE="text-align: justify">Lease Purchase Agreement by and between American Standard Energy Corp. and Geronimo Holding
    Corp. dated April 28, 2010 (Wolfberry, TX) (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.12 &nbsp;</TD>
    <TD>Form of Subscription Agreement dated October 26, 2010 (2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.13 &nbsp;</TD>
    <TD>Form of Warrant dated October 26, 2010 (2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.14 &nbsp;</TD>
    <TD STYLE="text-align: justify">Agreement for the purchase of Partial Leaseholds between Geronimo Holdings Corporation
    and American Standard Energy Corp. dated December 1, 2010 (4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.15 &nbsp;</TD>
    <TD>Form of Subscription Agreement dated December 27, 2010 (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.16 &nbsp;</TD>
    <TD>Form of Warrant dated December 27, 2010 (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.17 &nbsp;</TD>
    <TD>Securities Purchase Agreement dated February 1, 2011 (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.18 &nbsp;</TD>
    <TD>Form of Warrant dated February 1, 2011 (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.19 &nbsp;</TD>
    <TD>Registration Rights Agreement dated February 1, 2011 (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.20 &nbsp;</TD>
    <TD STYLE="text-align: justify">Agreement for the Purchase of Partial Leaseholds between Geronimo Holding Corporation and
    American Standard Energy Corp. dated February 10, 2011 (7)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.21 &nbsp;</TD>
    <TD STYLE="text-align: justify">Agreement for the Purchase of Partial Leaseholds between Geronimo Holding Corporation and
    American Standard Energy Corp. dated March 1, 2011 (8)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.22 &nbsp;</TD>
    <TD>Amendment No.1&nbsp;&nbsp;to Securities Purchase Agreement dated March 28, 2011 (originally dated February 1, 2011)
    (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.23 &nbsp;</TD>
    <TD STYLE="text-align: justify">Amendment No.1 to the Registration Rights Agreement dated March 28, 2011 (originally dated
    February 1, 2011) (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.24 &nbsp;</TD>
    <TD>Securities Purchase Agreement dated March 31, 2011 (10)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.25 &nbsp;</TD>
    <TD>Form of Warrant dated March 31, 2011 (10)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.26 &nbsp;</TD>
    <TD>Registration Rights Agreement dated March 31, 2011 (10)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.27 &nbsp;</TD>
    <TD STYLE="text-align: justify">Agreement for the Purchase of Partial Leaseholds between Geronimo Holding Corporation and
    American Standard Energy Corp. dated April 8, 2011 (11)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.28 &nbsp;</TD>
    <TD>Securities Purchase Agreement dated July 15, 2011 (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.29 &nbsp;</TD>
    <TD>Form of Series A Warrant dated July 15, 2011 (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.30 &nbsp;</TD>
    <TD>Form of Series B Warrant dated July 15, 2011 (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.31 &nbsp;</TD>
    <TD>Registration Rights Agreement dated July 15, 2011 (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.32 &nbsp;&nbsp;</TD>
    <TD>Form of Joint Operating Agreement</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.33 &nbsp;&nbsp;</TD>
    <TD STYLE="text-align: justify">Credit Agreement by and among American Standard Energy Corp., a Nevada corporation, and
    Macquarie Bank Limited and certain lender parties thereto, dated September 21, 2011 (14)</TD></TR>
</TABLE>
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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10%">10.34 &nbsp;&nbsp;</TD>
    <TD STYLE="width: 90%; text-align: justify">Pledge and Security Agreement by and among American Standard Energy Corp.,
    a Delaware corporation, and Macquarie Bank Limited, as administrative agent, and certain lender parties thereto dated September
    21, 2011 (14)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.35 &nbsp;&nbsp;</TD>
    <TD STYLE="text-align: justify">Guaranty Agreement by and among American Standard Energy Corp., a Delaware corporation,
    and Macquarie Bank Limited, as administrative agent, and certain lender parties thereto dated September 21, 2011 (14)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.36</TD>
    <TD>Letter Agreement dated December 30, 2011, by and between American Standard Energy Corp. and Scott Feldhacker (16) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.37</TD>
    <TD>Letter Agreement dated December 30, 2011, by and between American Standard Energy Corp. and Richard MacQueen (16) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.38</TD>
    <TD>Letter Agreement dated December 30, 2011, by and between American Standard Energy Corp. and Scott Mahoney (16) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.39</TD>
    <TD>Form of Warrant issued to Pentwater, dated February 9, 2012 (17) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.40</TD>
    <TD STYLE="padding-left: 0.3pt">Form of Series C Warrant issued to Pentwater, dated February 9, 2012 (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.41</TD>
    <TD STYLE="padding-left: 0.3pt">Amended and Restated Warrant issued to Macquarie Americas Corp., dated February 9, 2012
    (17) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.42</TD>
    <TD STYLE="padding-left: 0.3pt">Note and Warrant Purchase Agreement by and among the Company, ASEN 2, and Pentwater, dated
    as of February 9, 2012&nbsp; (17) + &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.43</TD>
    <TD STYLE="padding-left: 0.3pt">Secured Convertible Promissory Note issued by ASEN 2 to Pentwater, dated February 9, 2012
    (17) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.44</TD>
    <TD STYLE="padding-left: 0.3pt">Security Agreement by and among ASEN 2 to Pentwater, dated as of February 9, 2012 (17)
    + &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.45</TD>
    <TD STYLE="padding-left: 0.3pt">Guaranty Agreement by and among the Company and Pentwater, dated as of February 9, 2012
    (17) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.46</TD>
    <TD STYLE="padding-left: 0.3pt">Registration Rights Agreement by and among the Company and Pentwater, dated as of February
    9, 2012 (17) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.47</TD>
    <TD STYLE="padding-left: 0.3pt">Modification Agreement by and among the Company, Pentwater and its affiliates, dated as
    of February 9, 2012 (17) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.48</TD>
    <TD STYLE="padding-left: 0.3pt">Amendment to Securities Purchase Agreement by and among the Company and certain holders
    thereto, dated February 9, 2012 (17) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.49</TD>
    <TD STYLE="padding-left: 0.3pt">Mortgage and Deed of Trust from ASEN 2 to Pentwater for LaSalle County, Texas (17) + &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.50</TD>
    <TD STYLE="padding-left: 0.3pt">Mortgage and Deed of Trust from ASEN 2 to Pentwater for Frio County, Texas (17) + &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.51</TD>
    <TD STYLE="padding-left: 0.3pt">Purchase and Sale Agreement by and among the Company, XOG Operating LLC, and Geronimo Holding
    Corporation, dated as of February 24, 2012 (18) + &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.52</TD>
    <TD STYLE="padding-left: 0.3pt">Promissory Note issued by the Company to Geronimo Holding Corporation, dated March 5, 2012
    (18) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.53</TD>
    <TD STYLE="padding-left: 0.3pt">Letter Agreement regarding Secured Convertible Promissory Note by and among Pentwater Equity
    Opportunities Master Fund Ltd., PWCM Master Fund Ltd. and ASEN 2, Corp., dated as of March 5, 2012 (18) &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.54</TD>
    <TD STYLE="padding-left: 0.3pt">Amended 2010 Equity Compensation Plan (20)* &nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.55</TD>
    <TD STYLE="padding-left: 0.3pt">2011 Equity Incentive Plan (21)*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.56</TD>
    <TD STYLE="padding-left: 0.3pt">Modification Agreement by and among the Company, Pentwater and its affiliates, dated as
    of April 5, 2012&nbsp;(22)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.57</TD>
    <TD STYLE="padding-left: 0.3pt">Exchange Agreement by and between the Company and Geronimo Holding Corporation dated as
    of June 30, 2012 (23)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.58</TD>
    <TD STYLE="padding-left: 0.3pt">Payment and Settlement Agreement by and among the Company, ASEN 2, Corp. and XOG Operating
    LLC, dated as of June 30, 2012 (23)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.59</TD>
    <TD STYLE="padding-left: 0.3pt">Form of Warrant issued to Pentwater, dated July 23, 2012 (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.60</TD>
    <TD STYLE="padding-left: 0.3pt">Form of Amended and Restated Series C Warrant issued to Investor, dated July 23, 2012 (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.61</TD>
    <TD STYLE="padding-left: 0.3pt">Form of Amended and Restated Warrant issued to Pentwater, dated July 23, 2012 (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.62</TD>
    <TD STYLE="padding-left: 0.3pt">First Amendment to Note and Warrant Purchase Agreement by and among the Company, ASEN 2,
    and Pentwater, dated as of July 23, 2012 (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.63</TD>
    <TD STYLE="padding-left: 0.3pt">Amended Secured Convertible Promissory Note issued by ASEN 2 to Pentwater, dated July 23,
    2012 (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.64</TD>
    <TD STYLE="padding-left: 0.3pt">Modification Agreement by and among the Company, Pentwater and its affiliates, dated as
    of July 23, 2012 (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.1</TD>
    <TD>Consent of BDO USA, LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.2</TD>
    <TD>Consent of Blank Rome LLP (contained in Exhibit 5.1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.3</TD>
    <TD STYLE="text-align: justify">Consent of Bryant M. Mook, B.Sc. M.Eng. #</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.4</TD>
    <TD STYLE="text-align: justify">Consent of DeGolyer and MacNaughton #</TD></TR>
</TABLE>


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<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10%">99.1</TD>
    <TD STYLE="width: 90%; text-align: justify">Williamson Petroleum Consultants, Inc. Look Back Report to the Interests of
    American Standard Energy Corp. effective December 31, 2009 (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>99.2</TD>
    <TD STYLE="text-align: justify">Williamson Petroleum Consultants, Inc. Look Back Report to the Interests of American Standard
    Energy Corp. effective December 31, 2008 (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>99.3</TD>
    <TD STYLE="text-align: justify">American Standard Energy Corp. Company Corporate Profile Fact Sheet (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>99.4</TD>
    <TD STYLE="text-align: justify">Reserve Report by Bryant M. Mook, B.Sc. M.Eng., Petroleum Engineer and Geological Advisor
    as of December 31, 2010 (13)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>99.5</TD>
    <TD STYLE="text-align: justify">Reserve Report by DeGolyer and MacNaughton as of December 31, 2011</TD></TR>
</TABLE>
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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(1)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on October 4, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(2)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on October 26, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(3)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on November 17, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(4)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on December 6, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(5)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on December 27, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(6)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on February 2, 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(7)&nbsp;</TD>
    <TD COLSPAN="2"><B>&nbsp;</B>Incorporated by reference to Form 8-K filed on February 16, 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(8)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on March 7, 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>(9)&nbsp;</TD>
    <TD COLSPAN="2">Incorporated by reference to Form 8-K filed on April 1, 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(10)&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on April 1, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(11)&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on April 14, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(12)&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on July 13, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(13)&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 10-K/A filed on March 22, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(14)&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on October 4, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(15)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;Incorporated by reference to Form S-1/A filed on January 4, 2012.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(16)&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on January 6, 2012.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(17)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on February 15, 2012.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(18)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on March 9, 2012.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(19)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Exhibit C filed with the Company&rsquo;s Definitive
    Proxy Statement on Schedule 14C dated December 30, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(20)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Exhibit A filed with the Company&rsquo;s Definitive
    Proxy Statement on Schedule 14C dated December 30, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(21)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Exhibit B filed with the Company&rsquo;s Definitive
    Proxy Statement on Schedule 14C dated December 30, 2011.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(22)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on April 10, 2012.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">(23)</TD>
    <TD COLSPAN="2" STYLE="vertical-align: top">Incorporated by reference to Form 8-K filed on July 6, 2012.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center; width: 5%">&nbsp;</TD>
    <TD STYLE="vertical-align: top; width: 4%">&nbsp;</TD>
    <TD STYLE="vertical-align: top; width: 90%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%; font-size: 10pt; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 4%; font-size: 10pt">(24)</TD>
    <TD STYLE="width: 91%; font-size: 10pt">Incorporated by reference to Form 8-K filed on July 27, 2012.</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">+ Schedules and exhibits have been omitted pursuant to Item
601(b)(2) of Regulation S-K. American Standard Energy Corp. hereby undertakes to furnish supplementally to the Securities and
Exchange Commission copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">* Denotes management compensation plan or arrangement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"># To be filed by amendment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 17.Undertakings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; text-align: right">(A)&nbsp;</TD>
    <TD>The undersigned Registrant hereby undertakes:</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">(1)&nbsp;</TD>
    <TD STYLE="text-align: justify">To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px">(i)&nbsp;</TD>
    <TD STYLE="text-align: justify">To include any prospectus required by Section 10(a)(3) of the Securities Act;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px">(ii)&nbsp;</TD>
    <TD STYLE="text-align: justify">To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the &ldquo;Calculation of Registration Fee&rdquo; table in the effective registration statement; and</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD STYLE="width: 24px">(iii)</TD>
    <TD STYLE="text-align: justify">To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">(2)&nbsp;</TD>
    <TD STYLE="text-align: justify">That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px">(3)&nbsp;</TD>
    <TD STYLE="text-align: justify">To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(B) The issuer is subject to Rule 430C (ss. 230. 430C of this
chapter): Each prospectus filed pursuant to Rule 424(b)(ss. 230. 424(b) of this chapter) as part of a registration statement relating
to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A&nbsp;(ss.
230. 430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part&nbsp;of
the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(C) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling persons of the undersigned Registrant pursuant to the
foregoing provisions, or otherwise, the undersigned has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the undersigned of expenses incurred or paid by a director, officer or controlling
person of the undersigned in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the undersigned will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SIGNATURES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Pursuant to the requirements of the Securities Act of 1933,
American Standard Energy Corp. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the city of Scottsdale, State of Arizona&nbsp;on this&nbsp;3<SUP>rd</SUP> day of August, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>American Standard Energy Corp.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20%">By:</TD>
    <TD STYLE="width: 40%; font-style: italic; border-bottom: Black 1pt solid"><I>/s/<B>&nbsp;</B>Scott Feldhacker</I></TD>
    <TD STYLE="width: 40%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>Name: Scott Feldhacker</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>Title: Chief Executive Officer, Director</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;(Principal Executive Officer)</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>By:</TD>
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid"><I>/s/<B>&nbsp;</B>Scott Mahoney</I></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>Name: Scott Mahoney</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>Title: Chief Financial Officer</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;(Principal Accounting Officer)</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the dates indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 36%; font-weight: bold; border-bottom: Black 1pt solid">Signature</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 45%; font-weight: bold; border-bottom: Black 1pt solid">Title</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 15%; font-weight: bold; border-bottom: Black 1pt solid">Date</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ Scott Feldhacker</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Executive Officer&nbsp;&nbsp;and Director</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Scott Feldhacker</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ Scott Mahoney</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Financial Officer, Principal Accounting Officer</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Scott Mahoney</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ Richard MacQueen</TD>
    <TD>&nbsp;</TD>
    <TD>President and Director</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Richard MacQueen</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ Robert J. Thompson</TD>
    <TD>&nbsp;</TD>
    <TD>Chairman of the Board of Directors</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Robert J. Thompson</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ Randall Capps</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Randall Capps</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ James R. Leeton, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>James R. Leeton, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ Scott David</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Scott David</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-style: italic; border-bottom: Black 1pt solid">/s/ William Killian</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>August 3, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>William Killian</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
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{"company-data": {"conformed-name": "American Standard Energy Corp.", "cik": "0001349976", "assigned-sic": "1381", "irs-number": "202791397", "state-of-incorporation": "DE", "fiscal-year-end": "1130"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-183097", "film-number": "121010479"}, "business-address": {"street1": "4800 NORTH SCOTTSDALE ROAD", "street2": "SUITE 1400", "city": "SCOTTSDALE", "state": "AZ", "zip": "85281", "phone": "(757) 961-0866"}, "mail-address": {"street1": "4800 NORTH SCOTTSDALE ROAD", "street2": "SUITE 1400", "city": "SCOTTSDALE", "state": "AZ", "zip": "85281"}, "former-company": {"former-conformed-name": "Famous Uncle Als Hot Dogs & Grille Inc", "date-changed": "20060117"}}
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN STANDARD ENERGY CORP.
(Exact Name of Small Business Issuer in
its Charter)
Delaware
1381
20-2791397
(State or other Jurisdiction of
(Primary Standard Classification
(IRS Employer Identification
Incorporation)
Code)
No.)
4800 North Scottsdale Road, Suite 1400
Scottsdale, AZ 85251
Tel. No.: (480) 371-1929
(Address and Telephone Number of Registrant's
Principal
Executive Offices and Principal Place of
Business)
Scott Mahoney, CFA
Chief Financial Officer
4800 North Scottsdale Road, Suite 1400
Scottsdale, AZ 85251
Tel. No.: (480) 371-1929
(Name, Address and Telephone Number of Agent
for Service)
Copies of communications to:
Kathleen A. Cunningham, Esq.
Kristina L. Trauger, Esq.
Blank Rome LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Tel. No.: (212) 885-5339
Fax No.: (917) 332-3840
Approximate date of commencement of proposed
sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
þ
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
þ
Non-accelerated filer
¨
Smaller reporting company
¨
CALCULATION OF REGISTRATION FEE
Title of Each Class Of Securities to be
Registered
Amount to be
Registered
(1)
Proposed
Maximum
Offering Price
Per Share
Proposed
Maximum
Aggregate
Offering Price
Amount of
Registration
Fee
Common Stock, $0.001 par value per share, issuable upon exercise of warrants
6,666,666
$
1.03
(2)
$
6,866,666
$
787
TOTAL
6,666,666
$
6,866,666
$
787
(1)           This
Registration Statement covers the resale by our selling shareholders of up to 6,666,666 shares of common stock issuable upon
the exercise of common stock purchase warrants.  In accordance with Rule 416(a), promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), the Registrant is also registering hereunder an
indeterminate number of shares that may be issued and resold pursuant to Rule 416 to prevent dilution resulting from stock
splits, stock dividends or similar transactions. No additional consideration will be received for the common stock, and
therefore no registration fee is required pursuant to Rule 457(i) under the Act.
(2)           The
offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule
457(c), promulgated under the Securities Act, based on the average of the high and low prices of our common stock on August 2,
2012, as reported on the OTC Bulletin Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
The information in this prospectus is not complete
    and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange
    Commission ("SEC") is effective. This prospectus is not an offer to sell these securities and we are not soliciting
    offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
Subject to completion, dated August
3, 2012
6,666,666 SHARES OF COMMON STOCK
AMERICAN STANDARD ENERGY CORP.
This prospectus relates to the resale
by selling security holders of 6,666,666 shares of our common stock, $0.001 par value, issuable upon the exercise of warrants held by the selling security
holders (the "Warrants").
We are not selling any shares of our common
stock and, as a result, we will not receive any proceeds from the sale of the common stock covered by this prospectus other than
proceeds in the event that some or all of the Warrants held by the selling security holders are exercised for cash.  All
of the net proceeds from the sale of our common stock will go to the selling security holders.
The selling security holders may sell common
stock from time to time at prices established on the Over the Counter Bulletin Board ("OTCBB") or as negotiated in
private transactions, or as otherwise described under the heading "Plan of Distribution." The common stock may be sold
directly or through agents or broker-dealers acting as agents on behalf of the selling security holders. The selling security holders
may engage brokers, dealers or agents who may receive commissions or discounts from the selling security holders. We will pay all
the expenses incident to the registration of the shares; however, we will not pay for sales commissions or other expenses applicable
to the sale of our common stock registered hereunder.
Our common stock is quoted on the OTCBB
under the symbol "ASEN." On August 2, 2012, the closing bid price of our common stock was $1.03 per share. These prices
will fluctuate based on the demand for our common stock.
Investing in our common stock involves
a high degree of risk. See "Risk Factors" beginning on page 4 to read about factors you should consider before investing
in shares of our common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION
("SEC") NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of This Prospectus is:    ,
2012
TABLE OF CONTENTS
PAGE
Prospectus Summary
1
Risk Factors
4
Cautionary Note Regarding Forward-Looking Statements
29
Use of Proceeds
29
Determination of Offering Price
29
Dilution
29
Selling Security Holders
29
Plan of Distribution
32
Market Price and Dividends on Registrant's Common Equity and Related Stockholder Matters
35
Description of Securities
36
Interests of Named Experts and Counsel
96
Description of the Business
40
Legal Proceedings
48
Disclosure Related to Oil and Gas Producing Activities
48
Management's Discussion and Analysis of Financial Condition and Results of Operations
57
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
76
Directors, Executive Officers and Corporate Governance
77
Executive Compensation
82
Security Ownership of Certain Beneficial Owners and Management
91
Transactions with Related Persons, Promoters, and Certain Control Persons
92
Financial Statements
F-1
Other Expenses of Issuance and Distribution
II-1
Indemnification of Directors and Officers
II-1
Recent Sales of Unregistered Securities
II-2
Exhibits and Financial Statement Schedules
II-8
Undertakings
II-11
Please read this prospectus carefully. It describes our business,
our financial condition and results of operations. We have prepared this prospectus so that you will have the information necessary
to make an informed investment decision.
You should rely only on information contained in this prospectus.  We
have not authorized any other person to provide you with different information.  This prospectus is not an offer to sell,
nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted.  The information
in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that
date.
USE OF CERTAIN DEFINED TERMS
Except as otherwise indicated by the context, references
in this prospectus to "we," "us," "our," or "the Company" are to the combined
business of American Standard Energy Corp., a Delaware corporation, and its consolidated subsidiaries, including the Company's
wholly-owned subsidiaries, American Standard Energy Corp., a Nevada corporation, which is also referred to herein as "Nevada
ASEC" and ASEN 2, Corp., a Delaware corporation, which is also referred to herein as "ASEN 2."
PROSPECTUS SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus.  This summary does not contain all the information that you should consider before investing
in the common stock.  You should carefully read the entire prospectus, including "Risk Factors", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements, before making an
investment decision.
THE COMPANY
General
We are an independent, non-operator oil
and natural gas company engaged in the acquisition of leaseholds of oil and natural gas properties.  Our leasehold acreage
is located in the Permian Basin of West Texas and Eastern New Mexico, referred to herein as the Permian Basin, the Eagle Ford
Shale Formation of South Texas, referred to herein as Eagle Ford, the Bakken Shale Formation in North Dakota, referred to herein
as Bakken, the Niobrara Shale Formation of Wyoming and Nebraska, herein referred to as the Niobrara, the Eagle Bine Shale Formation
in South East Texas, herein referred to as the Eagle Bine, and the Gulf Coast of South Texas, herein referred to as the Gulf Coast.
In the Permian Basin, the Niobrara, the
Eagle Bine and parts of the Eagle Ford, we own a number of leases where we hold the majority working interest. We have historically
contracted and expect to continue to contract with third-party operators, consultants, and other contractor service providers
to operate and drill our majority leasehold acreage. Within this acreage, the Company has historically contracted to drill conventional,
vertical wells. The Company may consider contracting with third parties to selectively drill unconventional, horizontal wells
in areas that may be prospective for oil and gas bearing shale formations.
We also hold minority interest leasehold
acreage in the Bakken, parts of the Permian Basin, and parts of the Eagle Ford. In the minority working interest leaseholds, the
Company has historically participated and expects to continue to participate on a non-operated basis in the drilling and production
of acreage operated by independent oil and gas operating companies.
As of December 31, 2011, we held working
interests in approximately 40,100 net acres in the Permian Basin, Bakken, and Eagle Ford regions. After closing a significant
acquisition, as of March 31, 2012, we held working interests in approximately 112,400 net acres in the Permian Basin, Bakken,
Eagle Ford, Niobrara, Eagle Bine and Gulf Coast regions. These working interests grant us the right as the lessee of the property
to explore for, develop and produce oil, natural gas and other minerals, while bearing our portion of related exploration, development
and operating costs.
We are affiliated with and have a working
relationship with XOG Operating, LLC, herein referred to as XOG, a seasoned exploration and production operator based in Midland,
Texas that has been operating, developing and exploiting oil and gas properties in 14 states for over 30 years with its primary
focus being the Permian Basin of West Texas.   XOG is currently contracted to operate the existing wells currently
held by us in the Permian Basin region.  Randall Capps has controlling ownership of XOG, Geronimo Holding Corporation,
herein referred to as Geronimo, and CLW South Texas 2008, LP, herein referred to as CLW (XOG, Geronimo and CLW, collectively,
the "XOG Group"). We have acquired the majority of our oil and natural gas leasehold properties from the XOG Group.
Mr. Capps is also a member of the Company's board of directors.  Through his ownership interest in the XOG Group,
Mr. Capps beneficially owns approximately 56.7% of our common stock as of August 2, 2012 and is the largest shareholder of our
common stock.  Mr. Capps is also the father-in-law of Scott Feldhacker, our chief executive officer and director.
1
Corporate History
We were incorporated as National Franchise
Directors, Inc. under the laws of the state of Delaware on March 4, 2005.  On October 25, 2005, we changed our name to
Famous Uncle Al's Hot Dogs & Grille, Inc.
American Standard Energy Corp., herein
referred to as Nevada ASEC, was incorporated in Nevada on April 2, 2010 for the purposes of acquiring certain oil and natural
gas leasehold properties from the XOG Group and making capital investments in acreage acquisitions and working interests in existing
or planned hydrocarbon production with a special focus on oil and natural gas producing properties.
On October 1, 2010, we entered into a Share
Exchange Agreement, referred to as the Share Exchange Agreement by and among our then-controlling stockholder, Nevada ASEC and
the former stockholders of Nevada ASEC.  Pursuant to the Share Exchange Agreement, we (i) spun-off our former restaurant
franchise rights and related operations to the former controlling stockholder in exchange for the cancellation of 25,000,000 shares
of our common stock and (ii) acquired 100% of the outstanding shares of common stock of Nevada ASEC from the former Nevada ASEC
stockholders and received $25,000 of additional consideration.  In exchange, the Nevada ASEC stockholders received approximately
22,000,000 shares of our common stock on the closing date of the Share Exchange Agreement. As a result, Nevada ASEC became our
wholly-owned subsidiary.
ASEN 2, Corp., referred to herein as
ASEN 2, a wholly-owned subsidiary of the Company, was formed on January 25, 2012 in connection with the acquisition and financing
of certain oil and natural gas leasehold properties.
We will continue to focus on acquiring producing
and non-producing mineral right interests and developing our currently held mineral rights leaseholds within the Permian Basin,
Bakken, and Eagle Ford regions.  Additionally, we also anticipate pursuing the acquisition of leaseholds within other
geographic areas.
Risk Factors
Our ability to operate our business successfully and achieve
our goals and strategies is subject to numerous risks as discussed more fully in the section titled "Risk Factors,"
beginning on page 4, including, for example, the following:
·
We depend on third-party operators, the loss of which could materially affect our ability to operate our business;
·
Our growth depends on successful acquisitions and our relationship with the XOG Group;
·
Our leases on certain undeveloped leasehold acreage will expire over the next one to eight years, at which time we will lose our right to develop the related properties unless the acreage is held by production;
·
Our lack of geographic and industry diversification increases the risk of investment in our Company;
·
The loss of any key employee, including members of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industry could harm our business;
·
Fluctuations in oil and gas prices may adversely affect our financial condition;
·
Tax changes and the elimination of certain tax incentives could have an adverse affect on our financial position;
·
Exploration and drilling for oil and gas are high-risk activities and the estimated reserves and costs may be inaccurate;
2
·
Changes in federal and state regulation related to our industry and to hydraulic fracturing may have an adverse affect on our business; and
·
An active trading market for our shares may never develop.
Any of the above risks could materially and adversely affect
our business, financial position and results of operations. An investment in our securities involves risks. You should read and
consider the information set forth in "Risk Factors" and all other information set forth in this prospectus before
investing in our securities.
Corporate Information
We presently maintain our principal offices at 4800 North Scottsdale
Road, Suite 1400, Scottsdale, AZ 85251.  Our telephone number is (480) 371-1929.
The Offering
Common stock offered by selling security holders
6,666,666 shares of common stock issuable upon exercise of the Warrants.
Common stock outstanding before the offering
50,921,798 shares of common stock as of August 3, 2012.
Common stock outstanding after the offering
50,921,798 shares of common stock as of August 3, 2012, assuming that no warrants or options are exercised, including
    the Investor Warrants and Placement Agent Warrants (collectively, the "Warrants").
Termination of the Offering
The offering will conclude upon the earliest of (i) such time as all of the common stock has been sold pursuant to
    the registration statement or (ii) such time as all of the common stock becomes eligible for resale pursuant to Rule 144 promulgated
    under the Securities Act of 1933, as amended (the "Securities Act"), or any other rule of similar effect.
Use of proceeds
We are not selling any shares of the common stock covered by this prospectus, and, as a result, will not receive any
    proceeds from this offering. We may, however, receive proceeds in the event that some or all of the Warrants held by the selling
    security holders are exercised for cash. The proceeds from the exercise of such Warrants, if any, will be used for working
    capital and other general corporate purposes.
OTCBB Trading Symbol
ASEN
Risk Factors
The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot
    afford the loss of their entire investment. See "Risk Factors" beginning on page 4.
3
RISK FACTORS
An investment in our securities involves a high degree of
risk. You should carefully consider the risks described below together with all of the other information included in this prospectus
before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are
not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to
differ materially from those set forth in or implied by forward-looking statements. For further information see "Cautionary
Statement Regarding Forward-Looking Statements." If any of the following risks actually occurs, our business, financial condition
or results of operations could be harmed. In that case, you may lose all or part of your investment.
RISKS RELATING TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAY NOT
SERVE AS AN ADEQUATE BASIS TO JUDGE OUR FUTURE PROSPECTS AND RESULTS OF OPERATIONS.
Our wholly-owned
subsidiaries, Nevada ASEC and ASEN 2, were incorporated on April 2, 2010 and January 25, 2012. Accordingly, we have a limited
operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their early stages of development. We cannot assure you
that we will be successful in addressing the risks we may encounter, and our failure to do so could have a material adverse effect
on our business, prospects, financial condition and results of operations. Our future operating results will depend on many factors,
including:
·
our ability to raise adequate working capital;
·
the successful development and exploration of our properties;
·
demand for oil and natural gas;
·
the performance level of our competition;
·
our ability to attract and maintain key management and employees; and
·
our ability to efficiently explore, develop and produce sufficient quantities of marketable natural gas or oil in a highly competitive and speculative environment while maintaining quality and controlling costs.
The business of acquiring,
exploring for, developing and producing hydrocarbon reserves is inherently risky. We have a limited operating history for you to
consider in evaluating our business and prospects. Our operations are therefore subject to all of the risks inherent in acquiring,
exploring for, developing and producing hydrocarbon reserves, particularly in light of our limited experience in undertaking such
activities. We may never overcome these obstacles.
Our business is speculative
and dependent upon the implementation of our business plan and our ability to enter into agreements with third parties for the
rights to exploit potential oil and natural gas reserves on terms that will be commercially viable for us. To achieve profitable
operations in the future, we must, alone or with others, successfully manage the factors stated above, as well as continue to develop
ways to enhance our production efforts. Despite our best efforts, we may not be successful in our exploration or development efforts,
or obtain required regulatory approvals. There is a possibility that some of our wells may never produce oil or natural gas.
4
WE ARE DEPENDENT ON THE SKILL, ABILITY
AND DECISIONS OF THIRD-PARTY OPERATORS.  THE FAILURE OF ANY THIRD-PARTY OPERATOR TO PERFORM THEIR SERVICES OR COMPLY
WITH LAWS COULD RESULT IN MATERIAL ADVERSE CONSEQUENCES TO OUR PROPERTY INTERESTS AND SUBSTANTIAL PENALTIES.
We do not operate any
of our properties. The success of the drilling, development, production and marketing of the oil and natural gas from our properties
is dependent upon the decisions of our third-party operators who drill, develop, produce and market the oil and natural gas present
on our leasehold properties.  Such third-party operators failure to comply with various laws, rules and regulations affecting
our properties could result in adverse consequences to us, our properties and our production. The failure of any third-party operator
to make decisions, perform their services, discharge their obligations, deal with regulatory agencies, and comply with laws, rules
and regulations, including environmental laws and regulations in a proper manner with respect to properties in which we have an
interest could result in material adverse consequences to our interest in such properties, including substantial penalties and
compliance costs. Such adverse consequences could result in substantial liabilities to us or could reduce the value of our properties,
which could negatively affect our results of operations.
OUR THIRD-PARTY OPERATORS MAY BE UNABLE
TO RENEW OR MAINTAIN CONTRACTS WITH INDEPENDENT PURCHASERS, WHICH WOULD HARM OUR BUSINESS AND FINANCIAL RESULTS.
Independent purchasers
buy our oil and natural gas and our third-party operators negotiate such contracts. Upon expiration of our independent purchasers'
contracts, we are subject to the risk that the oil and natural gas purchasers will cease buying our oil and gas production output.
It is not always possible for our third-party operators to obtain replacement oil and natural gas purchasers immediately as the
industry is extremely competitive. If these contracts are not renewed, it could result in a significant negative impact on our
business as we would be unable to sell the oil or natural gas produced on our leasehold properties.
THE POSSIBILITY OF A GLOBAL FINANCIAL CRISIS
MAY SIGNIFICANTLY IMPACT THE COMPANY'S BUSINESS AND FINANCIAL CONDITION FOR THE FORESEEABLE FUTURE.
The credit crisis and
related turmoil in the global financial system may adversely impact our business and financial condition, and we may face challenges
if conditions in the financial markets remain challenging. Our ability to access the capital markets may be restricted at a time
when we would prefer or be required to raise financing. Such constraints could have a material negative impact on our flexibility
to react to changing economic and business conditions. The economic situation could also have a material negative impact on the
operators upon whom we are dependent on for drilling our wells, and our lenders, causing us to fail to meet our obligations to
them or for them to fail to meet their obligations to the Company. Additionally, market conditions could have a material negative
impact on any crude oil hedging arrangements we may employ in the future if our counterparties are unable to perform their obligations
or seek bankruptcy protection.
THE FUTURE OF THE COMPANY IS DEPENDENT
ON THE SUCCESSFUL ACQUISITION AND DEVELOPMENT OF PRODUCING AND RESERVE-RICH PROPERTIES AND ON OUR RELATIONSHIP WITH XOG.
We intend to continue
to supplement our current portfolio with additional sites and leaseholds. Our ability to meet our growth and operational objectives
will depend on the success of our acquisitions and our relationship with XOG, and there is no assurance that the integration of
future assets and leaseholds will be successful. XOG is currently contracted to operate our existing wells in the Permian Basin
region and provides us with a source of leasehold acquisitions. The loss of our relationship with XOG would make it more difficult
to locate attractive leasehold acquisition targets. The possibility exists that future transactions between the Company and its
affiliates may not be considered arms-length when executed due to the common ownership of our largest stockholder, Randall
Capps, and his controlling ownership of the XOG Group.  Randall Capps is also a Director on the Company's Board
of Directors and the father-in-law of our Chief Executive Officer, Scott Feldhacker.
OUR LACK OF DIVERSIFICATION WILL INCREASE
THE RISK OF AN INVESTMENT IN THE COMPANY, AND OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY DETERIORATE IF WE FAIL TO
DIVERSIFY.
5
Our business focus
is on the oil and gas industry. Larger companies have the ability to manage their risk by greater geographic and industry diversification.
However, we may lack comparable diversification, in terms of both the nature and geographic scope of our business. As a result,
we will likely be impacted more acutely by factors affecting the oil and gas industry or the regions in which we operate, than
we would if we were a more diversified business. If we do not diversify the nature and geographic scope of our operations, our
financial condition and results of operations could deteriorate in connection with downturns in the oil and gas industry or the
oil and gas production in the geographic areas in which we operate.
WE MAY BE UNABLE TO OBTAIN ADDITIONAL
CAPITAL REQUIRED TO IMPLEMENT OUR BUSINESS PLAN, WHICH COULD RESTRICT OUR ABILITY TO GROW.
We expect to be
able to fund our 2012 capital budget partially with operating cash flows, in conjunction with our credit facility entered into
on September 21, 2011 and other financings. We will require additional capital to continue to grow our business via the drilling
program through our third-party operators associated with our current properties and expansion of our exploration and development
and leasehold acquisition programs. We may be unable to obtain additional capital if and when required.
Future acquisitions
and future exploration and development activity will require additional capital that may exceed operating cash flow. In addition,
our administrative costs (such as salaries, insurance expenses and general overhead expenses, as well as legal compliance costs
and accounting expenses) will require cash resources.
We may pursue sources
of additional capital through various financing transactions or arrangements, including joint venturing of projects, debt financing,
equity financing or other means. We may not be successful in identifying suitable financing transactions in the time period required
or at all, and we may not obtain the required capital by other means. If we are not successful in raising additional capital,
our resources may be insufficient to fund our planned expansion of operations in 2012 or thereafter.
Any additional capital
raised through the sale of equity may dilute the ownership percentage of our stockholders. Raising any such capital could also
result in a decrease in the nominal fair market value of our equity securities because our assets would be owned by a larger pool
of outstanding equity. The terms of securities we issue in future capital transactions may be more favorable to new investors
and may include preferences, superior voting rights, the issuance of other derivative securities and issuances of incentive awards
under equity employee incentive plans, all of which may have a dilutive effect to existing investors.
Our ability to obtain
financing, if and when necessary, may be impaired by such factors as the capital markets (both generally and in the oil and gas
industry in particular), our limited operating history, the location of our oil and natural gas properties, prices of oil and
natural gas on the commodities markets (which will impact the amount of asset-based financing available to us) and the departure
of key employees. Further, if oil or natural gas prices decline, our revenues will likely decrease and such decreased revenues
may increase our requirements for capital. If the amount of capital we are able to raise from financing activities, together with
revenues from our operations, are not sufficient to satisfy our capital needs (even if we reduce our operations), we may be required
to cease operations, divest our assets at unattractive prices or obtain financing on unattractive terms.
STRATEGIC RELATIONSHIPS UPON WHICH
WE MAY RELY ARE SUBJECT TO CHANGE, WHICH MAY DIMINISH OUR ABILITY TO CONDUCT OPERATIONS.
Our ability to acquire
additional leaseholds successfully, to increase our oil and natural gas reserves, to participate in drilling opportunities through
our third party operators and to identify and enter into commercial arrangements with customers will depend on developing and maintaining
close working relationships with XOG and industry participants, and our ability to select and evaluate suitable properties and
to consummate transactions in a highly competitive environment. Our inability to maintain close working relationships with XOG
and other industry participants or continue to acquire suitable leaseholds may impair our ability to execute our business plan.
6
To continue to develop
our business, we will endeavor to use the business relationships of members of our management to enter into strategic relationships,
which may take the form of joint ventures with other private parties and contractual arrangements with other oil and gas companies,
including those that supply equipment and other resources which we may use in our business. We may not be able to establish these
strategic relationships, or if established, we may not be able to maintain them adequately. In addition, the dynamics of our relationships
with strategic partners may require the Company to incur expenses or undertake activities we would not otherwise be inclined to
in order to fulfill our obligations to these partners or maintain our relationships. For example, we may hold minority interests
in a lease that has significant existing or prospective value due to current production or future reserve prospects.  We
may be subject to contracts with a third-party operator that compel us to make certain financial commitments on that lease, otherwise
we may be at risk of forfeiting existing or future rights to petroleum production from that lease if we fail to meet those financial
obligations.  Such provisions may be included in any third party joint operating agreement, or JOA, drilling program
under an area of mutual interest (AMI), or other joint venture projects which are common in our industry. If our strategic relationships
are not established or maintained, the Company's business prospects may be limited, which could diminish our ability to
conduct our operations.
WE MUST REACH AGREEMENTS WITH THIRD-PARTY
PROFESSIONALS AND EXPERTS TO SUPPLY US WITH THE EXPERTISE, SERVICES AND INFRASTRUCTURE NECESSARY TO OPERATE OUR BUSINESS, AND THE
LOSS OF ACCESS TO THESE EXPERTS, THESE SERVICES AND INFRASTRUCTURE COULD CAUSE OUR BUSINESS TO SUFFER, WHICH, IN TURN, COULD DECREASE
OUR REVENUES AND INCREASE OUR COSTS.
We have certain contemplated
strategic vendor relationships that will be critical to our strategy. As a non-operator, we must actively secure the services of
drilling companies, hydrofracking and completion companies, contract operators, engineers and other service providers.  In
our majority working interest leases in the Permian Basin, we rely on the contractual relationship with XOG for much of these services.  We
also rely on the consulting expertise of Cambrian Management Ltd., an unaffiliated third-party consulting firm with expertise in
the drilling and completion of specific wells in the Permian Basin.  We cannot assure that these relationships can be
maintained or obtained on terms favorable to us. Our success depends substantially on obtaining relationships with additional strategic
partners, such as investment banks, accounting firms, legal firms and operational entities. If we are unable to obtain or maintain
relationships with strategic partners, our business, prospects, financial condition and results of operations may be materially
adversely affected.
CERTAIN OF OUR UNDEVELOPED LEASEHOLD ACREAGE
IS SUBJECT TO LEASES THAT WILL EXPIRE OVER THE NEXT SEVERAL YEARS UNLESS PRODUCTION IS ESTABLISHED ON SUCH ACREAGE OR THE LEASES
ARE EXTENDED.
Our leases on certain
undeveloped leasehold acreage may expire over the next one to eight years. A portion of our acreage is not currently held by production.
Unless production in paying quantities is established on acres containing these leases during their initial terms or we obtain
extensions of the leases, these leases will expire. If our leases expire, we will lose our right to develop the related properties
covered by such leases.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL.  THE
LOSS OF SUCH PERSONNEL COULD IMPAIR OUR ABILITY TO FULFILL OUR BUSINESS PLAN.
We are dependent on
the services of Scott Feldhacker, our Chief Executive Officer, Richard MacQueen, our President and Scott Mahoney, our Chief Financial
Officer. The loss of services of any of these individuals could impair our ability to complete acquisitions of producing assets
and leaseholds, perform relevant managerial and legal services and maintain key relationships with XOG and other market participants
which could have a material adverse effect on our business, financial condition and results of operations.
RANDALL CAPPS, THE FATHER-IN-LAW OF
OUR CHIEF EXECUTIVE OFFICER, IS THE HOLDER OF A MAJORITY OF OUR COMMON STOCK AND IS A DIRECTOR OF THE COMPANY.  THE
INTERESTS OF MR. CAPPS MAY NOT BE ALIGNED WITH OUR INTERESTS OR THE INTERESTS OF OUR OTHER STOCKHOLDERS.  ACCORDINGLY,
ANY LOSS OF OUR RELATIONSHIP WITH MR. CAPPS, OR A DISAGREEMENT WITH MR. CAPPS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS,
PROSPECTS, REVENUES AND RESULTS OF OPERATIONS.
7
Randall Capps is
a member of our board of directors and, as of August 2, 2012, beneficially owns 28,937,522 shares of common stock or approximately
56.7% of the Company's outstanding common stock. Mr. Capps is the sole owner of XOG and Geronimo and is the majority owner
of CLW. This significant ownership allows Mr. Capps to be able to exert significant control over decisions requiring stockholder
approval, including the election of directors and approval of the sale of assets and other business combinations. Additionally,
as one of our directors, Mr. Capps is aware of our business plans and may disagree with management's day-to-day operations
of the Company.  Conflicts of interest may arise between Mr. Capps and his affiliates, including XOG, Geronimo and CLW,
on the one hand, and the Company and our other stockholders, on the other hand. As a result of these conflicts, Mr. Capps and
his affiliates may favor their own interests over the interests of our stockholders.
RANDALL CAPPS AND HIS AFFILIATED ENTITIES,
THE XOG GROUP, ARE NOT LIMITED IN THEIR ABILITY TO COMPETE WITH US, WHICH COULD LIMIT OUR ABILITY TO ACQUIRE OR DEVELOP ADDITIONAL
ASSETS OR BUSINESSES.
Mr. Capps and his affiliates
are not limited in their ability to compete with us and are under no obligation to offer opportunities to us. In addition, Mr.
Capps and his affiliates may compete with us with respect to any future acquisition opportunities.
Neither our charter
documents nor any other agreement prohibits Mr. Capps or the XOG Group from owning assets or engaging in businesses that compete
directly or indirectly with us. In addition, Mr. Capps and the XOG Group may acquire, develop or dispose of additional oil and
natural gas properties or other assets in the future, without any obligation to offer us the opportunity to purchase or develop
any of those assets. Competition from Mr. Capps and the XOG Group could adversely impact our business prospects and results of
operations.
WE NEED TO CONTINUE TO DEVELOP AND
MAINTAIN A DIVERSE PORTFOLIO OF LEASEHOLDS AND PRODUCING PROPERTIES, OTHERWISE WE WILL BE UNABLE TO EFFECTIVELY COMPETE IN THE
INDUSTRY.
To remain competitive,
we must continue to enhance and improve our oil and natural gas reserves and producing properties and leaseholds. We need to seek
available properties and leaseholds in various locations including the Bakken, Eagle Ford and Permian Basin formations, among
others. These efforts may require us to choose one available property in lieu of another which increases risk to our potential
holdings.  If we are unable to maintain a diverse portfolio of leasehold properties, we will be unable to compete effectively
and may be negatively impacted financially if our leasehold properties in a certain location are unable to produce.
MARKET CONDITIONS OR TRANSPORTATION IMPEDIMENTS
MAY HINDER ACCESS TO OIL AND NATURAL GAS MARKETS OR DELAY PRODUCTION.
Market conditions, the
unavailability of satisfactory oil and natural gas transportation or the remote location of our drilling operations by our third
party operators may restrict our access to oil and natural gas markets or delay production. The availability of a ready market
for oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas,
the proximity of reserves to pipelines or trucking and terminal facilities and the availability of trucks and other transportation
equipment. The operators we contract or partner with may be required to shut-in wells or delay initial production for lack of a
viable 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 natural gas and realization of revenues.
RISKS RELATED TO THE OIL AND NATURAL GAS INDUSTRY
CRUDE OIL AND NATURAL GAS PRICES ARE VERY
VOLATILE. A PROTRACTED PERIOD OF DEPRESSED OIL AND NATURAL GAS PRICES MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS
OF OPERATIONS OR CASH FLOWS.
8
The oil and gas
markets are very volatile, and we cannot predict future oil and natural gas prices. The prices we receive for our oil and natural
gas production heavily influences our revenue, profitability, access to capital and future rate of growth. Historically, oil and
natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty
and a variety of additional factors that are beyond our control. Any substantial decline in the price of oil and natural gas will
likely have a material adverse effect on our operations, financial condition and level of expenditures for the development of
our oil and natural gas reserves. The prices we receive for our production and the levels of our production and reserves depend
on numerous factors beyond our control. These factors include, but are not limited to, the following:
·
changes in global supply and demand for oil and natural gas by both refineries
    and end users;
·
the ability of the members of the Organization of Petroleum Exporting Countries
    to agree to and maintain oil price and production controls;
·
the price and volume of imports of foreign oil and natural gas;
·
political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity;
·
the level of global oil and gas exploration and production activity;
·
the level of global oil and gas inventories;
·
weather conditions;
·
technological advances affecting energy consumption;
·
domestic and foreign governmental regulations and taxes;
·
proximity and capacity of oil and gas pipelines and other transportation facilities;
·
the price and availability of competitors' supplies of oil and gas in
    captive market areas;
·
the introduction, price and availability
        of alternative forms of fuel to replace or compete with oil and natural gas;
·
speculation in the price of
        commodities in the commodity futures market;
·
the availability of drilling
        rigs and completion equipment; and
·
the overall economic environment.
Further, oil and
natural gas prices do not necessarily fluctuate in direct relationship to each other. Because approximately 63.5% of our estimated
proved reserves as of December 31, 2011 were oil, our financial results are more sensitive to fluctuations in oil prices. The
price of oil has been extremely volatile, and we expect this volatility to continue for the foreseeable future. The slowdown in
economic activity caused by the worldwide economic recession has reduced worldwide demand for energy. This may result in lower
crude oil and natural gas prices. Crude oil prices declined from record high levels in early July 2008 of over $140 per Bbl to
below $45 per Bbl in February 2009 before rebounding to over $85 per Bbl in July 2012. Natural gas prices declined from over $13
per MMBtu (million British thermal units) in mid-2008 to approximately $2.75 per MMBtu in July 2012. Such a decline could occur
again in the future due to global economic conditions.
9
Lower oil and natural
gas prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil and natural gas that we
can produce economically and therefore potentially lower our reserve bookings. A substantial or extended decline in oil or natural
gas prices may result in impairments of our proved oil and gas properties and may materially and adversely affect our future business,
financial condition, results of operations, liquidity or ability to finance planned capital expenditures. To the extent commodity
prices received from production are insufficient to fund planned capital expenditures; we will be required to reduce spending or
borrow to cover any such shortfall. Lower oil and natural gas prices may also reduce the amount of our borrowing base under our
credit agreement, which is determined at the discretion of the lenders based on the collateral value of proved reserves that have
been mortgaged to the lenders, and is subject to regular redeterminations.
These factors
and the volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with
any certainty.
DRILLING FOR AND PRODUCING OIL AND NATURAL
GAS ARE HIGH RISK ACTIVITIES WITH MANY UNCERTAINTIES.  THE OCCURRENCE OF ANY OF THESE UNCERTAINTIES MAY ADVERSELY AFFECT
OUR FINANCIAL CONDITION.
Our future success
will depend on the success of our exploration, development, and production activities. Our oil and natural gas exploration and
production activities are subject to numerous risks beyond our control; including the risk that drilling will not result in commercially
viable oil or natural gas production. Our decision to purchase, explore, develop or otherwise exploit prospects or properties
will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering
studies, the results of which are often inconclusive or subject to varying interpretations. Our cost associated with drilling,
completing and operating wells is often uncertain before drilling commences. Overruns in budgeted expenditures are common risks
that can make a particular project uneconomical. Further, many factors may curtail, delay or cancel drilling, including the following:
·
delays imposed by or resulting from compliance with regulatory requirements;
·
pressure or irregularities in geological formations;
·
shortages of or delays in obtaining qualified personnel or equipment, including drilling rigs and CO2;
·
equipment failures or accidents;
·
adverse weather conditions, such as freezing
        temperatures, hurricanes and storms;
·
unexpected operational events;
·
reductions in oil and natural
        gas prices;
·
proximity to and capacity of
        transportation facilities;
·
title problems; and
·
limitations in the market for
        oil and natural gas.
The presence of one
or a combination of these factors at our properties could adversely affect our business, financial condition or results of operations.
ESTIMATES OF OIL AND NATURAL GAS RESERVES
THAT MAY BE INACCURATE AND ACTUAL QUANTITY OF OUR PROVED OIL AND NATURAL GAS RESERVES MAY BE LOWER THAN THE COMPANY'S PROJECTIONS.
We make estimates
of oil and natural gas reserves, upon which we have and will base our management decisions. We make these reserve estimates using
various assumptions, including assumptions as to oil and natural gas prices, drilling and operating expenses, capital expenditures,
taxes, timing of operations and availability of funds. Some of these assumptions are inherently subjective, and the accuracy of
our reserve estimates rely in part on the ability of our management team, engineers and other advisors to make accurate assumptions.
10
Determining the
amount of oil and gas recoverable from various formations where we have exploration and production activities involves great uncertainty.
The process of estimating oil and natural gas reserves is complex and will require us to make significant decisions and assumptions
in the evaluation of available geological, geophysical, engineering and economic data for each property. These assumptions are
dependent on many variables, and therefore changes often occur as these variables evolve. As a result, our reserve estimates will
be inherently imprecise. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating
expenses and quantities of recoverable oil and natural gas reserves may vary substantially from our estimates. Although we have
estimated our reserves and the costs associated with these reserves in accordance with industry standards, estimated costs may
not be accurate, development may not occur as scheduled and actual results may not occur as estimated. If actual production results
vary substantially from our reserve estimates, this could materially reduce our revenues and could result in the impairment of
our oil and natural gas properties.
THE PRESENT VALUE OF FUTURE NET REVENUES
FROM OUR PROVED RESERVES WILL NOT NECESSARILY BE THE SAME AS THE CURRENT MARKET VALUE OF OUR ESTIMATED OIL AND NATURAL GAS RESERVES.
You should not
assume that the present value of future net revenues from our proved reserves is the current market value of our estimated oil
and natural gas reserves. In accordance with SEC requirements for the years ended December 31, 2011 and 2010, we based the
estimated discounted future net revenues from our proved reserves on the 12-month unweighted arithmetic average of the first-day-of-the-month
price for the preceding twelve months without giving effect to derivative transactions. Actual future net revenues from our oil
and natural gas properties will be affected by factors such as:
•
actual prices we receive for oil and natural gas;
•
actual cost of development and production expenditures;
•
the amount and timing of actual production; and
•
changes in governmental regulations or taxation.
The timing of
both our production and our incurring expenses in connection with the development and production of oil and natural gas properties
will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value. In
addition, the 10% discount factor we use when calculating discounted future net revenues may not be the most appropriate discount
factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in
general.
Actual future
prices and costs may differ materially from those used in the present value estimates included in this prospectus. Any significant
future price changes will have a material effect on the quantity and present value of our proved reserves.
THE COMPANY WILL RELY ON TECHNOLOGY
TO CONDUCT ITS BUSINESS, AND SUCH TECHNOLOGY COULD BECOME INEFFECTIVE OR OBSOLETE WHICH WOULD RESULT IN SUBSTANTIAL COSTS TO THE
COMPANY.
Our industry is
characterized by rapid and significant technological advancements and introductions of new products and services using new technologies.
We rely on technology, including geographic and seismic analysis techniques and economic models, to develop our reserve estimates
and to guide our exploration, development and production activities. We must continually enhance and update our technology to
maintain its efficacy and to avoid obsolescence. The costs of doing so may be substantial and may be higher than the costs that
we anticipate for technology maintenance and development. In addition, other natural gas and crude oil companies may have greater
financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them
to implement new technologies before we can. We may not be able to respond to these competitive pressures and implement new technologies
on a timely basis or at an acceptable cost. If we are unable to maintain the efficacy of our technology, our ability to manage
our business and to compete may be impaired and our business, financial condition and results of operations could be materially
adversely affected. Further, even if we are able to maintain technical effectiveness, our technology may not be the most efficient
means of reaching our objectives, in which case we may incur higher operating costs than if our technology was more efficient.
11
A DECLINE OF OIL AND NATURAL GAS PRICES
OR A PROLONGED PERIOD OF REDUCED OIL AND NATURAL GAS PRICES COULD RESULT IN A DECREASE IN OUR EXPLORATION AND DEVELOPMENT EXPENDITURES,
WHICH COULD NEGATIVELY IMPACT OUR FUTURE PRODUCTION.
If oil and natural
gas prices decline or reduce to lower levels for a prolonged period of time, we may be unable to continue to fund capital expenditures
at historical levels due to the decreased cash flows that will result from such reduced oil and natural gas prices. Additionally,
a decline in oil and natural gas prices or a prolonged period of lower oil and natural gas prices could result in a reduction
of our borrowing base under our credit facility, which will further reduce the availability of cash to fund our operations, should
we desire to borrow under our credit agreement. As a result, we may have to reduce our capital expenditures in future years. A
decrease in our capital expenditures will likely result in a decrease in our production levels.
CONTINUED WEAKNESS IN ECONOMIC CONDITIONS
OR UNCERTAINTY IN FINANCIAL MARKETS MAY HAVE MATERIAL ADVERSE IMPACTS ON OUR BUSINESS THAT WE CANNOT PREDICT.
U.S. and
global economies and financial systems have experienced episodes of turmoil and upheaval characterized by extreme volatility in
prices of securities, diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure,
collapse or sale of financial institutions, and continue to be affected by continued high levels of unemployment and an unprecedented
level of intervention by the U.S. federal and other governments. Continued weakness in the U.S. or global economies
could materially adversely affect our business and financial condition. For example:
•
the demand for oil and natural gas in the U.S. may decline from
    present levels and may remain at low levels if economic conditions remain weak, and negatively impact our revenues, margins,
    profitability, operating cash flows, liquidity and financial condition;
•
the tightening of credit or lack of credit availability to our customers
    could adversely affect our ability to collect our trade receivables;
•
our ability to access the capital markets may be restricted at a time
    when we would like, or need, to raise capital for our business, including for exploration and/or development of our reserves; and
•
our commodity hedging arrangements could become ineffective if our
    counterparties are unable to perform their obligations or seek bankruptcy protection.
THE OIL AND GAS INDUSTRY IS SUBJECT
TO SUBSTANTIAL COMPETITION.  IF WE ARE UNABLE TO COMPETE EFFECTIVELY, OUR FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED.
The oil and gas
industry is highly competitive. Other oil and gas companies may seek to acquire oil and natural gas leases and other properties
and services the Company requires to operate its business in the planned areas. This competition is increasingly intense as prices
of oil and natural gas have risen in recent years. Additionally, other companies engaged in our line of business may compete with
us from time to time in obtaining capital from investors. Competitors include larger companies who may have access to greater
financial, technical and personnel resources and may conduct their own refining and petroleum marketing operations, which may
give them a competitive advantage. Furthermore, these companies may also be better able to withstand the financial pressures of
unsuccessful drilling attempts, sustained periods of volatility in financial markets and generally adverse global and industry-wide
economic conditions, and may be better able to absorb the burdens resulting from changes in relevant laws and regulations, which
would adversely affect our competitive position. Existing or potential competitors may be able to offer better compensation packages
to attract and retain qualified personnel than we are able to offer. The cost to attract and retain qualified personnel has increased
over the past few years due to competition and may increase substantially in the future. In addition, existing or potential competitors
may be strengthened through the acquisition of additional assets and interests. If we are unable to compete effectively or respond
adequately to competitive pressures, our results of operation and financial condition may be materially adversely affected.
12
OUR BUSINESS OF EXPLORING FOR OIL AND
GAS IS RISKY AND MAY NOT BE COMMERCIALLY SUCCESSFUL, AND THE ADVANCED TECHNOLOGIES THE COMPANY USES CANNOT ELIMINATE EXPLORATION
RISK.
Our future success will depend on the
success of our exploratory drilling program through our third party operators. Oil and gas exploration and development involves
a high degree of risk. These risks are more acute in the early stages of exploration.
Our expenditures
on exploration may not result in new discoveries of oil or natural gas in commercially viable quantities. Projecting the costs
of implementing an exploratory drilling program is difficult due to a variety of factors, including:
·
the inherent uncertainties of drilling in less known formations;
·
the costs associated with encountering various and unexpected drilling conditions, such
    as over-pressured zones;
·
equipment failures or accidents and shortages or delays in the availability of oilfield
    services or drilling rigs and other equipment;
·
changes in drilling plans and locations as a result of prior exploratory wells or additional
    seismic data and interpretations thereof;
·
adverse weather conditions, including hurricanes; and
·
compliance with governmental requirements.
Even when used
and properly interpreted, three-dimensional (3-D) seismic data and visualization techniques only assist geoscientists in identifying
subsurface structures and hydrocarbon indicators. Such data and techniques do not allow the interpreter to know conclusively if
hydrocarbons are present or economically producible. In addition, the use of three-dimensional (3-D) seismic data becomes less
reliable when used at increasing depths. We could incur losses as a result of expenditures on unsuccessful wells. If exploration
costs exceed our estimates, or if our exploration efforts do not produce results which meet our expectations, our exploration
efforts may not be commercially successful, which could adversely impact our ability to generate revenues from our operations.
WE MAY NOT BE ABLE TO DEVELOP OIL AND
GAS RESERVES ON AN ECONOMICALLY VIABLE BASIS, AND OUR RESERVES AND PRODUCTION MAY DECLINE AS A RESULT.
If we succeed in
discovering oil or natural gas reserves, we cannot assure that these reserves will be capable of the production levels we project
or that such levels will be in sufficient quantities to be commercially viable. On a long-term basis, our viability depends on
our ability to find or acquire, develop and commercially produce additional oil and natural gas reserves. Without the addition
of reserves through acquisition, exploration or development activities, our reserves and production will decline over time as
reserves are produced. Our future performance will depend not only on our ability to develop then-existing properties, but also
on our ability to identify and acquire additional suitable producing properties or prospects, to find markets for the oil and
natural gas we develop and to distribute effectively our production into the markets.
13
Future oil
and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit
on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage
could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from
successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-downs of connected wells
resulting from extreme weather conditions, problems in storage and distribution and adverse geological and mechanical conditions.
While we will endeavor to effectively manage these conditions, we cannot assure you we will do so optimally, and we will not be
able to eliminate them completely in any case. Therefore, these conditions could diminish our revenue and cash flow levels and
could result in the impairment of our oil and natural gas properties.
THE UNAVAILABILITY OR HIGH COST OF
ADDITIONAL DRILLING RIGS, EQUIPMENT, SUPPLIES, PERSONNEL AND OILFIELD SERVICES COULD ADVERSELY AFFECT OUR ABILITY TO EXECUTE OUR
EXPLORATION AND DEVELOPMENT PLANS WITHIN OUR BUDGET AND ON A TIMELY BASIS.
Shortages or the
high cost of drilling rigs, equipment, supplies, personnel or oilfield services could delay or adversely affect our development
and exploration operations or cause us to incur significant expenditures that are not provided for in our capital budget, which
could have a material adverse effect on our business, financial condition or results of operations.
OUR DEVELOPMENT AND EXPLORATION OPERATIONS
REQUIRE SUBSTANTIAL CAPITAL, AND WE MAY BE UNABLE TO OBTAIN NEEDED CAPITAL OR FINANCING ON SATISFACTORY TERMS, WHICH COULD LEAD
TO A LOSS OF PROPERTIES AND A DECLINE IN OUR OIL AND NATURAL GAS RESERVES, AND ULTIMATELY OUR PROFITABILITY.
Our industry is
capital intensive. We expect to continue to make substantial capital expenditures in our business and operations for the exploration,
development, production and acquisition of natural gas and crude oil reserves. To date, we have financed capital expenditures
primarily with bank borrowings under our credit facility, cash generated by operating activities, from proceeds from our private
placement offerings of our common stock and proceeds from stock subscription receivables. We intend to finance our future capital
expenditures utilizing similar financing sources. Our cash flows from operations are subject to a number of variables, including:
·
our proved reserves;
·
the amount of oil and natural gas we are able to produce from existing wells;
·
the prices at which oil and natural gas are sold;
·
the costs to produce oil and natural gas; and
·
our ability to acquire, locate and produce new reserves.
If our revenues
or the borrowing base under our credit facility decreases as a result of lower natural gas and crude oil prices, operating difficulties,
declines in reserves or for any other reason, then we may have limited ability to obtain the capital necessary to sustain our
operations at current levels. We may, from time to time, need to seek additional financing. If we raise funds by issuing equity
securities, this could have a dilutive effect on existing stockholders. There can be no assurance as to the availability or terms
of any additional financing. Our inability to obtain additional financing, or sufficient financing on favorable terms, would adversely
affect our financial condition and profitability.
IF OIL AND NATURAL GAS PRICES DECREASE,
WE MAY BE REQUIRED TO TAKE WRITE-DOWNS OF THE CARRYING VALUES OF OUR OIL AND NATURAL GAS PROPERTIES.
We review our
proved oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability
of their carrying value may have occurred. Based on specific market factors and circumstances at the time of prospective impairment
reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required
to write down the carrying value of our oil and natural gas properties, which may result in a decrease in the amount available
under our revolving credit facility. A write-down constitutes a non-cash charge to earnings. We may incur impairment charges in
the future, which could have a material adverse effect on our ability to borrow under our revolving credit facility and our results
of operations for the periods in which such charges are taken.
14
WE OUTSOURCE THE OPERATION OF ALL OF
OUR DRILLING LOCATIONS, AND, THEREFORE, IN CERTAIN SITUATIONS WE WILL NOT BE ABLE TO CONTROL, AND IN OTHER SITUATIONS WE WILL
HAVE LIMITED INPUT REGARDING, THE TIMING OF EXPLORATION OR DEVELOPMENT EFFORTS, ASSOCIATED COSTS, OR THE RATE OF PRODUCTION OF
ANY NON-OPERATED ASSETS.
We enter into
joint operating agreements with operators who are responsible for the management and day-to-day operation of our crude oil and/or
natural gas wells. As a result, we may have limited ability to exercise influence over the operations of the drilling locations
operated by our partners. Dependence on the operators could prevent us from realizing our target returns. The success and timing
of exploration and development activities operated by our partners will depend on a number of factors that will be largely outside
of our control, including:
•
the timing and amount of capital expenditures;
•
the operator's expertise and financial resources;
•
approval of other participants in drilling wells;
•
selection of technology; and
•
the rate of production of reserves, if any.
This limited ability
to exercise control over the operations of our drilling locations may cause a material adverse effect on our results of operations
and financial condition.
THE DEVELOPMENT OF OUR PROVED UNDEVELOPED
RESERVES MAY TAKE LONGER AND MAY REQUIRE HIGHER LEVELS OF CAPITAL EXPENDITURES THAN WE CURRENTLY ANTICIPATE. THEREFORE, OUR UNDEVELOPED
RESERVES MAY NOT BE ULTIMATELY DEVELOPED OR PRODUCED.
Approximately
29.2% of our total proved reserves were classified as proved undeveloped as of December 31, 2011. Development of these reserves
may take longer and require higher levels of capital expenditures than we currently anticipate. Delays in the development of our
reserves or increases in costs to drill and develop such reserves will reduce the PV-10 value of our estimated proved undeveloped
reserves and future net revenues estimated for such reserves and may result in some projects becoming uneconomic. In addition,
delays in the development of reserves could cause us to have to reclassify our proved reserves as unproved reserves.
UNLESS WE REPLACE OUR OIL AND NATURAL
GAS RESERVES, OUR RESERVES AND PRODUCTION WILL DECLINE, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Unless we conduct
successful development, exploitation and exploration activities or acquire properties containing proved reserves, our proved reserves
will decline as those reserves are produced. Producing oil and natural gas reservoirs generally are characterized by declining
production rates that vary depending upon reservoir characteristics and other factors. Our future oil and natural gas reserves
and production, and therefore our cash flows and income, are highly dependent on our success in efficiently developing and exploiting
our current reserves and economically finding or acquiring additional recoverable reserves. We may not be able to develop, exploit,
find or acquire additional reserves to replace our current and future production at acceptable costs. If we are unable to replace
our current and future production, the value of our reserves will decrease, and our business, financial condition and results
of operations would be adversely affected.
DRILLING NEW WELLS COULD RESULT IN
NEW LIABILITIES, WHICH COULD ENDANGER THE COMPANY'S INTERESTS IN ITS PROPERTIES AND ASSETS. ADDITIONALLY, WE MAY NOT BE
INSURED FOR, OR OUR INSURANCE MAY BE INADEQUATE TO PROTECT US AGAINST, THESE RISKS.
15
There are risks associated
with the drilling of oil and natural gas wells, including encountering unexpected formations or pressures, premature declines of
reservoirs, blow-outs, craterings, sour gas releases, fires and spills, among others. The occurrence of any of these events could
significantly reduce our revenues or cause substantial losses, impairing our future operating results. We may become subject to
liability for pollution, blow-outs or other hazards. We do our best to insure the Company with respect to these hazards; however,
such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. The payment
of such liabilities could reduce the funds available to us or could, in an extreme case, result in a total loss of our properties
and assets. Moreover, we may not be able to maintain adequate insurance in the future at rates that are considered reasonable.
Oil and natural gas production operations are also subject to all the risks typically associated with such operations, including
premature decline of reservoirs and the invasion of water into producing formations.
DECOMMISSIONING COSTS ARE UNKNOWN AND MAY
BE SUBSTANTIAL. UNPLANNED COSTS COULD DIVERT RESOURCES FROM OTHER PROJECTS.
We may become responsible
for costs associated with abandoning and reclaiming wells, facilities and pipelines which the Company uses for production of oil
and natural gas reserves. Abandonment and reclamation of these facilities and the costs associated therewith is often referred
to as "decommissioning." We accrue a liability for decommissioning costs associated with our wells, but have not established
any cash reserve account for these potential costs in respect of any of our properties. If decommissioning is required before economic
depletion of our properties or if our estimates of the costs of decommissioning exceed the value of the reserves remaining at any
particular time to cover such decommissioning costs, 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 impair our ability to focus capital investment in other areas of
our business.
THE COMPANY MAY HAVE DIFFICULTY DISTRIBUTING
ITS PRODUCTION, WHICH COULD HARM THE COMPANY'S FINANCIAL CONDITION.
In order to sell the
oil and natural gas that are produced from our properties, the operators of our wells may have to make arrangements for storage
and distribution to the market. We will rely on local infrastructure and the availability of transportation for storage and shipment
of our products, but infrastructure development and storage and transportation facilities may be insufficient for our needs at
commercially acceptable terms in the localities in which we operate. This situation could be particularly problematic to the extent
that our operations are conducted in remote areas that are difficult to access, such as areas that are distant from shipping and/or
pipeline facilities. These factors may affect our ability to explore and develop properties and to store and transport our oil
and natural gas production and may increase our expenses.
Furthermore, weather
conditions or natural disasters, actions by companies doing business in one or more of the areas in which we operate, or labor
disputes may impair the distribution of oil and/or natural gas and in turn diminish our financial condition or ability to maintain
our operations.
OUR POTENTIAL DRILLING LOCATION INVENTORIES
ARE SCHEDULED TO BE DRILLED OVER SEVERAL YEARS, MAKING THEM SUSCEPTIBLE TO UNCERTAINTIES THAT COULD MATERIALLY ALTER THE OCCURRENCE
OR TIMING OF THEIR DRILLING. IN ADDITION, WE MAY NOT BE ABLE TO RAISE THE SUBSTANTIAL AMOUNT OF CAPITAL THAT WOULD BE NECESSARY
TO DRILL A SUBSTANTIAL PORTION OF OUR POTENTIAL DRILLING LOCATIONS.
Our management
has identified and scheduled drilling locations as an estimation of our future multi-year drilling activities on our existing
acreage. These potential drilling locations, including those without proved undeveloped reserves, represent a significant part
of our growth strategy. Our ability to drill and develop these locations is subject to a number of uncertainties, including the
availability of capital, seasonal conditions, regulatory approvals, oil and natural gas prices, costs and drilling results. Because
of these uncertainties, we do not know if the numerous potential drilling locations we have identified will ever be drilled or
if we will be able to produce oil or natural gas from these or any other potential drilling locations. Pursuant to existing SEC
rules and guidance, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled
to be drilled within five years of the date of booking. These rules and guidance may limit our potential to book additional proved
undeveloped reserves as we pursue our drilling program.
16
CERTAIN ACREAGE MUST BE DRILLED BEFORE
LEASE EXPIRATION, GENERALLY WITHIN ONE TO THREE YEARS, IN ORDER TO HOLD THE ACREAGE BY PRODUCTION. IN THE HIGHLY COMPETITIVE MARKET
FOR ACREAGE, FAILURE TO DRILL SUFFICIENT WELLS IN ORDER TO HOLD ACREAGE WILL RESULT IN A SUBSTANTIAL LEASE RENEWAL COST, OR IF
RENEWAL IS NOT FEASIBLE, LOSS OF OUR LEASE AND PROSPECTIVE DRILLING OPPORTUNITIES.
Unless production
is established covering the undeveloped acres on which some of the locations are identified, the leases for such acreage will
expire. As of December 31, 2011, we had leases representing approximately 3,000 net acres expiring in 2012, and 5,000
net acres expiring in 2013. The cost to renew such leases may increase significantly, and we may not be able to renew such leases
on commercially reasonable terms or at all. As such, our actual drilling activities may materially differ from our current expectations,
which could adversely affect our business. During the years ended December 31, 2011 and 2010, we recorded non-cash impairment
charges of $1,027,552 and $46,553, respectively, for unproved property leases that expired during the period or are expected to
expire without production.
OUR DERIVATIVE ACTIVITIES COULD RESULT
IN FINANCIAL LOSSES OR COULD REDUCE OUR INCOME.
To achieve more
predictable cash flows and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we currently,
and may in the future, enter into derivative arrangements for a portion of our oil and natural gas production, including collars
and fixed-price swaps. We have not designated any of our derivative instruments as hedges for accounting purposes and record all
derivative instruments on our balance sheet at fair value. Changes in the fair value of our derivative instruments are recognized
in earnings. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative
instruments.
Derivative arrangements
also expose us to the risk of financial loss in some circumstances, including when:
•
production is less than the volume covered by the derivative instruments;
•
the counterparty to the derivative instrument defaults on its contract
    obligations; or
•
there is an increase in the differential between the underlying price
    in the derivative instrument and actual price received.
In addition, some
of these types of derivative arrangements limit the benefit we would receive from increases in the prices for oil and natural
gas and may expose us to cash margin requirements.
THE RECENT ADOPTION OF DERIVATIVES
LEGISLATION BY THE UNITED STATES CONGRESS COULD HAVE AN ADVERSE EFFECT ON OUR ABILITY TO USE DERIVATIVE INSTRUMENTS TO REDUCE
THE EFFECT OF COMMODITY PRICE, INTEREST RATE AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS.
The United States
Congress recently adopted comprehensive financial reform legislation that establishes federal oversight and regulation of the
over-the-counter derivatives market and entities, such as us, that participate in that market. The new legislation was signed
into law by the President on July 21, 2010 and requires the Commodities Futures Trading Commission (the "CFTC")
and the SEC to promulgate rules and regulations implementing the new legislation within 360 days from the date of enactment.
The CFTC has also proposed regulations to set position limits for certain futures and option contracts in the major energy markets,
although it is not possible at this time to predict whether or when the CFTC will adopt those rules or include comparable provisions
in its rulemaking under the new legislation. The financial reform legislation may also require us to comply with margin requirements
and with certain clearing and trade-execution requirements in connection with its derivative activities, although the application
of those provisions to us is uncertain at this time. The financial reform legislation may also require the counterparties to our
derivative instruments to spin off some of their derivative activities to a separate entity, which may not be as creditworthy
as the current counterparty. The new legislation and any new regulations could significantly increase the cost of derivative contracts
(including through requirements to post collateral which could adversely affect our available liquidity), materially alter the
terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability
to monetize or restructure existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we
reduce our use of derivatives as a result of the legislation and regulations, our results of operations may become more volatile
and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.
Finally, the legislation was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators
attributed to speculative trading in derivatives and commodity instruments related to oil and natural gas. Our revenues could
therefore be adversely affected if commodity prices decline as a consequence of the legislation and regulations. Any of these
consequences could have a material adverse effect on us, our financial condition and our results of operations.
17
INCREASED COSTS OF CAPITAL COULD ADVERSELY
AFFECT OUR BUSINESS.
Our business and
operating results can be harmed by factors such as the availability, terms and cost of capital, increases in interest rates or
a reduction in credit rating. Changes in any one or more of these factors could cause our cost of doing business to increase,
limit our access to capital, limit our ability to pursue acquisition opportunities, reduce our cash flows available for drilling
and place us at a competitive disadvantage. Recent and continuing disruptions and volatility in the global financial markets may
lead to an increase in interest rates or a contraction in credit availability impacting our ability to finance our operations.
We require continued access to capital. A significant reduction in the availability of credit could materially and adversely affect
our ability to achieve our planned growth and operating results.
WE MAY BE SUBJECT TO RISKS IN CONNECTION
WITH ACQUISITIONS AND THE INTEGRATION OF SIGNIFICANT ACQUISITIONS MAY BE DIFFICULT.
We periodically
evaluate acquisitions of reserves, properties, prospects and leaseholds and other strategic transactions that appear to fit within
our overall business strategy. The successful acquisition of producing properties requires an assessment of several factors, including:
•
recoverable reserves;
•
future oil and natural gas prices and their appropriate differentials;
•
development and operating costs; and
•
potential environmental and other liabilities.
The accuracy of
these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject properties
that we believe to be generally consistent with industry practices. Our review will not reveal all existing or potential problems
nor will it permit us to become sufficiently familiar with the properties to fully assess their deficiencies and potential recoverable
reserves. Inspections may not always be performed on every well, and environmental problems are not necessarily observable even
when an inspection is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective
contractual protection against all or part of the problems. We often are not entitled to contractual indemnification for environmental
liabilities and acquire properties on an "as is" basis.
Significant acquisitions
and other strategic transactions may involve other risks, including:
•
diversion of our management's attention to evaluating, negotiating
    and integrating significant acquisitions and strategic transactions;
•
the challenge and cost of integrating acquired operations, information
    management and other technology systems and business cultures with those of ours while carrying on our ongoing business;
•
difficulty associated with coordinating geographically separate organizations; and
18
•
the challenge of attracting and retaining personnel associated with
    acquired operations.
The process of
integrating 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 significant business activities are interrupted as a result of the integration process, our business could suffer.
IF WE FAIL TO REALIZE THE ANTICIPATED
BENEFITS OF A SIGNIFICANT ACQUISITION, OUR RESULTS OF OPERATIONS MAY BE LOWER THAN WE EXPECT.
The success of
a significant acquisition will depend, in part, on our ability to realize anticipated growth opportunities from combining the
acquired assets or operations with those of ours. Even if a combination is successful, it may not be possible to realize the full
benefits we may expect in estimated proved reserves, production volume, cost savings from operating synergies or other benefits
anticipated from an acquisition or realize these benefits within the expected time frame. Anticipated benefits of an acquisition
may be offset by operating losses relating to changes in commodity prices, or in oil and natural gas industry conditions, or by
risks and uncertainties relating to the exploratory prospects of the combined assets or operations, or an increase in operating
or other costs or other difficulties. If we fail to realize the benefits we anticipate from an acquisition, our results of operations
may be adversely affected.
THE COMPANY'S BUSINESS MAY SUFFER
IF IT CANNOT OBTAIN OR MAINTAIN NECESSARY LICENSES.
Our operations
require licenses, permits and in some cases renewals of licenses and permits from various governmental authorities. The Company's
ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to changes in regulations and policies
and to the discretion of the applicable governments, among other factors. Our inability to obtain, or the loss of or denial of
extension of, any of these licenses or permits could result in our inability to utilize certain of our leasehold properties or
wells and would therefore diminish our ability to produce revenue.
CHALLENGES TO OUR LEASEHOLDS PROPERTIES
MAY IMPACT THE COMPANY'S FINANCIAL CONDITION.
Title to oil and
gas properties is often not capable of conclusive determination without incurring substantial expense. To mitigate title problems,
common industry practice is to obtain a title opinion from a qualified oil and gas attorney prior to the drilling operations of
a well. While the Company intends to make appropriate inquiries into the title of properties and other development rights and
obtain a title opinion when we acquire leaseholds, title defects may exist. In addition, we may be unable to obtain adequate insurance
for title defects, on a commercially reasonable basis or at all. If title defects do exist, it is possible that we may lose all
or a portion of our right, title and interests in and to the leasehold properties to which the title defects relate. If our property
rights are reduced, our ability to conduct our exploration, development and production activities may be impaired.
OUR OPERATIONS ARE SUBJECT TO VARIOUS
GOVERNMENTAL REGULATIONS THAT REQUIRE COMPLIANCE THAT CAN BE BURDENSOME AND EXPENSIVE.
Our operations
are subject to various federal, state and local governmental regulations that may be changed from time to time in response to
economic and political conditions. Matters subject to regulation include discharge from drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory
agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas wells
below actual production capacity to conserve supplies of oil and natural gas. In addition, the production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and other substances and materials produced or used in
connection with oil and natural gas operations are subject to regulation under federal, state and local laws and regulations primarily
relating to protection of human health and the environment. These laws and regulations have continually imposed increasingly strict
requirements for water and air pollution control and solid waste management, and compliance with these laws may cause delays in
the additional drilling and development of our properties. Significant expenditures may be required to comply with governmental
laws and regulations applicable to us. We believe the trend of more expansive and stricter environmental legislation and regulations
will continue. While historically we have not experienced any material adverse effect from regulatory delays, there can be no
assurance that such delays will not occur in the future.
19
ENVIRONMENTAL RISKS MAY ADVERSELY AFFECT
THE COMPANY'S BUSINESS.
All phases of the
oil and gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety
of federal, state and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions
and prohibitions on spills, releases or emissions of various substances produced in association with oil and gas operations. The
legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of
applicable regulatory authorities. Compliance with such legislation can require significant expenditures, and a breach may result
in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner we expect
may result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and
operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities
to governments and third parties and may require the Company to incur costs to remedy such discharge. The application of environmental
laws to our business may cause us to curtail our production or increase the costs of our production, development or exploration
activities.
UNUSUAL WEATHER PATTERNS OR NATURAL
DISASTERS, WHETHER DUE TO CLIMATE CHANGE OR OTHERWISE, COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION.
Our business depends,
in part, on normal weather patterns across the United States. Natural gas demand and prices are particularly susceptible to seasonal
weather trends. Warmer than usual winters can result in reduced demand and high season-end storage volumes, which can depress
prices. In addition, at least some of our operations are constantly at risk of extreme adverse weather conditions such as hurricanes
and tornadoes. Any unusual or prolonged adverse weather patterns in our areas of operations or markets, whether due to climate
change or otherwise, could have a material and adverse impact on our business, financial condition and cash flow. In addition,
our business, financial condition and cash flow could be adversely affected if the businesses of our key vendors, purchasers,
contractors, suppliers or transportation service providers were disrupted due to severe weather, such as hurricanes or floods,
whether due to climate change or otherwise.
Increasing concentrations
of greenhouse gases in the Earth's atmosphere may produce climate changes that have significant physical effects, such as
increased frequency and severity of storms, droughts, floods and other climatic events. If any such effects were to occur, they
could have a material adverse effect on our financial condition and results of operations. Changes in climate due to global warming
trends could adversely affect our operations by limiting or increasing the costs associated with equipment or product supplies.
In addition, flooding and adverse weather conditions such as increased frequency and/or severity of hurricanes could impair our
ability to operate in affected regions of the country. Repercussions of severe weather conditions may include: curtailment of
services; weather-related damage to facilities and equipment, resulting in suspension of operations; inability to deliver equipment,
personnel and products to job sites in accordance with contract schedules; and loss of productivity. These constraints could delay
our operations and materially increase our operating and capital costs. Unusually warm winters may decrease the demand for our
oil or natural gas.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
COULD ADVERSELY AFFECT THE DEVELOPMENT AND EXPLORATION OF OIL, GAS, AND OTHER NATURAL RESOURCES, THEREBY HINDERING OUR ABILITY
TO PRODUCE REVENUE.
A number of potential
legislative and regulatory proposals under consideration by federal, state, local and foreign governmental organizations may lead
to laws or regulations concerning various aspects of oil, natural gas and other natural resources including within the primary
geographic areas in which we hold properties. The adoption of new laws or the application of existing laws may decrease the growth
in the demand or the cost of exploring for and developing natural resources which could in turn decrease the usage and demand
for our production or increase our cost of doing business.
20
The recent trend
in environmental legislation and regulation generally is toward stricter standards. These laws and regulations including the Comprehensive
Environmental, Response, Compensation, and Liability Act ("CERCLA"), the Federal Resource Conservation and Recovery
Act ("RCRA") and the Endangered Species Act ("ESA") may require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities; limit or prohibit construction, drilling and other
activities on certain lands lying within wilderness and other protected areas; and impose substantial liabilities for pollution
resulting from its operations.  If operations of our properties are found to be in violation of any of the laws and
regulations to which we are subject, we may be subject to the applicable penalty associated with the violation, including civil
and criminal penalties, damages, fines and the curtailment of operations. Any penalties, damages, fines or curtailment of operations,
individually or in the aggregate, could adversely affect our ability to operate our business and our financial results. In addition,
many of these laws and regulations have not been fully interpreted by the regulatory authorities or the courts, and their provisions
are open to a variety of interpretations. Any action against us for violation of these laws or regulations, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert management's attention from the operation
of our business.
Additionally,
hydraulic fracturing, the process of creating or expanding cracks, or fractures, in formations underground where water, sand and
other additives are pumped under high pressure into the formation, is currently used in completing greater than 90% of all oil
and natural gas wells drilled in the United States. While hydraulic fracturing is typically regulated by state oil and gas commissions,
the EPA recently asserted federal regulatory authority over hydraulic fracturing involving diesel fuels under the Safe Drinking
Water Act's Underground Injection Control Program and has begun the process of drafting guidance documents for permitting
authorities and the industry on the process for obtaining a permit for hydraulic fracturing involving diesel fuel. At the same
time, the EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, with results of
the study anticipated to be available by late 2012. Also, for the second consecutive session, legislation has been introduced
in Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing
process. We cannot predict whether additional hydraulic fracturing federal, state or local laws or regulations will be enacted
and, if so, what actions any such laws or regulations would require or prohibit. If additional levels of regulation or permitting
requirements were imposed through the adoption of new laws and regulations, our operations with respect to our leasehold properties
could be subject to delays, increased operating and compliance costs and process prohibitions. Restrictions on hydraulic fracturing
could also reduce the amount of oil, natural gas liquids and natural gas that we are ultimately able to produce in commercial
quantities from our leasehold properties.
FEDERAL AND STATE LEGISLATION AND REGULATORY
INITIATIVES RELATING TO HYDRAULIC FRACTURING COULD RESULT IN INCREASED COSTS AND ADDITIONAL OPERATING RESTRICTIONS OR DELAYS IN
THE COMPLETION OF OIL AND NATURAL GAS WELLS.
Hydraulic fracturing
is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurface rock
formations. Legislation was proposed in the last Congress to amend the federal Safe Drinking Water Act to require the disclosure
of chemicals used by the oil and natural gas industry in the hydraulic fracturing process. Hydraulic fracturing involves the injection
of water, sand and chemicals under pressure into rock formations to stimulate oil and natural gas production. We expect that third
parties will be engaged to provide hydraulic fracturing or other well stimulation services in connection with many of the wells
for the operators. If similar legislation is ultimately adopted, it could establish an additional level of regulation at the federal
or state level that could lead to operational delays or increased operating costs and could result in additional regulatory burdens
that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.
In addition to
possible future regulatory changes at the federal level, several states (including Arkansas, Colorado, Texas, New York and Pennsylvania),
have considered, or are considering, legislation or regulations similar to the federal legislation described above that have imposed,
or could impose, more stringent permitting, transparency, disposal and well construction requirements on hydraulic fracturing
operations. For example, in December 2011, the Railroad Commission of Texas and the Colorado Oil and Gas Conservation Commission
finalized regulations requiring public disclosure of chemicals in fluids used in the hydraulic fracturing process. Local ordinances
or other regulations also may regulate or prohibit the performance of well drilling in general and hydraulic fracturing in particular.
Such laws and regulations may result in increased scrutiny or third-party claims, or otherwise result in operational delays, liabilities
and increased costs.
21
Recently, the
Wyoming Oil and Gas Conservation Commission also passed a rule requiring disclosure of hydraulic fracturing fluid content. At
this time, it is not possible to estimate the potential impact on our business of additional federal or state regulatory actions
affecting hydraulic fracturing. In addition, a number of states in which we plan to conduct hydraulic fracturing operations are
currently conducting, or may in the future conduct, regulatory reviews that potentially could restrict or limit our access to
shale formations located in their states. In most states, our third party operators are required to obtain permits from one or
more governmental agencies in order to perform drilling and completion activities, including hydraulic fracturing. Such permits
are typically required by state agencies, but can also be required by federal and local governmental agencies. The requirements
for such permits vary depending on the location where such drilling and completion activities will be conducted. As with all governmental
permitting processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit
to be issued and the conditions which may be imposed in connection with the granting of the permit. Recently, moratoriums on the
issuance of permits have been imposed upon inland drilling and completion activities. For example, subject to an Executive Order
issued by Governor Paterson on December 13, 2010, the New York Department of Environmental Conservation will not issue permits
for drilling and completion activities until it completes a final environmental impact study following public comment. Some of
the drilling and completion activities may take place on federal land, requiring leases from the federal government to conduct
such drilling and completion activities. In some cases, federal agencies have cancelled oil and natural gas leases on federal
lands.
In March 2010,
the United States Environmental Protection Agency announced that it would conduct a wide-ranging study on the effects of hydraulic
fracturing on drinking water resources and that it will propose standards for the treatment or disposal of wastewater from certain
gas production operations. Interim results of the study are expected in 2012, with final results expected in 2014. The agency
also announced that one of its enforcement initiatives for 2011 to 2013 would be to focus on environmental compliance by the energy
extraction sector. This study and enforcement initiative could result in additional regulatory scrutiny that could make it difficult
to perform hydraulic fracturing and increase our costs of compliance and doing business.
CERTAIN UNITED STATES FEDERAL INCOME
TAX DEDUCTIONS CURRENTLY AVAILABLE WITH RESPECT TO OIL AND GAS EXPLORATION AND DEVELOPMENT MAY BE ELIMINATED AS A RESULT OF PROPOSED
LEGISLATION, AND THEREFORE SLOW THE DEMAND FOR INVESTMENT IN THE COMPANY'S INDUSTRY.
President Obama's
Proposed Fiscal Year 2012 Budget includes proposals that would, if enacted into law, make significant changes to United States
tax laws, including the elimination of certain key U.S. federal income tax incentives currently available to oil and natural gas
exploration and production companies. These changes include, but are not limited to, (i) the repeal of the percentage depletion
allowance for oil and natural gas properties, (ii) the elimination of current deductions for intangible drilling and development
costs, (iii) the elimination of the deduction for certain domestic production activities, and (iv) an extension of the amortization
period for certain geological and geophysical expenditures. It is unclear whether these or similar changes will be enacted and,
if enacted, how soon any such changes could become effective. The passage of any legislation as a result of these proposals or
any other similar changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that are currently
available with respect to oil and natural gas exploration and development, and any such change could increase the taxable income
allocable to the Company. Any such changes could have an adverse effect on our financial position, results of operations and cash
flows.
POSSIBLE REGULATION RELATED TO GLOBAL
WARMING AND CLIMATE CHANGE COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS AND DEMAND FOR OIL AND NATURAL GAS.
22
In addition to
other climate-related risks set forth in this "Risk Factors" section, we are and will be, directly and indirectly,
subject to the effects of climate change and may, directly or indirectly, be affected by government laws and regulations related
to climate change. We cannot predict with any degree of certainty what effect, if any, possible climate change and new and developing
government laws and regulations related to climate change will have on our operations, whether directly or indirectly. While we
believe that it is difficult to assess the timing and effect of climate change and pending legislation and regulation related
to climate change on our business, we believe that climate change and government laws and regulations related to climate change
may affect, directly or indirectly, (i) the cost of the equipment and services we purchase, (ii) our ability to continue
to operate as we have in the past, including drilling, completion and operating methods, (iii) the timeliness of delivery
of the materials and services we need and the cost of transportation paid by us and our vendors and other providers of services,
(iv) insurance premiums, deductibles and the availability of coverage, and (v) the cost of utility services, particularly
electricity, in connection with the operation of our properties. In addition, climate change may increase the likelihood of property
damage and the disruption of our operations, especially in coastal states. As a result, our financial condition could be negatively
impacted by significant climate change and related governmental regulation, and that impact could be material.
REGULATION AND RECENT COURT DECISIONS
RELATED TO GREENHOUSE GAS EMISSIONS COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS AND DEMAND FOR OIL AND NATURAL GAS.
Studies over recent
years have indicated that emissions of certain gases may be contributing to warming of the Earth's atmosphere. In response
to these studies, governments have begun adopting domestic and international climate change regulations that requires reporting
and reductions of the emission of greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a byproduct
of the burning of oil, natural gas and refined petroleum products, are considered greenhouse gases. Internationally, the United
Nations Framework Convention on Climate Change, and the Kyoto Protocol address greenhouse gas emissions, and several counties
including the European Union have established greenhouse gas regulatory systems. In the United States, at the state level, many
states, either individually or through multi-state regional initiatives, have begun implementing legal measures to reduce emissions
of greenhouse gases, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade
programs or have begun considering adopting greenhouse gas regulatory programs.
The EPA has issued
greenhouse gas monitoring and reporting regulations that went into effect January 1, 2010, and require reporting by regulated facilities
by March 2011 and annually thereafter. In November 2010, the EPA issued a final rule requiring companies to report certain greenhouse
gas emissions from oil and natural gas facilities. Our oil and natural gas operations are subject to such greenhouse gas reporting
requirements and we will monitor our emissions to make such required reports when due in 2012. While we believe that we will be
able to substantially comply with such reporting requirements without any material adverse effect to our financial condition, since
such reporting requirements with respect to greenhouse gas emissions are new in the oil and gas industry, there can be no assurance
that our reports will initially be in substantial compliance or that such requirements will not develop into more stringent and
costly obligations that may have a significant impact on our operating costs. Beyond measuring and reporting, the EPA issued an
"Endangerment Finding" under section 202(a) of the Clean Air Act, concluding greenhouse gas pollution threatens the
public health and welfare of current and future generations. The finding serves as a first step to issuing regulations that would
require permits for and reductions in greenhouse gas emissions for certain facilities. EPA has proposed such greenhouse gas regulations
and may issue final rules this year.
In the courts, several
decisions have been issued that may increase the risk of claims being filed by governments and private parties against companies
that have significant greenhouse gas emissions. Such cases may seek to challenge air emissions permits that greenhouse gas emitters
apply for and seek to force emitters to reduce their emissions or seek damages for alleged climate change impacts to the environment,
people, and property.
Any laws or regulations
that may be adopted to restrict or reduce emissions of greenhouse gases could require us to incur increased operating and compliance
costs, and could have an adverse effect on demand for the oil and natural gas that we produce.
RISKS RELATED TO OUR INDEBTEDNESS
WE MAY NOT BE ABLE TO GENERATE ENOUGH
CASH FLOW TO MEET OUR DEBT OBLIGATIONS.
23
We expect our
earnings and cash flow to vary significantly from year to year due to the nature of our industry. As a result, the amount of debt
that we can manage in some periods may not be appropriate for us in other periods. Additionally, our future cash flow may be insufficient
to meet our debt obligations and other commitments. Any insufficiency could negatively impact our business. A range of economic,
competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate
cash flow from operations and to pay our debt obligations. Many of these factors, such as oil and natural gas prices, economic
and financial conditions in our industry and the global economy and initiatives of our competitors, are beyond our control. If
we do not generate enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing
plans, such as:
•
selling assets;
•
reducing or delaying capital investments;
•
seeking to raise additional capital; or
•
refinancing or restructuring our debt.
If for any reason
we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing
our debt, which would allow our creditors at that time to declare all outstanding indebtedness to be due and payable. In addition,
our lenders could compel us to apply all of our available cash to repay our borrowings or they could prevent us from making payments
on our senior unsecured notes. If amounts outstanding under our revolving credit facility or our senior unsecured notes were to
be accelerated, we cannot be certain that our assets would be sufficient to repay in full the money owed to the lenders or to
our other debt holders.
OUR REVOLVING CREDIT FACILITY CONTAINS
OPERATING AND FINANCIAL RESTRICTIONS THAT MAY RESTRICT OUR BUSINESS AND FINANCING ACTIVITIES.
Our revolving
credit facility contains a number of restrictive covenants that will impose significant operating and financial restrictions on
us, including restrictions on our ability to, among other things:
·
incur certain indebtedness;
·
guaranty indebtedness of another person or entity;
·
merge with or into another person or entity;
·
make certain acquisitions or investments;
·
create or incur certain liens;
·
make investments;
·
create any subsidiaries;
·
enter into a joint venture;
·
declare dividends or distributions or redeem any of our common stock; or
·
engage in certain business activities.
As a result of
these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable
business activities or finance future operations or capital needs.
24
Our ability to comply
with some of the covenants and restrictions contained in our revolving credit facility may be affected by events beyond our control.
If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. A failure to comply
with the covenants, ratios or tests in our revolving credit facility or any future indebtedness could result in an event of default
under our revolving credit facility or our future indebtedness, which, if not cured or waived, could have a material adverse effect
on our business, financial condition and results of operations.
If an event of
default under our revolving credit facility occurs and remains uncured, the lenders thereunder:
•
would not be required to lend any additional amounts to us; and
•
could elect to declare all borrowings outstanding, together with accrued
    and unpaid interest and fees, to be due and payable.
OUR LEVEL OF INDEBTEDNESS MAY INCREASE
AND REDUCE OUR FINANCIAL FLEXIBILITY. A SUBSTANTIAL PORTION OF OUR ASSETS SECURE OUR INDEBTEDNESS.
As of June 30,
2012, we had $13,100,000 outstanding under our revolving credit facility, $9,027,756 outstanding under our term loan facility
and $0 available for future secured borrowings under our revolving credit facility. As of June 30, 2012, we also had a $20 million
secured convertible promissory note issued to Pentwater, which was subsequently increased to $25 million on June 30, 2012. The
promissory note with a principal amount of $35 million issued to Geronimo was converted into shares of Series A Preferred Stock
on June 30, 2012 which accrue cumulative dividends semi-annually at a rate of 7.5% per annum. In the future, we may incur significant
indebtedness in order to make future acquisitions or to develop our properties.
Our level of indebtedness
could affect our operations in several ways, including the following:
•
a significant portion of our cash flows could be used to service our indebtedness;
•
a high level of debt would increase our vulnerability to general adverse economic and industry
    conditions;
•
the covenants contained in the agreements governing our outstanding indebtedness limit
    our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments;
•
our debt covenants may also affect our flexibility in planning for, and reacting to, changes
    in the economy and in our industry;
•
a high level of debt may place us at a competitive disadvantage compared to our competitors
    that are less leveraged and therefore, may be able to take advantage of opportunities that our indebtedness would prevent
    us from pursuing;
•
a high level of debt may make it more likely that a reduction in our borrowing base following
    a periodic redetermination could require us to repay a portion of our then-outstanding bank borrowings; and
•
a high level of debt may impair our ability to obtain additional financing in the future
    for working capital, capital expenditures, acquisitions, general corporate or other purposes.
A high level of
indebtedness increases the risk that we may default on our debt obligations. A debt default could significantly diminish the market
value and marketability of our common stock and could result in the acceleration of the payment obligations under all or a portion
of our consolidated indebtedness. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on
our future performance. General economic conditions, oil and natural gas prices and financial, business and other factors affect
our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient
cash flows to pay the interest on our debt and future working capital, and borrowings or equity financing may not be available
to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or
a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need
capital.
25
In addition, our
bank borrowing base is subject to periodic redeterminations. We could be forced to repay a portion of our bank borrowings due
to redeterminations of our borrowing base. If we are forced to do so, we may not have sufficient funds to make such repayments.
If we do not have sufficient funds and are otherwise unable to negotiate renewals of our borrowings or arrange new financing,
we may have to sell significant assets. Any such sale could have a material adverse effect on our business and financial results.
We have pledged substantially all of
our assets to secure our obligations under our various credit agreements and notes. In the event that we were to fail in the future
to make any required payment under agreements governing our indebtedness or fail to comply with the financial and operating covenants
contained in those agreements, we would be in default regarding that indebtedness. A debt default would enable the lenders to
foreclose on the assets securing such debt and could significantly diminish the market value and marketability of our common stock
and could result in the acceleration of the payment obligations under all or a portion of our consolidated indebtedness.
We
have experienced rapid growth SINCE OUR INCEPTION. If we fail to manage this or any future growth, our business and operating
results could be harmed.
Our business has
grown dramatically since our inception. For example, our revenue increased from $6,896,945 million for the year ended December
31, 2010 to $12,407,774 million for the year ended December 31, 2011. Our growth has largely resulted from our acquisition of
new leasehold interests. Since October 2010, we have acquired leasehold interests in approximately 101,000 acres. Additionally,
we continue to evaluate and pursue appropriate acquisition opportunities to the extent we believe that such opportunities would
be in the best interests of our company and our stockholders.
This significant
growth has placed considerable demands on our management and other resources and continued growth could place additional demands
on such resources. Our ability to compete effectively and to manage future growth, if any, will depend on the sufficiency and
adequacy of our current resources and infrastructure and our ability to continue to identify, attract and retain competent personnel.
There can be no assurance that our personnel, systems, procedures and controls will be adequate to support our operations and
properly oversee our assets. The failure to support our operations effectively and properly oversee our assets could cause harm
to our assets and have a material adverse effect on their fair values and our business, financial condition and results of operations.
Also, there can
be no assurance that we will be able to sustain our recent growth. Our growth may be limited by a number of factors including
increased competition for leasehold interests in oil and gas producing regions, insufficient capitalization for future acquisitions
and the lack of attractive acquisition targets. In addition as we continue to grow larger, we will likely need to make additional
and larger acquisitions to continue to grow at our current pace.
We
could be exposed to unknown pre-existing liabilities of THE ASSETS Purchased, which could cause us to incur substantial financial
obligations and harm our business.
In connection with the acquisition,
we may have assumed liabilities of XOG and Geronimo of which we are not aware and may have little or no recourse against XOG and
Geronimo with respect thereto. If we were to discover that there were intentional misrepresentations made to us by XOG and Geronimo,
or their representatives as to these or other matters, we would explore all possible legal remedies to compensate us for any loss,
including our rights to indemnification under the purchase and sale agreement that we entered into with XOG and Geronimo upon
the closing of the acquisition. However, there is no assurance that in such case legal remedies would be available or collectible.
If such unknown liabilities exist and we are not fully indemnified for any loss that we incur as a result thereof, we could incur
substantial financial obligations, which could negatively impact our financial condition and harm our business.
26
RISKS RELATED TO THE COMPANY'S
SECURITIES
THE COMPANY'S COMMON STOCK IS QUOTED
ON THE OTC BULLETIN BOARD WHICH MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.
Our common stock is
quoted on the OTCBB, which is a significantly more limited trading market than the New York Stock Exchange or The NASDAQ Stock
Market. The quotation of the Company's shares on the OTCBB may result in a less liquid market available for existing and
potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have
a long-term adverse impact on our ability to raise capital in the future.
When fewer shares
of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver
accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower likelihood of one's
orders for shares of our common stock being executed, and current prices may differ significantly from the price one was quoted
at the time of one's order entry.
THE COMPANY'S COMMON STOCK IS THINLY
TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASKING PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO RAISE MONEY OR OTHERWISE
DESIRE TO LIQUIDATE YOUR SHARES.
Currently, the Company's
common stock is quoted in the OTCBB and the trading volume the Company anticipates to develop may be limited by the fact that many
major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing
in OTCBB stocks and certain major brokerage firms restrict their brokers from recommending OTCBB stocks because they are considered
speculative, volatile and thinly traded. The OTCBB market is an inter-dealer market much less regulated than the major exchanges
and our common stock is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established
trading market for the Company's common stock. An established trading market may never develop or be maintained. Active trading
markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading
market reduces the liquidity of the shares traded there.
The trading volume
of our common stock has been and may continue to be limited and sporadic. As a result of such trading activity, the quoted price
for the Company's common stock on the OTCBB may not necessarily be a reliable indicator of its fair market value. Further,
if we cease to be quoted, holders would find it more difficult to dispose of our common stock or to obtain accurate quotations
as to the market value of the Company's common stock and as a result, the market value of our common stock likely would decline.
THE COMPANY'S COMMON STOCK IS SUBJECT
TO PRICE VOLATILITY UNRELATED TO ITS OPERATIONS.
The market price of
the Company's common stock could fluctuate substantially due to a variety of factors, including market perception of our
ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our
common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company's
competitors or the Company itself. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility
has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.
OUR BOARD OF DIRECTORS' ABILITY TO
ISSUE UNDESIGNATED PREFERRED STOCK AND THE EXISTENCE OF ANTI-TAKEOVER PROVISIONS MAY DEPRESS THE VALUE OF OUR COMMON STOCK.
27
Our authorized capital
includes one million shares of undesignated preferred stock.  Our board of directors has the power to issue any or all
of the shares of preferred stock, including the authority to establish one or more series and to fix the powers, preferences, rights
and limitations of such class or series, without seeking stockholder approval.  Further, as a Delaware corporation, we
are subject to provisions of the Delaware General Corporation Law regarding "business combinations." Our board may,
in the future, consider adopting additional anti-takeover measures. The authority of our board of directors to issue undesignated
stock and the anti-takeover provisions of Delaware law, as well as any future anti-takeover measures adopted by us, may, in certain
circumstances, delay, deter or prevent takeover attempts and other changes in control of us that are not approved by our board.
As a result, our stockholders may lose opportunities to dispose of their shares at favorable prices generally available in takeover
attempts or that may be available under a merger proposal and the market price, voting and other rights of the holders of common
stock may also be affected.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE
FORESEEABLE FUTURE.
We do not intend to
declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and
growth of our business.  Therefore, our stockholders will not receive any funds unless they sell their common stock,
and stockholders may be unable to sell their shares on favorable terms or at all.
WE ARE SUBJECT TO THE PENNY STOCK RULES
ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC") THAT REQUIRE BROKERS TO PROVIDE EXTENSIVE DISCLOSURE TO ITS
CUSTOMERS PRIOR TO EXECUTING TRADES IN PENNY STOCKS. THESE DISCLOSURE REQUIREMENTS MAY CAUSE A REDUCTION IN THE TRADING ACTIVITY
OF OUR COMMON STOCK, WHICH IN ALL LIKELIHOOD WOULD MAKE IT DIFFICULT FOR OUR STOCKHOLDERS TO SELL THEIR SECURITIES.
Rule 3a51-1 of
the Securities Exchange Act of 1934, as amended, establishes the definition of a "penny stock," for purposes relevant
to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and
adversely affect any market liquidity for our common stock.
For any transaction
involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account
for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting
forth the identity and quantity of the penny stock to be purchased.  In order to approve a person's account for
transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of
the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that
person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny
stocks.
The broker or dealer
must also deliver, prior to any transaction in a penny stock, a disclosure schedule required by the SEC relating to the penny stock
market, which, in highlight form, sets forth:
·
The basis on which the broker or dealer made the suitability determination; and
·
That the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has
to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission payable
to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these
regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter
difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other
holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary
market. These additional sales practice and disclosure requirements could impede the sale of our common stock, if and when our
common stock becomes publicly traded. In addition, the liquidity for our common stock may decrease, with a corresponding decrease
in the price of our common stock. Our common stock, in all probability, will be subject to such penny stock rules for the foreseeable
future and our stockholders will, in all likelihood, find it difficult to sell their common stock.
28
FUTURE SALES OF COMMON STOCK IN THE PUBLIC
MARKET OR THE ISSUANCE OF COMMON STOCK OR THE EXERCISE OF OUR CONVERTIBLE SECURITIES WOULD CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS
AND COULD ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
Our Certificate of Incorporation currently
authorizes our board of directors to issue shares of common stock in excess of the common stock outstanding.  Any additional
issuances of any of our authorized but unissued shares will not require the approval of stockholders and may have the effect of
further diluting the equity interest of stockholders.  We may issue common stock in the future for a number of reasons,
including to attract and retain key personnel, as purchase price for possible acquisitions, to lenders, investment banks, or investors
in order to achieve more favorable terms from these parties and align their interests with our common equity holders, to management
and/or employees to reward performance, to finance our operations and growth strategy, to adjust our ratio of debt to equity,
to satisfy outstanding obligations or for other reasons. As of August 3, 2012, we had 86,757,842
shares of our common stock outstanding on a fully-diluted basis, assuming the exercise of all outstanding options,
warrants and convertible notes. If we issue securities or if any of the convertible securities currently outstanding are exercised,
our existing stockholders may experience dilution.  Future sales of the common stock, the perception that such sales
could occur or the availability for future sale of shares of the common stock or securities convertible into or exercisable for
our common stock could adversely affect the market prices of our common stock prevailing from time to time.  The sale
of shares issued upon the exercise of our derivative securities could also further dilute the holdings of our then existing stockholders.
In addition, future public sales of shares of the common stock could impair our ability to raise capital by offering equity securities.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Certain information contained in this prospectus includes forward-looking
statements. The statements herein which are not historical reflect our current expectations and projections about the Company's
future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently
available to the Company and its management and management's interpretation of what is believed to be significant factors
affecting the business, including many assumptions regarding future events. Forward-looking statements, which involve assumptions
and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "will,"
"shall," "may," "should," "expect," "anticipate," "estimate,"
"believe," "intend," "plan," or "project" or the negative of these words or other
variations on these words or comparable terminology.  Actual results, performance, liquidity, financial condition, prospects
and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result
of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company's
operations. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Risk Factors" and "Description of Business," as well as in this prospectus generally.  Actual
events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including,
without limitation, the risks outlined under "Risk Factors" and matters described in this prospectus generally.  In
light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus
will in fact occur.
Prospective investors should not place undue reliance on any
forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update
or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other
reason.
The specific discussions herein about the Company include financial
projections and future estimates and expectations about the Company's business.  The projections, estimates and
expectations are presented in this prospectus only as a guide about future possibilities and do not represent actual amounts or
assured events.  All the projections and estimates are based exclusively on the Company management's own assessment
of its business, the industry in which it works and the economy at large and other operational factors, including capital resources
and liquidity, financial condition, fulfillment of contracts and opportunities.  The actual results may differ significantly
from the projections.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock
by the selling security holders. All of the net proceeds from the resale of our common stock will go to the selling security holders
as described below in the sections entitled "Selling Security Holders" and "Plan of Distribution". 
We have agreed to bear the expenses relating to the registration of the common stock for the selling security holders.
The shares of common stock covered by this prospectus are issuable
upon exercise of the Warrants. We may receive proceeds in the event some or all of the Warrants held by the selling security holders
are exercised for cash. To the extent that the selling stockholders exercise, for cash, all of the Warrants covering the 6,666,666
shares of common stock registered for resale under this prospectus, we would receive approximately $15 million in the aggregate
from such exercises of the total funds. Any proceeds received from the exercise of the warrants will be used for working capital
and other general corporate purposes.
DETERMINATION OF OFFERING PRICE
The prices at which the shares or common stock covered by this
prospectus may actually be sold will be determined by the prevailing public market price for shares of common stock, by negotiations
between the selling security holders and buyers of our common stock in private transactions or as otherwise described in "Plan
of Distribution."
DILUTION
The selling security holders are offering for resale common
shares underlying the outstanding Warrants. To the extent such Warrants are exercised, the existing shareholder will experience
dilution to their ownership interests in us.
SELLING SECURITY HOLDERS
The common shares being offered for resale by the selling
security holders consist of 6,666,666 shares of our common stock underlying warrants with an exercise price of $2.25 held by four
affiliated entities pursuant to a Note and Warrant Pursuant Agreement dated February 9,2012 and amended on July 23,2012. The following
table sets forth the name of the selling security holders, the number of shares of common stock beneficially owned by each of
the selling stockholders as of August 3, 2012 and the number of shares of common stock being offered by the selling stockholders.  The
shares being offered hereby are being registered to permit public secondary trading and the selling stockholders may offer all
or part of the shares for resale from time to time. However, the selling stockholders are under no obligation to sell all or any
portion of such shares nor are the selling stockholders obligated to sell any shares immediately upon effectiveness of this prospectus.  All
information with respect to share ownership has been furnished by the selling stockholders.
29
Name
Shares
Beneficially
Owned Before
the Offering
Shares to Be
Offered
Shares
Beneficially
Owned
After the
Offering
Percentage
Beneficially
Owned After the
Offering
Pentwater Equity Opportunities Master Fund Ltd.
1
6,860,887
3,150,000
3,710,887
6.6
%
Oceana Master Fund Ltd.
2
2,513,110
550,000
1,963,110
3.7
%
LMA SPC for and on behalf of MAP 98 Segregated Portfolio
3
1,227,156
274,999
952,157
1.8
%
PWCM Master Fund Ltd.
4
3,632,192
2,691,667
940,525
1.
%
Total
14,233,345
6,666,666
7,566,679
14.86
%
30
(1) The shares of common stock offered for sale consist
of 3,150,000
shares of our common stock underlying
Warrants. Pentwater
Equity Opportunities Master Fund Ltd. is also the beneficial owner of 1,548,322 shares of our common stock and 2,162,565 shares
of our common stock underlying warrants. Pentwater LP is the investment advisor of Pentwater Equity Opportunities Master Fund
Ltd. ("Pentwater Opportunities") and consequently has voting control and investment discretion over securities held
by Pentwater Opportunities.  Mr. Nenadovic, Chief Financial Officer of Pentwater LP has voting control over Pentwater
Opportunities. As a result of the foregoing, each of Mr. Nenadovic and Pentwater LP may be deemed to have beneficial ownership
(as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the shares of common stock beneficially
owned by Pentwater Opportunities.
(2) The
shares of common stock offered for sale consist of 550,000 shares of our common stock underlying Warrants. Oceana Master Fund
Ltd. is also the beneficial owner of 914,232 shares of our common stock and 1,048,878 shares of our common stock underlying warrants. Pentwater LP is the
investment advisor of Oceana Master Fund Ltd. ("Oceana Fund") and consequently has voting control and investment
discretion over securities held by Oceana Fund. Mr. Nenadovic, Chief Financial Officer of Pentwater LP has voting control
over Oceana Fund. As a result of the foregoing, each of Mr. Nenadovic and Pentwater LP may be deemed to have beneficial
ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the shares of common
stock beneficially owned by Oceana Fund.
(3) The shares of common stock offered for sale consist
of 274,999
shares of our common stock underlying Warrants.
LMA
SPC for and on behalf of MAP 98 Segregated Portfolio. is also the beneficial owner of
437,145
shares of our common stock and 515,012 shares of our common stock underlying warrants.
Pentwater LP is the investment
advisor of LMA SPC for and on behalf of MAP 98 Segregated Portfolio ("MAP 98") and consequently has voting control
and investment discretion over securities held by MAP 98. Mr. Nenadovic, Chief Financial Officer of Pentwater LP has voting
control over MAP 98. As a result of the foregoing, each of Mr. Nenadovic and Pentwater LP may be deemed to have beneficial
ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended) of the shares of common
stock beneficially owned by MAP 98.
(4) The shares of common stock offered for sale consist
of 2,691,667shares of our common stock Warrants. PWCM Master Fund Ltd. is also the beneficial owner of 333,914 shares of our common
stock and 606,611shares of our common stock underlying warrants. Pentwater LP is the investment advisor of PWCM Master Fund Ltd.
and consequently has voting control and investment discretion over securities held by PWCM Master Fund Ltd. Mr. Nenadovic, Chief
Financial Officer of Pentwater LP has voting control over PWCM Master Fund Ltd. As a result of the foregoing, each of Mr. Nenadovic
and Pentwater LP may be deemed to have beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act
of 1934, as amended) of the shares of common stock beneficially owned by PWCM Master Fund Ltd.
31
Except as set forth, none of the selling shareholders or
their beneficial owners:
-
has had a material relationship with us other than as a shareholder at any time within the past three years;
-
has ever been one of our officers or directors or an officer or director of our predecessors or affiliates; or
-
are broker-dealers or affiliated with broker-dealers.
PLAN OF DISTRIBUTION
This prospectus relates to the resale
of up to 6,666,666 shares of common stock issuable upon the exercise of common stock purchase warrants.  We
will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock.  We will
bear all fees and expenses incident to our obligation to register the shares of common stock.
32
The selling stockholders may sell all or
a portion of the shares of common stock held by them and offered hereby from time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders
will be responsible for underwriting discounts or commissions or agent's commissions. The shares of common stock may be sold
in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined
at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,
pursuant to one or more of the following methods:
·
on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
·
in the over-the-counter market;
·
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
·
through the writing or settlement of options, whether such options are listed on an options exchange or otherwise;
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·
an exchange distribution in accordance with the rules of the applicable exchange;
·
privately negotiated transactions;
·
short sales made after the date the Registration Statement is declared effective by the SEC;
·
agreements between broker-dealers and the selling securityholders to sell a specified number of such shares at a stipulated
price per share;
·
a combination of any such methods of sale; and
·
any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares
of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended, if available, rather than under this prospectus.
In addition, the selling stockholders may transfer the shares of common stock by other means not described in this prospectus.
If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers
or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions
from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents
may be in excess of those customary in the types of transactions involved). Such commissions will be in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction will not be in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in
compliance with FINRA IM-2440.
33
In connection with sales of the shares of
common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders
may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares.  The selling stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer
or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders may pledge or grant
a security interest in some or all of the warrants or shares of common stock owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant
to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act
amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as
selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in
other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial
owners for purposes of this prospectus.
To the extent required by the Securities
Act and the rules and regulations thereunder, the selling stockholders and any broker-dealer participating in the distribution
of the shares of common stock may be deemed to be "underwriters" within the meaning of the Securities Act, and any
commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement,
if required, will be distributed, which will set forth the aggregate amount of shares of common stock being offered and the terms
of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting
compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.
Under the securities laws of some states,
the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some
states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling
stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.
The selling stockholders and any other person
participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange
Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any
other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution
of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing
may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities
with respect to the shares of common stock.
We will pay all expenses of the registration
of the shares of common stock pursuant to the registration rights agreement, estimated to be $31,787 in total, including, without
limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or "blue sky"
laws; provided, however, a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify
the selling stockholders against liabilities, including some liabilities under the Securities Act in accordance with the registration
rights agreements or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished
to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements
or we may be entitled to contribution.
34
MARKET PRICE AND DIVIDENDS ON REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our shares of common stock are trading
on the Over the Counter Bulletin Board ("OTCBB") under the trading symbol "ASEN." The OTCBB is a significantly
more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares on the OTCBB may result in
a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the
trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
During the two year period ended December
31, 2011, there were no reported trades for the Company's common stock until October 15, 2010. The following table sets
forth, for the period indicated, the high and low closing prices for our common stock on the OTCBB as reported by various OTCBB
market makers. The quotations do not reflect adjustments for retail mark-ups, mark-downs, or commissions and may not necessarily
reflect actual transactions.
Quarter Ended
High ($)
Low ($)
Second Quarter ended June 30, 2012
$
2.51
$
1.31
First Quarter ended March 31, 2012
$
3.25
$
1.80
Fourth Quarter ended December 31, 2011
$
4.75
$
3.05
Third Quarter ended September 30, 2011
$
8.15
$
4.65
Second Quarter ended June 30, 2011
$
8.25
$
6.75
First Quarter ended March 31, 2011
$
8.40
$
3.75
Fourth Quarter ended December 31, 2010
$
3.75
$
2.50
Holders
As of August 2, 2012, there were approximately 232 holders
of record of our common stock.
Transfer Agent and Registrar
Standard Registrar & Transfer Co., Inc. is currently the
transfer agent and registrar for our common stock. Its address is 12528 South 1840 East, Draper, UT 84020. Its phone number is
(801) 571-8844.
Dividend Policy
We have never declared or paid dividends
on our common stock. We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate
paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's
board of directors after taking into account various factors, including current financial condition, operating results and current
and anticipated cash needs.
Securities Authorized for Issuance under Equity Compensation
Plans
The following is certain information about our equity compensation
plans as of December 31, 2011:
Plan Category
Number of
securities
to be issued
upon
exercise
of
outstanding
options,
warrants
and rights
Weighted–
average
exercise
price
of
outstanding
options,
warrants
and rights
Number of
securities
remaining
available
for future
issuance
under equity
compensation
plans (1)
Equity Compensation Plans approved by security holders
10,745,000
$
5.67
11,255,000
(1)
Excluding securities reflected in the second column.
35
In 2010, we adopted our Stock Incentive Plan (the "2010
Plan") and ratified an amendment to such plan in August 2011. The maximum number of shares of our common stock that may be
issued pursuant to grants or awards under the 2010 Plan, as amended, is 12,000,000 shares to employees, officers, directors and
outside advisors.  As of December 31, 2011, 10,745,000 options were issued and outstanding under the 2010 Plan.
In 2011, we adopted a new Stock Incentive Plan (the "2011
Plan"), under which we approved and reserved 10,000,000 stock options for issuance to our employees, officers, directors
and outside advisors.
On March 30, 2012, the Board of Directors approved the restructuring
of stock options as part of a comprehensive review of compensation, compensation expense, and shareholder dilution. As of December
31, 2011, 10,745,000 options to purchase common stock were outstanding. As part of a comprehensive review of compensation, compensation
expense, and shareholder dilution, the Board of Directors approved the restructuring of stock options on March 30, 2012 (the "Modification
Date"). Due to the modification, 2,400,000 options issued to certain officers were forfeited and 3,200,000 options were
accelerated and became immediately vested. An additional 1,540,000 non-qualified options, 205,760 incentive stock options and
80,000 restricted share of common stock were granted to certain officers, directors, employees and a consultant. All modified
options (including the newly issued options) were priced at the average of the open and closing share price of the Company's
common stock on March 30, 2012, which was $2.43 per share and became fully vested on the Modification Date.
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of our common
stock, par value $0.001 and 1,000,000 shares of preferred stock, par value $0.001. As of August 3, 2012, 50,921,798 shares of
common stock were issued and outstanding and 35,400 shares of Series A Cumulative Convertible Preferred Stock were issued and
outstanding.
(a)
Common Stock.
The holders of the common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders. Our certificate of incorporation and by-laws do not
provide for cumulative voting rights in the election of directors. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are
entitled to receive ratably such dividends as may be declared by the Board out of funds legally available therefore. In the event
of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in the assets remaining after
payment of liabilities. Holders of common stock have no preemptive, conversion or redemption rights.
(b)
Preferred Stock.
Our board of directors has the authority, within the limitations
and restrictions in our amended articles of incorporation, to issue 1,000,000 shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any
series or the designation of any series, without further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in our control without further action by the stockholders. The issuance
of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of our common stock,
including voting rights, of the holders of our common stock. In some circumstances, this issuance could have the effect of decreasing
the market price of our common stock.
36
Undesignated preferred stock may enable our board of directors
to render more difficult or to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock may adversely
affect the rights of our common stockholders. For example, any preferred stock issued may rank prior to the common stock as to
dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common
stock. As a result, the issuance of shares of preferred stock, or the issuance of rights to purchase shares of preferred stock,
may discourage an unsolicited acquisition proposal or bids for our common stock or may otherwise adversely affect the market price
of our common stock or any existing preferred stock.
Series A Cumulative Convertible Preferred Stock
On June 30, 2012, the Company filed
a Certificate of Designation with the Secretary of State of the State of Delaware amending the Company's Certificate of
Incorporation to designate 38,150 shares of the Company's preferred stock as Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock"), and issued 35,400 shares of the Series A Preferred Stock to Geronimo in exchange for
the cancelation of a $35 million principal amount note made by the Company in favor of Geronimo on March 5, 2012 in connection
with a purchase and sale agreement pursuant to which the Company acquired certain oil and gas leasehold properties, including
any accrued and unpaid interest thereon.
Pursuant to the Certificate of Designation,
the Series A Preferred Stock accrues cumulative dividends semi-annually at a rate per share equal to 7.5% per annum. The holders
of the Series A Preferred Stock shall receive dividends when and if declared by the Company's board of directors in preference
to and priority over dividends declared on the Common Stock. Dividends are payable by the Company in either additional shares
of Series A Preferred Stock for dividends accrued on or before June 30, 2014 or cash. Holders of Series A Preferred Stock shall
be entitled to receive $1,000 per share in the event of a liquidation with priority over the Common Stock.
The Series A Preferred Stock is convertible
into shares of common stock at a rate of 333.333 shares of Common Stock per share of Series A Preferred Stock (the "Conversion
Rate") or an initial conversion price of $3.00 per share on or after the later of (i) March 6, 2013 and (ii) the date on
which the Company increases the authorized but unissued shares of Common Stock to such number of shares as shall be sufficient
to effect the conversion of all then outstanding shares of the Series A Preferred Stock on a fully-diluted basis. The Company
is entitled to decrease the Conversion Rate one time on or before June 30, 2014 to equal the quotient of $1,000 divided by the
average closing sale price for the ten trading day period after the Company makes the election, the effect of which would be to
increase the conversion price. The Company has the right, in its sole discretion, to cause all Series A Preferred Stock to be
automatically converted into shares of Common Stock at the Conversion Rate if the closing sale price of the Common Stock equals
or exceeds 150% of $3.00 for at least 10 trading days during any 20 consecutive trading day period. Holders of Series A Preferred
Stock are not entitled to any voting rights, except as required by law.
(c)
Investor Warrants.
In the First PIPE, we issued five-year
Series A Warrants to purchase an aggregate of 1,100,482 shares of common stock at an exercise price of $5.00 and five-year Series
B Warrants to purchase an aggregate of 1,100,482 shares of common stock at an exercise price of $6.50 per share, respectively to
certain accredited investors. The number of shares of common stock to be received upon the exercise of the Warrants and the exercise
price of the Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the common stock that occur after the closing date of the offering.
In the Second PIPE, we issued five-year
Warrants to purchase an aggregate of 1,848,502 shares of common stock excisable at a price of $9.00 per share to certain accredited
investors. The number of shares of common stock to be received upon the exercise of the Warrants and the exercise price of the
Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar
transactions of the common stock that occur after the closing date of the offering.
37
In the Third PIPE, we issued Series A Warrants
to purchase 1,130,435 shares of common stock which are exercisable immediately after issuance, have a 5-year term and a per share
exercise price of $9.00 per share; and Series B Warrants to purchase a number of shares of common stock, which shall only
be exercisable if (A) the market price (as defined below) of our common stock on the 30th trading day following the earlier of
(i) the effective date of a registration statement to sell the shares of common stock and the Series A Warrant Shares sold
in the Third PIPE, and (ii) the date on which the purchasers in the Third PIPE can freely sell the shares of common stock
pursuant to Rule 144 promulgated under the Securities Act without restriction (the "Eligibility Date") is less
than the purchase price in the offering or $5.75; and (B) upon certain dilutive occurrences.
If made exercisable pursuant to (A) in
the preceding sentence, the Third PIPE Series B Warrants will become immediately exercisable and will have an exercise price
of $0.001 per share to purchase a number of shares of our common stock such that the aggregate average price per share purchased
by the investors is equal to the market price (defined as the average of volume weighted average price for each of the previous
30 days as reported on the Over-The-Counter Bulletin Board during the 30 trading days preceding the measurement date).
The Third PIPE Series A and B Warrants
are exercisable on a cashless basis if the registration statement is not effective by the required effectiveness date.  The
number of shares of common stock to be received upon the exercise of the Third PIPE Series A and B Warrants and the exercise price
of the Series A and B Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations
and other similar transactions of the common stock that occur after the issuance date.  Additionally, the exercise price
of and the number of shares underlying the Series A Warrants shall be adjusted upon the issuance of certain securities at
a price per share (the "New Issuance Price") less than the exercise price then in effect, to an exercise price
equal to 110% of the New Issuance Price; however, the exercise price may never be reduced to lower than $5.00.
Warrant Restructure.
On February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, ("Modification Investors"),
entered into a modification agreement (the "Modification Agreement"), pursuant to which the parties agreed to amend
the terms of the Series B warrants issued to the Modification Investors in the Third PIPE in which the Modification Investors
invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed to limit the dilutive effects of
the Series B warrants by including a floor of $3.00 per share in the calculation of the reset provision included in the Series
B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series B warrants held by the Modification
Investors is 1,913,043 shares.
As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants
to purchase 2.5 million shares of common stock with a cash exercise price of $3.00 per share (the "Pentwater Series C Warrants").
The Pentwater Series C Warrants include a provision under which the warrants must be exercised at the election of the Company
by the Modification Investors for cash if the closing sales price of the common stock is $6.00 per share or greater for 20-consecutive
trading days. As a result of the issuance of the Series B warrants and the Pentwater Series C Warrants, the exercise prices and
number of shares underlying the Series A warrants and Series B warrants held by the remaining investor in the Third PIPE were
adjusted pursuant to their terms.
On April 5, 2012, pursuant to the terms
of a second modification agreement, the Company and the Modification Investors agreed to further amend the terms of the Series
B warrant to extend the expiration date to be (i) May 24, 2012 with respect to 1,000,000 shares of common stock underlying the
Series B warrants and (ii) with respect to the remaining 913,043 shares of common stock underlying the Series B Warrants (the
"Subsequent Warrant Shares"), the date that is the earlier of (a) 300 days from April 5, 2012 and (b) ten business
days after notice from the Company stating that the number of Subsequent Warrant Shares exercisable by the Modification Investors
would result in ownership of less than 9.99% of the Company's common stock after giving effect to such exercise. The Company
may provide multiple notices prior to the expiration of the Subsequent Warrant Shares.
(d)
Placement Agent Warrants
Northland Capital Markets ("Northland")
acted as our exclusive placement agent in connection with the First PIPE and Second PIPE. For the placement agent services in connection
with the First PIPE, we issued to Northland on the closing date five-year warrants to purchase 317,118 shares of common stock,
which are exercisable at an exercise price of $5.00 per share with respect to 158,178 shares and $6.50 per share with respect to
158,940 shares.  For the placement agent services in connection with the Second PIPE, we issued to Northland on the closing
date five-year warrants to purchase 102,425 shares of our common stock which are exercisable at an exercise price of $9.00 per
share.  The Agent Warrants have the same terms, including registration rights, as the warrants issued to the investors
in the offering. The number of shares of common stock to be received upon the exercise of the warrants issued to Northland and
the exercise price of the warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations
and other similar transactions of the common stock that occur after the closing date.
38
(e)
Lender Warrants
In connection with the Credit Agreement,
we issued to Macquarie Americas Corp.("Macquarie Bank") a five year warrant (the "Lender Warrant") to
purchase five million (5,000,000) shares of our common stock at a per share exercise price of $7.50.  The Lender Warrant
is exercisable on a cashless basis if there is no registration statement covering the underlying common stock.  The
Lender Warrant is also subject to customary anti-dilution provisions.  We granted the holder piggy-back registration
rights on the underlying common stock.
In connection with the consent provided
by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated under the Modification Agreement, pursuant
to the terms of the Credit Agreement, the Company agreed to amend and restate the Macquarie Warrant. Accordingly on February 9,
2012, the Company issued an amended and restated Macquarie Warrant (the "Amended Macquarie Warrant") to Macquarie
Americas to purchase up to 2,333,000 shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie Warrant
is not subject to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision or combinations.
The Amended Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering the underlying
common stock.
(f)
Pentwater Convertible Note
On February 10, 2012, the Company and
ASEN 2 closed on a Note and Warrant Purchase Agreement dated February 9, 2012, (the "Purchase Agreement"), with Pentwater
Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., ("Pentwater") in connection with a $20 million private
financing. The initial funding made by Pentwater to ASEN 2 on February 10, 2012 ("Pentwater Closing Date"), was in
the amount of $10 million. The second funding for an additional $10 million, which closed on March 5, 2012, occurred concurrently
with the closing of the purchase and sale agreement by and among the Company, Geronimo and XOG.
The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note (the "Pentwater Note"), convertible into shares
of the Company's common stock at a conversion price of $9.00 per share and five-year warrants to purchase 3,333,333 shares
of common stock at a per share cash exercise price of $2.50 (the "Pentwater February Warrants"). The Pentwater February
Warrants are also subject to a mandatory exercise at the Company's option with respect to (i) 50% of the number of shares
underlying the Pentwater February Warrants if the closing sale price of the common stock is equal to or greater than $5.00 per
share for twenty consecutive trading days and (ii) 50% of the number of warrant shares if the closing sale price of the common
stock is equal to or greater than $9.00 per share for twenty consecutive trading days.
From the Pentwater Closing Date through
December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.
39
On July 23, 2012, the Company, ASEN
2 and Pentwater entered into a First Amendment to Note and Warrant Purchase Agreement (the "Purchase Agreement Amendment")
pursuant to which Pentwater made an additional advance to ASEN 2 in the amount of $5 million and ASEN 2 delivered to Pentwater
an Amended and Restated Secured Convertible Promissory Note (the "Amended Note") in the amount of $25 million. Pursuant
to the terms of the Purchase Agreement Amendment and a Modification Agreement entered into by the parties, the Company (i) amended
the Pentwater Series C Warrants and the Pentwater February Warrants to reduce the exercise price to $2.25 per share and to change
the expiration date to June 30, 2019 and (ii) issued to Pentwater warrants to purchase an additional 833,333 shares of Common
Stock at an exercise price of $2.25 and an expiration date of June 30, 2019.
DESCRIPTION OF THE BUSINESS
We are an independent,
non-operator oil and natural gas company engaged in the acquisition and development of leaseholds of oil and natural gas properties. Our
leasehold acreage is located in the Permian Basin of West Texas and Eastern New Mexico, referred to herein as the Permian Basin,
the Eagle Ford Shale Formation of South Texas, referred to herein as Eagle Ford, the Bakken Shale Formation in North Dakota, referred
to herein as Bakken, the Niobrara Shale Formation of Wyoming and Nebraska, herein referred to as the Niobrara, the Eagle Bine
Shale Formation in South East Texas, herein referred to as the Eagle Bine, and the Gulf Coast of South Texas, herein referred
to as the Gulf Coast.
In the Permian
Basin, the Niobrara, the Eagle Bine and parts of the Eagle Ford, we own a number of leases where we hold the majority working
interest. We have historically contracted and expect to continue to contract with third-party operators, consultants, and other
contractor service providers to operate and drill our majority leasehold acreage. Within this acreage, the Company has historically
contracted to drill conventional, vertical wells. The Company may consider contracting with third parties to selectively drill
unconventional, horizontal wells in areas that may be prospective for oil and gas bearing shale formations.
We also hold minority
interest leasehold acreage in the Bakken, parts of the Permian Basin, and parts of the Eagle Ford. In the minority working interest
leaseholds, the Company has historically participated and expects to continue to participate on a non-operated basis in the drilling
and production of acreage operated by independent oil and gas operating companies.
While we do rely
on the expertise and resources of the respective operators that are drilling our minority working interest acreage, we believe
that our overall diversification across a large number of small working interests provides a way to participate in two large shale
formations that are being actively developed with less risk than a concentrated acreage position.
By participating
in drilling activities with larger operators, we seek to leverage their resources and expertise to efficiently gain exposure to
potential new oil and gas production and proven reserves. In the Permian Basin, some of these operators have historically drilled
and operated traditional, vertical wells. In the Eagle Ford and Bakken, we have participated in wells where the operators have
historically drilled unconventional, horizontal wells into prospective oil and gas bearing shale formations.
As of December
31, 2011, we held working interests in approximately 40,100 net acres in the Permian Basin, Bakken, and Eagle Ford regions. After
closing a significant acquisition, as of March 31, 2012, we held working interests in approximately 112,400 net acres in the Permian
Basin, Bakken, Eagle Ford, Niobrara, Eagle Bine and Gulf Coast regions. These working interests grant us the right as the lessee
of the property to explore for, develop and produce oil, natural gas and other minerals, while bearing our portion of related
exploration, development and operating costs.
Corporate History
We were incorporated as National Franchise
Directors, Inc. under the laws of the state of Delaware on March 4, 2005.  On October 25, 2005, we changed our name to
Famous Uncle Al's Hot Dogs & Grille, Inc. for the purpose of obtaining all existing and future restaurant franchising
rights from Famous Uncle Al's Hot Dogs, Inc., and on October 28, 2010, we changed our name to American Standard Energy Corp.
to reflect our new operations.
40
Nevada ASEC was incorporated in Nevada on
April 2, 2010 for the purposes of acquiring certain oil and natural gas leaseholds from the XOG Group and making capital investments
in acreage acquisitions and working interests in existing or planned hydrocarbon production with a special focus on productive
oil and natural gas prospects.
On October 1, 2010, we entered into a Share
Exchange Agreement by and among our then-controlling stockholder, Nevada ASEC (then a privately-held oil exploration and production
company) and the former stockholders of Nevada ASEC.  Pursuant to the Share Exchange Agreement, we (i) sold our former
restaurant franchise rights and related operations to the former controlling stockholder in exchange for the cancellation of 25,000,000
shares of our common stock and (ii) acquired 100% of the outstanding shares of common stock of Nevada ASEC from the former Nevada
ASEC stockholders and received $25,000 of additional consideration.  In exchange, the Nevada ASEC stockholders received
approximately 22,000,000 shares of our common stock on the closing date of the Share Exchange Agreement. As a result, the former
stockholders of Nevada ASEC acquired control of the Company and the transaction was accounted for as a recapitalization with Nevada
ASEC as the accounting acquirer of the Company. Accordingly, the financial statements of Nevada ASEC became the historical financial
statements of the Company.  As a result of the transactions consummated pursuant to the Share Exchange Agreement, Nevada
ASEC became our wholly-owned subsidiary.
On May 1, 2010, the XOG Group separated certain
oil and gas properties from their operations and contributed them to Nevada ASEC in return for 80% of the common stock of Nevada
ASEC. The acquisition of the oil and natural gas properties from the XOG Group was a transaction under common control and, accordingly,
Nevada ASEC recognized the assets and liabilities acquired from the XOG Group at their historical carrying values and no goodwill
or other intangible assets were recognized.  The oil and gas properties contributed by the XOG Group to Nevada ASEC consisted
of seven completed and operating wells within the Permian Basin region of West Texas as well as over approximately 10,600 acres
of undeveloped leasehold rights in three primary regions: (i) the Bakken, (ii) the Eagle Ford and (iii) certain positions in the
Permian Basin leased from the University of Texas.
On December 1, 2010,
we entered into an agreement with Geronimo whereby we acquired certain leasehold interests in oil and natural gas properties located
in North Dakota consisting of 26 wells located in Burke, Divide, Dunn, McKenzie, Mountrail, and Williams Counties referred to
herein as the Bakken 1 Properties for $500,000 cash and 1,200,000 shares of the Company's common stock valued at $3.96 million.  The
acquisition was accounted for as a transaction under common control and accordingly, we recorded the Bakken 1 Properties at their
historical carrying values and no goodwill or other intangible assets were recognized.  As a result, the historical
assets, liabilities and operations of the Bakken 1 Properties are included retrospectively in our consolidated financial statements
for all periods presented.
On February 11,
2011, we acquired certain developed oil and natural gas properties on approximately 2,374 net acres located in Texas, Oklahoma
and Arkansas, of which approximately 2,200 net acres are located within the Permian Basin and on which 24 wells are located referred
to herein as the Group 1 & 2 Properties, from Geronimo for $7,000,000 cash. The acquisition was accounted for as a transaction
under common control and accordingly, we recorded the assets and liabilities acquired from Geronimo at their historical carrying
values. As a result, the historical assets, liabilities and operations of the Group 1 & 2 Properties are included retrospectively
in our consolidated financial statements for all periods presented.
On March 1, 2011,
we acquired certain undeveloped mineral rights leaseholds held on approximately 10,147 net acres in the Bakken Shale Formation
in North Dakota referred to herein as the Bakken 2 Properties from Geronimo in exchange for $3,000,000 cash and the issuance of
883,607 shares of the Company's common stock valued at $5,787,626.  Certain of these mineral rights with a historical
cost basis of $1,257,000 were acquired by Geronimo subsequent to December 31, 2010, and, as a result, were not under common control
at that date and have been excluded from the historical consolidated financial statements as of December 31, 2010.  These
subsequently-acquired undeveloped mineral rights were first reflected in our March 31, 2011 interim consolidated financial statements,
and are incorporated into our financial statements for the year ended December 31, 2011.
41
On April 8, 2011,
we acquired undeveloped leasehold acreage consisting of approximately 2,780 net acres located in Mountrail County of North Dakota's
Williston Basin referred to herein as the Bakken 3 Properties from Geronimo for $1.86 million, which includes a $1.0 million down
payment made on March 25, 2011. This acquisition was accounted for as a transaction under common control.
On August 22, 2011,
we acquired approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks referred to herein as the the Bakken
4 Properties area from Geronimo for approximately $14.6 million. A cash deposit of $13.5 million was made on April 15, 2011, and
the Company subsequently issued 208,200 shares of common stock upon closing, which were valued at an aggregate of $1,093,050 based
on a per share price of $5.25 on the closing date. The acquisition was recorded at fair value.
On
March 5, 2012, we acquired leasehold working interests in approximately 72,300
net acres across the Permian Basin,
Eagle Ford shale formation and the Eagle Bine in Texas, the Williston Basin in North Dakota, and the Niobrara shale formation
in Wyoming and Nebraska referred to herein as the XOG Properties, from XOG and Geronimo (the "Sellers") in exchange
for the delivery by the Company to the Sellers of $10 million in cash, less the $1.5 million cash deposit previously paid by the
Company, a note in the principal amount of $35,000,000 made by the Company in favor of Geronimo and 5,000,000 shares of the common
stock of the Company valued at $2.70 per share, based on the closing price of the common stock on March 5, 2012. On June 30, 2012,
we entered into an Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares (the "Geronimo Shares")
of the our newly created Series A Preferred Stock to Geronimo in exchange for the cancelation of the $35 million note issued to
Geronimo.
Randall Capps is
the sole owner of XOG and Geronimo and the majority owner of CLW.  As of August 3, 2012, he was the beneficial owner
of approximately 56.7% of our common stock through his direct ownership and his indirect ownership interest in the XOG Group.
Mr. Capps is also a member of the Company's board of directors, and the father–in-law of our Chief Executive Officer,
Scott Feldhacker.
Business Overview
Our wholly-owned
subsidiaries, Nevada ASEC and ASEN 2, were formed for the original purpose of acquiring the oil and natural gas properties from
the XOG Group and making capital investments in, and acquiring of working interests of existing or exploratory hydrocarbon production
with a special focus on productive oil and natural gas prospects.  We anticipate that our continuing focus will be on
acquiring and developing additional assets within the Permian Basin, Bakken, Eagle Ford, Niobrara and Eagle Bine regions described
below.  Notwithstanding this focus, we also expect to pursue the acquisition of property and assets within other geographic
areas that meet our general investment guidelines and targets.
As of December 31,
2011, we held working interests in approximately 40,100 net acres in the Permian Basin, Bakken and Eagle Ford regions. A
summary of the total gross and net oil and gas productive wells and the total gross and net developed acreage by geographic area
is set forth in the section "Oil and Gas Properties Wells, Operation and Acreage" beginning on page 38 herein. 
As of June 30, 2012 we held working interests in approximately 112,400 net acres in the Permian Basin, Bakken and Eagle Ford,
the Niobrara, the Eagle Bine regions and Gulf Coast regions. These working interests grant us the right, as the lessee of the
property, to explore for, develop and produce oil, natural gas and other minerals, while also bearing any related exploration,
development, and operating costs. As of March 15, 2012:
·
Permian
                                                                                                               Basin.
We have leased
                                                                                                               a portfolio of
                                                                                                               both producing
                                                                                                               and undeveloped
                                                                                                               properties in the
                                                                                                               Permian Basin of
                                                                                                               West Texas, consisting
                                                                                                               of approximately
                                                                                                               29,000 net acres,
                                                                                                               one of which includes
                                                                                                               221 gross (178.2
                                                                                                               net) producing
                                                                                                               wells as well as
                                                                                                               approximately 10,200
                                                                                                               undeveloped acres
                                                                                                               on with leases
                                                                                                               expiring in 1-4
                                                                                                               years.  
                                                                                                               We have a contractual
                                                                                                               relationship with
                                                                                                               XOG Operating and
                                                                                                               Cambrian Management,
                                                                                                               referred to herein
                                                                                                               as Cambrian, both
                                                                                                               seasoned exploration
                                                                                                               and production
                                                                                                               operators based
                                                                                                               in Midland, Texas.
                                                                                                               XOG has been operating,
                                                                                                               developing and
                                                                                                               exploiting the
                                                                                                               Permian Basin,
                                                                                                               as well as operating
                                                                                                               in 14 other states,
                                                                                                               for 30 years.  Cambrian
                                                                                                               has acted as a
                                                                                                               third party completion
                                                                                                               consulting firm
                                                                                                               and contract operator
                                                                                                               for certain types
                                                                                                               of vertical wells
                                                                                                               in the Permian
                                                                                                               Basin since 2001.
42
The XOG relationship has
provided acquisition opportunities for us beginning in 2010 and is expected to provide us with additional opportunities for land
acquisition and joint ventures with various operators; however, XOG is not obligated to provide any opportunities to us and there
can be no assurance that any opportunity will be available to us in the future.   Randall Capps is the sole owner
of XOG, a member of our board of directors and the father-in-law of our Chief Executive Officer, Scott Feldhacker.  Mr.
Capps is the largest beneficial holder of our common stock through his direct and indirect ownership of our common stock.
·
Bakken
                                                                                                               Shale.
We
                                                                                                               hold primarily
                                                                                                               minority working
                                                                                                               interests in the
                                                                                                               Bakken Shale covering
                                                                                                               approximately 42,200
                                                                                                               net acres located
                                                                                                               in nine counties
                                                                                                               in North Dakota.
                                                                                                               We have participated
                                                                                                               in 140 gross (2.1
                                                                                                               net) wells in the
                                                                                                               Williston Basin,
                                                                                                               prospecting either
                                                                                                               the Bakken Shale
                                                                                                               or Three Forks
                                                                                                               Shale formations
                                                                                                               through March 15,
                                                                                                               2012. The Company
                                                                                                               has elected to
                                                                                                               participate in
                                                                                                               a wide range of
                                                                                                               wells by county
                                                                                                               and operator in
                                                                                                               the Williston Basin.
                                                                                                               Our objective is
                                                                                                               to participate
                                                                                                               in some of the
                                                                                                               overall potential
                                                                                                               growth in production
                                                                                                               and proved reserves
                                                                                                               of the Williston
                                                                                                               Basin through our
                                                                                                               operators in which
                                                                                                               we hold minority
                                                                                                               working interests,
                                                                                                               conduct exploratory
                                                                                                               and in-fill drilling
                                                                                                               activities. We
                                                                                                               have historically
                                                                                                               participated, and
                                                                                                               anticipate continuing
                                                                                                               to participate,
                                                                                                               in these drilling
                                                                                                               activities of our
                                                                                                               operators through
                                                                                                               minority working
                                                                                                               interest participations.
·
Eagle
                                                                                                               Ford Shale
.  We
                                                                                                               currently hold
                                                                                                               both majority working
                                                                                                               interests and minority
                                                                                                               working interests
                                                                                                               in the Eagle Ford
                                                                                                               Shale formation
                                                                                                               covering approximately
                                                                                                               7,400 net acres
                                                                                                               and 28 gross (7.1
                                                                                                               net) wells. Of
                                                                                                               the total wells
                                                                                                               in the Eagle Ford,
                                                                                                               we hold working
                                                                                                               interests in 1,200
                                                                                                               net acres in a
                                                                                                               project where we
                                                                                                               have participated
                                                                                                               in 23 gross (2.3
                                                                                                               net) wells in La
                                                                                                               Salle and Frio
                                                                                                               counties on a non-operated
                                                                                                               basis. These wells
                                                                                                               were drilled by
                                                                                                               Cheyenne Petroleum,
                                                                                                               referred to herein
                                                                                                               as Cheyenne, a
                                                                                                               privately-held
                                                                                                               operator based
                                                                                                               in Oklahoma City,
                                                                                                               OK. This acreage
                                                                                                               is subject to an
                                                                                                               area of mutual
                                                                                                               interest agreement,
                                                                                                               referred to herein
                                                                                                               as the AMI, between
                                                                                                               Cheyenne and several
                                                                                                               minority working
                                                                                                               interest partners,
                                                                                                               including our company.
                                                                                                               Cheyenne has informed
                                                                                                               us that it intends
                                                                                                               to have an aggregate
                                                                                                               of 35 wells in
                                                                                                               operation by the
                                                                                                               end of 2012, including
                                                                                                               the 23 wells that
                                                                                                               are currently in
                                                                                                               some stage of drilling,
                                                                                                               completion or production
                                                                                                               as of March 15,
                                                                                                               2012, to hold all
                                                                                                               of the acreage
                                                                                                               in the AMI by production.
                                                                                                               Cheyenne installed
                                                                                                               high-pressure gas
                                                                                                               takeaway facilities
                                                                                                               and sour gas treatment
                                                                                                               facilities in the
                                                                                                               area subject to
                                                                                                               the AMI in late
                                                                                                               2011 and early
                                                                                                               2012. This enabled
                                                                                                               Cheyenne to resume
                                                                                                               production of the
                                                                                                               wells temporarily
                                                                                                               shut in during
                                                                                                               2011 to enable
                                                                                                               production beginning
                                                                                                               in early 2012.
We also currently hold majority
working interests in a combined 6,200 net acres located in Wilson, Gonzales and Maverick counties within the Eagle Ford. This
acreage is partially developed, with 5 gross (4.25 net) producing wells. We will continue to participate in an evaluation of the
most efficient manner to develop these assets for future potential oil and gas production.
·
Niobrara
.  We
                                                                                                               currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               25,700 net acres
                                                                                                               located in the
                                                                                                               Niobrara Shale
                                                                                                               in Nebraska and
                                                                                                               Wyoming. All of
                                                                                                               this acreage is
                                                                                                               undeveloped and
                                                                                                               unproven as of
                                                                                                               March 15, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               There are three
                                                                                                               years remaining
                                                                                                               on our lease, with
                                                                                                               an option to extend
                                                                                                               the lease for five
                                                                                                               additional years.
                                                                                                               In the event we
                                                                                                               drill one or more
                                                                                                               wells and commence
                                                                                                               commercial production,
                                                                                                               we would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities of our
                                                                                                               operators in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.
·
Eagle
                                                                                                               Bine.
We currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               3,000 net acres
                                                                                                               located in the
                                                                                                               Eagle Bine are
                                                                                                               in Anderson County,
                                                                                                               Texas. All of this
                                                                                                               acreage is undeveloped
                                                                                                               and unproven as
                                                                                                               of March 15, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               We hold three years
                                                                                                               remaining on the
                                                                                                               lease, with an
                                                                                                               option to extend
                                                                                                               the lease for one
                                                                                                               additional year.
                                                                                                               In the event we
                                                                                                               elect to drill
                                                                                                               one or more wells
                                                                                                               through our operators
                                                                                                               and commence commercial
                                                                                                               production, we
                                                                                                               would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.
·
Additional
                                                                                                               Acreage:
We also hold additional
                                                                                                               acreage in Oklahoma,
                                                                                                               Arkansas, and on
                                                                                                               the Gulf Coast
                                                                                                               of Texas with a
                                                                                                               total of approximately
                                                                                                               5,000 net acres.
                                                                                                               The acreage includes
                                                                                                               16 gross (2.9 net)
                                                                                                               gas wells in Arkansas,
                                                                                                               1 gross (.06 net)
                                                                                                               producing well
                                                                                                               in Oklahoma and
                                                                                                               28 gross (26.1
                                                                                                               net) producing
                                                                                                               wells on the Gulf
                                                                                                               Coast of Texas.
                                                                                                               The Gulf Coast
                                                                                                               assets are majority
                                                                                                               working interest
                                                                                                               leases
.
                                                                                                               We participate
                                                                                                               in the Arkansas
                                                                                                               and Oklahoma wells
                                                                                                               on a non-operated,
                                                                                                               minority working
                                                                                                               interest basis.
43
Operations
We have structured
our operations and staffing model in such a way that we believe limits significant fixed operating expenses. We maintain a limited
in-house employee base outside of the executive team and some administrative personnel.  We expect to limit fixed overhead
and staff, as the majority of operational duties have been outsourced to select consultants and independent contractors, including
contract operators for our producing wells, consultants to oversee drilling, completion and initial production for leases where
we control majority working interests and elect to drill a well through our operators, as well as contract geologists and contract
reserve engineers.  We currently have two employees other than our three officers.
Our JOAs with our
operators give full control of all operations for our leasehold properties to the operator. All costs and liabilities incurred
in operations pursuant to the JOA are borne by the non-operator parties and all revenues from the sale of production are divided
among the non-operator parties according to their applicable percentage of interest in the leasehold property. All wells drilled
on the applicable leasehold property are drilled on a competitive contract basis at the usual prevailing rates in the area. If
any party desires to drill any well on the applicable leasehold property other than the initial well, such party must give notice
to all non-operator parties to the JOA, who will then have 30 days to elect to participate in the cost of the proposed operation.
The operator then has 90 days from the end of the notice period to commence the operation. The operator may resign or be removed
at any time upon 90 days prior notice.
For each producing
well, we have historically entered into a contract operating agreement with an operator who is responsible for the management
and day-to-day operation of one or more of our crude oil and/or natural gas wells. In instances where we are a minority working
interest partner, the operator is generally a significant or majority working-interest owner in the well. We believe that the
use of experienced operators should allow us to streamline production and development activities, reducing fixed overhead and
non-leasehold capital investments. As we contract with our operators to drill and produce wells in which we participate, we have
no direct experience in drilling or producing horizontal or vertical wells. For a summary of our gross and net productive oil
wells, see "
Oil and Gas Properties, Wells, Operations and Acreage
" on page 55  herein.
Drilling Projects
For our majority
working interest acreage in the Permian Basin, we expect to continue our relationships with XOG and Cambrian, among other contract
operators, for drilling and operating services through contract operating agreements. We are actively contracting for third party
completion services on wells drilled in 2011 by third party drilling service providers on our acreage. We expect that we will
resume the drilling of our majority interest acreage in the Permian Basin in 2012.
In the Bakken and
Eagle Ford, we expect to continue to participate in third party drilling activities on a non-operated basis. In the Eagle
Ford, we primarily participate in a drilling program with Cheyenne, which had defined a 20 net well program through the end of
2012 to hold all of the acreage under an AMI by production. This program has been largely detailed on a predetermined drilling
and completion schedule which provides us with a satisfactory forecast of costs and other demands associated with anticipated
drilling, production, and other activities. In the Bakken, we have over 1,000 leases, with a wide range of minority working interests
across multiple counties, with multiple operators in various stages of permitting, planned drilling, and active development. In
the Bakken, we are uncertain at this time as to the future development plans of the majority working interest operators on this
acreage. However, we do actively monitor the drilling of third party operators in proximity to our acreage, as well as the permitted
status of the leaseholds.
Marketing and Customers
As a non-operator, we rely on outside
operators for the transportation, marketing/sales and account reporting for all production.  The operators of our wells are
responsible for the marketing and sales of all production to regional purchasers of petroleum products.
Governmental Regulation and Environmental Matters
The Company's
operations are subject to various rules, regulations and limitations impacting the oil and natural gas exploration and production
industry as a whole.
Regulation of Crude Oil and Natural
Gas Production
Our crude oil and
natural gas exploration, production and related operations, when developed, are subject to extensive rules and regulations promulgated
by federal, state, tribal and local authorities and agencies. For example, Texas, North Dakota, New Mexico and Wyoming require
permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the
exploration and production of crude oil and natural gas. Such states may also have statutes or regulations addressing conservation
matters, including provisions for the unitization or pooling of crude oil and natural gas properties, the establishment of maximum
rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells.
44
While our operating
partners are expected to be in compliance with the extensive rules and regulations promulgated by federal, state, tribal and local
authorities and agencies with regard to exploration and production including acquiring proper permits for drilling operations,
drilling bonds and reports concerning operations, the Company strives to comply with all regulatory burdens it shares as a function
of its interest in oil and gas leaseholds and the potential pooling of oil and natural gas properties. Failure to comply
with any such rules and regulations can result in substantial penalties. The regulatory burden on the oil and gas industry
may increase the Company's cost of doing business and may affect the Company's profitability. Although the Company
believes it is currently in substantial compliance with all applicable laws and regulations, because such rules and regulations
are frequently amended or reinterpreted, the Company is unable to predict the future cost or impact of complying with such laws. Significant
expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on the Company's
financial condition and results of operations.
Environmental Matters
Our and our operators'
operations and properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment,
and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may:
▪
require the acquisition of a permit or other authorization before construction or drilling commences
and for certain other activities;
▪
limit or prohibit construction, drilling and other activities on certain lands lying within wilderness
and other protected areas; and
▪
impose substantial liabilities for pollution resulting from its operations.
The permits required
for our operations may be subject to revocation, modification and renewal by issuing authorities. Governmental authorities have
the power to enforce their regulations, and violations are subject to fines or injunctions, or both. In the opinion of management,
we are in substantial compliance with current applicable environmental laws and regulations, and have no material commitments for
capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our company, as well as the crude oil and natural
gas industry in general.
Environmental laws,
regulations and permits, and the enforcement and interpretation thereof, change frequently and generally have become more stringent
over time. For example, various federal, state, provincial and local initiatives have been implemented or are under development
to regulate or further investigate the environmental impacts of hydraulic fracturing, a practice that involves the pressurized
injection of water, chemicals and other substances into rock formations to stimulate hydrocarbon production. In particular, the
EPA has commenced a study to determine the environmental and health impacts of hydraulic fracturing and announced that it will
propose standards for the treatment or disposal of wastewater from certain gas production operations. In addition, certain states
in which we operate have adopted, or are considering adopting, regulations that have imposed, or could impose, more stringent
permitting, transparency, disposal and well construction requirements on hydraulic fracturing operations. In particular, in December
2011, the Railroad Commission of Texas and the Colorado Oil and Gas Conservation Commission finalized regulations requiring public
disclosure of chemicals in fluids used in the hydraulic fracturing process. Local ordinances or other regulations also may regulate
or prohibit the performance of well drilling in general and hydraulic fracturing in particular, and may require baseline water
well sampling. Such laws and regulations may result in increased scrutiny or third-party claims, or otherwise result in operational
delays, liabilities and increased costs.
45
The Comprehensive
Environmental, Response, Compensation, and Liability Act, referred to hereafter as CERCLA and comparable state statutes impose
strict, joint and several liability on owners and operators of sites and on persons who disposed of or arranged for the disposal
of "hazardous substances" found at such sites. It is not uncommon for the 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.
The Federal Resource Conservation and Recovery Act, referred to hereafter as RCRA and comparable state statutes govern the disposal
of "solid waste" and "hazardous waste" and authorize the imposition of substantial fines and penalties
for noncompliance. Although CERCLA currently excludes petroleum from its definition of "hazardous substance," state
laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition,
although RCRA classifies certain crude oil field wastes as "non-hazardous," such exploration and production wastes
could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.
The Oil Pollution
Act of 1990, referred to hereafter as OPA and regulations issued under OPA impose strict, joint and several liability on "responsible
parties" for damages resulting from oil spills into or upon navigable waters, adjoining shorelines or in the exclusive economic
zone of the United States. A "responsible party" includes the owner or operator of an onshore facility and the lessee
or permittee of the area in which an offshore facility is located. The OPA establishes a liability limit for onshore facilities
of $350.0 million, while the liability limit for offshore facilities is the payment of all removal costs plus up to $75.0 million
in other damages, but these limits may not apply if a spill is caused by a party's gross negligence or willful misconduct;
the spill resulted from violation of a federal safety, construction or operating regulation; or if a party fails to report a spill
or to cooperate fully in a cleanup. We are not aware of any action or event that would subject us to liability under OPA, and
we believe that compliance with OPA's requirements will not have a material adverse effect on us.
The Endangered
Species Act, referred to hereafter as ESA seeks to ensure that activities do not jeopardize endangered or threatened animal, fish
and plant species, nor destroy or modify the critical habitat of such species. Under ESA, exploration and production operations,
as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat. ESA provides for
criminal penalties for willful violations of ESA. Other statutes that provide protection to animal and plant species and that
may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation
and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act. Although we believe that our operations
will be in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered
could subject our company (directly or indirectly through our operating partners) to significant expenses to modify our operations
or could force discontinuation of certain operations altogether.
The Clean Air Act,
as amended, and comparable state laws restrict the emission of air pollutants from many sources, including compressor stations.
These laws and any implementing regulations may require us or our operating partners to obtain pre-approval for the construction
or modification of certain projects or facilities expected to produce air emissions, impose stringent air permit requirements,
or use specific equipment or technologies to control emissions. We may be required (directly or indirectly through our operating
partners) to incur certain capital expenditures in the next few years for air pollution control equipment in connection with maintaining
or obtaining operating permits addressing other air emission-related issues.
In July 2011, the
EPA proposed requirements for sulfur dioxide, volatile organic compound and hazardous air pollutant air emissions from oil and
gas operations, including standards for wells that are hydraulically fractured. In addition, from time to time, initiatives are
proposed that could further regulate certain exploration and production by-products as hazardous wastes and subject them to more
stringent requirements. Any current or future air emission, hazardous waste or other environmental requirements applicable to
our operations could curtail our operations or otherwise result in operational delays, liabilities and increased costs.
Changes in environmental
laws and regulations sometimes occur, and any changes that result in more stringent and costly waste handling, storage, transport,
disposal or cleanup requirements for any substances used or produced in our operations could materially adversely affect our operations
and financial position, as well as those of the oil and gas industry in general. For instance, recent scientific studies have
suggested that emissions of certain gases commonly referred to as "greenhouse gases" and including carbon dioxide
and methane, may be contributing to warming of the Earth's atmosphere. See "Climate Change" below.
46
The Federal Water
Pollution Control Act of 1972, or the Clean Water Act , referred to hereafter as the CWA, imposes restrictions and controls on
the discharge of produced waters and other pollutants into navigable waters. Permits must be obtained to discharge pollutants
into state and federal waters and to conduct construction activities in waters and wetlands. The CWA and certain state regulations
prohibit the discharge of produced water, sand, drilling fluids, drill cuttings, sediment and certain other substances related
to the oil and gas industry into certain coastal and offshore waters without an individual or general National Pollutant Discharge
Elimination System discharge permit.
The EPA had regulations
under the authority of the CWA that required certain oil and gas exploration and production projects to obtain permits for construction
projects with storm water discharges. However, the Energy Policy Act of 2005 nullified most of the EPA regulations that required
storm water permitting of oil and gas construction projects. There are still some state and federal rules that regulate the discharge
of storm water from some oil and gas construction projects. Costs may be associated with the treatment of wastewater and/or developing
and implementing storm water pollution prevention plans. The CWA and comparable state statutes provide for civil, criminal and
administrative penalties for unauthorized discharges of oil and other pollutants and impose liability on parties responsible for
those discharges, for the costs of cleaning up any environmental damage caused by the release and for natural resource damages
resulting from the release.
Climate Change
Significant studies
and research have been devoted to climate change and global warming, and climate change has developed into a major political issue
in the United States and globally. Certain research suggests that greenhouse gas emissions contribute to climate change and pose
a threat to the environment. Recent scientific research and political debate has focused in part on carbon dioxide and methane
incidental to crude oil and natural gas exploration and production. Many states and the federal government have enacted legislation
directed at controlling greenhouse gas emissions, and future legislation and regulation could impose additional restrictions or
requirements in connection with our drilling and production activities and favor use of alternative energy sources, which could
negatively impact operating costs and demand for crude oil products. As such, our business could be materially adversely affected
by domestic and international legislation targeted at controlling climate change.
Competition
The oil and gas
industry is very competitive and the Company competes with numerous other oil and gas exploration and production companies.  Many
of these companies have substantially greater resources than those of the Company.  Also, many of these companies are
integrated in their approach, which includes not only exploration and production but transportation, sales of resources and refining
capabilities on a regional, national or worldwide basis. The operations of other companies may be able to pay more for exploratory
prospects and productive crude oil and natural gas properties. The larger or integrated competitors may have the resources to
define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit.
The larger or integrated
companies may also be able to better absorb the burden of existing and any changes to federal, state and local laws and regulations,
which would adversely affect the Company's competitive position.
The Company's
ability to discover reserves and acquire additional properties in the future will be dependent upon its ability and resources
to evaluate and select suitable properties and to consummate transactions in this highly competitive industry.  In addition,
the Company may be at a disadvantage in producing oil and natural gas properties and bidding for exploratory prospects because
the Company has fewer financial and human resources than other companies in this industry.  Should a larger and better
financed company decide to directly compete with the Company and be successful in its efforts, the Company's business could
be adversely affected.
Competitive Advantage
The Company believes
that, through our majority working interest leaseholds in the Permian Basin, the Eagle Ford, the Eagle Bine and the Niobrara,
we hold a large quantity of acreage for the future exploration of potential oil and gas reserves. As the majority working interest
owner, we would be able to, if successful, capture the majority of the economic benefit of the production produced and sold from
those leaseholds. Through our minority working interest acreage in the Bakken, Eagle Ford and select Permian Basin leaseholds,
we are able to participate in the drilling and production activities of many larger oil and gas operators in three large oil and
gas basins.
47
We believe this
model provides balanced diversification and acceleration of potential exposure to drilling and production related activities.
As a non-operator, we rely on and typically benefit from the resources dedicated by the majority working interest partners to
ensure their drilling and production activities are successful. As a result, we are able to participate in a greater number of
drilling activities than a company of our size without a non-operated leasehold portfolio. We also believe that by participating
in a greater number of overall wells being drilled, we are better able to diversify our risks of potential unsuccessful drilling
activities. We feel that smaller capital investments in a larger number of wells may reduce our risk of loss overall, making us
less reliant on the success of any one well to our overall growth plans and financial resources.
Office Locations
We lease our 4,092 square foot primary
office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement, dated September 30, 2010, for a 66-month
term.  The lease provides for no lease payments during the first six months and a reduced square footage charge for
the first year.  The initial rental is $23.00 per square foot, beginning February 1, 2011, and increasing $.50 per square
foot annually thereafter.
Employees
We currently have a full-time staff of
three executive officers and three additional employees who manage all of our day to day operations.  We expect to increase
staff as necessary, specifically in the area of land acquisition and administrative personnel.
Legal Proceedings
From time to time, we may become involved
in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial
condition or operating results.
DISCLOSURE RELATED TO OIL AND GAS PRODUCING
ACTIVITIES
Leasehold Holdings
As of June 30,
2012 we held working interests in approximately 112,400 net acres in the Permian Basin, Bakken and Eagle Ford, the Niobrara, the
Eagle Bine regions and Gulf Coast regions. These working interests grant us the right, as the lessee of the property, to explore
for, develop and produce oil, natural gas and other minerals, while also bearing any related exploration, development, and operating
costs. As of March 15, 2012:
·
Permian
                                                                                                               Basin.
We have leased
                                                                                                               a portfolio of
                                                                                                               both producing
                                                                                                               and undeveloped
                                                                                                               properties in the
                                                                                                               Permian Basin of
                                                                                                               West Texas, consisting
                                                                                                               of approximately
                                                                                                               29,000 net acres,
                                                                                                               one of which includes
                                                                                                               221 gross (178.2
                                                                                                               net) producing
                                                                                                               wells as well as
                                                                                                               approximately 10,200
                                                                                                               undeveloped acres
                                                                                                               on with leases
                                                                                                               expiring in 1-4
                                                                                                               years.  
                                                                                                               We have a contractual
                                                                                                               relationship with
                                                                                                               XOG Operating and
                                                                                                               Cambrian Management,
                                                                                                               referred to herein
                                                                                                               as Cambrian, both
                                                                                                               seasoned exploration
                                                                                                               and production
                                                                                                               operators based
                                                                                                               in Midland, Texas.
                                                                                                               XOG has been operating,
                                                                                                               developing and
                                                                                                               exploiting the
                                                                                                               Permian Basin,
                                                                                                               as well as operating
                                                                                                               in 14 other states,
                                                                                                               for 30 years.  Cambrian
                                                                                                               has acted as a
                                                                                                               third party completion
                                                                                                               consulting firm
                                                                                                               and contract operator
                                                                                                               for certain types
                                                                                                               of vertical wells
                                                                                                               in the Permian
                                                                                                               Basin since 2001.
The XOG relationship has
provided acquisition opportunities for us beginning in 2010 and is expected to provide us with additional opportunities for land
acquisition and joint ventures with various operators; however, XOG is not obligated to provide any opportunities to us and there
can be no assurance that any opportunity will be available to us in the future.   Randall Capps is the sole owner
of XOG, a member of our board of directors and the father-in-law of our Chief Executive Officer, Scott Feldhacker.  Mr.
Capps is the largest beneficial holder of our common stock through his direct and indirect ownership of our common stock.
48
·
Bakken
                                                                                                                             Shale.
We
                                                                                                                             hold
                                                                                                                             primarily
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Bakken
                                                                                                                             Shale
                                                                                                                             covering
                                                                                                                             approximately
                                                                                                                             42,200
                                                                                                                             net
                                                                                                                             acres
                                                                                                                             located
                                                                                                                             in
                                                                                                                             nine
                                                                                                                             counties
                                                                                                                             in
                                                                                                                             North
                                                                                                                             Dakota.
                                                                                                                             We
                                                                                                                             have
                                                                                                                             participated
                                                                                                                             in
                                                                                                                             140
                                                                                                                             gross
                                                                                                                             (2.1
                                                                                                                             net)
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Williston
                                                                                                                             Basin,
                                                                                                                             prospecting
                                                                                                                             either
                                                                                                                             the
                                                                                                                             Bakken
                                                                                                                             Shale
                                                                                                                             or
                                                                                                                             Three
                                                                                                                             Forks
                                                                                                                             Shale
                                                                                                                             formations
                                                                                                                             through
                                                                                                                             March
                                                                                                                             31,
                                                                                                                             2012.
                                                                                                                             The
                                                                                                                             Company
                                                                                                                             has
                                                                                                                             elected
                                                                                                                             to
                                                                                                                             participate
                                                                                                                             in
                                                                                                                             a
                                                                                                                             wide
                                                                                                                             range
                                                                                                                             of
                                                                                                                             wells
                                                                                                                             by
                                                                                                                             county
                                                                                                                             and
                                                                                                                             operator
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Williston
                                                                                                                             Basin.
                                                                                                                             Our
                                                                                                                             objective
                                                                                                                             is
                                                                                                                             to
                                                                                                                             participate
                                                                                                                             in
                                                                                                                             some
                                                                                                                             of
                                                                                                                             the
                                                                                                                             overall
                                                                                                                             potential
                                                                                                                             growth
                                                                                                                             in
                                                                                                                             production
                                                                                                                             and
                                                                                                                             proved
                                                                                                                             reserves
                                                                                                                             of
                                                                                                                             the
                                                                                                                             Williston
                                                                                                                             Basin
                                                                                                                             as
                                                                                                                             the
                                                                                                                             majority
                                                                                                                             working
                                                                                                                             interest
                                                                                                                             operators
                                                                                                                             in
                                                                                                                             which
                                                                                                                             we
                                                                                                                             hold
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interests,
                                                                                                                             conduct
                                                                                                                             exploratory
                                                                                                                             and
                                                                                                                             in-fill
                                                                                                                             drilling
                                                                                                                             activities.
                                                                                                                             We
                                                                                                                             have
                                                                                                                             historically
                                                                                                                             participated,
                                                                                                                             and
                                                                                                                             anticipate
                                                                                                                             continuing
                                                                                                                             to
                                                                                                                             participate,
                                                                                                                             in
                                                                                                                             these
                                                                                                                             drilling
                                                                                                                             activities
                                                                                                                             through
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interest
                                                                                                                             participations.
·
Eagle
                                                                                                                             Ford
                                                                                                                             Shale
.  We
                                                                                                                             currently
                                                                                                                             hold
                                                                                                                             both
                                                                                                                             majority
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             and
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Eagle
                                                                                                                             Ford
                                                                                                                             Shale
                                                                                                                             formation
                                                                                                                             covering
                                                                                                                             approximately
                                                                                                                             7,400
                                                                                                                             net
                                                                                                                             acres
                                                                                                                             and
                                                                                                                             28
                                                                                                                             gross
                                                                                                                             (7.1
                                                                                                                             net)
                                                                                                                             wells.
                                                                                                                             Of
                                                                                                                             the
                                                                                                                             total
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             the
                                                                                                                             Eagle
                                                                                                                             Ford,
                                                                                                                             we
                                                                                                                             hold
                                                                                                                             working
                                                                                                                             interests
                                                                                                                             in
                                                                                                                             1,200
                                                                                                                             net
                                                                                                                             acres
                                                                                                                             in
                                                                                                                             a
                                                                                                                             project
                                                                                                                             where
                                                                                                                             we
                                                                                                                             have
                                                                                                                             participated
                                                                                                                             in
                                                                                                                             23
                                                                                                                             gross
                                                                                                                             (2.3
                                                                                                                             net)
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             La
                                                                                                                             Salle
                                                                                                                             and
                                                                                                                             Frio
                                                                                                                             counties
                                                                                                                             on
                                                                                                                             a
                                                                                                                             non-operated
                                                                                                                             basis.
                                                                                                                             These
                                                                                                                             wells
                                                                                                                             were
                                                                                                                             drilled
                                                                                                                             by
                                                                                                                             Cheyenne
                                                                                                                             Petroleum,
                                                                                                                             referred
                                                                                                                             to
                                                                                                                             herein
                                                                                                                             as
                                                                                                                             Cheyenne,
                                                                                                                             a
                                                                                                                             privately-held
                                                                                                                             operator
                                                                                                                             based
                                                                                                                             in
                                                                                                                             Oklahoma
                                                                                                                             City,
                                                                                                                             OK.
                                                                                                                             This
                                                                                                                             acreage
                                                                                                                             is
                                                                                                                             subject
                                                                                                                             to
                                                                                                                             an
                                                                                                                             area
                                                                                                                             of
                                                                                                                             mutual
                                                                                                                             interest
                                                                                                                             agreement,
                                                                                                                             referred
                                                                                                                             to
                                                                                                                             herein
                                                                                                                             as
                                                                                                                             the
                                                                                                                             AMI,
                                                                                                                             between
                                                                                                                             Cheyenne
                                                                                                                             and
                                                                                                                             several
                                                                                                                             minority
                                                                                                                             working
                                                                                                                             interest
                                                                                                                             partners,
                                                                                                                             including
                                                                                                                             our
                                                                                                                             company.
                                                                                                                             Cheyenne
                                                                                                                             has
                                                                                                                             informed
                                                                                                                             us
                                                                                                                             that
                                                                                                                             it
                                                                                                                             intends
                                                                                                                             to
                                                                                                                             have
                                                                                                                             an
                                                                                                                             aggregate
                                                                                                                             of
                                                                                                                             35
                                                                                                                             wells
                                                                                                                             in
                                                                                                                             operation
                                                                                                                             by
                                                                                                                             the
                                                                                                                             end
                                                                                                                             of
                                                                                                                             2012,
                                                                                                                             including
                                                                                                                             the
                                                                                                                             23
                                                                                                                             wells
                                                                                                                             that
                                                                                                                             are
                                                                                                                             currently
                                                                                                                             in
                                                                                                                             some
                                                                                                                             stage
                                                                                                                             of
                                                                                                                             drilling,
                                                                                                                             completion
                                                                                                                             or
                                                                                                                             production
                                                                                                                             as
                                                                                                                             of
                                                                                                                             March
                                                                                                                             31,
                                                                                                                             2012,
                                                                                                                             to
                                                                                                                             hold
                                                                                                                             all
                                                                                                                             of
                                                                                                                             the
                                                                                                                             acreage
                                                                                                                             in
                                                                                                                             the
                                                                                                                             AMI
                                                                                                                             by
                                                                                                                             production.
                                                                                                                             Cheyenne
                                                                                                                             installed
                                                                                                                             high-pressure
                                                                                                                             gas
                                                                                                                             takeaway
                                                                                                                             facilities
                                                                                                                             and
                                                                                                                             sour
                                                                                                                             gas
                                                                                                                             treatment
                                                                                                                             facilities
                                                                                                                             in
                                                                                                                             the
                                                                                                                             area
                                                                                                                             subject
                                                                                                                             to
                                                                                                                             the
                                                                                                                             AMI
                                                                                                                             in
                                                                                                                             late
                                                                                                                             2011
                                                                                                                             and
                                                                                                                             early
                                                                                                                             2012.
                                                                                                                             This
                                                                                                                             enabled
                                                                                                                             Cheyenne
                                                                                                                             to
                                                                                                                             resume
                                                                                                                             production
                                                                                                                             of
                                                                                                                             the
                                                                                                                             wells
                                                                                                                             temporarily
                                                                                                                             shut
                                                                                                                             in
                                                                                                                             during
                                                                                                                             2011
                                                                                                                             to
                                                                                                                             enable
                                                                                                                             production
                                                                                                                             beginning
                                                                                                                             in
                                                                                                                             early
                                                                                                                             2012.
We also currently hold majority
working interests in a combined 6,200 net acres located in Wilson, Gonzales and Maverick counties within the Eagle Ford. This
acreage is partially developed, with 5 gross (4.25 net) producing wells. We will continue to participate in an evaluation of the
most efficient manner to develop these assets for future potential oil and gas production.
·
Niobrara
.  We
                                                                                                               currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               25,700 net acres
                                                                                                               located in the
                                                                                                               Niobrara Shale
                                                                                                               in Nebraska and
                                                                                                               Wyoming. All of
                                                                                                               this acreage is
                                                                                                               undeveloped and
                                                                                                               unproven as of
                                                                                                               March 31, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               There are three
                                                                                                               years remaining
                                                                                                               on our lease, with
                                                                                                               an option to extend
                                                                                                               the lease for five
                                                                                                               additional years.
                                                                                                               In the event we
                                                                                                               drill one or more
                                                                                                               wells and commence
                                                                                                               commercial production,
                                                                                                               we would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.
·
Eagle
                                                                                                               Bine.
We currently hold
                                                                                                               majority working
                                                                                                               interests in approximately
                                                                                                               3,000 net acres
                                                                                                               located in the
                                                                                                               Eagle Bine are
                                                                                                               in Anderson County,
                                                                                                               Texas. All of this
                                                                                                               acreage is undeveloped
                                                                                                               and unproven as
                                                                                                               of March 31, 2012.
                                                                                                               We do not currently
                                                                                                               anticipate the
                                                                                                               near-term development
                                                                                                               of this acreage.
                                                                                                               We hold three years
                                                                                                               remaining on the
                                                                                                               lease, with an
                                                                                                               option to extend
                                                                                                               the lease for one
                                                                                                               additional year.
                                                                                                               In the event we
                                                                                                               drill one or more
                                                                                                               wells and commence
                                                                                                               commercial production,
                                                                                                               we would continue
                                                                                                               to hold the lease
                                                                                                               for the duration
                                                                                                               of production.
                                                                                                               We will continue
                                                                                                               to participate
                                                                                                               in the evaluation
                                                                                                               of the drilling
                                                                                                               and exploration
                                                                                                               activities in close
                                                                                                               proximity to our
                                                                                                               acreage for future
                                                                                                               potential development.
·
Additional
                                                                                                               Acreage:
We also hold additional
                                                                                                               acreage in Oklahoma,
                                                                                                               Arkansas, and on
                                                                                                               the Gulf Coast
                                                                                                               of Texas with a
                                                                                                               total of approximately
                                                                                                               5,000 net acres.
                                                                                                               The acreage includes
                                                                                                               16 gross (2.9 net)
                                                                                                               gas wells in Arkansas,
                                                                                                               1 gross (.06 net)
                                                                                                               producing well
                                                                                                               in Oklahoma and
                                                                                                               28 gross (26.1
                                                                                                               net) producing
                                                                                                               wells on the Gulf
                                                                                                               Coast of Texas.
                                                                                                               The Gulf Coast
                                                                                                               assets are majority
                                                                                                               working interest
                                                                                                               leases. We participate
                                                                                                               in the Arkansas
                                                                                                               and Oklahoma wells
                                                                                                               on a non-operated,
                                                                                                               minority working
                                                                                                               interest basis.
49
Reserves
Below is a summary of oil and gas reserves as of the fiscal-year
ended December 31, 2011 based on average fiscal-year prices.
Reserves
Reserves category
Oil
(mbbls)
Natural gas
(mmcf)
Synthetic oil
(mbbls)
Synthetic gas
(mmcf)
PROVED
Developed:
North America
1,368.5
6,334.0
0
0
U.S.A
1,368.5
6,334.0
0
0
Undeveloped:
North America
805.6
1,171.9
0
0
U.S.A
805.6
1,171.9
0
0
TOTAL PROVED
2,174.1
7,505.9
0
0
As of December
31, 2011, our proved oil and natural gas reserves are all located in the United States, primarily in the Permian Basin of West
Texas, the Eagle Ford shale formation of South Texas and the Williston Basin of North Dakota.  The reservoir engineering
reports used herein are calculated as of December 31, 2011. The estimates of proved reserves at December 31, 2011 are based on
reports prepared by DeGolyer and MacNaughton, (the "D&M Engineering Report") and an additional report for our
Eagle Ford assets operated by Cheyenne Petroleum prepared by Cawley Gillespie & Associates (the "CG&A Engineering
Report") which are included herein as Exhibit 99.5.
Proved reserves
and future net revenue to the evaluated interests were based on economic parameters and operating conditions considered applicable
as of December 31, 2011 and are pursuant to the financial reporting standards of the Securities and Exchange Commission ("SEC")
and prepared in accordance with the SPE 2007 Standards promulgated by the Society of Petroleum Engineers.  The reserves projections
in this evaluation are based on the use of the available data and accepted industry-engineering methods.
The following table provides a roll-forward
of the total proved reserves for the years ended December 31, 2011 and 2010, as well as disclosures of proved developed and proved
undeveloped reserves at December 31, 2011 and 2010. Barrels of oil equivalent (BOE) are determined using a ratio of 6 Mcf of natural
gas to 1 Bbl of crude oil.
Natural
Oil
Gas
Total
(Bbls)
(Mcf)
(Boe)
Total Proved Reserves:
Balance, January 1, 2011
2,290,830
14,511,630
4,709,436
Revisions
(1,431,844
)
(8,333,408
)
(2,820,745
)
Discoveries
1,414,818
1,872,750
1,726,943
Purchases of reserves
4,471
2,190
4,836
Production
(104,147
)
(547,280
)
(195,361
)
Balance, December 31, 2011
2,174,128
7,505,882
3,425,109
Proved developed reserves
1,368,461
6,334,000
2,424,128
Proved undeveloped reserves
805,669
1,171,884
1,000,983
Total proved reserves
2,174,130
7,505,884
3,425,111
Total Proved Reserves:
Balance, January 1, 2010
2,047,616
13,508,944
4,299,107
Revisions
173,505
1,527,388
428,070
Discoveries
126,366
15,370
128,928
Production
(56,657
)
(540,072
)
(146,669
)
Balance, December 31, 2010
2,290,830
14,511,630
4,709,436
Proved developed reserves
759,642
9,370,893
2,321,457
Proved undeveloped reserves
1,531,188
5,140,737
2,387,979
Total proved reserves
2,290,830
14,511,630
4,709,436
50
Total proved reserves as of December
31, 2010 were 4,709,436 BOE including 2,387,979 BOE in proved undeveloped reserves. Our 2010 reserves include reserves acquired
in the Group 1&2 acquisition in February 2011.  This transaction was between our Company and XOG Group while we were
under common control.  As a result, our proved reserves were recast to include the reserves acquired as if our Company has
owned those reserves at December 31, 2010.  Subsequently, we evaluated our proved undeveloped reserves and determined that
1,868,367 BOE in undeveloped reserves were unlikely to be developed in the next three years by the operators of record on which
these reserves were located.  As a result, the Company has excluded these locations and the associated reserves from proved
reserves as of December 31, 2011.  If these reserves were excluded from all periods presented, total proved reserves as of
December 31, 2011 and 2010 would be 3,425,111 BOE and 2,841,069 BOE, respectively.
Qualifications of Technical Persons and Internal Controls
Over Reserves Estimation Process
Our policies regarding
internal controls over the recording of reserves estimates requires reserves to comply with the SEC definitions and guidance and
be prepared in accordance the SPE 2007 Standards promulgated by the Society of Petroleum Engineers.  Our procedures
require that our reserve report be prepared by a third-party registered independent engineering firm at the end of every year
based on information we provide to such engineer. We accumulate historical production data for our wells, calculate historical
lease operating expenses and differentials, update working interests and net revenue interests, obtain updated authorizations
for expenditure ("AFEs") and obtain geological and geophysical information from operators. This data is forwarded
to our third-party engineering firm for review and calculation. Our Chief Executive Officer and Chief Financial Officer provide
a final review of our reserve report and the assumptions relied upon in such report.
Bryant M. Mook,
B.Sc. M.Eng., Petroleum Engineer and Geological Advisor, was our third party reserve engineer for the preparation of our reserve
report, effective December 31, 2010.  Mr. Mook has been a petroleum engineering and geological advisor for more than
35 years with multi-disciplinary experience in the oil and gas industry.  He meets or exceeds the education, training,
and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the Society of Petroleum Engineers and is proficient in judiciously applying industry standard practices to engineering
and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.
Our Chief Financial
Officer, Scott Mahoney, was responsible for overseeing the preparation of the reserve estimates. Mr. Mahoney has significant
accounting and financial experience, although not specific to the oil and gas industry.  Accordingly, in July 2011,
we hired DeGolyer and MacNaughton of Houston, Texas as our new third-party engineering firm to prepare our reserve estimates going
forward. Cawley, Gillespie and Associates of Houston, Texas was also retained on a specific project to provide third-party engineering
for our Eagle Ford assets being developed with Cheyenne Petroleum in La Salle and Frio Counties, Texas.
DeGolyer and MacNaughton
of Houston, TX, was our third party reserve engineer for the preparation of the majority of our reserve report, effective December
31, 2011.  DeGolyer and MacNaughton was established in 1936 and is one of the oldest and largest third party reserve
engineering firms in the US today. This firm meets or exceeds the education, training, and experience requirements set forth in
the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum
Engineers and is proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well
as applying SEC and other industry reserves definitions and guidelines.
51
Cawley, Gillespie
and Associates, of Fort Worth, Texas, was our third party reserve engineer for the preparation of the Auld Shipman project in
the Eagle Ford within our reserve report, effective December 31, 2011.  Cawley, Gillespie and Associates was established
in 1960 and is one of the largest third party reserve engineering firms in the US today. This firm meets or exceeds the education,
training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves
Information promulgated by the Society of Petroleum Engineers and is proficient in judiciously applying industry standard practices
to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.
Proved Undeveloped Reserves
As
of December 31, 2011, there were 805,669 barrels of oil and 1,171,884 mcf of natural gas in our proved undeveloped reserves.
In
2011, the Company evaluated the probability that the operators would drill the undeveloped acreage included in our December 31,
2010 year end reserve reports. The Company found that the operators of this acreage had not committed to drilling the drillable
locations within five years, and therefore we excluded these reserves from our December 31, 2011 reserve report. This resulted
in proved undeveloped reserves as of December 31, 2010 in the amount of 1.25 million barrels of oil and 3,710.2 mcf of natural
gas to be excluded from proved reserves as of December 31, 2011.
During 2011, we
focused primarily on the acquisition of leasehold properties from the XOG Group, the participation in non-operated exploratory
drilling activities in the Bakken and the Eagle Ford, and the initiation of a self-directed drilling program in the Permian Basin.  As
of December 31, 2011, much of our drilling investments in the Bakken, Eagle Ford and Permian Basin remained unproved. Furthermore,
as much of our drilling in 2011 was exploratory, we were not able to provide sufficient production data at year end to generate
significant proven undeveloped reserves in the areas where we drilled or participated in exploratory wells. We believe these exploratory
drilling activities may yield additional proven reserves in 2012.  In addition, in 2011 we evaluated many of our non-operated
proven undeveloped reserves and eliminated them from our reserve reporting due solely to the fact that the operators of this non-operated
acreage did not have a clear timetable to drill the undeveloped locations. As a result, we removed these proven undeveloped reserves
from our 2011 year-end reserve reports.
Oil and Gas Production, Production Prices and Production
Costs
Oil and Gas Production
The following table summarizes the
production of oil and natural gas by geographical area for the fiscal year ended December 31, 2011:
Product
Permian Basin
Eagle Ford
Williston Basin
Total
Oil (Bbls)
61,928
2,083
36,944
100,955
Gas (Mcf)
538,646
8,842
10,400
557,888
Product (Mcf)
4,708
1,775
15,864
22,347
BOE
151,814
3,599
39,055
194,468
The following table summarizes the production
of oil and natural gas by geographical area for the fiscal year ended December 31, 2010:
Product
Permian Basin
Eagle Ford
Williston Basin
Total
Oil (Bbls)
47,814
-
8,843
56,657
Gas (Mcf)
536,364
-
3,708
540,072
BOE
137,208
-
9,461
146,669
52
The following table
summarizes the production of oil and natural gas by geographical area for the fiscal year ended December 31, 2009:
Product
Permian Basin
Eagle Ford
Williston Basin
Total
Oil (Bbls)
56,003
-
-
56,003
Gas (Mcf)
610,462
-
-
610,462
BOE
157,747
-
-
157,747
The following
table summarizes gross and net productive oil wells by state as of December 31, 2011.  A net well represents our percentage
ownership of a gross well.  The following table includes wells which were awaiting completion, in the process of completion
or awaiting flowback subsequent to fracture stimulation.
As of December 31, 2011
Gross
Net
Permian Basin (Texas and New Mexico)
47
33.9
Bakken (North Dakota)
121
2.1
Eagle Ford (Texas)
23
2.3
Other (Texas, Oklahoma, Arkansas)
18
4.1
Total
209
42.4
Production Prices
The following table summarizes the average sales price per
unit of oil and natural gas by geographical area for the fiscal years ended December 31, 2011, 2010 and 2009:
Product
December 31,
2011
December
31, 2010
December 31,
2009
Permian Basin
Oil (Bbls)
$
91.22
$
78.47
$
57.16
Gas (Mcf)
6.44
4.59
5.81
Product (Mcf)
1.54
-
-
BOE
$
58.04
$
$
Eagle Ford
Oil (Bbls)
$
87.17
$
-
$
-
Gas (Mcf)
4.02
-
-
Product (Mcf)
20.33
-
-
BOE
$
68.27
$
-
$
-
Williston Basin
Oil (Bbls)
$
89.37
$
71.57
$
-
Gas (Mcf)
6.42
4.54
-
Product (Mcf)
3.17
-
-
BOE
$
85.79
$
-
$
-
(a)
We used the 12 month first
                                                                 day of the month unweighted average prices realized as a basis
                                                                 for all oil calculations and Henry Hub for gas.
53
The following table summarizes the
weighted average prices utilized in the reserve estimates for 2011 and 2010 as adjusted for location, grade and quality:
As of December 31,
2011
2010
2009
Prices utilized in the reserve estimates:
Texas oil and natural gas properties
Oil per Bbl(a)
$
92.21
$
75.43
$
57.16
Gas per MCF(a)
$
6.06
$
6.38
$
5.81
North Dakota oil and natural gas properties
Oil per Bbl(a)
$
90.25
$
70.82
$
51.02
Gas per MCF(a)
$
7.10
$
4.39
$
3.66
(a)
The pricing used to estimate
                                                                 our 2011 and 2010 reserves was based on a 12-month unweighted
                                                                 average realized price as adjusted for location, grade and quality.
Average Bench Mark Prices for 2011, 2010 and 2009:
Years Ended December 31,
2011
2010
2009
Average NYMEX prices:
Oil (Bbl)
$
95.03
$
79.48
$
62.09
Natural gas (MMBtu)
$
3.99
$
4.37
$
3.94
High / Low NYMEX prices:
Oil (Bbl):
High
$
113.93
$
91.48
$
81.03
Low
$
79.2
$
64.78
$
34.03
Natural gas (MMBtu):
High
$
4.92
$
7.51
$
6.1
Low
$
2.84
$
3.18
$
1.83
Oil and natural gas reserve quantity estimates are subject
to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of
production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available
data and of engineering and geological interpretation and judgment.
Costs Incurred for Oil and Natural Gas Producing Activities
Years Ended December 31,
2011
2010
2009
Unproved property acquisition costs
$
15,258,281
$
7,729,953
$
1,247,723
Exploration
46,958,052
5,787,926
930,236
Development
80,409
4,308,484
194,814
Total
$
62,296,742
$
17,826,363
$
2,372,773
Average production costs per BOE including
ad valorem and severance taxes were $15.77 in 2011.  Excluding severance taxes, production costs per BOE were $11.08.
Average production costs per BOE including ad valorem and severance taxes were $14.75 in 2010.  Excluding severance
taxes, production costs per BOE were $12.26.
Dry Holes
Through March 31, 2012, we have experienced no dry holes
as of result of our non-operated drilling activities.
54
Drilling Activity and other Exploratory and Development
Activities
Productive and Exploratory Wells
Drilled
In the fiscal year ended December 31,
2011, operators drilled and completed 8 gross (8.0 net) exploratory wells on our leaseholds located in the Permian Basin, including
2 gross (2.0 net) wells in Andrews County and 2 gross (2.0 net) wells in Reagan County.   We participated in 18 gross
(1.8 net) exploratory wells in the Eagle Ford shale formation in South Texas, including 16 gross (1.6 net) wells in La Salle County,
and 2 gross (0.2 net) wells in Frio County.  Lastly, we participated in 96 gross (1.65 net) exploratory wells in Mountrail,
McKenzie, Williams, Dunn, Burke, and Divide Counties in North Dakota.
In the fiscal year ended December 31,
2010, operators drilled and completed 0 gross (0.0 net) exploratory wells on our leaseholds located in the Permian Basin.  We
participated in 2 gross (0.2 net) exploratory wells in the Eagle Ford shale formation in La Salle County, Texas.  Lastly,
we participated in 23 gross (0.27 net) exploratory wells in the Bakken in Mountrail, McKenzie, Williams and Dunn Counties in North
Dakota.
Productive and Dry Development Wells
Drilled
In the fiscal year ended December 31,
2011, we participated on a non-operated basis in 2 gross (0.1 net) development wells on minority working interest acreage in Glasscock
County, Texas with Trilogy Operating Company.  We participated in 0 gross (0.0 net) development wells in the Eagle Ford
shale formation in South Texas.  Lastly, we participated in 0 gross (0.0 net) development wells in the Williston Basin
in North Dakota. All of our drilling the Eagle Ford and Bakken in 2010 and 2011 has been exploratory. We have only just begun
to receive notification of development well in-fill drilling on some of our minority working interest acreage in the Bakken in
early 2012.
In the fiscal year ended December 31,
2010, operators drilled and completed 2 gross (2.0 net) development wells on our leaseholds located in in the Permian Basin. We
contracted with XOG to oversee the drilling, completion and initial production for these wells drilled in Upton County, Texas.  We
participated in no development wells in either the Eagle Ford or Bakken in 2010.
Present Activities
As of March 31, 2012, our third party
operators are in the process of completing 8 gross (8.0 net) exploratory wells on our majority working interest acreage in Andrews,
Reagan, Crockett and Schleicher Counties in the Permian Basin.  We also participated in the drilling and completing
of 2 gross (0.2 net) exploratory wells in La Salle Counties in the Eagle Ford. Lastly, we participated in 6 gross (0.1 net)
exploratory wells and 6 gross (0.1 net) development wells in the Bakken.
Oil and Gas Properties, Wells, Operations and Acreage
The following table summarizes as of
December 31, 2011, the total gross and net productive wells, expressed separately for oil and gas and the total gross and net
developed acreage (
i.e.
, acreage assignable to productive wells) by geographic area.
Oil Wells
Gas Wells
Total Wells
Gross
Net
Gross
Net
Gross
Net
Permian
45
33.8
21.2
14.6
66.2
48.4
Eagle Ford
15
1.5
-
-
15.0
1.5
Bakken
79
1.3
-
-
121.0
2.0
Total
139
36.6
21.2
14.6
202.2
51.9
HBP Acreage
Total Acreage
Gross
Net
Gross
Net
Permian
7,537
6,100
8,737
6,500
Eagle Ford
6,857
686
12,000
1,200
Bakken
134,700
3,830
358,810
32,400
Total
149,094
10,616
379,547
40,100
55
The following table summarizes as of
March 31, 2012, the total gross and net productive wells, expressed separately for oil and gas and the total gross and net developed
acreage (
i.e.
, acreage assignable to productive wells) by geographic area.
Oil Wells
Gas Wells
Total Wells
Gross
Net
Gross
Net
Gross
Net
Permian
172
138.7
49
39.1
221.0
177.8
Eagle Ford
22
3.8
6
3.3
28.0
7.1
Bakken
140
2.1
-
-
140.0
2.1
Niobrara
-
-
-
-
-
-
Eagle Bine
-
-
-
-
-
-
Other
16
12.6
32
17.2
48.0
29.8
Total
350
157.2
87
59.6
437.0
216.8
HBP Acreage
Total Acreage
Gross
Net
Gross
Net
Permian
28,226
19,855
38,752
29,019
Eagle Ford
10,100
3,311
19,858
7,427
Bakken
134,700
3,830
456,110
42,201
Niobrara
0
0
51,498
25,749
Eagle Bine
0
0
3,052
3,052
Other
5,632
4,949
5,310
4,950
Total
178,658
31,945
574,580
112,398
The following table summarizes as of
December 31, 2011, the amount of undeveloped leasehold acreage expressed in both gross and net acres by geographic area and the
minimum remaining terms of leases and concessions.
HBP Acreage
Total Acreage
Acreage Subject to Expiration
Expiration Date Range
Gross
Net
Gross
Net
Gross
Net
Permian
7,537
6,100
8,737
6,500
1,200
400
Second Quarter
                                                              2012
Eagle Ford
6,857
686
12,000
1,200
5,143
514
First Quarter 2012
Bakken
134,700
3,830
358,810
32,400
224,110
28,570
Range from 2012-2016
Total
149,094
10,616
379,547
40,100
230,453
29,484
In the Permian Basin, we have approximately
1,000 net acres in Crockett and Schleicher County that have lease expiration dates in April 2012.  We are currently
evaluating our options to selectively drill some of these leases to hold this acreage by production.
In the Eagle Ford, our area of mutual
interest ("AMI") requires 35 gross wells to be producing by the second quarter of 2013. We expect Cheyenne to drill
15 incremental wells in 2012 to hold all of the acreage within the AMI by the end of 2012.
In the Bakken, our non-operated minority
interest acreage is primarily not held by production today, with 28,570 of our 32,400 acres undeveloped or subject to drilling
in progress.  Our acreage exposure is very granular, with over 700 leases with a typical working interest ranging from
1-10%. We hold approximately 1,000 and 3,800 net acres that expire in 2012 and 2013, respectively. The majority of our Bakken
acreage has maturity dates in 2012-2014, with the majority of the leases having 1-2 year extension options.
The following table summarizes as of
March 31, 2012, the amount of undeveloped leasehold acreage expressed in both gross and net acres by geographic area and the minimum
remaining terms of leases and concessions.
HBP Acreage
Total Acreage
Acreage Subject to Expiration
Expiration Date Range
Gross
Net
Gross
Net
Gross
Net
Permian
28,226
19,855
38,752
29,019
10,526
9,164
2012-2016
Eagle Ford
10,100
3,311
19,858
7,427
9,758
4,116
2013-2017
Bakken
134,700
3,830
456,110
42,201
321,410
38,371
2012-2017
Niobrara
0
0
51,498
25,749
51,498
25,749
2020
Eagle Bine
0
0
3,052
3,052
3,052
3,052
2016
Other
5,632
4,949
5,632
4,949
0
0
-
Total
178,658
31,945
574,902
112,397
396,244
80,452
-
56
In the Permian, we have acquired approximately
9,190 net acres in Crockett and Edwards Counties that were not held by production at March 31, 2012. The leasehold acreage in
both counties has three year lease maturities, with an option to extend the leases by one year. We own the majority working interests
in the acreage in both counties, and we have the ability to direct and contract for the drilling and potential production of these
assets to hold by production in the future.
In the Eagle Ford, we have acquired
approximately 3,620 net acres in Maverick County that were not held by production at March 15, 2012. This leasehold acreage in
Maverick has a five year lease maturity. We own the majority working interests in this acreage, and contract for the drilling
and potential production of these assets to hold by production in the future.
In the Bakken, we have acquired an
additional 9,800 net acres in Billings, Burke, Divide, Dunn, Hettinger, McKenzie, Mountrail, Stark and Williams Counties, North
Dakota, and Sheridan, Montana. The expiration of these leases ranges from 2014 to 2016, and in some instances, the acreage has
additional options to extend the lease maturity. We do not own the majority working interest in this acreage, nor do we have any
ability to influence the potential development of this acreage within the terms of the lease.
Delivery Commitments
We do not currently have any delivery commitments for product
obtained from our wells.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is intended to assist you in understanding
our business and results of operations together with our financial condition. This section should be read in conjunction with our
historical combined and consolidated financial statements and notes, as well as the selected historical combined and consolidated
financial data included elsewhere in this prospectus. Statements in our discussion may be forward-looking statements. These forward-looking
statements involve risks and uncertainties. We caution that a number of factors could cause future production, revenues and expenses
to differ materially from our expectations. Please see "Cautionary Note Regarding Forward-Looking Statements."
Overview
We are an independent, non-operator oil and natural gas
company engaged in the acquisition of leaseholds in oil and natural gas properties. Our leasehold acreage is located in the Permian
Basin of West Texas and Eastern New Mexico, referred to herein as the Permian Basin, the Eagle Ford Shale Formation of South Texas,
referred to herein as Eagle Ford, the Bakken Shale Formation in North Dakota, referred to herein as Bakken, the Niobrara Shale
Formation of Wyoming and Nebraska, herein referred to as the Niobrara, the Eagle Bine Shale Formation in South East Texas, herein
referred to as the Eagle Bine, and the Gulf Coast of South Texas, herein referred to as the Gulf Coast.
In the Permian Basin, the Niobrara,
the Eagle Bine and parts of the Eagle Ford, we own a number of leases where we hold the majority working interest. We have historically
contracted and expect to continue to contract with third-party operators, consultants, and other contractor service providers
to operate and drill our majority leasehold acreage. Within this acreage, the Company has historically contracted to drill conventional,
vertical wells. The Company may consider contracting with third parties to selectively drill unconventional, horizontal wells
in areas that may be prospective for oil and gas bearing shale formations.
57
We also hold minority interest leasehold
acreage in the Bakken, parts of the Permian Basin, and parts of the Eagle Ford. In the minority working interest leaseholds, the
Company has historically participated and expects to continue to participate on a non-operated basis in the drilling and production
of acreage operated by independent oil and gas operating companies.
While we do rely on the expertise and
resources of the respective operators that are drilling our minority working interest acreage, we believe that our overall diversification
across a large number of small working interests provides a way to participate in two large shale formations that are being actively
developed with less risk than a concentrated acreage position.
By participating in drilling activities
with larger operators, we seek to leverage their resources and expertise to efficiently gain exposure to potential new oil and
gas production and proven reserves. In the Permian Basin, some of these operators have historically drilled and operated traditional,
vertical wells. In the Eagle Ford and Bakken, we have participated in wells where the operators have historically drilled unconventional,
horizontal wells into prospective oil and gas bearing shale formations.
As of March 31, 2012, we held working
interests in approximately 112,400 net acres in the Permian Basin, Bakken, Eagle Ford, Niobrara, Eagle Bine and Gulf Coast regions.
These working interests grant us the right as the lessee of the property to explore for, develop and produce oil, natural gas
and other minerals, while bearing our portion of related exploration, development and operating costs.
Recent Events
Payment and Settlement Agreement
.
On June 30, 2012, the Company, ASEN 2, Nevada ASEC, and XOG entered into a Payment and Settlement Agreement (the "Payment
Agreement") whereby the Company agreed to issue 4,444,445 shares (the "XOG Shares") of Common Stock to XOG at
a price per share equal to $2.25 as payment of the $10,000,000 outstanding and owed to XOG pursuant to certain Joint Interest
Billing Statements ("JIBs") issued by XOG from January 1, 2012, through and including June 30, 2012 and delivered
to the Company's subsidiaries in connection with certain Joint Operating Agreements.
Pursuant to the terms of the Payment
Agreement, the Company granted piggy-back registration rights with respect to XOG Shares if the Company files a registration statement
in connection with an underwritten public offering within one year from the date of the Payment Agreement.
Pentwater
Convertible
Note.
On February 10, 2012, the Company and ASEN 2., Corp., referred to herein as ASEN 2, a wholly-owned subsidiary of the
Company formed on January 25, 2012, closed on a Note and Warrant Purchase Agreement dated February 9, 2012, referred to herein
as the Purchase Agreement, with Pentwater Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., referred to herein
as Pentwater, in connection with a $20 million private financing. The initial funding made by Pentwater to ASEN 2 on February
10, 2012, referred to as the Pentwater Closing Date, was in the amount of $10 million. The second funding for an additional $10
million, which closed on March 5, 2012, occurred concurrently with the closing of the purchase and sale agreement by and among
the Company, Geronimo Holding Corporation and XOG Operating, LLC.
The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note, referred to herein as the Pentwater Note, convertible into
shares of the Company's common stock at a conversion price of $9.00 per share and five-year warrants to purchase 3,333,333
shares of common stock at a per share cash exercise price of $2.50 (the "Pentwater February Warrants"). The Pentwater
February Warrants are also subject to a mandatory exercise at the Company's option with respect to (i) 50% of the number
of shares underlying the warrants if the closing sale price of the common stock is equal to or greater than $5.00 per share for
twenty consecutive trading days and (ii) 50% of the number of warrant shares if the closing sale price of the common stock is
equal to or greater than $9.00 per share for twenty consecutive trading days.
58
From the Pentwater Closing Date through
December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.
On July 23, 2012, the Company, ASEN
2 and Pentwater entered into a First Amendment to Note and Warrant Purchase Agreement (the "Purchase Agreement Amendment")
pursuant to which Pentwater made an additional advance to ASEN 2 in the amount of $5 million and ASEN 2 delivered to Pentwater
an Amended and Restated Secured Convertible Promissory Note (the "Amended Note") in the amount of $25 million. Pursuant
to the terms of the Purchase Agreement Amendment and a Modification Agreement entered into by the parties, the Company (i) amended
the Pentwater Series C Warrants and the Pentwater February Warrants to reduce the exercise price to $2.25 per share and to change
the expiration date to June 30, 2019 and (ii) issued to Pentwater warrants to purchase an additional 833,333 shares of Common
Stock at an exercise price of $2.25 and an expiration date of June 30, 2019.
Warrant Restructure.
On February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, referred to herein as the Modification
Investors, entered into a modification agreement, referred to herein as the Modification Agreement, pursuant to which the parties
agreed to amend the terms of the Series B warrants, referred to herein as the Series B Warrants, issued to the Modification Investors
in a $13 million private placement offering of the Company's securities in July 2011, referred to herein as the July Offering,
in which the Modification Investors invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed
to limit the dilutive effects of the Series B Warrants by including a floor of $3.00 per share in the calculation of the reset
provision included in the Series B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series
B Warrants held by the Modification Investors is 1,913,043 shares. Due to the elimination of the "down-round" provisions,
these warrants qualify for equity presentation as of the modification date.
As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants,
referred to herein as Series C Warrants, to purchase 2.5 million shares of common stock, referred to herein as the Series C Warrant
Shares, with a cash exercise price of $3.00 per share. The Series C Warrants include a provision under which the Series C Warrants
must be exercised at the election of the Company by the Modification Investors for cash if the closing sales price of the common
stock is $6.00 per share or greater for 20-consecutive trading days. As a result of the issuance of the Warrants and the Series
C Warrants, the exercise prices and number of shares underlying the Series A warrants and Series B warrants held by the remaining
investor in the July Offering were adjusted pursuant to their terms. As the Series C Warrants are consideration given as part
of the modification, the fair value of these warrants on the modification date were expensed as component of realized and unrealized
expense on warrant derivatives on the consolidated statement of operations.
On April 5, 2012, pursuant to the terms
of a second modification agreement, the Company and the Modification Investors agreed to further amend the terms of the Series
B warrant to extend the expiration date to be (i) May 24, 2012 with respect to 1,000,000 shares of common stock underlying the
Series B warrants and (ii) with respect to the remaining 913,043 shares of common stock underlying the Series B Warrants (the
"Subsequent Warrant Shares"), the date that is the earlier of (a) 300 days from April 5, 2012 and (b) ten business
days after notice from the Company stating that the number of Subsequent Warrant Shares exercisable by the Modification Investors
would result in ownership of less than 9.99% of the Company's common stock after giving effect to such exercise. The Company
may provide multiple notices prior to the expiration of the Subsequent Warrant Shares.
59
Macquarie Warrant Restructure.
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended
and restated Macquarie Warrant referred to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase 2,333,000
shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie Warrant is not subject to further anti-dilution
provisions other than customary reset provisions for stock splits, subdivision or combinations. The Amended Macquarie Warrant
is exercisable on a cashless basis if there is no registration statement covering the underlying common stock. The Company granted
the holder piggy-back registration rights on the underlying common stock. As the warrant modification fee was consideration given
as part of the modification, it was expensed as component of realized and unrealized expense on warrant derivatives on the consolidated
statement of operations.
Acceleration of Vesting of Founders'
Shares.
On February 13, 2012, the board of directors of the Company approved the immediate vesting of a total of 1,568,877
restricted shares of the Company's common stock previously issued to the chief executive officer, president and chief financial
officer as founders shares which were to vest in equal portions annually through April 16, 2014. At December 31, 2011, the
unamortized compensation expense for these shares was $1,797,993 which was expensed during the three months ended March 31, 2012.
March Acquisition.
On
March 5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across
the Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the "March
2012 Properties") in exchange for the delivery by the Company to XOG and Geronimo of $10 million in cash, less a $1.5 million
cash deposit previously paid by the Company, a note in the principal amount of $35,000,000 (the "Geronimo Note") made
by the Company in favor of Geronimo and 5,000,000 shares of the common stock of the Company, which had a closing price of $2.70
per share on the closing date of the acquisition. The March 2012 Properties were purchased pursuant to the terms of a Purchase
and Sale Agreement dated as of February 24, 2012 (the "PSA") by and among the Company, XOG and Geronimo. The effective
date of this purchase was December 1, 2011. The operating results reflecting the acquisition of the March 2012 Properties are
included in the financial statements for the three months ended March 31, 2012 from March 5, 2012, the closing date of such acquisition.
Minimal purchase price was allocated
to well bores acquired. The Company allocated virtually all value to acreage for further development, despite the fact that some
acquired properties were producing from legacy development.
The March 2012 Note bears an interest
rate of 7% per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of
each month commencing on June 1, 2012. The March 2012 Note matures on March 21, 2016. The Company may prepay the March 2012 Note
at any time without penalty.
The PSA provides that if certain defects
are found with the March 2012 Properties within 120 days from closing, or if XOG or Geronimo breach any representation or warranty
in the Agreement within one year from closing, XOG and Geronimo shall, at the option of the Company, in its sole and absolute
discretion, either (i) provide additional or alternative oil and gas properties, subject to the Company's applicable due
diligence review and acceptance or (ii) for as long as the March 2012 Note is outstanding, decrease the principal amount of the
Note in an amount equal to the loss resulting from such property defect or breach.
XOG and Geronimo have piggyback registration
rights with respect to up to five million shares of common stock held by XOG or Geronimo.
On June 30, 2012, we entered into an
Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares (the "Geronimo Shares") of the
our newly created Series A Preferred Stock to Geronimo in exchange for the cancelation of the $35 million note issued to Geronimo.
The terms of the Purchase Agreement provided for a reduction or setoff of the principal amount of the Note under certain conditions.
Pursuant to the terms of the Exchange Agreement, in the event that the Company would have been entitled to any reduction in or
setoff against the principal amount of the Geronimo Note pursuant to the terms of the Purchase Agreement, Geronimo is obligated
to transfer a portion of the Geronimo Shares equal to one share of Series A Preferred Stock and any dividends accrued thereon
for each $1,000 that would have resulted in a reduction in, or setoff against, the principal amount of the Geronimo Note.
60
Stock Compensation Restructure.
On March 30, 2012, the Board of Directors approved the restructuring of stock options as
part of a comprehensive review of compensation, compensation expense, and shareholder dilution. As of December 31, 2011, 10,745,000
options to purchase common stock were outstanding. As part of a comprehensive review of compensation, compensation expense, and
shareholder dilution, the Board of Directors approved the restructuring of stock options on March 30, 2012 (the "Modification
Date"). Due to the modification, 2,400,000 options issued to certain officers were forfeited and 3,200,000 options were
accelerated and became immediately vested. An additional 1,540,000 non-qualified options, 205,760 incentive stock options and
80,000 restricted share of common stock were granted to certain officers, directors, employees and a consultant. All modified
options (including the newly issued options) were priced at the average of the open and closing share price of the Company's
common stock on March 30, 2012, which was $2.43 per share and became fully vested on the Modification Date.
For the three months ended March 31,
2012 and 2011, the Company recorded non-cash stock-based compensation expense of $31,418,129 and $197,084, respectively, related
to other share based compensation which is included in general and administrative expenses.
Results of Operations
Year-to-year or other periodic comparisons
of the results of our operations can be difficult and may not fully and accurately describe our condition. The following table
shows selected operating data for each of the three months ended March 31, 2012 and 2011.
Three Months Ended March
    31,
2012
2011
Production volumes:
Oil (Bbls)
46,835
24,263
Natural Gas (Mcf)
127,815
108,383
BOE (1)
68,137
42,327
BOE per day
749
470
Sales Prices
Oil (per Bbl)
$
95.76
$
72.66
Natural Gas (per Mcf)
$
4.77
$
5.77
BOE Price
$
73.14
$
56.43
Operating Revenues
Oil
$
4,485,051
$
1,762,965
Natural Gas
609,767
625,528
Loss on sale of oil and natural gas leases
(110,943
)
-
$
4,983,875
$
2,388,493
Operating Expenses
Oil and natural gas production costs
$
2,390,932
$
807,344
General and administrative
36,932,058
1,725,638
Depreciation, depletion and amortization
1,286,731
609,190
Accretion of discount on asset retirement obligations
6,898
4,165
$
40,616,619
$
3,146,337
Loss from operations
$
(35,632,744
)
$
(757,844
)
(1)
A BOE means one barrel of oil equivalent using the ratio of 6 Mcf of natural gas to one barrel of oil.
61
Our oil and natural gas revenues and
production product mix are displayed in the following table for the current and comparable quarters.
Revenues
Production
Q1 2012
Q1 2011
Q1 2012
Q1 2011
Oil
90
%
74
%
69
%
57
%
Natural Gas
12
%
26
%
31
%
43
%
Loss on sale of oil and natural gas leases
(2
)%
-
-
-
Total
100
%
100
%
100
%
100
%
The following table shows our production
volumes, product sales prices and operating revenue for the indicated periods.
Three Months Ended March 31,
Increase
%
Increase
2012
2011
(Decrease)
(Decrease)
Production volumes:
Oil (Bbls)
46,835
24,263
22,572
93
%
Natural Gas (Mcf)
127,815
108,383
19,432
18
%
BOE (1)
68,137
42,327
25,811
61
%
BOE per day
749
470
278
59
%
Sales Prices
Oil (per Bbl)
$
95.76
$
72.66
$
23.10
32
%
Natural Gas (per Mcf)
$
4.77
$
5.77
$
(1.00
)
-17
%
BOE Price
$
73.14
$
56.43
$
16.71
30
%
Operating Revenues
Oil
$
4,485,051
$
1,762,965
$
2,722,086
154
%
Natural Gas
609,767
625,528
(15,761
)
-3
%
Gain on sale of oil and natural gas leases
(110,943
)
-
(110,943
)
-
$
4,983,875
$
2,388,493
$
2,595,382
109
%
Oil revenues.
The
Company's oil revenues were $4,485,051 for the three months ended March 31, 2012, an increase of $2,722,086 (154%)
from $1,762,965 for the three months ended March 31, 2011. Higher average oil prices increased revenues approximately $1,082,000
while increased production increased revenues by approximately $1,640,000. The increase in production volumes was due primarily
to new well development primarily in the Bakken and Permian Basin.
Natural gas revenues.
The Company's natural gas revenues were $609,767 for the three months ended March 31, 2012,
a decrease of $15,761 (-3%) from $625,528 for the three months ended March 31, 2011. This decrease was due to lower
average prices which accounted for approximately $128,000 of the decrease in gas revenues. Higher volumes of natural gas sold
partially offset the impact of price declines by approximately $112,000.
Three Month Ended March 31,
Increase
% Increase
2012
2011
(Decrease)
(Decrease)
Operating Expenses
Oil and natural gas production costs
$
2,390,932
$
807,344
$
1,583,588
196
%
General and administrative
36,932,058
1,725,638
35,206,420
2040
%
Depreciation, depletion and amortization
1,286,731
609,190
677,541
111
%
Accretion of discount on asset retirement obligations
6,898
4,165
2,733
66
%
$
40,616,619
$
3,146,337
$
37,470,282
1191
%
Loss from operations
$
(35,632,744
)
$
(757,844
)
$
(34,874,900
)
4601
%
62
Oil and natural gas production expenses.
Production expenses for the three months ended March 31, 2012 increased $1,583,588 (196%) to $2,390,932, compared
to $807,344 for the three months ended March 31, 2011. The increase is due primarily to an increase in production taxes of $313,000
due to increased revenues for the period, and the addition of many new wells in March 2012 which produce low volumes of oil and
natural gas, to which the Company estimates added $216,725 of additional expenses for the current quarter. As a result, the cost
per BOE is expected to increase until new drilling activities and fresh production can offset the higher relative lifting costs
of the acquired wells.
General and administrative expenses.
General and administrative ("G&A") expenses were $36,932,058 for the three
months ended March 31, 2012, an increase of $35,206,420 from $1,725,638 for the three month ended March 31, 2011. The
primary factor for the increase in G&A expenses was an increase in non-cash stock based compensation expense of $33,805,391
for the three months ended March 31, 2012, compared to $564,721 for the three months ended March 31, 2011.
In
addition, the increase was due to the restricted stock agreements for each of the officers, wherein the Company is required to
reimburse a portion of these withholding taxes to the officers.  Based upon the agreement, the Company estimates that
it will be required to reimburse in total $2,355,361 to these officers by December 31, 2012 which is included in G&A in the
first quarter of 2012 compared to $0 in the first quarter of 2011. The increases were offset by lower G&A expense due to no
penalties on warrants of $293,226 and slightly lower expenses relating to legal and engineering for the comparative periods.
In 2012 and beyond, the Company anticipates
G&A expenses to decrease in both absolute terms and as a percentage of total revenues. The Company does not expect further
large increases in non-cash stock compensation expenses due to the acceleration of the vesting of equity awards during the three
months ended March 31, 2012.
Depreciation, depletion and amortization
expense.
Depreciation, depletion and amortization ("DD&A") expense of proved
oil and natural gas properties was $1,286,731 for the three months ended March 31, 2012, an increase of $677,541 (111%) from $609,190
for the three months ended March 31, 2011. The increase in depletion expense was primarily due to an increase in production volumes
in the Bakken as a result of the addition of the March 2012 Properties. We have invested in new leasehold interests in new basins
over the past year.  These assets differ significantly from legacy assets in the Permian Basin included in the 2011
DD&A calculation. Our Bakken production in 2011 was primarily new production, which typically experiences a much more rapid
decline curve than our legacy Permian Basin production. The net effect was to increase depreciation and depletion rates on
a per BOE basis.  DD&A per BOE increased 31% for the three months ended March 31, 2012 as compared to the three
months ended March 31, 2011. With the increased development and productivity in unconventional drilling in the Bakken and Eagle
Ford, DD&A per BOE is expected to be higher than historical DD&A for the foreseeable future.
Other income (expense), net.
Other
income (expense) was ($5,147,442) for the three months ended March 31, 2012 and $0 at March 31, 2011.  The increase
was due in part to a net expense of $3,258,148 consisting of a decrease of $195,228 in marking the warrant derivatives to market,
offset by a one-time expense relating to the modification of the warrant derivatives of $3,062,920. The Company also recorded
$270,695 in net realized and unrealized loss on the commodity derivatives.  Lastly, the increase also included interest
expense for accretion of the debt discount of $822,792 and interest expense of $526,054 incurred in the three months ended March
31, 2012.
Income tax provision.
Prior to their acquisition by the Company, Nevada ASEC and the acquired properties, respectively, were
part of pass-through entities for taxation purposes.  As a result, the historical financial statements of Nevada ASEC,
ASEN 2 and the acquired properties do not present any tax expenses, liabilities or assets until their acquisition by the Company.  Tax
provisions subsequent to such dates are fully incorporated and presented in the accompanying consolidated financial statements.  However,
the income tax provision for the three months ended March 31, 2012 and 2011 were $0 due to net operating losses and a related
valuation allowance.
Capital Commitments, Capital Resources
and Liquidity
Capital commitments.
Our primary needs for cash are (i) to fund our share of the drilling and development costs associated with well development
within our leasehold properties, (ii) the further acquisition of additional leasehold assets, and (iii), the payment of contractual
obligations and working capital obligations. Funding for these cash needs will be provided by a combination of internally-generated
cash flows from operations, supplemented by a combination of financing our bank credit facility, proceeds from the disposition
of assets or alternative financing sources, as discussed in "Capital resources" below.
63
Oil and natural gas properties
.
Cash
paid for oil and natural gas properties during the three months ended March 31, 2012 and 2011 totaled $18,643,525 and $6,454,426,
respectively. The costs at March 31, 2012 related primarily to purchases of additional acreage in March 2012 from Geronimo, as
well as drilling expenses in the Permian Basin, Bakken and Eagle Ford.
Our 2012 capital budget is approximately
$65-$90 million assuming additional financing is made available under our existing facility or new financing is obtained.
We expect to be able to fund our remaining 2012 capital budget partially with operating cash flows, asset monetizations, utilization
of our existing credit facility, and the potential issuance of additional equity securities. However, the Company's capital
budget is largely discretionary, and if we experience sustained oil and natural gas prices significantly below the current levels
or substantial increases in its drilling and completion costs, we may reduce our capital spending program to remain substantially
within the Company's operating cash flows.
We will selectively seek to acquire
oil and natural gas properties that provide opportunities for the addition of new reserves and production in both its core areas
of operation and in emerging plays throughout the United States.
While we believe that our available
cash, cash flows and credit facility will fund our 2012 capital expenditures, as adjusted from time to time, we cannot provide
any assurances that we will be successful in securing alternative financing sources to fund such expenditures if needed.
The actual amount and timing of our expenditures may differ materially from our estimates as a result of, among other
things, actual drilling results, the obtaining of debt or equity financing capital, the timing of expenditures by third parties
on projects that we do not operate, the availability of drilling rigs and other services and equipment, regulatory, technological
and competitive developments and market conditions. In addition, under certain circumstances we would consider increasing, decreasing,
or reallocating our 2012 capital budget.
Commodity derivatives.
We
began entering into derivative contracts during the three month period ended September 30, 2011, to achieve a more predictable
cash flow by reducing our exposure to crude oil and natural gas price volatility. We have elected not to designate any subsequent
derivative contracts as accounting hedges. As such, all commodity derivative positions are carried at their fair value on the balance
sheet and are marked-to-market at the end of each period. Any realized gains or losses on these derivatives are recorded in realized
and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).
Capital resources.
Our
primary sources of liquidity during the first three months of 2012 were cash flows generated from proceeds from our debt offerings
of senior, convertible and subordinated debt from which cash proceeds of $22,688,199 were generated. Our primary sources
of liquidity during the first three months of 2011 were cash flows generated from proceeds from our private placement offerings
of our common stock and proceeds from stock subscription receivables from which cash net proceeds of $25,910,169 were generated. We
believe that funds from our cash flows from operations, asset monetizations, and any financing under our credit facility should
be sufficient to meet both our short-term working capital requirements and our 2012 capital expenditure plans.
Cash flow from operating activities.
Our net cash provided by (used in) operating activities were $180,824 and ($1,595,133) for the three months ended March
31, 2012 and 2011, respectively. The increase in operating cash flow for the three months ended March 31, 2012 as compared to
March 31, 2011 was due primarily to increases in accounts payable and accrued liabilities. This was offset by a decrease in oil
and gas sales receivables and several other non-cash adjustments to our net loss. See cash flow statement for non-cash adjustments.
Cash flow used in investing activities.
During the three months ended March 31, 2012 and 2011, we invested cash of $20,603,679 and $6,454,426,
respectively, for additions to, and acquisitions of, oil and natural gas properties, inclusive of exploration costs. Cash flows
used in investing activities were substantially higher in 2012 due to the Company's increased leasehold acquisition activities
in the Bakken Shale Formation, Eagle Ford and Permian drilling activities through the acquisition of the March 2012 Properties
from Geronimo in March 2012.
64
Cash flow from financing activities.
Net cash provided by financing activities was $21,549,819 and $25,910,169 for the three months
ended March 31, 2012 and 2011, respectively. Financing activity was comprised primarily of net proceeds from a $20,000,000 convertible
note issued in February 2012 and proceeds from the credit facility during the three months ended March 31, 2012.
Liquidity.
At
March 31, 2012, we had cash and cash equivalents of $1,860,013. The Company has incurred losses to date of $40,780,186. Further,
we have restrictive covenants that we did not meet for the last two quarters and that required waivers to ensure our debt does
not become payable on demand. To address these concerns we expect to use operating cash flows, asset monetizations, utilization
of our existing credit facility, and the potential issuance of additional equity securities to meet our cash obligations. As the
Company's capital budget is largely discretionary, and if we experience sustained oil and natural gas prices significantly
below the current levels or substantial increases in its drilling and completion costs, we may reduce our capital spending program
to remain substantially within the Company's operating cash flows.
Contractual Obligations
Employment Agreements.
At March 31, 2012, our contractual obligations include employment agreements with executive officers for the remaining
9 months ended December 31, 2012 and the years ending December 31, 2013 through 2014 are as follows:
2012
2013
2014
Scott Feldhacker
$
229,500
$
306,000
$
102,000
Richard Macqueen
229,500
306,000
102,000
Scott Mahoney
154,500
206,000
68,667
Total Contractual Obligations Related to Employment Contracts
$
613,500
$
818,000
$
272,667
Operating Leases.
We lease our
4,092 square foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement, dated September
30, 2010, for a 66-month term.  The lease provides for no lease payments until February 1, 2011 and a reduced square
footage charge for the first year.  The initial rental was $23.00 per square foot, beginning February 1, 2011, and increases
$0.50 per square foot annually thereafter.  For the three months ended March 31, 2012, the Company recorded lease
expense of $13,992.
At March 31, 2012, the future minimum
lease commitments under the non-cancellable operating leases for the remaining nine months ended December 31, 2012 and each of
the following three years ending December 31 and thereafter are as follows:
2012
$
46,952
2013
97,356
2014
99,402
2015
101,448
2016
42,625
Total
$
387,783
Pentwater Note.
From the Pentwater Closing Date through December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest
rate of 11% per annum, payable as follows (i) interest at a rate of 9% per annum is payable on the first business day of each
month, commencing on March 1, 2012 and (ii) interest at a rate of 2% per annum is capitalized and added to the then unpaid principal
amount monthly in arrears on the first business day of each month commencing on March 1, 2012. On and after December 9, 2012 through
the maturity date, the Pentwater Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11%
per annum is payable on the first business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5%
per annum is capitalized and added to the then unpaid principal amount monthly on the first business day of each month commencing
on December 1, 2012. The Pentwater Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December
1, 2013. ASEN 2 can prepay the Pentwater Note without penalty prior to December 31, 2012. If the prepayment occurs after December
31, 2012, ASEN 2 must pay to Pentwater 106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At
any time after February 9, 2013, the principal amount and interest of the Pentwater Note may be converted into shares of common
stock at a conversion price of $9.00 per share.
65
Geronimo Note.
On March
5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across the
Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the "March 2012
Properties") from a related party. In conjunction with this transaction, the Company entered into a $35,000,000 promissory
note (the "Geronimo Note") made by the Company in favor of Geronimo. The Geronimo Note bears an interest rate of 7%
per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of each month
commencing on June 1, 2012. The Geronimo Note matures on March 21, 2016. The Company may prepay the Geronimo Note at any time
without penalty. The Geronimo Note secures certain indemnification and other liabilities under the PSA.
Macquarie Credit Facility.
On September 21, 2011, Nevada ASEC entered into a credit agreement which provided to Nevada ASEC a revolving credit facility in
an amount not to exceed $100 million and a term loan facility in an amount not to exceed $200 million. The interest rate on revolving
loans is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 2.75% to 3.25% per annum (2.75% at March 31, 2012),
based on the borrowing base utilization, and the interest rate on term loans is 30, 60 or 90 day LIBOR, as selected by the Borrower,
plus a margin of 7.50%. The maturity date of the revolving credit facility is September 21, 2015 and the maturity date of the
term loan facility is September 21, 2014.
In order to comply with the terms of
the credit agreement, Nevada ASEC must maintain the following financial ratios:
·
Current
                                                                                                               Ratio
.  Commencing
                                                                                                               December 31, 2011,
                                                                                                               Nevada ASEC will
                                                                                                               maintain a Current
                                                                                                               Ratio (the ratio
                                                                                                               of (i) Nevada ASEC's
                                                                                                               current assets
                                                                                                               to (ii) Nevada
                                                                                                               ASEC's current
                                                                                                               liabilities) of
                                                                                                               at least 1.00 to
                                                                                                               1.00.
·
Debt
                                                                                                               Coverage Ratio
.  Commencing
                                                                                                               on the last day
                                                                                                               of the fiscal quarter
                                                                                                               following any fiscal
                                                                                                               quarter in which
                                                                                                               there are, on any
                                                                                                               day that fiscal
                                                                                                               quarter, no outstanding
                                                                                                               advances under
                                                                                                               the Term Loan,
                                                                                                               Nevada ASEC shall
                                                                                                               maintain a Debt
                                                                                                               Coverage Ratio
                                                                                                               of no more than
                                                                                                               3.50 to 1.00.
"Debt Coverage Ratio"
shall mean, as of the last day of any fiscal quarter, the ratio of (i) Nevada ASEC's debt to (ii) Nevada ASEC's EBITDA
for the four (4) most recent fiscal quarters occurring in whole or in part after closing;
provided
that (x) for the first
fiscal quarter after the closing date, the Debt Coverage Ratio will be calculated using Nevada ASEC' EBITDA for that first
fiscal quarter
multiplied
by four; (y) for the second fiscal quarter after the closing date, the Debt Coverage Ratio will
be calculated using Nevada ASEC' aggregate EBITDA for those first two fiscal quarters
multiplied
by two; and (z)
for the third fiscal quarter after the closing date, the Debt Coverage Ratio will be calculated using Nevada ASEC' aggregate
EBITDA for those first three fiscal quarters
multiplied
by one and one-third (1.33).
·
Interest
                                                                                                               Coverage Ratio
.  Commencing
                                                                                                               December 31, 2011,
                                                                                                               Nevada ASEC will
                                                                                                               maintain an Interest
                                                                                                               Coverage Ratio
                                                                                                               (the ratio of (a)
                                                                                                               Nevada ASEC's
                                                                                                               EBITDA for the
                                                                                                               period which is
                                                                                                               the lesser of (i)
                                                                                                               the actual number
                                                                                                               of fiscal quarters
                                                                                                               which has or have
                                                                                                               elapsed since the
                                                                                                               closing date and
                                                                                                               (ii) the four (4)
                                                                                                               most recent fiscal
                                                                                                               quarters to (b)
                                                                                                               Nevada ASEC's
                                                                                                               aggregate interest
                                                                                                               expense for all
                                                                                                               debt for the same
                                                                                                               period) of at least
                                                                                                               2.50 to 1.00.
Pursuant to the terms of the credit agreement, the Company
implemented the initial Hydrocarbon price risk management program. At the request of the administrative agent, the Company must
dedicate a percentage of the volume of PDP Reserves volumes (not to exceed 85% of those volumes) projected to be produced prior
to the earlier of (a) three years after the closing date or (b) the maturity date to a Hydrocarbon price risk management program
approved by Administrative Agent in its reasonable discretion.  Any gain or loss for volume adjustments will be for
Nevada ASEC's account.
66
The initial borrowing base and amount
drawn on the revolving credit facility was $12 million.  Thereafter, the administrative agent will re-determine the
borrowing base not less than every six months based upon the most recent reserve report.  Within 30 days following receipt
of each such reserve report, the administrative agent shall, in its sole discretion, make a determination of the borrowing base
which shall become effective upon written notification from administrative agent to Nevada ASEC.
The debt was initially recorded net
of a debt discount of $10,917,981 related to warrants issued to the lenders.  The debt discount will be amortized over
the term of the credit facility. The outstanding amount on the revolving credit facility at March 31, 2012 was $13.1 million.
The outstanding balance on the term loan was $7,858,088
at March 31, 2012. Beginning on March 21, 2013, the Company will begin making monthly payments to amortize the term loan, each
payment equal to the total outstanding term loan balance on that date divided by 18. Based on the outstanding balance of the term
loan on March 31, 2012, the Company expects to pay $3,929,044 in each of the years 2013 and 2014.
At March 31, 2012, our future contractual
obligations under the Pentwater and Geronimo Notes and Macquarie Credit facility for the remaining nine months ended December
31, 2012 and each of the following four years ending December 31 are as follows:
2012
$
2,966,782
2013
31,009,816
2014
7,030,588
2015
15,934,669
2016
35,622,698
Total
$
92,564,553
Results of Operations
The following tables present recast
selected
historical financial and operating information for the years ended December 31:
Year Ended December 31,
2011
2010
2009
Production volumes:
Oil (Bbls)
100,955
56,657
56,003
Natural Gas (Mcf)
561,080
540,072
610,462
BOE (1)
194,468
146,669
157,747
BOE per day
533
401.83
432.18
Sales Prices
Oil (per Bbl)
$
89.93
$
74.45
$
57.58
Natural Gas (per Mcf)
$
5.93
$
4.89
$
4.00
BOE Price
$
63.80
$
47.02
$
35.92
Operating Revenues
Oil
$
9,079,267
$
4,218,075
$
3,224,862
Natural Gas
3,328,507
2,643,310
2,441,848
Gain on sale of oil and natural gas leases
-
35,560
-
$
12,407,774
$
6,896,945
$
5,666,710
Operating Expenses
Oil and natural gas production costs
$
3,067,087
$
2,163,887
$
1,786,280
Exploration expense
-
247,463
240,382
General and administrative
16,387,633
5,674,985
553,542
Impairment of oil and natural gas properties
1,027,552
46,553
253,258
Depreciation, depletion and amortization
3,313,250
1,556,288
1,490,926
Accretion of discount on asset retirement obligations
20,951
15,607
12,399
$
23,816,473
$
9,704,783
$
4,336,787
Income (loss) from operations
$
(11,408,699
)
$
(2,807,838
)
$
1,329,923
(1)
A BOE means one barrel of oil equivalent using the ratio of
                                                            6 Mcf of gas to one barrel of oil
67
Year Ended December
    31,
Increase
% Increase
2011
2010
(Decrease)
(Decrease)
Production volumes:
Oil (Bbls)
100,955
56,657
44,298
78
%
Natural Gas (Mcf)
561,080
540,072
21,008
4
%
BOE (1)
194,468
146,669
47,799
33
%
BOE per day
533
401.83
130.96
33
%
Sales Prices
Oil (per Bbl)
$
89.93
$
74.45
$
15.48
21
%
Natural Gas (per Mcf)
$
5.93
$
4.89
$
1.04
21
%
BOE Price
$
63.80
$
47.02
$
16.78
36
%
Operating Revenues
Oil
$
9,079,267
$
4,218,075
$
4,861,192
115
%
Natural Gas
3,328,507
2,643,310
685,197
26
%
Gain on sale of oil and natural gas leases
-
35,560
(35,560
)
-100
%
$
12,407,774
$
6,896,945
$
5,510,829
80
%
Operating Expenses
Oil and natural gas production costs
$
3,067,087
$
2,163,887
$
903,200
42
%
Exploration expense
-
247,463
(247,463
)
-100
%
General and administrative
16,387,633
5,674,985
10,712,648
189
%
Impairment of oil and natural gas properties
1,027,552
46,553
980,999
2107
%
Depreciation, depletion and amortization
3,313,250
1,556,288
1,756,962
113
%
Accretion of discount on asset retirement obligations
20,951
15,607
5,344
34
%
$
23,816,473
$
9,704,783
$
14,111,690
145
%
Income (loss) from operations
$
(11,408,699
)
$
(2,807,838
)
$
(8,600,861
)
306
%
(1)
A BOE means one barrel of oil equivalent
                                                            using the ratio of 6 Mcf of gas to one barrel of oil
68
Year Ended December
    31,
Increase
% Increase
2010
2009
(Decrease)
(Decrease)
Production volumes:
Oil (Bbls)
56,657
56,003
654
1
%
Natural Gas (Mcf)
540,072
610,462
(70,390
)
-12
%
BOE (1)
146,669
157,747
(11,078
)
-7
%
BOE per day
401.83
432.18
(30.35
)
-7
%
Sales Prices
Oil (per Bbl)
$
74.45
$
57.58
$
16.87
29
%
Natural Gas (per Mcf)
$
4.89
$
4.00
$
0.89
22
%
BOE Price
$
47.02
$
35.92
$
11.10
31
%
Operating Revenues
Oil
$
4,218,075
$
3,224,862
$
993,213
31
%
Natural Gas
2,643,310
2,441,848
201,462
8
%
Gain on sale of oil and natural gas leases
35,560
-
35,560
0
%
$
6,896,945
$
5,666,710
$
1,230,235
$
21
%
Operating Expenses
Oil and natural gas production costs
$
2,163,887
$
1,786,280
$
377,607
21
%
Exploration expense
247,463
240,382
7,081
3
%
General and administrative
5,674,985
553,542
5,121,443
925
%
Impairment of oil and natural gas properties
46,553
253,258
(206,705
)
-82
%
Depreciation, depletion and amortization
1,556,288
1,490,926
65,362
4
%
Accretion of discount on asset retirement obligations
15,607
12,399
3,208
26
%
$
9,704,783
$
4,336,787
$
5,367,996
$
124
%
Income (loss) from operations
$
(2,807,838
)
$
1,329,923
$
(4,137,761
)
$
-314
%
(1)
A BOE means one barrel of oil equivalent
                                                            using the ratio of 6 Mcf of gas to one barrel of oil
Revenues
Production
2011
2010
2009
2011
2010
2009
Oil
73
%
61
%
57
%
52
%
39
%
36
%
Natural Gas
27
%
38
%
43
%
48
%
61
%
64
%
Gain on sale of oil and natural gas leases
-
1
%
-
-
-
-
Total
100
%
100
%
100
%
100
%
100
%
100
%
Year Ended December 31, 2011 Compared to Years Ended
December 31, 2010 and December 31, 2009
Oil revenues.
The
Company's oil revenues were $9,079,267 for the year ended December 31, 2011, an increase of $4,861,192 (115%) from
$4,218,075 for the year ended December 31, 2010. Higher average oil prices increased revenues approximately $877,304 while
increased production increased revenues by approximately $3,983,888. The increase in production volumes was due primarily to new
well development primarily in the Bakken. In 2011
we participated in 96 gross (1.65 net) exploratory
wells in the Bakken compared to 23 gross (0.27 net) exploratory wells in the Bakken in 2010. The Company's oil revenues
increased by $993,213 (30.8%) in 2010 from $3,224,862 in 2009 primarily related to higher average oil prices in 2010 compared
to 2009.
Natural gas revenues.
The
Company's natural gas revenues were $3,328,507 for the year ended December 31, 2011, an increase of $685,197 (26%)
from $2,643,310 for the year ended December 31, 2010. This increase was due to slightly higher average prices which accounted
for approximately $560,571 of the increase in gas revenues. Higher volumes of natural gas sold increased revenue by approximately
$124,626. The Company's natural gas revenues increased in 2010 by $201,462 (8.25%) from $2,441,848 in 2009. Higher average
prices increased revenue and offset the slight decrease in gas production from 2009 to 2010. The decrease in production was mainly
due to depletion on existing wells.
69
Oil and natural gas production expenses.
Production expenses for the year ended December 31, 2011 increased $903,200 (42%) to
$3,067,087, compared to $2,163,887 for the year ended December 31, 2010. The increase is due to an increase in production taxes
of $313,000 due to increased revenues for the period and a slight increase in lease operating expenses primarily due to an increase
in 132 gross wells (26.9 net wells) partially offset by less rework in the current period versus 2010. Production expenses increased
$377,607 (21%) in December 31, 2010 from $1,786,280 for the year ended December 31, 2009 mainly due to newly developed wells and
well repair costs incurred during the year ended December 31, 2010.
General and administrative expenses.
General and administrative ("G&A") expenses were $16,387,633 for the year
ended December 31, 2011, an increase of $10,712,648 (189%) from $5,674,985 for the year ended December 31, 2010. The
primary factor for the increase in G&A expenses was the recognition of $2,019,943 in non-cash penalties related to the
delayed registration of the February 1, 2011 and March 31, 2011 equity private placements and an increase in non-cash stock compensation
expense of $6,693,548. The remainder of the increase relates to an increase of approximately $630,000 in payroll and taxes and
an increase of approximately $1,400,000 in legal and professional fees due to acquisitions and the S-1 registration filing. G&A
expenses for December 31, 2010 increased by $5,121,443 (925%) from $553,542 at December 31, 2009 primarily due to the recognition
of $4,227,274 in non-cash stock compensation expense, as well as accounting, legal and consulting fees incurred related the formation
of Nevada ASEC and the share exchange agreement with FDOG entered into on October 1, 2010.
In 2012 and beyond, the Company anticipates
G&A expenses to decrease in both absolute terms and as a percentage of total revenues. The Company took on several activities
that may be considered non-recurring, including three capital raises, four acquisitions, and an S-1 registration statement. These
activities may have contributed significantly to an increase in legal and accounting expenses that may not be incurred at comparable
levels in the future. In addition, non-cash stock compensation expenses may also decrease in the future as one-time historical
grants are amortized and not re-incurred in the future.
Exploration expenses.
Exploratory expenses for the year ended December 31, 2011 were $0, compared to $247,463 for the year ended
December 31, 2010.  This expense was primarily attributable to an unsuccessful exploratory well located in the Eagle
Ford shale formation drilled in 2007 and reworked as a shale formation well in 2010.  The well was intended to generate
petroleum production from the shale formation, but due to a mechanical failure during the drilling process this was unable to
be completed. All intangible and tangible costs related to this well have been expensed. Exploration expenses in 2009 were relatively
consistent with 2010.
Depreciation, depletion and amortization
expense.
Depreciation, depletion and amortization ("DD&A") expense of proved
oil and natural gas properties was $3,313,250 for the year ended December 31, 2011, an increase of $1,756,962 (113%) from $1,556,288
for the year ended December 31, 2010. The increase in depletion expense was primarily due to an increase in production volumes
in the Bakken. We have invested in new assets in new basins over the past year.  These assets differ significantly from
legacy assets in the Permian Basin included in the 2010 DD&A calculation. Our Bakken production in 2011 was primarily new
production, which typically experiences a much more rapid decline curve than our legacy Permian Basin production. The net effect
was to increase depreciation and depletion rates on a per BOE basis.  DD&A per BOE increased 61% for the year
ended December 31, 2011 as compared to the year ended December 31, 2010. With the increased development and productivity in unconventional
drilling in the Bakken and Eagle Ford, DD&A per BOE is expected to be higher than historical DD&A for the year ended December
31, 2010 per BOE for the traditional Permian Basin producing assets. DD&A increased by $65,362 (4%) from $1,490,426 at December
31, 2009.
Impairment of oil and natural gas
properties.
Impairment expense for the year ended December 31, 2011 was $1,027,522 compared to $46,533 at December
31, 2010. The Company impaired approximately $447,552 related to its unproved leaseholds for the year ended December 31, 2011.
The impairment consisted of several expired leases and an estimate of leases where expiration is probable in the foreseeable future.
In addition to the unproved property impairment, the Company impaired approximately $580,000 of its proved properties as the carrying
value of the properties was higher than the estimated fair value at December 31, 2011. Impairment expense at December 31, 2010
decreased $206,705 (81.6%) from $253,258 at December 31, 2009 primarily due to higher estimated reserve values in the Bakken formation
for the period ended December 31, 2010.
Other income, net.
Other income (expense) increased to ($2,265,189) for the year ended December 31, 2011 from $0 at December 31, 2010
and 2009.  The increase was due to the unrealized loss on warrant derivatives of $409,668 relating to the Macquarie
warrants and the Series A and Series B warrants and marking them to market and $670,659 net realized and unrealized loss on the
commodity derivatives.  The increase also included interest expense for accretion of the debt discount of $1,010,924,
and interest expense of $173,938 incurred in the year ended December 31, 2011.
70
Income tax provision.
Prior to their acquisition by the Company, Nevada ASEC and the Acquired Properties, respectively, were
part of pass-through entities for taxation purposes.  As a result, the historical financial statements of Nevada ASEC
and the Acquired Properties do not present any tax expenses, liabilities or assets until their acquisition by the Company.  Tax
provisions subsequent to such dates are fully incorporated and presented in the accompanying consolidated financial statements.  However,
the income tax provision for the year ended December 31, 2011, 2010 and 2009 was $0 due to net operating losses and a related
valuation allowance.
Capital Commitments, Capital Resources
and Liquidity
Capital commitments.
Our primary needs for cash are (i) to fund our share of the drilling and development costs associated with well development
within its leasehold properties, (ii) the further acquisition of additional leasehold assets, and (iii), the payment of contractual
obligations and working capital obligations. Funding for these cash needs will be provided by a combination of internally-generated
cash flows from operations, supplemented by a combination of financing our bank credit facility, proceeds from the disposition
of assets or alternative financing sources, as discussed in "Capital resources" below.
Oil and natural gas properties
.
Cash
paid for oil and natural gas properties during the years ended December 31, 2011, 2010 and 2009 totaled $54,372,042, $13,021,284
and $2,393,249, respectively. The 2011 costs related primarily to new drilling activities in the Permian and Eagle Ford and additional
Bakken undeveloped leases. The 2010 costs related primarily to purchases of additional Bakken leases and drilling in the Bakken,
Permian and South Texas leases.  The 2009 costs related primarily to purchases of Bakken undeveloped leases, the drilling
of four Bakken wells, and the drilling of one South Texas well.
Our 2012 capital budget for drilling
(excluding any acquisitions) is approximately $125 million assuming additional financing is made available under our existing
facility or new financing is obtained. We expect to be able to fund our remaining 2012 capital budget partially with operating
cash flows, and utilization of our existing credit facility. However, the Company's capital budget is largely discretionary,
and if we experience sustained oil and natural gas prices significantly below the current levels or substantial increases in its
drilling and completion costs, we may reduce our capital spending program to remain substantially within the Company's operating
cash flows.
While we believe that our available
cash, cash flows and credit facility will fund our 2012 capital expenditures, as adjusted from time to time, we cannot provide
any assurances that we will be successful in securing alternative financing sources to fund such expenditures if needed.
The actual amount and timing of our expenditures may differ materially from our estimates as a result of, among other
things, actual drilling results, the obtaining of debt or equity financing capital, the timing of expenditures by third parties
on projects that we do not operate, the availability of drilling rigs and other services and equipment, regulatory, technological
and competitive developments and market conditions. In addition, under certain circumstances we would consider increasing, decreasing,
or reallocating our 2012 capital budget.
Commodity derivatives.
We
began entering into derivative contracts during the three month period ended September 30, 2011, to achieve a more predictable
cash flow by reducing our exposure to crude oil and natural gas price volatility. We have elected not to designate any subsequent
derivative contracts as accounting hedges. As such, all commodity derivative positions are carried at their fair value on the
balance sheet and are marked-to-market at the end of each period. Any realized gains or losses on these derivatives are recorded
in realized and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).
Capital resources.
Our
primary sources of liquidity during 2011 were cash flows generated from proceeds from our private placement offerings of our common
stock and proceeds from stock subscription receivables from which cash net proceeds of $47,892,172 were generated.  We
also borrowed $17,169,889 under our credit facility. We believe that funds from our cash flows and any financing under our credit
facility should be sufficient to meet both our short-term working capital requirements and our 2012 capital expenditure plans.
71
Cash flow from operating activities.
Our net cash provided by operating activities were $4,402,749, $3,739,625 and $2,936,683 for the year ended December
31, 2011, 2010 and 2009, respectively. The decrease in operating cash flow for the year ended December 31, 2011 was due primarily
to increased general and administrative costs and the reduction in working capital through increases in oil and gas sales receivables
and the non-cash accounts payable and accrued liabilities for oil and natural gas additions. The increase in operating cash flow
from 2009 to 2010 was due primarily to changes in operating assets and liabilities.
Cash flow used in investing activities.
During the year ended December 31, 2011, 2010 and 2009, we invested $58,462,398, $12,878,375 and
$2,393,249, respectively, for additions to, and acquisitions of, oil and natural gas properties, inclusive of exploration costs.
Cash flows used in investing activities were substantially higher in 2011, 2010 and 2009 due to the Company's increased
leasehold acquisition activities in the Bakken Shale Formation, Eagle Ford and Permian drilling activities, prepaid drilling costs
and a $1.5 million deposit with XOG relating to the 2012 acquisition.
Cash flow from financing activities.
Net cash provided by (used in) financing activities was $54,272,702, $9,658,746 and ($543,434) for
the year ended December 31, 2011, 2010 and 2009, respectively. Financing activity was comprised primarily of net proceeds from
the sale of common stock and warrants and proceeds from the credit facility during the year ended December 31, 2011. Financing
activities for 2010 comprised primarily of equity provided by the XOG Group to support leasehold acquisitions and new drilling
activities and $5,374,907 of net proceeds from the sales of stock and warrants during the year.
February Private Placement.
On February 1, 2011, we closed on a private placement offering of securities raising proceeds of $15,406,755 through the issuance
of (i) 4,401,930 shares of our common stock at a price of $3.50 per share and (ii) two series of five-year warrants each exercisable
into 1,100,482 shares of common stock at exercise prices of $5.00 and $6.50 per share, respectively, subject to certain adjustments.  The
Company also issued to the placement agents warrants to purchase up to 220,097 shares of common stock, the terms and exercise
price correspond to the terms of warrants issued to investors in the private placement.  The shares and warrants were
sold to certain accredited investors.  Subject to certain conditions, we have the right to call for the exercise
of such warrants. We incurred costs of $0.8 million with this offering.
March Private Placement.
On March 31, 2011, we closed a private placement offering of securities raising proceeds of $21,257,778 through the
issuance of (i) 3,697,005 shares of common stock at a price of $5.75 per share and (ii) five-year warrants exercisable into 1,848,502
shares of common stock at exercise prices of $9.00 per share, subject to certain adjustments.  The Company also issued
to the placement agents warrants to purchase up to 96,957 shares of common stock at an exercise price of $9.00.  The
shares and warrants were sold to certain accredited investors.  Subject to certain conditions, we have the right to
call for the exercise of such warrants.  We incurred costs of $1.5 million in connection with this offering.
July Private Placement.
On July 15, 2011, we completed a closing of an offering of securities for total subscription proceeds of approximately $13 million
through the issuance of (i) 2,260,870 shares of our common stock at a price of $5.75 per share, (ii) Series A warrants to purchase
1,130,435 shares of common stock at a per share exercise price of $9.00 subject to certain adjustment provisions, and (iii) Series
B warrants to purchase a number of shares of common stock, which shall only be exercisable if (A) the market price (as defined
below) of our common stock on the 30th trading day following the earlier of (i) the effective date of a registration statement
to sell the shares of common stock and the Series A warrant shares, and (ii) the date on which the purchasers in the private placement
can freely sell the shares of common stock pursuant to Rule 144 promulgated under the Securities Act without restriction, referred
to herein as the Eligibility Date is less than the purchase price in the offering or $5.75, and (B) upon certain dilutive occurrences.
On February 10, 2012, the Company,
Pentwater and two affiliated entities of Pentwater (the "Modification Investors") entered into a modification agreement
(the "Modification Agreement") pursuant to which the parties agreed to amend the terms of the Series B warrants to
include a floor of $3.00 per share in the calculation of the reset provision included in the Series B warrants. Accordingly, the
aggregate maximum number of shares of Common Stock underlying the Series B Warrants held by the Modification Investors is 1,913,043
shares.
72
As additional consideration for the modification
of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants ("Series
C Warrants") to purchase 2.5 million shares of Common Stock with a cash exercise price of $3.00 per share. The Series C Warrants
include a provision under which the Series C Warrants must be exercised at the election of the Company by the Modification Investors
for cash if the closing sales price of the Common Stock is $6.00 per share or greater for 20-consecutive trading days. As a result
of the issuance of the Warrants and the Series C Warrants, the exercise prices and number of shares underlying the Series A warrants
and Series B warrants held by the remaining investor in the July Offering were adjusted pursuant to their terms.
In connection with the July 15, 2011 private
placement offering, we granted to the investors registration rights pursuant to a Registration Rights Agreement, dated July 15,
2011, in which we agreed to register all of the related private placement common shares and common shares underlying the Series
A warrants within forty-five (45) calendar days after July 15, 2011, and use its best efforts to have the registration statement
declared effective within one hundred twenty (120) calendar days (or 150 calendar days upon a full review by the SEC). We will
be required to pay to each investor an amount in cash equal to 3% of the investor's purchase price in the event the Company
fails to file the initial registration statement with the SEC, or otherwise, 1% of the aggregate purchase price paid by such investor,
as applicable if we fail to comply with the terms of the Registration Rights Agreement and certain other conditions, on each monthly
anniversary.
The net proceeds from these private placements
have been and will be used for operating purposes and to fund drilling and development activities, and acquisitions from the XOG
Group.
In addition, we may also seek to utilize
various financing sources, including the issuance of (i) fixed and floating rate debt, (ii) convertible securities, (iii) preferred
stock, (iv) common stock and (v) other securities. We may also sell assets and issue securities in exchange for oil and natural
gas related assets.
Credit Agreement.
On
September 21, 2011, Nevada ASEC, referred to herein as the Borrower, entered into a Credit Agreement (the "Credit Agreement")
with the lenders party thereto and Macquarie Bank Limited as administrative agent, referred to herein as Macquarie Bank. The Credit
Agreement provides to the Borrower a revolving credit facility in an amount not to exceed $100 million and a term loan facility
in an amount not to exceed $200 million. The interest rate on revolving loans is 30, 60 or 90 day LIBOR, as selected by the Borrower,
plus a margin of 2.75% to 3.25% per annum, based on the borrowing base utilization, and the interest rate on term loans is 30,
60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 7.50%. The maturity date of the revolving credit facility is
September 21, 2015 and the maturity date of the term loan facility is September 21, 2014. The Borrower also has the option to
borrow at the Base Rate plus margins from 1.75% to 2.25%.
The Borrower's obligations under
the Credit Agreement are secured by the Borrower's interest in certain oil and gas properties and the hydrocarbons produced
from such properties, as well as the proceeds of the sale of such hydrocarbons. We guaranteed the Borrower's obligations
under the Credit Agreement and pledged to the administrative agent a security interest in 100% of the capital stock of the Borrower
as security for our obligations under the guaranty. At December 31, 2011, $17,169,889 was the outstanding borrowings under the
Credit Agreement.
In connection with the Credit Agreement,
we issued to Macquarie Americas Corp., referred to herein as Macquarie Americas, a five year warrant (the "Macquarie Warrant")
to purchase five million (5,000,000) shares of our common stock at a per share exercise price of $7.50, subject to certain
adjustments. The warrant is exercisable on a cashless basis if there is no registration statement covering the underlying common
stock. The warrant is also subject to customary anti-dilution provisions.
Macquarie Warrant Restructure.
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended
and restated Macquarie Warrant referred to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase two million
three hundred thirty-three thousand (2,333,000) shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie
Warrant is not subject to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision
or combinations. The Amended Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering
the underlying common stock. The Company granted the holder piggy-back registration rights on the underlying common stock.
73
Liquidity.
Our
principal sources of short-term liquidity are cash on hand, operational cash flow, and incremental borrowing under our Credit
Agreement.  At December 31, 2011, we had cash and cash equivalents of $733,049. Our short term cash commitments are
primarily for drilling costs. These drilling costs are discretionary in nature; however, if the Company elects not to participate
in such drilling costs, the Company could forfeit certain rights to receive revenues from production from the proposed well or
to participate in and receive revenues from future wells in the related contract area. See Note N in the Notes to Consolidated
Financial Statements for a discussion of recent financings.
Contractual Obligations
Employment Agreements.
At December 31, 2011, our contractual obligations include employment agreements with executive officers for the
years ending December 31, 2012 through 2014 are as follows:
2012
2013
2014
Scott Feldhacker
$
231,000
$
231,000
$
77,000
Richard Macqueen
231,000
231,000
77,000
Scott Mahoney
206,000
206,000
68,667
Total Contractual Obligations
    Related to Employment Contracts
$
668,000
$
668,000
$
222,667
Operating Leases.
We lease our 4,092 square foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement,
dated December 31, 2010, for a 66-month term.  The lease provides for no lease payments during the first six months
and a reduced square footage charge for the first year.  The initial rental is $23.00 per square foot, beginning February
1, 2011, and increasing $0.50 per square foot annually thereafter.  For the year ended December 31, 2011, the Company
recorded lease expense of $90,214.
At December 31, 2011, the future minimum
lease commitments under the non-cancellable operating leases for each of the following five years ending December 31 are as follows:
2012
67,606
2013
97,356
2014
99,402
2015
101,448
2016
42,625
Total
$
408,437
Critical Accounting Policies and Practices
Our consolidated financial
statements and related notes thereto contain information that is pertinent to our management's discussion and analysis of
financial condition and results of operations. Preparation of the Company's consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires that management make estimates, judgments and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.
However, the accounting principles used by the Company generally do not change the Company's reported cash flows or liquidity.
Interpretation of the existing rules must be done and judgments made on how the specifics of a given rule apply to the Company.
In management's
opinion, the more significant reporting areas impacted by management's judgments and estimates are revenue recognition, the
choice of accounting method for oil and natural gas activities, oil and natural gas reserve estimation, asset retirement obligations,
impairment of long-lived assets and valuation of stock-based compensation. Management's judgments and estimates in these
areas are based on information available from both internal and external sources, including engineers, geologists and historical
experience in similar matters. Actual results could differ from the estimates, as additional information becomes known.
74
Successful Efforts Method of Accounting
The Company utilizes
the successful efforts method of accounting for its oil and natural gas properties. Under this method all costs associated with
productive wells and nonproductive development wells are capitalized, while nonproductive exploration costs are expensed. Capitalized
acquisition costs relating to proved properties are depleted using the unit-of-production method based on proved reserves. The
depletion of capitalized exploratory drilling and development costs is based on the unit-of-production method using proved developed
reserves on a field basis.
Proceeds from the
sales of individual properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively,
to accumulated depletion. Generally, no gain or loss is recognized until the entire amortization base is sold. However, a gain
or loss is recognized from the sale of less than an entire amortization base if the disposition is significant enough to impact
the depletion rate of the remaining properties in the amortization base materially. Ordinary maintenance and repair costs are expensed
as incurred.
Costs of unproved
properties, wells in the process of being drilled and significant development projects are excluded from depletion until such
time as the related project is developed and proved reserves are established or impairment is determined. These unproved oil and
natural gas properties are periodically assessed for impairment by considering future drilling plans, the results of exploration
activities, commodity price outlooks, planned future sales or expiration of all or a portion of such projects. Amounts capitalized
to oil and natural gas properties, but excluded from depletion at December 31, 2011 and 2010 were approximately $25,213,000 and
$9,954,000, respectively.  Such costs are related to drilling in progress and wells recently drilled and in various stages
of testing and completion.
The Company reviews
its long-lived assets to be held and used, including proved oil and natural gas properties, whenever events or circumstances indicate
that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected undiscounted
future cash flows is less than the carrying amount of the assets. In this circumstance, the Company would recognize an impairment
loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.
The Company reviews
its oil and natural gas properties by amortization base or by individual well for those wells not constituting part of an amortization
base. For each property determined to be impaired, an impairment loss equal to the difference between the carrying value of the
properties and the estimated fair value (discounted future cash flows) of the properties would be recognized at that time. Estimating
future cash flows involves the use of judgments, including estimation of the proved and unproved oil and natural gas reserve quantities,
timing of development and production, expected future commodity prices, capital expenditures and production costs.
Asset Retirement Obligations
There are legal obligations
associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal
operation of a long-lived asset. The primary impact of this on the Company relates to oil and natural gas wells on which we have
a legal obligation to plug and abandon. The Company records the fair value of a liability for an asset retirement obligation in
the period in which it is incurred and, generally, a corresponding increase in the carrying amount of the related long-lived asset.
The determination of the fair value of the liability requires the Company to make numerous judgments and estimates, including judgments
and estimates related to future costs to plug and abandon wells, future inflation rates and estimated lives of the related assets.
75
Impairment of Long-Lived Assets
All of the Company's
long-lived assets are monitored for potential impairment when circumstances indicate that the carrying value of an asset may be
greater than its future net cash flows, including cash flows from risk adjusted proved reserves. The evaluations involve a significant
amount of judgment since the results are based on estimated future events, such as future sales prices for oil and natural gas,
future costs to produce these products, estimates of future oil and natural gas reserves to be recovered and the timing thereof,
the economic and regulatory climates and other factors. The need to test an asset for impairment may result from significant declines
in sales prices or downward revisions to estimated quantities of oil and natural gas reserves. Any assets held for sale are reviewed
for impairment when the Company approves the plan to sell. Estimates of anticipated sales prices are highly judgmental and subject
to material revision in future periods. Because of the uncertainty inherent in these factors, the Company cannot predict when or
if future impairment charges will be recorded.
Valuation of Stock-Based Compensation
The Company is required
to expense all options and other stock-based compensation that vested during the year based on the fair value of the award on the
grant date. The calculation of the fair value of stock-based compensation requires the use of estimates to derive the inputs necessary
for using the various valuation methods utilized by us. The Company utilizes the Black-Scholes option pricing model to measure
the fair value of stock options.  Expected volatilities are based on implied volatilities from the historical volatility of
companies similar to the Company.  The expected term of the options granted used in the Black-Scholes model represent the
period of time that options granted are expected to be outstanding.  The Company utilizes the simplified method for calculating
the expected life of its options as the Company does not have sufficient historical data to provide a basis upon which to estimate
the term.
Recent Accounting Pronouncements
Reserve Estimation.
In January 2010, the FASB issued an update to the Oil and Gas Topic, which aligns the oil and natural gas reserve estimation and
disclosure requirements with the requirements in the SEC's final rule,
Modernization of the Oil and Gas Reporting
Requirements
(the "Final Rule"). The Final Rule was issued on December 31, 2008. The Final Rule is
intended to provide investors with a more meaningful and comprehensive understanding of oil and natural gas reserves, which should
help investors evaluate the relative value of oil and natural gas companies.
The Final Rule
permits the use of new technologies to determine proved reserves estimates if those technologies have been demonstrated empirically
to lead to reliable conclusions about reserve volume estimates. The Final Rule also allows, but does not require, companies to
disclose their probable and possible reserves to investors in documents filed with the SEC. In addition, the new disclosure requirements
require companies to: (i) report the independence and qualifications of its reserves preparer or auditor; (ii) file reports when
a third party is relied upon to prepare reserves estimates or conduct a reserves audit; and (iii) report oil and natural gas reserves
using an average price based upon the prior 12-month period rather than a year-end price. The Final Rule became effective for fiscal
years ending on or after December 31, 2009.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements and supplementary financial
data are included in this report beginning with page F-1.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On July 28, 2010, Michael Cronin declined to stand for re-appointment
as the independent registered public accounting firm for the Company. Mr. Cronin, as a sole practitioner, notified us that certain
SEC and PCAOB independence rules state that an accountant is not independent if he or she serves as a lead partner for more than
five consecutive years.  Mr. Cronin further advised us that his continued service would be in violation of the independence
rules and cause his independence to be impaired.
76
The reports of Michael Cronin on our financial statements for
each of the past two years prior to electing not to stand for re-appointment, were unqualified and contained no adverse opinion
or disclaimer of opinion and no report was qualified as to uncertainty, audit scope, or accounting principles.  Mr. Cronin
did include an emphasis paragraph in the financial statements for the past two years relating to a going concern uncertainty.
There were no disagreements on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure, between us and Michael Cronin during our two most
recent fiscal years or for the period through the date that Michael Cronin elected not to stand for re-appointment.
(a) Engagement of New Independent Registered Public Accounting
Firm.
i. On October 1, 2010, our Board of Directors
appointed BDO USA, LLP ("BDO"), as our new independent registered public accounting firm. The decision to engage BDO
was approved by the our Board of Directors on October 1, 2010.
ii. Prior to October 1, 2010, we did not
consult with BDO regarding (1) the application of accounting principles to a specified transaction, (2) the type of audit
opinion that might be rendered on our financial statements, (3) written or oral advice that would be an important factor considered
by us in reaching a decision as to an accounting, auditing or financial reporting issue, or (4) any matter that was the subject
of a disagreement between us and our predecessor auditor as described in Item 304(a)(1)(iv) or a reportable event as described
in Item 304(a)(1)(v) of Regulation S-K.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Directors and Executive Officers
The following table sets forth the names,
ages, positions and dates of appointment of our directors and executive officers.
Name
Age
Position
Date Appointed
Scott Feldhacker
44
Chief Executive Officer and Director
October 1, 2010
Richard MacQueen
45
President and Director
October 1, 2010
Scott Mahoney
37
Chief Financial Officer
October 1, 2010
Robert J. Thompson
69
Chairman of the Board
November 23, 2010
Randall Capps
56
Director
October 11, 2010
James R. Leeton, Jr.
60
Director
March 15, 2011
Scott David
46
Director
April 4, 2011
William "Bill" Killian
47
Director
April 4, 2011
The business background descriptions of our
directors and officers are as follows:
SCOTT FELDHACKER
—
Chief Executive Officer and Director
Mr. Feldhacker is co-founder of
Nevada ASEC in April 2010.  He has worked as a consultant in the family oil and gas exploration and production
businesses with XOG Operating, LLC and Geronimo Holding Corporation, exploration and production operators based in Midland,
Texas since 2001 by assisting with financial relationships, the structuring of both acquisitions and sales of producing
assets, leaseholds and rights of way, new development, and field operation activities including auditing utility usage per
leasehold.  Since April 2011, Mr. Feldhacker has also served as an officer and director of McCaFe Energy Partners Inc.
("McCaFe"), a development stage infrastructure, natural gas exploration and alternative energy investment
company. Mr. Feldhacker devotes his full professional time to the Company's business and fewer than five hours of his
personal time per week to McCaFe's business. From January 2009 to December 2010, he co-founded and served as a managing
member of Fusion Capital LLC, a consulting firm that consulted for both private and public companies in various industries
including oil and gas E&P companies that provided general business consulting and advisory services.  From
February 2005 to December 2010, Mr. Feldhacker co-founded and served as the Managing Member of DreamTick LLC, a consulting
firm which placed its focus on emerging markets, consulting with  companies entering the U.S. capital markets, providing
post-listing public relation services.  From 1995 to 2004, he gained entrepreneurial success over diverse industries as an owner
and officer. In 1991, Mr. Feldhacker began as a Wealth Manager for Allmerica Financial then Mass Mutual Oppenheimer. Mr.
Feldhacker attended University of Arizona from 1985 to 1986, Arizona State University from 1987 to 1988, and Santa Barbara
City College from 1989 to 1991.  Mr. Feldhacker began his post-secondary education in business management before
switching to Engineering and Computer Science.  Mr. Feldhacker left to accept an offer with Allmerica Financial in 1991.
We believe Mr. Feldhacker's extensive business and leadership experience makes him an important member of the Board of
Directors.
77
RICHARD MACQUEEN
—
President and
Director
Mr. MacQueen is the co-founder of
Nevada ASEC in April 2010. Since April 2011, Mr. MacQueen has also served as an officer and director of McCaFe Energy
Partners Inc., a development stage infrastructure, natural gas exploration and alternative energy investment company. Mr.
MacQueen devotes his full professional time to the Company's business and fewer than five hours of his personal time
per week to McCaFe's business. From January 2009 to December 2010, he co-founded and served as a managing member of
Fusion Capital LLC, a consulting firm that consulted for both private and public companies in various industries including
oil and gas E&P companies that provided general business consulting and advisory services. From February 2005 to December
2010, Mr. MacQueen co-founded and served as a member of DreamTick LLC, a consulting firm which placed its focus on emerging
markets, consulting with  companies entering the U.S. capital markets, providing post-listing public relation services.  From
July 2005 to June 2008, Mr. MacQueen served as the Western Regional Territory Manager for UltraRad Corp., a radiology
software company he previously represented through his technical sales firm.  From 2001 to 2005, Mr.
MacQueen operated a technical sales firm which supported companies in the aerospace, medical, high speed low skew and
automotive industries, including Fortune 500 companies.  Prior to 2011, Mr. MacQueen developed, owned and operated a
restaurant chain covering three states throughout the Southwest. Mr. MacQueen attended Western Illinois University from 1984
to 1986 and Arizona State University (ASU) in the business track from 1988 to 1990.  Mr. MacQueen left ASU to devote his
time to the development of his restaurant business. We believe that Mr. MacQueen's extensive business and
entrepreneurial experience brings important experience and leadership to the Board of Directors.
SCOTT MAHONEY
—
Chief Financial Officer
Prior to joining Nevada ASEC as a founding
executive, from September 2008 to April 2010, Mr. Mahoney was the founder and served as the managing partner of Catalyst Corporate
Solutions, LLC, a consulting firm based in Phoenix, Arizona, focused on strategic financial and accounting consulting for companies
in rapid growth.  In this capacity, Mr. Mahoney served as the interim Chief Financial Officer for Phoenix Group Metals, Phoenix
Stair, ITX Technology Solutions, and Aspire Design from September 2008 to April 2010. Mr. Mahoney was responsible for all operational
finance matters, strategic capital raises, and the structuring of mergers and acquisitions opportunities. Mr. Mahoney has more
than 15 years of experience in the finance industry, primarily in commercial and investment banking. From April 2005 to September
2008, Mr. Mahoney worked for JP Morgan Chase, where he held a leadership role on more than $1.5 billion in debt facilities. 
Prior to JPMorgan Chase, Mr. Mahoney worked for Key Bank's Technology Investment Banking Group in Seattle, Washington, where
he worked in a similar role with small and mid-cap publicly held companies primarily in the information technology services and
software industries. Mr. Mahoney is a graduate of Thunderbird International School of Business and the University of New Hampshire. 
Mr. Mahoney is also a Chartered Financial Analyst and has been nationally recognized by the Risk Management Association of America
for white papers on equity research applied to non-public companies and specialty small-cap investing.
ROBERT J. THOMPSON
—
Chairman
of the Board of Directors
Mr. Thompson has served as Chairman of
the Board of Algae Biosciences Corporation from November 2007 to the present and as Chairman of the Board of QuoteMedia, Inc. from
June 2000 to the present.  He has also served as Managing Director of CanAm Capital Partners, LLC, a corporate finance advisory
firm, from May 2006 to the present and has been President of Corpus Investments Inc., a private equity firm, since December 2002.
Mr. Thompson previously served as Chairman of the Board from 1991 through 2001 of C.M. Oliver Inc., a Canadian publicly traded
investment dealer/broker involved since 1907, in investment banking activities throughout North America and Europe, particularly
in the oil and gas and mineral resource sectors. His professional involvements concentrated on corporate finance and merger and
acquisition advisory services. Mr. Thompson is a Canadian Chartered Accountant (C.A. designation basically equivalent to CPA). 
Mr. Thompson also holds Canadian Certified Management Consultant designation (CMC). Mr. Thompson attended the University of British
Columbia, enrolled in an accelerated B.Comm./C.A. combined program requiring students to complete 8 years of class work in 6 years. 
He completed all courses with distinction.  He however did not submit a final B.Comm thesis and therefore did not receive
the B.Comm degree.  Mr. Thompson also chairs the Company's Compensation, Audit, and Nominating and Corporate Governance
Committees. We believe that Mr. Thompson's extensive financial experience, as well as his experience on the boards of directors
of numerous companies, bring substantial leadership skill and experience to the Board of Directors.
78
RANDALL CAPPS
—
Director
Mr. Capps is the largest stockholder
of the Company and has more than 30 years of experience in the E&P oil and gas industry.  His experience began with Texaco
Inc. and more recently as owner of several E&P companies.  Since August 2004, Mr. Capps has served as the managing member
and sole owner of XOG Operating, LLC, a seasoned exploration and operation company based in Midland, Texas, which develops and
operates oil and gas properties in 14 states.  Since August 1996, he has also served as the president and sole owner of Geronimo
Holding Corporation, which holds vast mineral rights and several supporting oil and gas companies.  Mr. Capps graduated from
the University of Texas with an undergraduate degree in business in 1975. Mr. Capps' thirty-plus years in the oil and gas
industry brings important experience and leadership skills to the Board of Directors.
JAMES R. LEETON, JR.
—
Director
Mr. Leeton has served as a partner at Bullock
Scott, PC, a Midland, Texas based law firm from July 2005 to the present.  Mr. Leeton focuses his practice on oil and gas,
banking and business law. Prior to joining Bullock Scott in 2005, Mr. Leeton was a partner at several law firms with an emphasis
of practice in oil and gas related industries: Morgan & Leeton, PC (1988-2005), James R. Leeton, Jr. Attorney at Law (1985-1988),
and Leeton & Leeton, PC (1978-1985).  Mr. Leeton was also employed as a Landman for ExxonMobil Corporation from 1977-1978.
Mr. Leeton earned a Bachelor of Arts Degree from University of Texas, Austin and his Doctor of Jurisprudence from Texas Tech University.
We believe that Mr. Leeton's extensive legal experience in the oil and gas industry brings additional experience and expertise
to the Board of Directors.
SCOTT DAVID
—
Director
Since 1991, Mr. David has held progressive
positions of responsibility within Shell Oil Company, most recently as Joint Venture Formation Manager with a focus on the
retail sector in the downstream oil and gas industry.  Mr. David has held various positions over the years at Shell including
Pricing Manager for the U.S. Wholesale gasoline business, Equity Investments Manager, Business Acquisitions Manager, and most recently
Joint Ventures Formation Manager. Mr. David earned a Bachelor of Business Administration in Finance as well as a minor in Information
Systems from Baylor University.  Mr. David also holds a Master of Business Administration with a concentration in Finance
from St. Mary's College. Mr. David's extensive experience in the oil and gas industry makes him a valuable member of
the Board of Directors.
WILLIAM "BILL" KILLIAN
—
Director
From July 2010 to the present, Mr. Killian
has served as the General Manager of Texas Operations at Texas Jack Waste Holdings and has oversight of all Texas operations for
this solid waste management company focusing on growth and expansion.  Mr. Killian previously served as General Manager/Managing
Partner of Pima Waste of Tucson from April 2006 through December 2009 prior to selling the company to Waste Management.  He
also served as General Manager of West Valley Business Units at Allied Waste from 2002-2006, General Manager/Managing Partner of
City-Waste of Arizona from 2000 until its successful sale to Allied Waste in 2002 and as Operations Manager/General Manager of
Laidlaw/Allied Waste Lake Havasu from 1994-2000.  Mr. Killian attended Mohave Community College in Lake Havasu, Arizona from
1995 to 1997. We believe that Mr. Killian's extensive entrepreneurial and business experience brings important experience
and leadership to the Board of Directors.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal
executive officer, principal financial and accounting officer, controller and persons performing similar functions. We will provide
to any person, without charge, upon request, a copy of such Code of Ethics, as amended. Requests should be addressed to Mr. Scott
Mahoney, Chief Financial Officer at our address appearing on the cover page of this Annual Report on Form 10-K.
79
Corporate Governance
Term of Office
Our directors are
appointed for a one-year term to hold office until the next annual meeting of our stockholders until their successors are duly
appointed and qualified or until removed from office in accordance with our bylaws. Our officers are appointed by our board of
directors and hold office until removed by our board of directors.  Except as set forth in the section entitled "Executive
Compensation," there are no agreements with respect to the election of directors.  Our bylaws provide that officers are
appointed annually by our board of directors and each executive officer serves at the discretion of our board of directors. 
However, we have entered into employment agreements with each of our executive officers for a term of four years and automatic
extension period of one year (provided the agreement has not been terminated earlier).  Please refer to "Executive Compensation—Employment
Agreements" for a discussion of the material terms of the employment agreements between the Company and each of the named
executive officers identified in the "Executive Compensation–Summary Compensation Table."
Director Independence
We use the definition
of "independence" of The NASDAQ Stock Market to make this determination.  NASDAQ Listing Rule 5605(a)(2) provides
that an "independent director" is a person other than an officer or employee of the company or any other individual
having a relationship which, in the opinion of the Company's board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.  The NASDAQ listing rules provide that a director cannot be considered
independent if:
·
the
                                                                                                               director is, or
                                                                                                               at any time during
                                                                                                               the past three
                                                                                                               years was, an employee
                                                                                                               of the company;
·
the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               accepted any compensation
                                                                                                               from the company
                                                                                                               in excess of $120,000
                                                                                                               during any period
                                                                                                               of 12 consecutive
                                                                                                               months within the
                                                                                                               three years preceding
                                                                                                               the independence
                                                                                                               determination (subject
                                                                                                               to certain exclusions,
                                                                                                               including, among
                                                                                                               other things, compensation
                                                                                                               for board or board
                                                                                                               committee service);
·
a
                                                                                                               family member of
                                                                                                               the director is,
                                                                                                               or at any time
                                                                                                               during the past
                                                                                                               three years was,
                                                                                                               an executive officer
                                                                                                               of the company;
·
the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               is a partner in,
                                                                                                               controlling stockholder
                                                                                                               of, or an executive
                                                                                                               officer of an entity
                                                                                                               to which the company
                                                                                                               made, or from which
                                                                                                               the company received,
                                                                                                               payments in the
                                                                                                               current or any
                                                                                                               of the past three
                                                                                                               fiscal years that
                                                                                                               exceed 5% of the
                                                                                                               recipient's
                                                                                                               consolidated gross
                                                                                                               revenue for that
                                                                                                               year or $200,000,
                                                                                                               whichever is greater
                                                                                                               (subject to certain
                                                                                                               exclusions);
·
the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               is employed as
                                                                                                               an executive officer
                                                                                                               of an entity where,
                                                                                                               at any time during
                                                                                                               the past three
                                                                                                               years, any of the
                                                                                                               executive officers
                                                                                                               of the company
                                                                                                               served on the compensation
                                                                                                               committee of such
                                                                                                               other entity; or
·
the
                                                                                                               director or a family
                                                                                                               member of the director
                                                                                                               is a current partner
                                                                                                               of the company's
                                                                                                               outside auditor,
                                                                                                               or at any time
                                                                                                               during the past
                                                                                                               three years was
                                                                                                               a partner or employee
                                                                                                               of the company's
                                                                                                               outside auditor,
                                                                                                               and who worked
                                                                                                               on the company's
                                                                                                               audit.
We have determined
that Messrs. Thompson, David, Killian and Leeton are "independent" directors as defined by applicable SEC rules and
NASDAQ Stock Market listing standards.
Board Committees
Our board of directors
has an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. Each committee's members
and certain other information regarding each committee are described below.
80
Audit Committee
The Audit Committee
is comprised entirely of "independent" directors as defined by applicable SEC rules and NASDAQ Stock Market listing
standards. The current members of our Audit Committee are Messrs. Thompson, David and Killian. Mr. Thompson is the chairperson
of the Audit Committee and serves as its "audit committee financial expert" as defined by SEC rules.
Compensation Committee
The Compensation Committee
is comprised entirely of "independent" directors as defined by applicable SEC rules and NASDAQ Stock Market listing
standards. The current members of our Compensation Committee are Messrs. Thompson, Killian and Leeton. Mr. Thompson is the chairperson
of the Compensation Committee.
Corporate Governance and Nominating
Committee
The Corporate Governance
and Nominating Committee ("CGNC") is comprised entirely of "independent" directors as defined by applicable
SEC rules and NASDAQ Stock Market listing standards. The current members of our Corporate Governance and Nominating Committee are
Messrs. Thompson, David, Killian and Leeton. Mr. Thompson is the chairperson of the Corporate Governance and Nominating Committee.
The CGNC of the Board
of Directors has established the Fairness Committee as a standing sub-committee of the NCGC.
The Fairness Committee
is appointed by the NCGC to complete independent assessments of the fairness to non-related party stockholders, and other non-affiliated
stakeholders, of proposed or completed transactions by the Company that might represent conflicts of interests between the company
and its affiliates and other related parties. The current members of this subcommittee are Messrs. Thompson, David, Killian and
Leeton.
Board Leadership Structure and Role
in Risk Oversight
Leadership of our
board of directors is vested in a Chairman of the Board. Although our Chief Executive Officer currently does not serve as
Chairman of the Board of Directors, we currently have no policy prohibiting our current or any future chief executive officer from
serving as Chairman of the Board. The board of directors, in recognizing the importance of its ability to operate independently,
determined that separating the roles of Chairman of the Board and Chief Executive Officer is advantageous for us and our shareholders.
Our board of directors has also determined that having the Chief Executive Officer serve as director could enhance understanding
and communication between management and the board of directors, allows for better comprehension and evaluation of our operations,
and ultimately improves the ability of the board of directors to perform its oversight role. The management of enterprise-level
risk may be defined as the process of identification, management and monitoring of events that present opportunities and risks
with respect to the creation of value for our shareholders. The board of directors has delegated to management the primary responsibility
for enterprise-level risk management, while retaining responsibility for oversight of our executive officers in that regard.
Family Relationships
Scott Feldhacker,
our Chief Executive Officer and a member of our board of directors, is the son-in-law of Randall Capps.  Mr. Capps is a member
of our board of directors and the sole owner of XOG and Geronimo and the majority owner of CLW.  Through these indirect ownership
interests and through his direct ownership interests, Mr. Capps is currently the majority holder of our common stock.
Additionally, our director Scott David is the first cousin of Richard MacQueen, our President and director. For a list of
specific transactions, see the section entitled
"Transactions with Related Persons, Promoters, and Certain Control Persons."
Involvement in Certain Legal Proceedings
To our knowledge,
during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:
·
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);
81
·
had any bankruptcy petition filed by or against the business or property of the person, or of any
partnership, corporation or business association of which he was a general partner or executive officer, either at the time of
the bankruptcy filing or within two years prior to that time;
·
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending
or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings
and loan, or insurance activities, or to be associated with persons engaged in any such activity;
·
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity
Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;
·
been
                                                                                                               the subject of,
                                                                                                               or a party to,
                                                                                                               any federal or
                                                                                                               state judicial
                                                                                                               or administrative
                                                                                                               order, judgment,
                                                                                                               decree, or finding,
                                                                                                               not subsequently
                                                                                                               reversed, suspended
                                                                                                               or vacated (not
                                                                                                               including any settlement
                                                                                                               of a civil proceeding
                                                                                                               among private litigants),
                                                                                                               relating to an
                                                                                                               alleged violation
                                                                                                               of any federal
                                                                                                               or state securities
                                                                                                               or commodities
                                                                                                               law or regulation,
                                                                                                               any law or regulation
                                                                                                               respecting financial
                                                                                                               institutions or
                                                                                                               insurance companies
                                                                                                               including, but
                                                                                                               not limited to,
                                                                                                               a temporary or
                                                                                                               permanent injunction,
                                                                                                               order of disgorgement
                                                                                                               or restitution,
                                                                                                               civil money penalty
                                                                                                               or temporary or
                                                                                                               permanent cease-and-desist
                                                                                                               order, or removal
                                                                                                               or prohibition
                                                                                                               order, or any law
                                                                                                               or regulation prohibiting
                                                                                                               mail or wire fraud
                                                                                                               or fraud in connection
                                                                                                               with any business
                                                                                                               entity; or
·
been
                                                                                                               the subject of,
                                                                                                               or a party to,
                                                                                                               any sanction or
                                                                                                               order, not subsequently
                                                                                                               reversed, suspended
                                                                                                               or vacated, of
                                                                                                               any self-regulatory
                                                                                                               organization (as
                                                                                                               defined in Section
                                                                                                               3(a)(26) of the
                                                                                                               Exchange Act),
                                                                                                               any registered
                                                                                                               entity (as defined
                                                                                                               in Section 1(a)(29)
                                                                                                               of the Commodity
                                                                                                               Exchange Act),
                                                                                                               or any equivalent
                                                                                                               exchange, association,
                                                                                                               entity or organization
                                                                                                               that has disciplinary
                                                                                                               authority over
                                                                                                               its members or
                                                                                                               persons associated
                                                                                                               with a member.
EXECUTIVE COMPENSATION
The following
sets forth information with respect to the compensation awarded or paid to our Chief Executive Officer and the two most highly
compensated executive officers during the fiscal years ended December 31, 2011 and 2010 (collectively, the "named executive
officers") for all services rendered in all capacities to us and our subsidiaries in fiscal 2011 and 2010.
Summary Compensation Table
The following
table sets forth information regarding each element of compensation that we paid or awarded to our named executive officers for
fiscal years 2011 and 2010.
Non-equity
Stock
Option
incentive
plan
Nonqualified
deferred
Name and Principal
Salary
Awards
Awards
compensation
compensation
All Other
Total
Position
Year
($)
Bonus
    ($)
($)(1)
($)(2)
($)
earnings
    ($)
Compensation
($)
Scott Feldhacker
2011
210,750
-
-
16,001,333
-
-
-
16,212,083
Chief Executive Officer
2010
-
-
1,425,000
1,489,000
-
-
-
2,914,000
Richard MacQueen
2011
210,750
-
-
16,001,333
-
-
-
16,212,083
President
2010
-
-
1,500,000
1,489,000
-
-
-
2,989,000
Scott Mahoney
2011
159,333
-
-
2,892,000
-
-
-
3,051,333
Chief Financial Officer
2010
50,000
(3)
-
150,000
411,000
-
-
-
611,000
(1)
The amounts reported in this column
                                                            reflect the aggregate grant date fair value of restricted stock share
                                                            or unit awards computed in accordance with FASB Topic ASC 718 for
                                                            restricted stock granted in 2010 and 2011 to each named executive
                                                            officer. The amounts do not reflect compensation actually received
                                                            by the named executive officers.
82
(2)
The
                                                            amounts reported in this column reflect the aggregate grant date fair
                                                            value of option awards computed in accordance with FASB ASC Topic
                                                            718 for stock options granted in 2010 and 2011 to each named executive
                                                            officer. The amounts do not reflect compensation actually received
                                                            by the named executive officers.  The amounts reported in this
                                                            column for Messrs. Feldhacker and MacQueen reflect the grant date
                                                            fair market value of option awards to purchase (i) 3,200,000 shares
                                                            of our common stock granted pursuant to their respective employment
                                                            agreements in 2011, and (ii)
600,000 shares of our common
                                                            stock granted pursuant to their respective employment agreements and
                                                            option awards to purchase 800,000 shares of our common stock pursuant
                                                            to their respective deferred compensation plans in 2010
. 
                                                            The amounts reported in this column for Mr. Mahoney reflect the grant
                                                            date fair market value of option awards granted pursuant to his employment
                                                            agreement.  Please see "Employment Agreements" and
                                                            "Deferred Compensation Plan" below.
(3)
Mr. Mahoney received no salary
                                                            until September 1, 2010.  Commencing on September 1, 2010, Mr.
                                                            Mahoney began receiving monthly salary of $12,500 pursuant to the
                                                            terms of his employment agreement.
Employment Agreements
Each of the named
executive officers executed employment agreements on April 15, 2010 with Nevada ASEC, which we adopted on October 1, 2010 pursuant
to the Share Exchange. All stock options and deferred stock option compensation plans were subject to a 2-for-1 forward split
when we entered into the share exchange agreement (the "Share Exchange") with Nevada ASEC on October 1, 2010. The
founders' stock grants were subject to a 2-for-1 forward split pursuant to the Share Exchange. The terms of the employment
agreements for each named executive officer are summarized below on a post-split basis.
Scott Feldhacker
On April 15, 2010,
Nevada ASEC entered into an employment agreement with Scott Feldhacker which we adopted on October 1, 2010 pursuant to the Share
Exchange.  The term of the employment agreement is four years. Unless earlier terminated, the agreement shall be automatically
extended for an additional one-year period unless either party notifies the other in writing at least 30 days prior to the expiration
of the original term of its or his election not to extend the agreement.
The agreement provides
for a monthly base salary of $12,000 which began in January 2011. Effective as of April 1, 2011, the Compensation Committee approved
an increase in Mr. Feldhacker's monthly base salary to $18,750.  In accordance with his agreement, on April 15, 2010, Mr.
Feldhacker was granted 600,000 stock options which vest at a rate of 20% annually, commencing on January 1, 2011 and thereafter
on August 15 of each year of the term of the employment agreement.  In addition, on April 1, 2011, Mr. Feldhacker received
(i) 800,000 stock options, of which 400,000 options vest every six months beginning on October 15, 2011 and (ii) 2,400,000 stock
options under the Equity Incentive Plan, of which 600,000 options vest every six months beginning on October 15, 2012. The agreement
further provides that Mr. Feldhacker will be entitled to all benefits of employment provided to other employees of the Company
in comparable positions during the employment term. In addition, Mr. Feldhacker is entitled to an automobile allowance of $500
per month.
Pursuant to the agreement,
in the event Mr. Feldhacker is terminated by the Company due to his disability or in the event of his death, Mr. Feldhacker, or
his estate in the case of his death, shall be entitled to the following: any unpaid base salary and any accrued vacation and holidays
through the date of termination; any unpaid bonus accrued with respect to the fiscal year ending on or preceding the date of termination;
reimbursement for any unreimbursed expenses properly incurred through the date of termination; and all other payments or benefits
to which Mr. Feldhacker may be entitled under the terms of any applicable employee benefit plan and all granted but unvested stock
awards shall become immediately fully vested (collectively, the "Accrued Benefits").
83
If Mr. Feldhacker's
employment is terminated for "Cause", Mr. Feldhacker will not be entitled to any of the Accrued Benefits or any other
benefits under his employment agreement.  "Cause" shall mean, as determined by the Board (or its designee) (1)
conduct by the executive in connection with his employment duties or responsibilities that is fraudulent, unlawful or grossly negligent;
(2) the willful misconduct of the executive; (3) the willful and continued failure of the executive to perform the executive's
duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness); (4) the commission
by the executive of any felony or any crime involving moral turpitude; (5) violation of any material policy of the Company or any
material provision of the Company's code of conduct, employee handbook or similar documents; or (6) any material breach by
the executive of any provision of the agreement or any other written agreement entered into by the executive with the Company.
In the event that
Mr. Feldhacker's employment is terminated without Cause or Mr. Feldhacker resigns for "Good Reason" (as such
term is defined in his employment agreement), Mr. Feldhacker would be entitled to the Accrued Benefits through the date of termination
or resignation, as applicable, plus an additional one (1) year of base salary, stock awards and medical benefits under his employment
agreement. If Mr. Feldhacker resigns without Good Reason, he will be entitled only to the Accrued Benefits.
If the event of a
"Change in Control" (i) the Company shall pay to Mr. Feldhacker the Accrued Benefits and (ii) all stock awards that
Mr. Feldhacker would have been entitled to receive through the expiration of his employment term and such stock awards shall be
fully vested as of the date of the Change in Control.  A "Change in Control" shall be deemed to have occurred
if, during the term of the agreement: (i) the beneficial ownership of at least 50% of Nevada ASEC's voting securities or
all or substantially all of the assets of Nevada ASEC's shall have been acquired, directly or indirectly by a single person
or a group of affiliated persons, other than Mr. Feldhacker or a group in which Mr. Feldhacker is a member, or (ii) as the result
of or in connection with any cash tender offer, exchange offer, sale of assets, merger, consolidation or other business combination
with another corporation or entity and the new board of directors is comprised of majority directors chosen or elected by the members
of the new/combined entity who were not members of Nevada ASEC before such cash tender offer, exchange offer, sale of assets, merger,
consolidation or other business combination of Nevada ASEC with another corporation or entity.
The agreement contains
customary confidentiality provisions and provides that Mr. Feldhacker will be subject to noncompetition and non-solicitation covenants
for a period of one year following the termination of his employment period.
Richard MacQueen
On April 15, 2010,
Nevada ASEC entered into an employment agreement with Richard MacQueen which we adopted on October 1, 2010 pursuant to the Share
Exchange.  The term of the employment agreement is four years.  Unless earlier terminated, the agreement shall be automatically
extended for an additional one-year period unless either party notifies the other in writing at least 30 days prior to the expiration
of the original term of its election not to extend the agreement.
The agreement provides
for a monthly base salary of $12,000 which began in January 2011. Effective as of April 1, 2011, the Compensation Committee approved
an increase in Mr. MacQueen's monthly base salary to $18,750.  In accordance with his agreement, on April 15, 2010, Mr.
MacQueen was granted 600,000 stock options which vest at a rate of 20% annually, commencing on January 1, 2011 and thereafter on
August 15 of each year of the term of the employment agreement.  In addition, on April 1, 2011, Mr. MacQueen received (i)
800,000 stock options, of which 400,000 options vest every six months beginning on October 15, 2011 and (ii) 2,400,000 stock options,
of which 600,000 options vest every six months beginning on October 15, 2012.  The agreement further provides that Mr.
MacQueen will be entitled to all benefits of employment provided to other employees of the Company in comparable positions during
the employment term. In addition, Mr. MacQueen is entitled to an automobile allowance of $500 per month.
Pursuant to the agreement,
in the event Mr. MacQueen is terminated by the Company due to his disability or in the event of his death, Mr. MacQueen, or his
estate in the case of his death, shall be entitled to the following: any unpaid base salary and any accrued vacation and holidays
through the date of termination; any unpaid bonus accrued with respect to the fiscal year ending on or preceding the date of termination;
reimbursement for any unreimbursed expenses properly incurred through the date of termination; and all other payments or benefits
to which Mr. MacQueen may be entitled under the terms of any applicable employee benefit plan and all granted but unvested stock
awards shall become immediately fully vested (collectively, the "Accrued Benefits").
84
If Mr. MacQueen's
employment is terminated for "Cause", Mr. MacQueen will not be entitled to any of the Accrued Benefits or any other
benefits under his employment agreement.  "Cause" shall mean, as determined by the Board (or its designee) (1)
conduct by the executive in connection with his employment duties or responsibilities that is fraudulent, unlawful or grossly negligent;
(2) the willful misconduct of the executive; (3) the willful and continued failure of the executive to perform the executive's
duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness); (4) the commission
by the executive of any felony or any crime involving moral turpitude; (5) violation of any material policy of the Company or any
material provision of the Company's code of conduct, employee handbook or similar documents; or (6) any material breach by
the executive of any provision of the agreement or any other written agreement entered into by the executive with the Company.
In the event that
Mr. MacQueen's employment is terminated without Cause or Mr. MacQueen resigns for "Good Reason" (as such term
is defined in his employment agreement), Mr. MacQueen would be entitled to the Accrued Benefits through the date of termination
or resignation, as applicable, plus an additional one (1) year of base salary, stock awards and medical benefits under his employment
agreement.  If Mr. MacQueen resigns without Good Reason, he will be entitled only to the Accrued Benefits.
If the event of a
"Change in Control" (i) the Company shall pay to Mr. MacQueen the Accrued Benefits and (ii) all stock awards that Mr.
MacQueen would have been entitled to receive through the expiration of his employment term and such stock awards shall be fully
vested as of the date of the Change in Control.  A "Change in Control" shall be deemed to have occurred if, during
the term of the agreement: (i) the beneficial ownership of at least 50% of Nevada ASEC's voting securities or all or substantially
all of the assets of Nevada ASEC's shall have been acquired, directly or indirectly by a single person or a group of affiliated
persons, other than Mr. MacQueen or a group in which Mr. MacQueen is a member, or (ii) as the result of or in connection with any
cash tender offer, exchange offer, sale of assets, merger, consolidation or other business combination with another corporation
or entity and the new board of directors is comprised of majority directors chosen or elected by the members of the new/combined
entity who were not members of Nevada ASEC before such cash tender offer, exchange offer, sale of assets, merger, consolidation
or other business combination of Nevada ASEC with another corporation or entity.
The agreement contains
customary confidentiality provisions and provides that Mr. MacQueen will be subject to noncompetition and non-solicitation covenants
for a period of one year following the termination of his employment period.
Scott Mahoney
On April 15, 2010,
Nevada ASEC entered into an employment agreement with Scott Mahoney which we adopted on October 1, 2010 pursuant to the Share Exchange. 
The term of the employment agreement is four years.  Unless earlier terminated, the agreement shall be automatically extended
for an additional one-year period unless either party notifies the other in writing at least 30 days prior to the expiration of
the original term of its election not to extend the agreement.
The agreement provides
for a monthly base salary of $12,000 which began in September 2010.  Effective as of April 1, 2011, the Compensation
Committee approved an increase in Mr. Mahoney's monthly base salary to $16,667.  In accordance with his agreement,
on April 15, 2010, Mr. Mahoney was granted 400,000 stock options which vest at a rate of 20% annually, commencing on January
1, 2011 and thereafter on August 15 of each year of the term of the employment agreement. In addition, Mr. Mahoney is entitled
to receive a minimum of 600,000 stock options per year under the Equity Incentive Plan on each anniversary of the date of his employment
agreement, which shall vest semi-annually over one year beginning 180 days following the date of initial issuance. Mr. Mahoney
was granted an additional 600,000 options on April 15, 2011. The agreement further provides that Mr. Mahoney will be entitled to
all benefits of employment provided to other employees of the Company in comparable positions during the employment term. In addition,
Mr. Mahoney is entitled to an automobile allowance of $500 per month.
85
Pursuant to the agreement,
in the event Mr. Mahoney is terminated by the Company due to his disability or in the event of his death, Mr. Mahoney, or his estate
in the case of his death, shall be entitled to the following: any unpaid base salary and any accrued vacation and holidays through
the date of termination; any unpaid bonus accrued with respect to the fiscal year ending on or preceding the date of termination;
reimbursement for any unreimbursed expenses properly incurred through the date of termination; and all other payments or benefits
to which Mr. Mahoney may be entitled under the terms of any applicable employee benefit plan and all granted but unvested stock
awards shall become immediately fully vested (collectively, the "Accrued Benefits").
If Mr. Mahoney's
employment is terminated for "Cause", Mr. Mahoney will not be entitled to any of the Accrued Benefits or any other
benefits under his employment agreement.  "Cause" shall mean, as determined by the Board (or its designee) (1)
conduct by the executive in connection with his employment duties or responsibilities that is fraudulent, unlawful or grossly negligent;
(2) the willful misconduct of the executive; (3) the willful and continued failure of the executive to perform the executive's
duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness); (4) the commission
by the executive of any felony or any crime involving moral turpitude; (5) violation of any material policy of the Company or any
material provision of the Company's code of conduct, employee handbook or similar documents; or (6) any material breach by
the executive of any provision of the agreement or any other written agreement entered into by the executive with the Company.
In the event that
Mr. Mahoney's employment is terminated without Cause or Mr. Mahoney resigns for "Good Reason" (as such term is
defined in his employment agreement), Mr. Mahoney would be entitled to the Accrued Benefits through the date of termination or
resignation, as applicable, plus an additional one (1) year of base salary, stock awards and medical benefits under his employment
agreement.  If Mr. Mahoney resigns without Good Reason, he will be entitled only to the Accrued Benefits.
In the event of a
"Change in Control" (i) the Company shall pay to Mr. Mahoney the Accrued Benefits and (ii) all stock awards that Mr.
Mahoney would have been entitled to receive through the expiration of his employment term and such stock awards shall be fully
vested as of the date of the Change in Control.  A "Change in Control" shall be deemed to have occurred if, during
the term of the agreement: (i) the beneficial ownership of at least 50% of Nevada ASEC's voting securities or all or substantially
all of the assets of Nevada ASEC's shall have been acquired, directly or indirectly by a single person or a group of affiliated
persons, other than Mr. Mahoney or a group in which Mr. Mahoney is a member, or (ii) as the result of or in connection with any
cash tender offer, exchange offer, sale of assets, merger, consolidation or other business combination with another corporation
or entity and the new board of directors is comprised of majority directors chosen or elected by the members of the new/combined
entity who were not members of Nevada ASEC before such cash tender offer, exchange offer, sale of assets, merger, consolidation
or other business combination of Nevada ASEC with another corporation or entity.
The agreement contains
customary confidentiality provisions and provides that Mr. Mahoney will be subject to noncompetition and non-solicitation covenants
for a period of one year following the termination of his employment period.
Bonus Pool
We set aside a bonus
pool equal to 5% of our net income for discretionary awards payable in cash to our employees including our executive officers.
Allocations of the bonus pool among participants are made by the Chief Executive Officer. There is no formal plan with respect
to the bonus pool.
Equity Incentive Plan
In connection
with the acquisition of Nevada ASEC on October 1, 2010, we adopted our Equity Incentive Plan (the "2010 Plan") and
ratified an amendment to such 2010 Plan on August 29, 2011, subject to the effectiveness of the shareholder approval. 
The 2010 Plan is designed to attract, retain and motivate our officers, employees, non-management directors and consultants. 
The maximum number of shares of our common stock that may be issued pursuant to grants or awards under the 2010 Plan, as amended,
is 12,000,000 shares.
86
The 2010 Plan is administered
by the Compensation Committee. The Compensation Committee may make awards under the Plan in the form of stock options (both qualified
and non-qualified) and restricted stock.  The Compensation Committee has authority to designate the recipients of such awards,
to grant awards, to determine the form of award and to fix all terms of awards granted all in accordance with the 2010 Plan. 
Incentive stock options intended to qualify under Section 422A of the Internal Revenue Code may be granted only to employees of
the Company and must have an exercise price equal to 100% of the fair market value of our common stock on the grant date (110%
in the case of incentive options granted to any 10% stockholder of the Company) and may not exceed a term of ten years (five years
in the case of incentive options granted to any 10% stockholder of the Company).  Non-qualified stock options and other awards
may be granted on such terms as the Compensation Committee may determine.
In 2011, we adopted
a new Stock Incentive Plan (the "2011 Plan"), pursuant to which we approved and reserved 10,000,000 shares of common
stock for issuance to our employees, officers, directors and outside advisors.
Deferred Compensation Program
On April 15, 2010, the Company's Board of Directors
approved the 2010 Deferred Compensation Program. Under this plan, the President and CEO are entitled to receive a one-time
fee consisting of common stock options in lieu of salary through June 30, 2011. The total number of options granted under the
plan was 1,600,000 in lieu of salary through December 31, 2010. The exercise price of the options is $1.50 and the options vest
over 26.5 months.  These options have a ten year life and had a grant date fair value of $1.09 per share.  400,000
of these shares were exercised and converted to shares of stock as of June 30, 2011.  The rescission of the exercise of such
option was approved by our board on August 29, 2011 and the exercised shares have been returned to the Company.  For the
years ended December 31, 2011 and 2010, the Company recorded non-cash stock compensation expense of $789,736 and $559,396, respectively,
related to the amortization of the fair value of these options which is included in general and administrative expenses. On March
30, 2012 the vesting on all remaining deferred compensation was accelerated and fully-vested at that date.
Restricted Stock Awards
On February 13, 2012, our board of
directors approved the immediate vesting of a total of 1,568,877 restricted shares of the Company's common stock previously
issued to the chief executive officer, president and chief financial officer as founders shares which were to vest in equal portions
annually through April 16, 2014.
As part of a comprehensive review of compensation, compensation
expense, and shareholder dilution, the Board of Directors granted 20,000 shares of restricted Common Stock to each of our three
executive officers and one of our employees on March 30, 2012. The restricted stock was valued on the date of grant at $2.43 per
share and recorded as stock-based compensation expense of $194,400 for the three months ended March 31, 2012.
Outstanding Equity Awards at Fiscal Year-End
Option
    Awards
Stock
    Awards
Equity incentive
plan
Equity incentive plan
awards:
Number of
Number of
awards: Number
Market
Market or payout
securities
securities
of
Number of
value
value
underlying
underlying
securities
Option
shares
of shares or units
    of
of unearned shares,
unexercised
unexercised
underlying
exercise
or units of
stock
units or
options
options
unexercised
price per
Option
stock
that have
other rights that have
exercisable
unexercisable
unearned
share
expiration
that have
not vested
not vested
Name
(#)
(#)
options
    (#)
($)
date
not
    vested (#)
($)
($)(12)
Scott Feldhacker
400,000
(1)
400,000
0
$
1.5
15-Apr-20
727,040
2,290,176
3,635,201
240,000
(2)
360,000
0
$
1.5
15-Aug-20
400,000
(3)
2,800,000
0
$
7.71
1-Apr-21
Richard MacQueen
400,000
(4)
400,000
0
$
1.5
15-Apr-20
765,306
2,410,714
3,826,530
240,000
(5)
360,000
0
$
1.5
15-Aug-20
400,000
(6)
2,800,000
0
$
7.71
1-Apr-21
Scott Mahoney
160,000
(7)
240,000
$
1.5
15-Apr-20
76,531
241,073
382,654
300,000
(8)
300,000
0
$
7.45
15-Apr-21
0
(9)
0
600,000
15-Apr-22
0
(10)
0
600,000
15-Apr-23
0
(11)
0
600,000
15-Apr-24
87
(1)
Vests in installments of 200,000
                                                            shares of common stock every six months beginning on January 1, 2011.
(2)
Vests in installments of 120,000
                                                            shares of common stock beginning on January 1, 2011, August 15, 2011
                                                            and then in yearly installments thereafter.
(3)
Vests in installments of 400,000
                                                            shares of common stock on October 15, 2011 and April 15, 2012; the
                                                            remainder vests in installments of 600,000 shares of common stock
                                                            every six months beginning on October 15, 2012.
(4)
Vests in installments of 200,000
                                                            shares of common stock every six months beginning on January 1, 2011.
(5)
Vests in installments of 120,000
                                                            shares of common stock beginning on January 1, 2011, August 15, 2011
                                                            and then in yearly installments thereafter.
(6)
Vests in installments of 400,000
                                                            shares of common stock on October 15, 2011 and April 15, 2012; the
                                                            remainder vests in installments of 600,000 shares of common stock
                                                            every six months beginning on October 15, 2012.
(7)
Vests in installments of 80,000
                                                            shares of common stock beginning on January 1, 2011, August 15, 2011
                                                            and then in yearly installments thereafter.
(8)
Vests in installments of 300,000
                                                            shares of common stock on October 15, 2011 and April 15, 2012.
(9)
Vests in installments of 300,000
                                                            shares of common stock on October 15, 2012 and April 15, 2013.
(10)
Vests in installments of 300,000
                                                             shares of common stock on October 15, 2013 and April 15, 2014.
(11)
Vests in installments of 300,000
                                                             shares of common stock on October 15, 2014 and April 15, 2015.
(12)
Market values reflect the closing
                                                             price of our common stock on the OTCBB on December 30, 2011 (the
                                                             last business day of the fiscal year), which was $3.15 per share.
Compensation of Directors
The following table lists the compensation
paid to our directors as of our last fiscal year ended December 31, 2011.
Name
Fees
earned
or paid
in cash
($)
Stock
awards
($)
Option
awards
($) (1)(2)
Non-equity
incentive
plan
compensation
($)
Nonqualified
deferred
compensation
earnings ($)
All other
compensation
Total ($)
Robert Thompson
32,500
-
-
-
-
-
32,500
Jim Leeton
19,000
-
155,400
-
-
-
174,400
William Killian
18,000
-
149,700
-
-
-
167,700
Scott David
18,000
-
149,700
-
-
-
167,700
Randall Capps
-
-
-
-
-
-
-
(1)
On March 15, 2011, Mr. Leeton was granted options to purchase
                                                            30,000 shares of our common stock which expire 120 months from March
                                                            15, 2011.
(2)
On April 1, 2011, Mr. David and Mr. Killian were each
                                                            granted options to purchase 30,000 shares of our common stock which
                                                            expire 120 months from April 1, 2010.
88
The following table lists the compensation
paid to our directors as of our previous fiscal year ended December 31, 2010.
Name
Fees
earned
or paid
in cash
($)
Stock
awards
($)
Option
awards
($) (1)
Non-equity
incentive
plan
compensation
($)
Nonqualified
deferred
compensation
earnings ($)
All other
compensation
Total ($)
Robert Thompson
2,500
-
627,179
-
-
-
629,679
Jim Leeton
-
-
-
-
-
-
-
William Killian
-
-
-
-
-
-
-
Scott David
-
-
-
-
-
-
-
Randall Capps
-
-
-
-
-
-
-
(1)
On December 1, 2010, Mr. Thompson was granted options
                                                            to purchase 300,000 shares of our common stock which expire 120 months
                                                            from December 1, 2010.
Directors are permitted to receive fixed fees and other compensation
for their services as directors. The board of directors has the authority to fix the compensation of directors.
Mr. Thompson received $2,500 per month for his serves rendered
as our director, which increased to $5,000 per month on December 1, 2011. Our other independent directors receive a monthly fee
of $2,000 and are entitled to receive an annual option grant to purchase 30,000 shares of our common stock.
Director Agreements
Scott C. David
On April 4, 2011, we entered into a director
agreement with Mr. David. Mr. David was appointed as a non-executive member of the Board of Directors (the "Board")
on April 1, 2011. The agreement provides for compensation and benefits as follows: a cash payment of $2,000 per month; an option
to purchase 30,000 shares of the Company's common stock upon execution of the agreement and upon each anniversary of the
agreement during the directorship term; and reimbursement for all reasonable out-of-pocket expenses incurred by Mr. David by attending
any in-person meetings.
The directorship term commenced on April
4, 2011 and terminates upon the earliest of the following to occur: (a) one (1) year from April 4, 2011, subject to a one (1) year
renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. David; (c) the termination
of Mr. David from the position of member of the Board by mutual agreement of the company and Mr. David; (d) the removal of Mr.
David from the Board by the shareholders of the Company; (e) the resignation by Mr. David from the Board if after April 4, 2011,
the Chief Executive Officer of Mr. David's current employer determines that Mr. David's continued serviced on the Board
conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. David from the Board if the board
of directors or the Chief Executive Officer of his current employer requires Mr. David to resign and such resignation is not a
fiduciary resignation as described in (e) above.
Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. David will not interfere with the Company's relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.
William Killian
On April 4, 2011, we entered into a director
agreement with Mr. Killian. Mr. Killian was appointed as a non-executive member of the Board on April 1, 2011. The agreement provides
for compensation and benefits as follows: a cash payment of $2,000 per month; 30,000 stock options of the Company's common
stock upon execution of the agreement and upon each anniversary of the agreement during the directorship term; and reimbursement
for all reasonable out-of-pocket expenses incurred by Mr. Killian by attending any in-person meetings.
89
The directorship term commenced on April
4, 2011 and terminates upon the earliest of the following to occur: (a) one (1) year from April 4, 2011, subject to a one (1) year
renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. Killian; (c) the termination
of Mr. Killian from the position of member of the Board by mutual agreement of the company and Mr. Killian; (d) the removal of
Mr. Killian from the Board by the shareholders of the Company; (e) the resignation by Mr. Killian from the Board if after April
4, 2011, the Chief Executive Officer of Mr. Killian's current employer determines that Mr. Killian's continued serviced
on the Board conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. Killian from the
Board if the board of directors or the Chief Executive Officer of his current employer requires Mr. Killian to resign and such
resignation is not a fiduciary resignation as described in (e) above.
Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. Killian will not interfere with the Company's relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.
James R. Leeton, Jr.
On April 4, 2011, we entered into a director
agreement with Mr. Leeton. Mr. Leeton was appointed as a non-executive member of the Board on March 15, 2011. The agreement provides
for compensation and benefits as follows: a cash payment of $2,000 per month; an option to purchase 30,000 shares of the Company's
common stock upon execution of the agreement and upon each anniversary of the agreement during the directorship term; and reimbursement
for all reasonable out-of-pocket expenses incurred by Mr. Leeton by attending any in-person meetings.
The directorship term commenced on April
4, 2011 and terminates upon the earliest of the following to occur: (a) one (1) year from April 4, 2011, subject to a one (1) year
renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. Leeton; (c) the termination
of Mr. Leeton from the position of member of the Board by mutual agreement of the company and Mr. Leeton; (d) the removal of Mr.
Leeton from the Board by the shareholders of the Company; (e) the resignation by Mr. Leeton from the Board if after April 4, 2011,
the Chief Executive Officer of Mr. Leeton's current employer determines that Mr. Leeton's continued serviced on the
Board conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. Leeton from the Board if
the board of directors or the Chief Executive Officer of his current employer requires Mr. Leeton to resign and such resignation
is not a fiduciary resignation as described in (e) above.
Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. Leeton will not interfere with the Company's relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.
Robert Thompson
On May 23, 2011, we entered into a
director agreement with Mr. Thompson. Mr. Thompson was appointed as a non-executive member of the Board on December 1, 2010. The
agreement provides for a cash payment of $2,500 per month paid on the first of each month beginning December 2010. On December
1, 2011, Mr. Thompson's monthly pay increased to $5,000. The agreement further references the stock option award for services
rendered on December 1, 2010 pursuant to which Mr. Thompson was granted an option to purchase 300,000 shares of the Company's
common stock exercisable for 10 years from the grant date at an exercise price equal to the closing trading price of the Company's
stock as of the grant date. Of the shares underlying this option, 60,000 fully vested upon issuance, and the remaining shares
underlying such option shall vest as to 30,000 shares on June 1 and December 1 of each year beginning June 1, 2011; provided,
however, that if Mr. Thompson is no longer serving as a director, any unvested shares underlying such stock options shall be cancelled.
In the event of a change in control the Company shall accelerate all stock awards that Mr. Thompson would have been entitled to
receive through the expiration of the employment term whether or not vested as of the date of the change in control. During the
directorship term, the Company shall reimburse Mr. Thompson for all reasonable out-of-pocket expenses incurred by Mr. Thompson
in performance of his duties.
90
The directorship term commenced on May
23, 2011 and terminates upon the earliest of the following to occur: (a) five (5) years from May 23, 2011, subject to a one (1)
year renewal term upon re-election by a majority of the shareholders of the Company; (b) the death of Mr. Thompson; (c) the termination
of Mr. Thompson from the position of member of the Board by mutual agreement of the Company and Mr. Thompson; (d) the removal of
Mr. Thompson from the Board by the shareholders of the Company; (e) the resignation by Mr. Thompson from the Board if after May
23, 2011 the Chief Executive Officer of Mr. Thompson's current employer determines that Mr. Thompson's continued serviced
on the Board conflicts with his fiduciary obligations to his current employer; and (f) the resignation by Mr. Thompson from the
Board if the board of directors or the Chief Executive Officer of his current employer requires Mr. Thompson to resign and such
resignation is not a fiduciary resignation as described in (e) above.
Additionally, the agreement provides that
during the directorship term and for three (3) years thereafter, Mr. Thompson will not interfere with the Company's relationship,
or endeavor to entice away from the Company, any person who on the date of termination of the directorship term is either an employee
or customer of the Company, or otherwise had a material business relationship with the Company.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code, or "Section 162(m),"
disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1 million in any taxable
year for a company's named executive officers, other than its chief financial officer, unless such compensation qualifies
as "performance-based compensation" under such section.  Section 162(m) does not apply to companies
that are not publicly held  and did not apply to compensation paid and awards granted by the company prior to its becoming
a public company.  Therefore, neither our Company Compensation Committee nor the Board of Directors took the deductibility
limit imposed by Section 162(m) into consideration in setting compensation prior to the Company's becoming publicly
held.
Several awards granted after the Company
became a public company may not comply with the "performance based compensation" exemption and, therefore, the Company
may not be able to deduct amounts relating to such awards for Federal income tax purposes.
Following this offering, we expect that
our Compensation Committee will seek to qualify the variable compensation paid to our named executive officers for an exemption
from the deductibility limitations of Section 162(m).  However, our Compensation Committee may, in its judgment,
authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments
are appropriate to attract and retain executive talent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Common Stock
The following
table sets forth certain information regarding our shares of common stock beneficially owned as of August 3, 2012, for (i) each
stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive
officer and director, and (iii) all executive officers and directors as a group.  A person is considered to beneficially
own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii)
of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options
or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors
and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner's spouse or children.
For purposes of
this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of common stock that
such person has the right to acquire within 60 days of August 3, 2012.  For purposes of computing the percentage of outstanding
shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the
right to acquire within 60 days of August 3, 2012 is deemed to be outstanding, but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person.  The inclusion herein of any shares listed as beneficially owned
does not constitute an admission of beneficial ownership.
91
The address for each beneficial owner, unless otherwise
noted, is c/o American Standard Energy Corp. at 4800 North Scottsdale Road, Suite 1400, Scottsdale, AZ 85251.
Name and Address of Beneficial Owner
Amount and
Nature of
Beneficial
Ownership(1)
Percentage
of Class(2)
Executive Officers and Directors
Scott Feldhacker
4,264,210
(3)
7.8
%
Chief Executive Officer and Director
Richard MacQueen
4,310,424
(4)
7.9
%
President and Director
Scott Mahoney
1,645,579
(5)
3.1
%
Chief Financial Officer
Randall Capps
28,937,522
(6)
56.7
%
Director
Scott David
80,000
(8)
*
Director
William "Bill" Killian
129,014
(7)
*
Director
James R. Leeton, Jr.
80,000
(8)
*
Director
Robert J. Thompson
700,000
(8)
1.4
%
Director
All Executive Officers and Directors as a group (8 persons)
40,146,749
66.4
%
5% Shareholders
Geronimo Holding Corporation
21,642,821
42.5
%
1801 West Texas
Midland, TX 79701
XOG Operating LLC
1801 West Texas
Midland, TX 79701
5,832,199
11.5
%
Pentwater Capital Management LP
3,572,996
(9)
7.0
%
227 West Monroe Suite 4000
Chicago, IL 60606
* less than 1%
92
(1)
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the
power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the
disposition of shares.  Certain shares may be deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares).  In addition, shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days
of the date as of which the information is provided.  In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason
of these acquisition rights.
(2)
Percentages are rounded to
                                                                the nearest one-tenth of one percent.  The percentage
                                                                of class is based on 50,921,798 shares of Common Stock issued
                                                                and outstanding as of August 3, 2012.
(3)
Includes (a) 3,441,152 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof; and (b) 823,058 shares of Common
                                                                Stock.  Mr. Feldhacker is the son-in-law of Mr. Capps.
(4)
Includes (a) 3,441,152 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof; and (b) 869,272 shares of Common
                                                                Stock.
(5)
Includes (a) 1,541,152 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof; and (b) 104,427 shares of Common
                                                                Stock.
(6)
Includes (a) 21,642,821 shares
                                                                of Common Stock held by Geronimo; (b) 5,832,199 shares of Common
                                                                Stock held by XOG; (c) 587,755 shares of Common Stock held by
                                                                CLW; (d) 61,224 shares of Common Stock as legal guardian of Hayden
                                                                Pitts; (e) 653,062 shares of Common Stock and 142,858 shares
                                                                of Common Stock underlying warrants purchased in private placements
                                                                and (f) 17,603 Registration Shares.  Mr. Capps is the
                                                                sole owner of Geronimo and XOG and is the majority owner of CLW.  Mr.
                                                                Capps is the father-in-law of Mr. Feldhacker.
(7)
Includes (a) 90,000 shares
                                                                of Common Stock underlying options that were exercisable within
                                                                60 days of the date hereof and (b) 39,014 shares of Common Stock.
(8)
Represents shares of Common
                                                                Stock underlying options that were exercisable within 60 days
                                                                of the date hereof.
(9)
Based on Schedule 13G filed
                                                                by Pentwater Capital Management on February 14, 2012.
Changes in Control
We are not aware of any arrangements
that may result in a change in control of the Company.
TRANSACTIONS WITH RELATED
PERSONS, PROMOTERS AND CERTAIN RELATED CONTROL PERSONS
On October 1, 2010,
we entered into a Share Exchange Agreement by and among our then-controlling stockholder, Nevada ASEC (then a privately-held oil
exploration and production company) and the former stockholders of Nevada ASEC.  Pursuant to the Share Exchange Agreement,
we (i) sold our former restaurant franchise rights and related operations to the former controlling stockholder in exchange for
the cancellation of 25,000,000 shares of our common stock and (ii) acquired 100% of the outstanding shares of common stock of
Nevada ASEC from the former Nevada ASEC stockholders and received $25,000 of additional consideration.  In exchange,
the Nevada ASEC stockholders received approximately 22,000,000 shares of our common stock on the closing date of the Share Exchange
Agreement. As a result, the former stockholders of Nevada ASEC acquired control of the Company and the transaction was accounted
for as a recapitalization with Nevada ASEC as the accounting acquirer of the Company. Accordingly, the financial statements of
Nevada ASEC became the historical financial statements of the Company.  As a result of the transactions consummated
pursuant to the Share Exchange Agreement, Nevada ASEC became our wholly-owned subsidiary.
93
The XOG Group.
We
are affiliated with and have a working relationship with XOG, a seasoned exploration and production operator based in Midland,
Texas.  As an operator, XOG has been operating, developing and exploiting the Permian Basin as well as operating in 14 other
states for 30 years. XOG has been in the Bakken area for the past three years procuring mineral leasehold rights and participating
in wells.
XOG is currently
contracted to operate the existing wells currently held by us in the Permian Basin region. XOG historically performed this service
for Geronimo and CLW.  Randall Capps, our majority shareholder and director, has controlling ownership of Geronimo, XOG and
CLW. Accordingly, these companies are considered related parties to the Company.  As a result, all historical accounts payable
related to accrued lease operating expenses and accrued drilling expenses presented are recorded as payables due to a related
party. Additionally, as one of our operators, XOG is contractually obligated to sell the oil and natural gas on our behalf pursuant
to joint operating agreements. For the year ended December 31, 2011, sales through XOG were $8,349,028 and lease operating expenses
were $1,626,332.
Randall Capps is the sole owner of XOG
and Geronimo and the majority owner of CLW.  As of August 3, 2012, through his direct ownership and his indirect ownership
interest in the XOG Group, Mr. Capps beneficially owns approximately 56.7% of our outstanding common stock. Mr. Capps is also
a member of the Company's board of directors, and the father –in-law of our Chief Executive Officer, Scott Feldhacker.
We have acquired the
following oil and natural gas properties from Geronimo, XOG and CLW:
Nevada ASEC was incorporated
on April 2, 2010 for the purposes of acquiring certain oil and gas properties from Geronimo, XOG and CLW.  On May 1,
2010, the XOG Group contributed certain oil and natural gas properties located in Texas and North Dakota to Nevada ASEC in return
for 80% of the common stock of Nevada ASEC.
XOG continued to
serve as operator of such properties. The oil and gas properties contributed by the XOG Group to Nevada ASEC consisted of
seven completed and operating wells within the Permian Basin region of West Texas as well as approximately 10,600 acres of undeveloped
leasehold rights in three primary regions: (i) the Bakken, (ii) the Eagle Ford and (iii) certain positions in the Permian Basin
leased from the University of Texas.
On December 1,
2010, we entered into an agreement with Geronimo whereby we acquired certain leasehold interests in oil and natural gas properties
located in North Dakota consisting of 26 wells located in Burke, Divide, Dunn, McKenzie, Mountrail, and Williams Counties referred
to herein as the Bakken 1 Properties, for $500,000 cash and 1,200,000 shares of the our common stock, which were valued at $3,960,000
based on a closing price of $3.30 on the closing date.
On February 11,
2011, we acquired certain developed oil and natural gas properties on approximately 2,374 net acres located in Texas, Oklahoma
and Arkansas, of which approximately 2,200 net acres are located within the Permian Basin and on which 24 wells are located, referred
to herein as the Group 1 & 2 Properties, from Geronimo for $7,000,000 cash.
On March 1, 2011,
we acquired certain undeveloped mineral rights leaseholds held on approximately 10,147 net acres in the Bakken Shale Formation
in North Dakota, referred to herein as the Bakken 2 Properties, from Geronimo in exchange for $3,000,000 cash and the issuance
of 883,607 shares of the Company's common stock valued at $5,787,626.
On April 8, 2011,
we acquired undeveloped leasehold acreage consisting of approximately 2,780 net acres located in Mountrail County of North Dakota's
Williston Basin from Geronimo for $1.86 million paid in cash, which includes a $1.0 million down payment made on March 25, 2011.
On August 22, 2011,
we acquired approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks (the "Bakken 4 Properties")
area from Geronimo for approximately $14.6 million. A cash deposit of $13.5 million was made on April 15, 2011, and the Company
subsequently issued 208,200 shares of common stock upon closing, which were valued at an aggregate of $1,093,050 based on a per
share price of $5.25 on the closing date. The acquisition was recorded at fair value.
94
On March 5, 2012,
we acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across the Permian Basin,
Eagle Ford shale formation and the Eagle Bine in Texas, the Williston Basin in North Dakota, and the Niobrara shale formation
in Wyoming and Nebraska referred to herein as the XOG Properties, from XOG and Geronimo (the "Sellers") in exchange
for the delivery by the Company to the Sellers of $10 million in cash, less the $1.5 million cash deposit previously paid by the
Company, a note in the principal amount of $35,000,000 made by the Company in favor of Geronimo and 5,000,000 shares of the common
stock of the Company valued at $2.70 per share based on the closing price of the common stock on March 5, 2012. On June 30, 2012,
we entered into an Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares (the "Geronimo Shares")
of the our newly created Series A Preferred Stock to Geronimo in exchange for the cancelation of the $35 million note issued to
Geronimo. The terms of the Purchase Agreement provided for a reduction or setoff of the principal amount of the Note under certain
conditions. Pursuant to the terms of the Exchange Agreement, in the event that the Company would have been entitled to any reduction
in or setoff against the principal amount of the Geronimo Note pursuant to the terms of the Purchase Agreement, Geronimo is obligated
to transfer a portion of the Geronimo Shares equal to one share of Series A Preferred Stock and any dividends accrued thereon
for each $1,000 that would have resulted in a reduction in, or setoff against, the principal amount of the Geronimo Note.
On June 30, 2012,
the Company, ASEN 2, Nevada ASEC, and XOG entered into a Payment and Settlement Agreement (the "Payment Agreement")
whereby we agreed to issue 4,444,445 shares (the "XOG Shares") of Common Stock to XOG at a price per share equal to
$2.25 as payment of the $10,000,000 outstanding and owed to XOG pursuant to certain Joint Interest Billing Statements ("JIBs")
issued by XOG from January 1, 2012, through and including June 30, 2012 and delivered to our subsidiaries in connection with certain
Joint Operating Agreements. Pursuant to the terms of the Payment Agreement, we granted piggy-back registration rights with respect
to XOG Shares if we file a registration statement in connection with an underwritten public offering within one year from the
date of the Payment Agreement.
Overriding royalty
and royalty interests.
In some instances, XOG or Geronimo and CLW may hold overriding royalty and royalty interests ("ORRI")
in wells acquired by the Company. All revenues and expenses presented herein are net of any effects of ORRI.
Policies Related to Related Party Transactions
The Corporate Governance and Nominating
Committee ("CGNC") of the Board of Directors has established the Fairness Committee as a standing sub-committee of
the NCGC.
The Fairness Committee is appointed by the NCGC to complete independent assessments of the fairness to
non-related party stockholders, and other non-affiliated stakeholders, of proposed or completed transactions by the Company that
might represent conflicts of interests between the company and its affiliates and other related parties. The Fairness Committee
ensures that any concerns about fairness that are identified are brought fully to the attention of the Board.
The Board of Directors may also establish
a special committee of the Board comprised solely of directors disinterested in the the related party transaction (the "Special
Committee") to, among other things, conduct an independent review and investigation of any and all issues raised by related
party transactions, including the fairness to the Company and the Company's non-affiliated stockholders as of the time that
each related party transaction is approved.
Conflicts of Interest and Fiduciary
Duties
Conflicts of interest may arise as
a result of the relationship between Randall Capps, who is a member of the Company's board of directors and the majority
stockholder of the Company, and the XOG Group, of which Mr. Capps owns all or a majority. All of our directors and officers have
fiduciary duties to manage the Company in a manner beneficial to our stockholders. At the same time, Mr. Capps may also owe fiduciary
duties to the equity holders of the XOG Group , to the extent the entities are not wholly-owned by Mr. Capps. The XOG Group is
not restricted from competing with us. Our arrangement with Mr. Capps and the XOG Group may not prohibit Mr. Capps from engaging
in any activities, including oil and natural gas exploration and production related activities, which are in direct competition
with the Company. Therefore, affiliates of Mr. Capps, including the XOG Group, may compete with us for investment opportunities
and may own an interest in entities that compete with us.
95
Indemnification of Directors, Officers and Consultants
The Company's Articles of Incorporation
provide that no director, officer of or consultant to the corporation past, present or future, shall be personally liable to the
corporation or any of its shareholders for damages for breach of fiduciary duty as a director or officer; provided, however, that
the liability of a director for acts or omissions which involve intentional misconduct, fraud or knowing violation of law and
for the payment of dividends is not so eliminated.  The corporation shall advance or reimburse reasonable expenses incurred
by an affected officer, director or consultant without regard to the above limitations, or any other limitation which may hereafter
be enacted to the extent such limitation may be disregarded if authorized by the Articles of Incorporation. The Company's
bylaws provide for the indemnification of our directors and officers, as to those liabilities and on those terms and conditions
as appropriate.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared
or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon
other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or
had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of
its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director, officer, or employee.
Legal Matters
Blank Rome LLP, New York, New York, has issued a legal opinion
as to the validity of the issuance of the shares of common stock offered under this prospectus.
Experts
The financial statements as of December 31, 2011 and 2010
and for each of the three years in the period ended December 31, 2011 included in this prospectus and in the registration statement
have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere
herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.
Certain information relating to our reserves included in this
prospectus has been prepared by Bryant M. Mook, B.Sc. M.Eng., Petroleum Engineer and Geological Advisor, independent petroleum
engineering consultants retained by us, and has been so included in reliance on the opinion and analysis of Mr. Mook, given upon
the authority of Mr. Mook as expert in reserve engineering. Mr. Mook does not beneficially own, directly or indirectly, any of
our securities of any class.
Certain information relating to our reserves for the
year ended December 31, 2011 included in this prospectus has been prepared by DeGolyer and MacNaugton
("DeGolyer"), independent third-party reserve engineer retained by us, and has been so included in reliance on
the opinion and analysis of DeGolyer, given upon the authority of DeGolyer as expert in reserve engineering. DeGolyer does
not beneficially own, directly or indirectly, any of our securities of any class.
96
FINANCIAL STATEMENTS
American Standard Energy Corp. and Subsidiary
Index to Unaudited Consolidated Financial
Statements
PAGE
Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2012 and December 31,
    2011
F-2
Condensed Consolidated Statements of Operations (unaudited) for the three months ended
    March 31, 2012 and 2011
F-3
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended
    March 31, 2012 and 2011
F-4
Condensed Consolidated Statements of Stockholders' Equity (unaudited) for the three
    months ended March 31, 2012
F-5
Notes to Unaudited Condensed Consolidated Financial Statements
F-6 – F-24
F-
1
American Standard Energy Corp. and
Subsidiary
Consolidated Balance Sheets
(Unaudited)
March 31,
December 31,
2012
2011
Current assets:
Cash and cash equivalents
$
1,860,013
$
733,049
Oil and gas sales receivables - related parties
1,616,940
1,556,414
Oil and gas sales receivables
2,031,365
639,714
Other current assets
34,935
308,208
Total current assets
5,543,253
3,237,385
Oil and natural gas properties at cost, successful efforts method
Proved
86,893,989
76,919,789
Unproved
89,369,312
25,212,635
Accumulated depletion and depreciation
(15,595,112
)
(14,310,006
)
Total oil and natural gas properties, net
160,668,189
87,822,418
Debt issuance costs, net of amortization of $196,438
1,731,301
720,175
Prepaid drilling costs
2,549,660
2,590,356
Deposit on properties with affiliate
-
1,500,000
Other assets, net of accumulated depreciation of $9,005 and $7,380
22,778
24,403
Total assets
$
170,515,181
$
95,894,737
Current liabilities:
Accounts payable - trade
$
5,627,187
$
3,373,262
Accounts payable and accrued liabilities - related parties
9,704,450
8,574,017
Accrued compensation expense and withholding taxes
3,693,669
1,338,308
Commodity derivatives
354,422
243,996
Other accrued liabilities
178,132
36,665
Total current liabilities
19,557,860
13,566,248
Term loan and revolving credit facility, net of discount of $9,333,118
11,624,970
7,262,832
Pentwater note, net of discount of $5,163,700
14,878,522
-
Geronimo note
35,171,237
-
Asset retirement obligations
419,503
394,177
Commodity derivatives
517,667
421,964
Warrant derivative liabilities
1,157,894
15,298,658
Total liabilities
83,327,653
36,943,879
Commitments and contingencies
Stockholders' equity
Preferred stock, $.001 par value; 1,000,000 shares authorized; None issued
    and outstanding
-
-
Common stock, $.001 par value; 100,000,000 shares authorized, 45,584,046 shares issued and
    45,377,353 shares outstanding at March 31, 2012 and 40,178,060 shares issued and 39,971,367 shares outstanding at December
    31, 2011
45,584
40,178
Additional paid-in capital
144,515,693
75,504,243
Treasury stock, 206,693 shares at cost
(1,116,514
)
(1,116,514
)
Accumulated deficit
(56,257,235
)
(15,477,049
)
Total stockholders' equity
87,187,528
58,950,858
Total liabilities and stockholders' equity
$
170,515,181
$
95,894,737
F-
2
American Standard Energy Corp. and
Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
2012
2011
Operating revenues:
Oil & natural gas revenues
$
5,094,818
$
2,388,493
Loss on sale of oil and natural gas leases
(110,943
)
-
4,983,875
2,388,493
Operating costs and expenses:
Oil and natural gas production costs
2,390,932
807,344
General and administrative (including non-cash stock-based compensation
    of $33,805,391 and $564,721)
36,932,058
1,725,638
Depreciation, depletion and amortization
1,286,731
609,190
Accretion of discount on asset retirement obligations
6,898
4,165
Total operating costs and expenses
40,616,619
3,146,337
Loss from operations
(35,632,744
)
(757,844
)
Other income (expense), net:
Realized and unrealized loss on commodity derivatives
(270,695
)
-
Interest expense (including accretion of debt discount of $822,792)
(1,618,599
)
-
Realized and unrealized expense on warrant derivatives
(3,258,148
)
-
Total other income (expense), net
(5,147,442
)
-
Loss before income taxes
(40,780,186
)
(757, 844
)
Income tax benefit
-
-
Net loss
$
(40,780,186
)
$
(757,844
)
Weighted average common shares outstanding
41,515,450
32,154,300
Loss per share-basic and diluted
$
(0.98
)
$
(0.02
)
F-
3
American Standard Energy Corp. and
Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2012
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(40,780,186
)
$
(757,844
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization
1,286,731
609,190
Accretion of debt discount
822,792
-
Amortization of debt issue costs
127,254
-
Unrealized loss on commodity derivative
206,129
-
Unrealized expense on warrant derivatives
195,228
-
Capitalized interest on notes
213,459
-
Accretion of asset retirement obligations
6,898
4,165
Loss on sale of oil and natural gas leases
110,943
-
Warrant modification consideration including $1.1m note increase
3,062,920
-
Stock-based compensation expense
33,805,391
564,721
Changes in operating assets and liabilities:
Oil and natural gas sales receivables
(1,452,177
)
(2,054,017
)
Other current assets
12,526
7,850
Accounts payable and accrued liabilities
2,562,916
30,802
Net cash provided by (used in) operating activities
180,824
(1,595,133
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and natural gas property additions
(18,643,525
)
(6,454,426
)
Prepaid drilling costs
(2,549,660
)
-
Proceeds from sale of oil and natural gas leases
589,506
-
Deposit on properties with affiliate
-
-
Net cash used in investing activities
(20,603,679
)
(6,454,426
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash payment to Geronimo - deemed distribution
-
(10,000,000
)
Proceeds from the sale of stock, net
-
34,352,471
Proceeds from stock subscription receivable
-
1,557,698
Proceeds from draws on term loan
2,688,199
-
Proceeds from Penwater note
20,000,000
-
Debt issuance costs paid
(1,138,380
)
-
Net cash provided by financing activities
21,549,819
25,910,169
Net increase in cash and cash equivalents
1,126,964
17,860,610
Cash and cash equivalents at beginning of period
733,049
519,996
Cash and cash equivalents at end of period
$
1,860,013
$
18,380,606
Supplemental disclosure of cash flow information
Cash paid during the period for interest
$
312,595
$
-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accounts payable and accrued liabilities for oil and natural gas properties additions
$
3,318,270
$
-
Reclassification of pre-paid drilling costs to oil and natural gas properties
$
2,590,356
$
-
Additions and revisions to asset retirement cost and related obligation
$
18,428
$
-
Issuance of Geronimo Note for purchase of oil and natural gas properties
$
35,000,000
$
-
Reclassification of warrants' value previously recorded as a liability
$
14,335,992
$
-
Discount on debt - Pentwater warrants
$
5,412,553
$
-
Property acquired from Geronimo for shares of common stock
$
13,500,000
$
5,787,626
Stock and warrants subscription receivable
$
-
$
1,912,063
Deemed contribution for properties acquired
$
-
$
1,257,000
Deemed distribution for acquisition of properties
$
-
$
641,701
Deemed distribution for working capital no acquired in property acquisitions
$
-
$
688,050
F-
4
American Standard Energy Corp. and
Subsidiary
Consolidated Statements of Stockholders'
Equity
Three months ended March 31, 2012
(Unaudited)
Common Stock
Treasury Stock
Shares
Value
Additional paid-in
capital
Shares
Value
Accumulated
(deficit)
Total stockholders'
equity
Balance at December 31, 2011
40,178,060
$
40,178
$
75,504,243
206,693
$
(1,116,514
)
$
(15,477,049
)
$
58,950,858
Cashless exercise of warrants
325,986
326
(326
)
-
-
-
-
Shares issued in March 2012 for acquisition
    of properties from Geronimo recorded at fair value
5,000,000
5,000
13,495,000
-
-
-
13,500,000
Issuance of Restricted Stock
80,000
80
194,320
-
-
-
194,400
Reclassification of warrants' value previously
    recorded as a liability
-
-
14,335,992
-
-
-
14,335,992
Modification consideration (Series C warrants)
-
-
1,962,920
-
-
-
1,962,920
Assigned value of warrants issued with Pentwater
    note
-
-
5,412,553
-
-
-
5,412,553
Stock-based compensation expense
-
-
33,610,991
-
-
-
33,610,991
Net loss
-
-
-
-
-
(40,780,186
)
(40,780,186
)
Balance at March 31, 2012
45,584,046
$
45,584
$
144,515,693
206,693
$
(1,116,514
)
$
(56,257,235
)
$
87,187,528
F-
5
American Standard Energy Corp. and
Subsidiary
Notes to Consolidated Financial Statements
March 31, 2012 and December 31, 2011
Note A. Organization and Basis of
Presentation
American Standard Energy Corp., a Nevada
corporation ("Nevada ASEC") was incorporated on April 2, 2010 for the purposes of acquiring certain oil and gas leasehold
properties from Geronimo Holding Corporation ("Geronimo"), XOG Operating, LLC ("XOG") and CLW South Texas
2008, LP ("CLW") (collectively, the "XOG Group").  Randall Capps is the sole owner of XOG and
Geronimo, and the majority owner of CLW.  Nevada ASEC's principal business is the acquisition, development and exploration
of oil and natural gas leasehold properties primarily in the Permian Basin of west Texas and eastern New Mexico, the Eagle Ford
Shale formation of South Texas, the Bakken Shale formation in North Dakota and certain other oil and natural gas properties in
Arkansas and Oklahoma.
Uncle Al's Famous Hot Dogs &
Grille, Inc. ("FDOG") was incorporated as National Franchise Directors, Inc., under the laws of the State of Delaware
on March 4, 2005.  On October 1, 2010, FDOG entered into a Share Exchange Agreement (the "Agreement"), dated
October 1, 2010, with its then controlling shareholder and Nevada ASEC, a privately-held oil exploration and production company
owned substantially by the XOG Group.  Pursuant to the Agreement, FDOG (1) spun-off its franchise rights and related operations
to its controlling shareholder in exchange for and cancellation of 25,000,000 shares of FDOG's common stock and (2) acquired
100% of the outstanding shares of common stock of ASEC and additional consideration of $25,000 from the ASEC shareholders. In
exchange for the ASEC stock and the additional consideration, the XOG Group was issued approximately 22,000,000 shares of FDOG's
common stock on the closing date of the Share Exchange Agreement. As a result, Nevada ASEC owners acquired control of FDOG and
the transaction was accounted for as a recapitalization with Nevada ASEC as the accounting acquirer of FDOG. Accordingly, as a
result of the recapitalization, the financial statements of Nevada ASEC became the historical financial statements of FDOG. In
connection with the Share Exchange Agreement, FDOG changed its name to American Standard Energy Corp., a Delaware corporation
(the "Company").  Nevada ASEC and ASEN 2, Corp. ("ASEN 2") are wholly-owned subsidiary of the Company.
ASEN 2 was incorporated on January 25, 2012.
A history of the Company's property
acquisitions from the XOG Group accounted for as a transaction under common control through March 31, 2012 is as follows:
·
Formation acquisition - On May 1, 2010, the XOG Group contributed certain developed and
    undeveloped oil and natural gas properties located in Texas and North Dakota (the "Formation Properties") to Nevada
    ASEC in exchange for 80% of Nevada ASEC's common stock. The exchange was accounted for as a transaction under common
    control and accordingly, the Company recognized the assets and liabilities acquired at their historical carrying values with
    no goodwill or other intangible assets recognized.  As a result, the historical assets, liabilities and operations of
    the Formation Properties are included in the accompanying consolidated financial statements retrospectively for all periods
    presented.
·
On December 1, 2010, the Company acquired certain developed and undeveloped oil and natural
    gas properties located in North Dakota (the "Bakken 1 Properties") from XOG Group for $500,000 cash and 1,200,000
    shares of the Company's common stock valued at approximately $3,960,000 based on the December 1, 2010 closing price
    of the Company's stock.  The acquisition was accounted for as a transaction under common control and accordingly,
    the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values.  As a result,
    the historical assets, liabilities and operations of the Bakken 1 Properties are included in the accompanying consolidated
    financial statements retrospectively for all periods presented.
·
On February 11, 2011, the Company acquired certain developed oil and natural gas properties
    located in Texas, Oklahoma and Arkansas (the "Group 1 & 2 Properties") from XOG Group for $7,000,000 cash. 
    The acquisition was accounted for as a transaction under common control and accordingly, the Company recorded the assets and
    liabilities acquired from XOG Group at their historical carrying values.  As a result, the historical assets, liabilities
    and operations of the Group 1 & 2 Properties are included in the accompanying consolidated financial statements retrospectively
    for all periods presented.
F-
6
·
On March 1, 2011, the Company acquired certain undeveloped mineral rights leaseholds held
    on properties in the Bakken Shale Formation in North Dakota (the "Bakken 2 Properties") from XOG Group in exchange
    for $3,000,000 cash and the issuance of 883,607 shares of the Company's common stock valued at $5,787,626 based on the
    March 1, 2011 closing price of the Company's stock.  The acquisition was accounted for as a transaction under common
    control and accordingly, the Company recorded the Bakken 2 Properties at their historical carrying values.  As a result,
    the historical cost basis of the Bakken 2 Properties is included in the accompanying consolidated financial statements from
    the period they were originally acquired by XOG Group. Certain of these mineral rights with a historical cost basis of $1,257,000
    were acquired by Geronimo subsequent to December 31, 2010, and, as a result, were not under common control at that date and
    have been excluded from the historical consolidated financial statements as of December 31, 2010.  These subsequently-acquired
    undeveloped mineral rights are reflected in our December 31, 2011 consolidated financial statements.
·
On April 8, 2011, the Company acquired undeveloped leasehold acreage consisting of approximately 2,780 net acres located in Mountrail County of North Dakota's Williston Basin (the "Bakken 3 Properties") from XOG Group for $1.86 million. The acquisition was accounted for as a transaction under common control and accordingly, the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values. The historical assets, liabilities and operations of the Bakken 3 Properties have been included retrospectively in the consolidated financial statements of the Company from the acquisition dates by XOG Group during 2011.
All of the acquisitions described above
are collectively referred to as the "Acquired Properties."
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.
GAAP"). For the periods prior to the acquisition dates of the Acquired Properties, the financial statements have been prepared
primarily on a "carve out" basis from the XOG Group's combined financial statements using historical results
of operations, assets and liabilities attributable to the Acquired Properties, including allocations of expenses from the XOG Group.
This carve-out presentation basis reflects the fact that the Acquired Properties represented only a portion of the XOG Group and
did not constitute separate legal entities. The consolidated financial statements including the carve outs may not be indicative
of the Company's future performance and may not reflect what its results of operations, financial position and cash flows
would have been had the Company owned the Acquired Properties on a stand-alone basis during all of the periods presented. To the
extent that an asset, liability, revenue or expense is directly associated with the Acquired Properties or the Company, it is reflected
in the accompanying consolidated financial statements.
Prior to the Company's acquisition
of the Acquired Properties, the XOG Group provided corporate and administrative functions to the Acquired Properties including
executive management, oil and gas property management, information technology, tax, insurance, accounting, legal and treasury
services. The costs of such services were allocated to the Acquired Properties based on the most relevant allocation method to
the service provided, primarily based on relative net book value of assets. Management believes such allocations are reasonable;
however, they may not be indicative of the actual expense that would have been incurred had the Acquired Properties been operating
as a separate entity for all of the periods presented. The charges for these functions are included in general and administrative
expenses for all periods presented.
In addition to the above, see Note
J for recent acquisitions from XOG Group accounted for at fair value.
Note B. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements
of the Company include the accounts of the Company and its wholly-owned subsidiaries.  All material intercompany balances
and transactions have been eliminated.
F-
7
Use of Estimates in the Preparation
of Financial Statements
Preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from these estimates.  Such estimates include
the following:
Depreciation, depletion and amortization
of oil and natural gas properties are determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties
inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing
of development expenditures.
Impairment evaluation of proved and
unproved oil and natural gas properties is subject to numerous uncertainties including, among others, estimates of future recoverable
reserves, future prices, operating and development costs, and estimated cash flows.
Other significant estimates include,
but are not limited to, the asset retirement costs and obligations, accrued revenue and expenses, and fair values of stock-based
compensation, commodity derivatives and warrants.
Oil and Gas Sales Receivable
Through the Company's ownership
of leasehold interests, oil and natural gas production is sold to purchasers generally on an unsecured basis. Allowances for doubtful
accounts are determined based on management's assessment of the creditworthiness. Receivables are considered past due if full
payment is not received by the contractual due date. Past due accounts will be generally written off against the allowance for
doubtful accounts only after all collection attempts have been exhausted. Management concluded that no allowance for doubtful
accounts was necessary at March 31, 2012 and December 31, 2011. Management believes that the lack of allowance for doubtful accounts
is adequate; however, actual write-offs may exceed the recorded allowance.
Oil and Natural Gas Properties
The Company utilizes the successful
efforts method of accounting for its oil and natural gas properties. Under this method, all costs associated with productive wells
and nonproductive development wells are capitalized, while nonproductive exploration costs are expensed. Capitalized acquisition
costs relating to proved properties are depleted using the unit-of-production method based on total proved reserves. The depletion
of capitalized exploratory drilling and development costs (wells and related equipment) is based on the unit-of-production method
using proved developed reserves on a field basis.
Proceeds from the sales of individual
properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated
depletion. Generally, no gain or loss is recognized until the entire amortization base is sold. However, a gain or loss is recognized
from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion
rate of the remaining properties in the amortization base.
Ordinary maintenance and repair costs
are expensed as incurred.
Costs of significant nonproducing properties,
wells in the process of being drilled and development projects are excluded from depletion until such time as the related project
is developed and proved reserves are established or impairment is determined. These unproved oil and natural gas properties are
periodically assessed for impairment by considering future drilling plans, the results of exploration activities, commodity price
outlooks, planned future sales or expiration of all or a portion of such projects. Amounts capitalized to oil and natural gas
properties excluded from depletion at March 31, 2012 and December 31, 2011 were $89,369,312 and $25,212,635, respectively. During
the three months ended March 31, 2012 and 2011 the Company recorded no impairment of unproved properties.
F-
8
Management of the Company reviews its
oil and natural gas properties for impairment by amortization base or by individual well for those wells not constituting part
of an amortization base whenever events or circumstances indicate that the carrying value of those assets may not be recoverable.
An impairment loss is indicated if the sum of the expected undiscounted future cash flows is less than the carrying amount of
the assets. For each property determined to be impaired, an impairment loss equal to the difference between the carrying value
of the properties and the estimated fair value (discounted future cash flows) of the properties is recognized at that time. Estimating
future cash flows involves the use of judgments, including estimation of the proved and unproved oil and natural gas reserve quantities,
timing of development and production, expected future commodity prices, capital expenditures and production costs. During the
three months ended March 31, 2012 and 2011 the Company recorded no impairments of proved properties.
Environmental
The Company is subject to extensive federal,
state and local environmental laws and regulations. These laws, which are often changing, regulate the discharge of materials into
the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum
or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits
are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation
is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments
is fixed and readily determinable.
Oil and Natural Gas Sales and Imbalances
Oil and natural gas revenues are recorded
at the time of delivery of such products to pipelines for the account of the purchaser or at the time of physical transfer of
such products to the purchaser. The Company follows the sales method of accounting for oil and natural gas sales, recognizing
revenues based on the Company's share of actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas
imbalances are generated on properties for which two or more owners have the right to take production "in-kind" and
in doing so take more or less than their respective entitled percentage. The Company does not have any oil and natural gas imbalances.
Debt Issuance Costs
In September 2011, the Company entered
into a $300 million credit facility with Macquarie Bank Limited ("Macquarie"). In February 2012, the Company entered
into a $20 million convertible note with Pentwater Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd. (collectively,
"Pentwater"). The Company incurred costs related to these facilities that were capitalized on the Consolidated Balance
Sheet as "Debt Issuance Costs". Included in the Debt Issuance Costs are direct costs paid to third parties for broker
fees and legal fees. The total amount capitalized for Debt Issuance Costs is $1,927,739 for the combined Macquarie and Pentwater
debt issuances. The capitalized costs will be amortized over the term of the facility using the effective interest rate method.
The amortization for the three months ended March 31, 2012 and 2011 was $127,254 and $0, respectively.
Warrant Derivative Liabilities
Warrants that contain "down-round
protection" and therefore, do not meet the scope exception for treatment as a derivative under Financial Accounting Standards
Board's Accounting Standards Codification ("ASC") Topic 815 are measured at fair value and liability-classified
under ASC 815, Derivatives and Hedging. Since "down-round protection" is not an input into the calculation of the
fair value of the warrants, the warrants cannot be considered indexed to the Company's own stock which is a requirement
for the scope exception as outlined under ASC 815. The fair value of these warrants is determined using a Monte Carlo Simulation
Analysis and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the
contractual term, and the risk-free interest rate. The Company will continue to classify the fair value of the warrants as a liability
until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified
as a liability.
Asset Retirement Obligations
The Company records the fair value of a
liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying
amount of the related oil and gas properties. Subsequently, the asset retirement cost included in the carrying amount is allocated
to expense through depreciation, depletion and amortization. Changes in the liability due to passage of time are recognized as
an increase in the carrying amount of the liability and as corresponding accretion expense.
F-
9
General and Administrative Expense
In addition to general and administrative
("G&A") costs incurred directly by the Company, the accompanying financial statements include an allocated portion
of the actual costs incurred by the XOG Group for G&A expenses. The amounts allocated to the properties are for the period
prior to ownership by Nevada ASEC and ASEN 2.  These allocated costs are intended to provide the reader with a reasonable
approximation of what historical administrative costs would have been related to the Acquired Properties had the Acquired Properties
existed as a stand-alone company.
In the view of management, the most
accurate and transparent method of allocating G&A expenses is by using the historical cost basis of the Acquired Properties
divided by the cost basis of the total oil and gas assets of the XOG Group.  Using this method, G&A expense allocated
to the Acquired Properties for the three months ended March 31, 2012 and 2011 was approximately $0 and $36,129, respectively.
Treasury Stock
The Company utilizes the cost method for accounting for
its treasury stock acquisitions and dispositions.
Stock-Based Compensation
The Company accounts for stock-based
compensation at fair value in accordance with the provisions of ASC Topic 718, "Stock Compensation", which establishes
accounting for stock-based payment transactions for employee services and goods and services received from non-employees. Under
the provisions of ASC Topic 718, stock-based compensation cost is measured at the date of grant, based on the calculated fair
value of the award, and is recognized as expense in the consolidated statements of operations  pro ratably over the
employee's or non-employee's requisite service period, which is generally the vesting period of the equity grant.
The fair value of stock option awards is generally determined using the Black-Scholes option-pricing model. Restricted stock awards
and units are valued using the market price of the Company's common stock on the grant date. Additionally, stock-based compensation
cost is recognized based on awards that are ultimately expected to vest, therefore, the compensation cost recognized on stock-based
payment transactions is reduced for estimated forfeitures based on the Company's historical forfeiture rates. Additionally,
no stock-based compensation costs were capitalized for the three months ended March 31, 2012 and 2011. The Company provides compensation
benefits to employees and non-employee directors under share-based payment arrangements, including various employee stock option
plans. See Note C for further discussion of the Company's stock-based compensation plans.
Income Taxes
Prior to the Company's acquisition
of the acquired properties, the acquired properties were part of a pass-through entity for federal income tax purposes with taxes
being the responsibility of the XOG Group owners.  As a result, the accompanying financial statements do not present any
income tax liabilities or assets related to the acquired properties prior to the Company's acquisition of the acquired properties.
The Company recognizes deferred tax
assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that
includes the enactment date. A valuation allowance is established to reduce deferred tax assets if it is more likely than not
that the related tax benefits will not be realized.
F-
10
The Company evaluates uncertain tax
positions for recognition and measurement in the consolidated financial statements. To recognize a tax position, the Company determines
whether it is more likely than not that the tax positions will be sustained upon examination, including resolution of any related
appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold
is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The amount of tax benefit
recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely
of being realized upon settlement. The Company had no uncertain tax positions that required recognition in the accompanying financial
statements. Any interest or penalties would be recognized as a component of income tax expense.
Fair Value of Financial Instruments
The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current transaction between two willing parties. The carrying amount
of cash, oil and gas sales receivable, other current assets, accounts payable and accrued liabilities approximates fair value
because of the short maturity of these instruments.
Loss per Common Share
Basic loss per share is computed on
the basis of the weighted-average number of common shares outstanding during the periods. Diluted earnings (loss) per share is
computed based upon the weighted-average number of common shares outstanding plus the assumed issuance of common shares for all
potentially dilutive securities.
Weighted-average number of shares for
the three months ended March 31, 2011 was computed on a pro forma basis as if the 883,607 common shares issued to the XOG Group
in connection with the Company's acquisition of the Acquired Properties during 2011, and the 285,716 shares purchased by
Randall Capps in the February 2011 private placement were issued and outstanding for all periods presented.  As of March
31, 2012, 10,090,760 stock options and 15,259,275 shares of common stock underlying warrants were excluded from the calculation
due to being anti-dilutive. As of March 31, 2011, 3,755,000 stock options and 4,049,464 warrants were excluded from the calculation
due to being anti-dilutive.
Derivative Instruments and Price Risk Management
The Company uses derivative instruments
from time to time to manage market risks resulting from fluctuations in the prices of crude oil and natural gas. The Company may
periodically enter into derivative contracts, including price swaps, caps and floors, which require payments to (or receipts from)
counterparties based on the differential between a fixed price and a variable price for a fixed quantity of crude oil or natural
gas without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production
from existing wells. The Company has, and may continue to use, exchange-traded futures contracts and option contracts to hedge
the delivery price of crude oil at a future date.
The Company has elected not to designate
derivative contracts as accounting hedges under FASB ASC 815-20-25. As such, all derivative positions are carried at their fair
value on the balance sheet and are marked-to-market at the end of each period.  Any realized gains or losses on derivatives
are recorded in realized and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).
Note C.  Stockholders' Equity
Founders Stock
On April 13, 2010, the Company issued
1,887,755 shares of its common stock to non-management individuals.
On April 13, 2010, the Company issued
2,193,877 shares of its common stock to management.  These shares are restricted and were originally scheduled to vest over
four years.  The Company valued these shares at $1.47 per share.
On April 16, 2011, 548,655 shares of
founder's stock issued to management vested.  The Company estimated that $1,338,308 in federal and state withholding
taxes is due related to this vesting, which has been recorded as an accrued liability on the accompanying balance sheet as of
March 31, 2012 and December 31, 2011.  The holders of these shares have remitted to the Company 206,693 shares of the Company's
common stock valued with a market price of $5.40 per share when remitted to cover the withholding requirements.  The
stock remittance is included in the accompanying statement of stockholders' equity as treasury stock at March 31, 2012 and
December 31, 2011.
F-
11
On February 13, 2012, the board of
directors of the Company approved the immediate vesting of a total of 1,568,877 restricted shares of the Company's common
stock previously issued to the chief executive officer, president and chief financial officer as founders stock which were to
vest in equal portions annually through April 16, 2014. The Company recorded compensation expense for these shares of $1,797,993
for the three months ended March 31, 2012 and $201,563 for the three months ended March 31, 2011.
The Company subsequently completed
the evaluation of the taxable amount due and remitted the appropriate tax to the IRS in April 2012.  In addition, in
accordance with the founder's stock agreements for each of the officers, the Company is required to reimburse a portion
of these withholding taxes to the officers.  Based upon the agreements, the Company estimates that it will be required
to reimburse a total of $3,135,413 to these officers by December 31, 2012.  Of this amount, $1,797,105 is included in
general and administrative expenses and in accrued compensation due to officers as of March 31, 2012. Additionally, $558,256 was
paid to the IRS in April 2012 and was included in accrued liabilities as of March 31, 2012.
Restricted Stock
As part of a comprehensive review of
compensation, compensation expense, and shareholder dilution, the Board of Directors granted 20,000 shares of restricted Common
Stock to each of our three executive officers and one of our employees on March 30, 2012. The restricted stock was valued on the
date of grant at $2.43 per share and recorded as stock-based compensation expense of $194,400 for the three months ended March
31, 2012.
Private Placements of Common Stock
and Warrants
On February 1, 2011, the Company closed
a private placement offering raising proceeds of $15,406,755 through the issuance of (i) 4,401,930 shares of common stock at a
price of $3.50 per share and (ii) two series of five-year warrants each exercisable into 1,100,482 shares of common stock at exercise
prices of $5.00 and $6.50 per share, respectively.  The Company also issued to the placement agents warrants to purchase
up to 317,117 shares of common stock, the terms and exercise price are the same as investors under this private placement offering. 
The shares and warrants were sold to certain accredited investors.  Subject to certain conditions, the Company has the right
to call for the exercise of such warrants.  The Company incurred costs of $0.8 million in connection with this offering.
On February 9, 2012, the investors agreed to waive certain anti-dilution rights with respect to the warrants and certain participation
rights.
On March 31, 2011, the Company closed
a private placement offering of securities raising proceeds of $21,257,778 through the issuance of (i) 3,697,005 shares of common
stock at a price of $5.75 per share and (ii) five-year warrants exercisable into 1,848,502 shares of common stock at exercise
prices of $9.00 per share, subject to certain adjustments.  The Company also issued to the placement agents warrants to purchase
up to 96,957 shares of common stock at an exercise price of $9.00.  The shares and warrants were sold to certain accredited
investors.  Subject to certain conditions, the Company has the right to call for the exercise of such warrants.  The
Company incurred costs of $1.5 million in connection with this offering.
On July 15, 2011, the Company closed a private placement
offering of $12,980,003 through the issuance of (i) 2,260,870 shares of our common stock at a price of $5.75 per share, (ii) Series
A warrants to purchase 1,130,435 shares of common stock at a per share exercise price of $9.00 subject to certain adjustment provisions;
and (iii) Series B warrants at a per share exercise price of $0.001 to purchase a number of shares of common stock, which became
exercisable on the 30th trading day following the date on which the purchasers in the private placement were able to freely sell
the shares of common stock pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction
(the Eligibility Date") as the market price of the common stock was less than the purchase price in the offering or $5.75.
F-
12
Pursuant to the terms of the Series
B warrants, on the Eligibility Date the investors had the right to purchase a number of shares of our common stock such that the
aggregate average price per share purchased by the investors was equal to the market price (defined as the average of volume weighted
average price for each of the previous 30 days as reported on the Over-The-Counter Bulletin Board during the 30 trading days preceding
the measurement date).  Certain holders of Series B warrants agreed to limit their right to adjustments in certain circumstances
such that the total number of shares of common stock underlying the Series B warrants was set at 2,239,029. See
Note G.  Derivative
warrant instruments (liabilities) and warrants—Warrant Adjustments. Exclusive of the non-cash warrant expense, the Company
incurred costs of approximately $1.0 million in connection with this offering.
In connection with the February 1,
2011 and March 31, 2011 private placement offerings, the Company granted to the investors registration rights pursuant to Registration
Rights Agreements, dated February 1, 2011 and March 31, 2011, in which the Company agreed to register all of the related private
placement common shares and shares of common stock underlying the warrants within thirty (30) calendar days after February 1,
2011 and March 31, 2011, and use its best efforts to have the registration statement declared effective within one hundred twenty
(120) calendar days of the applicable filing date.  Upon the Company's failure to comply with the terms of the Registration
Rights Agreement and certain other conditions, the Company was required to pay to each investor an amount in common stock equal
to one percent (1%) per month of the aggregate purchase price paid by such investor, up to 6% of the aggregate stock purchase
price.  As the Company did not register the shares within thirty calendar days of February 1, 2011 and March 31, 2011, the
Company was required to pay in common stock 1% of the aggregate purchase price. Shares distributed were calculated based on the
price of issuance of $3.50 per share for the February 1, 2011 private placement offering and $5.75 per share for the March 31,
2011 placement.  In November 2011, the Company remitted 459,074 additional shares, calculated by dividing the respective
cash value of each private placements penalty by the respective unit price under which each private placement was funded. For
the year ended December 31, 2011, the Company recognized $2,019,943 of delinquent registration penalties. No additional penalties
were incurred and no additional expense was recognized in the current period.
Deferred Compensation Program
On April 15, 2010 and ratified on August
29, 2011, the Nevada ASEC's Board of Directors approved the Nevada ASEC 2010 Deferred Compensation Program. Under this
plan, the President and CEO are entitled to receive a one-time retainer fee consisting of options to purchase common stock in
lieu of salary through December 31, 2010. The total number of shares underlying options granted under the plan was 1,600,000 in
lieu of salary through December 31, 2010. The exercise price of the options is $1.50 and the options were to vest over 26.5 months. 
These options have a ten-year life and had a grant date fair value of $1.09 per share. On March 30, 2012 the vesting on all remaining
deferred compensation was accelerated and fully-vested at that date. For the three months ended March 31, 2012 and 2011, the Company
recorded non-cash stock compensation expense of $394,868 and $197,434, respectively, related to the amortization of the fair value
of these options which is included in general and administrative expenses.
Other Share Based Compensation
On August 29, 2011, the Company's Board
of Directors adopted the Amended and Restated 2010 Equity Incentive Plan initially approved on April 15, 2010.  The
amended plan provides for 12,000,000 shares to be eligible for issuance to officers, other key employees, directors and consultants.  Since
April 15, 2010, the Board of Directors authorized the grants of 11,265,000 stock options under the 2010 Plan.
As part of a comprehensive review of
compensation, compensation expense, and shareholder dilution, the Board of Directors approved the restructuring of stock options
on March 30, 2012 (the "Modification Date"). Due to the modification, 2,400,000 options issued to certain officers
were forfeited and 3,200,000 options were accelerated and became immediately vested. An additional 1,540,000 non-qualified options,
205,760 incentive stock options and 80,000 restricted shares (previously discussed) of common stock were granted to certain officers,
directors, employees and a consultant. All modified options (including the newly issued options) were priced at the average of
the open and closing share price of the Company's common stock on March 30, 2012, which was $2.43 per share and became fully
vested on the Modification Date.
For the three months ended March 31,
2012 and 2011, the Company recorded non-cash stock-based compensation expense of $31,418,129 and $197,084, respectively, related
to other share based compensation which is included in general and administrative expenses.
F-
13
The following table summarizes the
stock options available and outstanding as of March 31, 2012:
Shares
Weighted Average
Exercise Price
Weighted Average
Remaining Contract
Term
Aggregate
Intrinsic Value
Prior Outstanding as-of 12/31/2011:
10,745,000
$
5.67
8.48
2,788,000
Grants:
1,745,760
$
2.43
10.00
-
Exercises:
-
-
Forfeitures:
(2,400,000
)
$
7.51
Expirations:
-
-
Total Outstanding as-of 3/31/2012:
10,090,760
$
2.13
8.70
$
2,720,000
Total Exercisable as-of 3/31/2012:
10,090,760
$
2.13
8.70
$
2,720,000
Total Unvested as-of 3/31/2012:
-
-
-
-
Total Vested as-of 3/31/2012:
10,090,760
$
2.13
8.70
$
2,720,000
Black-Scholes option valuation method
and the assumptions noted in the following table for March 31, 2012.  Expected volatilities are based on implied volatilities
from the historical volatility of companies similar to the Company.  The expected term of the options granted used in the
Black-Scholes model represent the period of time that options granted are expected to be outstanding.  The Company utilizes
the simplified method for calculating the expected life of its options as the Company does not have sufficient historical data
to provide a basis upon which to estimate the term.
Range
Weighted Average
Volatility:
77.00
%
77
%
Risk-Free Interest Rate:
0.88% - 1.01
%
0.94
%
Expected Term (years):
4.34 - 5.00
4.51
Dividend Rate:
0.00
%
0.00
%
Fair Value Per Share on Grant Date:
$1.36 - $1.44
$
1.38
The fair value of option grants during
the three months ended March 31, 2012 was $585,899.
Note D.  Long term debt
Macquarie Credit Facility.
On September 21, 2011, Nevada ASEC (the "Borrower"), entered into a Credit Agreement (the "Credit Agreement")
with the lenders party thereto and Macquarie Bank Limited ("Macquarie") as administrative agent. The Credit Agreement
is fully and unconditionally guaranteed by the Company (the "Guarantor").  The Guarantor has pledged as
collateral 100% of its stock in the Borrower.   The Borrower's obligations under the Credit Agreement are
secured by, among other assets, the Borrower's interest in certain oil and gas properties and the hydrocarbons produced
from such properties, as well as the proceeds of the sale of such hydrocarbons.
F-
14
The Credit Agreement provides to the
Borrower a revolving credit facility in an amount not to exceed $100 million and a term loan facility in an amount not to exceed
$200 million. The interest rate on revolving loans is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 2.75%
to 3.25% per annum (2.75% at March 31, 2012), based on the borrowing base utilization, and the interest rate on term loans is
30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 7.50%. The maturity date of the revolving credit facility
is September 21, 2015 and the maturity date of the term loan facility is September 21, 2014.  As part of the Credit
Agreement, the Borrower is required to comply with the financial covenants set forth in the Credit Agreement, including an interest
coverage ratio, a current ratio, and a debt coverage ratio, as of the end of each calendar quarter.   The Company
was in default under certain provisions of the Credit Agreement, for the calendar quarter ended on March 31, 2012. The defaults
were waived by Macquarie on May 10, 2012.
The initial borrowing base and amount
drawn on the revolving credit facility was $12 million.  The debt was initially recorded net of a debt discount of $10,917,981
related to warrants issued to the lenders as disclosed below.  The debt discount will be amortized over the term of
the credit facility. The outstanding amount on the revolving credit facility at March 31, 2012 was $13.1 million.  The borrowing
base is re-determined semiannually based on the reserve reports by category, oil and gas future sales prices as determined by
the lenders, and amount of expenses necessary to produce the oil and gas.
The table below reflects the breakdown
of the components of the revolving credit facility at March 31, 2012:
Cash proceeds from revolver
$
13,100,000
Cash proceeds from term loan
7,858,088
Total cash proceeds
$
20,958,088
Discount on debt
(10,917,981
)
Accretion of debt discount
1,584,863
Net revolving facility and term loan
$
11,624,970
The term loan draws are subject to
approval by Macquarie on a case by case basis. Each drilling program is submitted for approval and Macquarie may approve the program
in its reasonable discretion. After Macquarie approves a program, the lenders are obligated to advance funds for development,
subject to the satisfaction of the conditions precedent to advances set forth in the Credit Agreement. Alternatively, the Company
may elect to submit successfully completed wells to the bank for review and reimbursement under the term loan. The outstanding
balance on the term loan was $7,858,088 at March 31, 2012. Beginning on March 21, 2013, the Company will begin making monthly
payments to amortize the term loan, each payment equal to the total outstanding term loan balance on that date divided by 18.
Based on the outstanding balance of the term loan on March 31, 2012, the Company expects to pay $3,929,044 in each of the years
2013 and 2014.
In connection with the Credit Agreement,
the Company issued to Macquarie Americas Corp. a five year warrant to purchase 5,000,000 shares of the Company's common
stock at a per share exercise price of $7.50. The warrant is exercisable on a cashless basis if there is no registration statement
covering the underlying common stock. The warrant is also subject to customary anti-dilution provisions. The fair value of the
5,000,000 warrants issued to Macquarie was calculated using the Monte Carlo valuation model based on factors present at the time
of closing. Macquarie can exercise these warrants at any time until the warrants expire in July 2016. The exercise price of the
warrants is $7.50 per warrant, subject to down round" adjustments.  The fair value at issuance date of $10,917,981
was recorded as a discount on the debt as described above.  See Note G for discussion of the modification of the terms
of these warrants in February 2012.
Convertible Note.
On
February 10, 2012, the Company and ASEN 2, Corp. ("ASEN 2"), a wholly-owned subsidiary of the Company formed on January
25, 2012, closed on a Note and Warrant Purchase Agreement dated February 9, 2012, (the "Purchase Agreement"), with
Pentwater Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., ("Pentwater") in connection with a $20
million private financing. The initial funding made by Pentwater to ASEN 2 on February 10, 2012 ("Pentwater Closing Date"),
was in the amount of $10 million. The second funding for an additional $10 million, which closed on March 5, 2012, occurred concurrently
with the closing of the purchase and sale agreement by and among the Company, Geronimo and XOG.
F-
15
The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note (the "Pentwater Note"), convertible into shares
of the Company's common stock at a conversion price of $9.00 per share and five-year warrants to purchase 3,333,333 shares
of common stock at a per share cash exercise price of $2.50. The Warrants are also subject to a mandatory exercise at the Company's
option with respect to (i) 50% of the number of shares underlying the Warrants if the closing sale price of the common stock is
equal to or greater than $5.00 per share for twenty consecutive trading days and (ii) 50% of the number of Warrant Shares if the
closing sale price of the common stock is equal to or greater than $9.00 per share for twenty consecutive trading days.
From the Pentwater Closing Date through
December 8, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.
The convertible note was $20 million.  The
debt was initially recorded net of a debt discount of $5,412,553 related to warrants issued as discussed above.  The
debt discount will be amortized over the term of the Pentwater Note. The outstanding amount on the Pentwater Note at March 31,
2012 was $20 million with $42,222 in capitalized interest.
The table below reflects the breakdown
of the components of the Pentwater Note at March 31, 2012:
Cash proceeds from Pentwater
$
20,000,000
Discount on debt
(5,412,553
)
Accretion of debt discount
248,853
Capitalized interest
42,222
Net amount of Pentwater Note
$
14,878,522
Geronimo Note.
On March
5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across the
Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the "March 2012
Properties") from a related party. In conjunction with this transaction, the Company entered into a $35,000,000 promissory
note (the "Geronimo Note") made by the Company in favor of Geronimo. The Geronimo Note bears an interest rate of 7%
per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of each month
commencing on June 1, 2012. The Geronimo Note matures on March 21, 2016. The Company may prepay the Geronimo Note at any time
without penalty.
Debt proceeds from Geronimo
$
35,000,000
Capitalized interest
171,237
Amount of Geronimo Note
$
35,171,237
F-
16
Note E.  Asset Retirement
Obligations
The Company's asset retirement obligations
represent the estimated present value of the estimated cash flows the Company will incur to plug, abandon and remediate its producing
properties at the end of their productive lives, in accordance with applicable state laws. The Company has no assets that are
legally restricted for purposes of settling asset retirement obligations.
The Company's asset retirement obligation
activity for the three months ended March 31, 2012 and the year ended December 31, 2011 is as follows:
March 31, 2012
December 31,
2011
Balance at beginning of period
$
394,177
$
242,632
Liabilities incurred from new wells
18,428
94,880
Accretion expense
6,898
20,951
Revisions due to increase in well life estimates
-
35,714
Balance at end of period
$
419,503
$
394,177
Note F. Commodity derivatives
To mitigate a portion of the exposure
to potentially adverse market changes in oil and natural gas prices and the associated impact on cash flows, the Company has entered
into various derivative commodity contracts.  The Company's derivative contracts in place include swap arrangements
for oil and natural gas.  As of March 31, 2012, the Company has commodity derivative contracts in place through the third
quarter of 2014 for a total of approximately 95,554 Bbls of anticipated crude oil production and 579,693 MMBtu of anticipated
natural gas production.
The Company's oil and natural
gas derivatives are measured at fair value and are included in the accompanying balance sheets as commodity derivative assets
and liabilities.  The Company derives internal valuation estimates taking into consideration the counterparties' credit
ratings, the Company's credit rating, and the time value of money.  These valuations are then compared to the respective
counterparties' mark-to-market statements.  The pertinent factors result in an estimated exit-price that management
believes provides a reasonable and consistent methodology for valuing derivative instruments.  The derivative instruments
utilized by the Company are not considered by management to be complex, structured or illiquid.  The oil and natural gas
derivative markets are highly active.  The fair value of oil and natural gas commodity derivative contracts was a net liability
of $872,089 and $665,960 at March 31, 2012 and December 31, 2011, respectively.
The Company recognizes all gains and
losses from changes in commodity derivative fair values immediately in earnings. For the three months ended March 31, 2012, the
Company had a realized loss on commodity derivatives of $64,566 and an unrealized loss of $206,129 included in other income (expense).
A summary of our commodity derivatives
at March 31, 2012 is as follows:
Period of time
Barrels of Oil
Weighted
Average Oil
Prices per Barrel
Estimated Fair
Market Value
April 1, 2012 through October 31, 2014
95,554
$
86.34
$
669,670
Period of time
MMBtu of
Natural Gas
Weighted
Average Gas
Prices per MMBtu
Estimated Fair
Market Value
April 1, 2012 through September 26, 2014
579,693
$
4.4
$
(1,541,759
)
Total fair market value
$
(872,089
)
The following table details the fair
value of derivatives recorded in the accompanying balance sheets, by category:
F-
17
As of March
    31, 2012
Derivative Assets
Derivative Liabilities
Balance Sheet
Balance Sheet
Classification
Fair Value
Classification
Fair Value
Commodity Contracts
Current Assets
$
-
Current Liabilities
$
(354,422
)
Commodity Contracts
Noncurrent Assets
-
Noncurrent Liabilities
(517,667
)
Total commodity derivatives
$
-
$
(872,089
)
Note G.    Derivative
warrant instruments (liabilities) and warrants
As part of the July 15, 2011, private
placement, the Company issued Series A and Series B Warrants to purchase common stock to certain accredited investors in
connection with its sale of 2,260,870 share-based units for gross proceeds of approximately $13.0 million.  There are
1,130,435 Series A warrants with an exercise price of $9.00 per share, subject to "down round" adjustments with a
floor price of $5.00.  There are 2,239,029 of Series B warrants at an exercise price of $0.001 per share.  Of
these Series B warrants, 325,386 were exercised in February of 2012 and 1,000,000 were exercised in April of 2012.
In September of 2011, the Company issued
warrants that will allow Macquarie the right to purchase up to 5,000,000 shares of fully-paid and non-assessable common stock
at a per share purchase price of $7.50, subject to certain "down round" adjustments events.
Because there were adjustment events,
the warrants described above were not deemed to be indexed to the Company's own stock and, therefore, do not qualify for
the scope exception in ASC 815-40-15-5.  As such, the Company has concluded that such warrants are deemed to be derivative
instruments and are recorded as liabilities at fair value, and marked-to-market at each financial statement reporting date,
pursuant to the guidance in ASC 815-10 until such time that these warrants are exercised, expire or are amended in a way that
would no longer require liability accounting.
During the three months ended March
31, 2012 the fair value of the liability of the warrant derivative instruments increased by $195,228, from the fair values at
December 31, 2011. Such changes were recorded as unrealized losses on fair value of derivative warrant instruments in the accompanying
consolidated statements of operations. The fair value of these warrants is determined using a Monte Carlo Simulation Analysis
and is affected by changes in inputs to that model including our stock price, expected stock volatility, the contractual term,
and the risk-free interest rate.
The fair value of the derivative warrant instruments is
estimated using a probability-weighted scenario analysis model with the following assumptions as of March 31, 2012:
For the Three Months
Ended March 31,
2012
Common stock issuable upon exercise of warrants
6,130,435
Estimated market value of common stock on measurement date (1)
$
3.00
Exercise price
$
5.00
Expected volatility (2)
72.53
%
Expected term (in months)
53.9
Risk-free rate (3)
0.81
%
Expected dividend yields
-
Future financing event
50
%
(1)
The estimated market value of the stock is measured each period-end and is based on the
    reported public market prices.
(2)
The volatility factor was estimated by management using the historical volatilities of
    comparable companies in the same industry and region.
F-
18
(3)
The risk-free rate of return associated with the remaining term.
Source: The Federal
    Reserve Board
Warrant Restructure.
On February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, ("Modification Investors"),
entered into a modification agreement (the "Modification Agreement"), pursuant to which the parties agreed to amend
the terms of the Series B warrants issued to the Modification Investors in July 13, 2011 offering in which the Modification Investors
invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed to limit the dilutive effects of
the Series B warrants by including a floor of $3.00 per share in the calculation of the reset provision included in the Series
B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series B warrants held by the Modification
Investors is 1,913,043 shares. Due to the elimination of the "down-round" provisions, these warrants qualify for equity
presentation as of the modification date.
As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants
to purchase 2.5 million shares of common stock with a cash exercise price of $3.00 per share. The Series C warrants include a
provision under which the Series C warrants must be exercised at the election of the Company by the Modification Investors for
cash if the closing sales price of the common stock is $6.00 per share or greater for 20-consecutive trading days. As a result
of the issuance of the Series B warrants and the Series C warrants, the exercise prices and number of shares underlying the Series
A warrants and Series B warrants held by the remaining investor in the July 13, 2011 offering were adjusted pursuant to their
terms. As the Series C Warrants were consideration given pursuant to the Modification Agreement, the fair value of these warrants
on the modification date were expensed as a component of realized and unrealized expense on warrant derivatives in the consolidated
statement of operations.
On April 5, 2012, pursuant to the terms
of a second modification agreement, the Company and the Modification Investors agreed to further amend the terms of the Series
B warrant to extend the expiration date to be (i) May 24, 2012 with respect to 1,000,000 shares of common stock underlying the
Series B warrants and (ii) with respect to the remaining 913,043 shares of common stock underlying the Series B Warrants (the
"Subsequent Warrant Shares"), the date that is the earlier of (a) 300 days from April 5, 2012 and (b) ten business
days after notice from the Company stating that the number of Subsequent Warrant Shares exercisable by the Modification Investors
would result in ownership of less than 9.99% of the Company's common stock after giving effect to such exercise. The Company
may provide multiple notices prior to the expiration of the Subsequent Warrant Shares.
Macquarie Warrant Restructure.
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly on February 9, 2012, the Company
issued an amended and restated Macquarie Warrant (the "Amended Macquarie Warrant") to Macquarie Americas to purchase
up to 2,333,000 shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie Warrant is not subject
to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision or combinations. The Amended
Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering the underlying common stock.
The Company granted the holder piggy-back registration rights on the underlying common stock. As the warrant modification fee
was consideration given as part of the modification, it was expensed as a component of realized and unrealized expense on warrant
derivatives in the consolidated statement of operations.
Activity for derivative warrant instruments during the three
months ended March 31, 2012 was as follows:
Fair value
as of
December
31, 2011
Increase
(decrease) in fair
value of
derivative
liability
Reclassification to equity
due to Modification
Fair value
March
31, 2012
Derivative warrant instruments for Series A and Series B Warrants
$
8,119,453
$
(36,199
)
$
(6,925,360
)
$
1,157,894
Derivative warrant instruments for Macquarie warrants
7,179,205
231,427
(7,410,632
)
-
$
15,298,658
$
195,228
$
(14,335,992
)
$
1,157,894
F-
19
Note H.    Fair
value measurements
The Company follows fair value measurement
authoritative guidance for all assets and liabilities measured at fair value.  That guidance defines fair value as the price
that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market
participants at the measurement date.  Market or observable inputs are the preferred sources of values, followed by assumptions
based on hypothetical transactions in the absence of market inputs.  The hierarchy for grouping these assets and liabilities
is based on the significance level of the following inputs:
·
Level 1 - quoted prices in active markets for identical assets or liabilities
·
Level 2 - quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar
    instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant
    value drivers are observable
·
Level 3 - significant inputs to the valuation model are unobservable
The following is a listing of the Company's
financial assets and liabilities that are measured at fair value on a recurring basis and where they are classified within the
hierarchy as of March 31, 2012:
Level 1
Level 2
Level 3
Liabilities:
Commodity derivatives
$
-
$
872,089
$
-
Warrant derivatives
$
-
$
-
$
1,157,894
The Company uses Level 2 inputs to
measure the fair value of its commodity derivatives.  Fair values are based upon interpolated data.  The Company derives
internal valuation estimates taking into consideration the counterparties' credit ratings, the Company's credit rating,
and the time value of money.  These valuations are then compared to the respective counterparties' mark-to-market statements. 
The considered factors result in an estimated exit-price that management believes provides a reasonable and consistent methodology
for valuing derivative instruments.
The following table reflects the activity
for warrant derivative liabilities measured at fair value using Level 3 inputs:
For the three
months
ended
For the year
ended
March 31,
December 31,
2012
2011
Beginning balance
$
(15,298,658
)
$
-
Additions
-
(14,888,990
)
Net decrease (increase) in liabilities
(195,228
)
(409,668
)
Transfers out of Level 3
14,335,992
-
Ending balance
$
(1,157,894
)
$
(15,298,658
)
Generally, market quotes assume that
all counterparties have near zero, or low, default rates and have equal credit quality.  However, an adjustment may be necessary
to reflect the credit quality of a specific counterparty to determine the fair value of the instrument.
The methods described above may result
in a fair value estimate that may not be indicative of net realizable value or may not be reflective of future fair values and
cash flows.  While the Company believes that the valuation methods utilized are appropriate and consistent with accounting
authoritative guidance and with other marketplace participants, the Company recognizes that third parties may use different methodologies
or assumptions to determine the fair value of certain financial instruments that could result in a different estimate of fair
value at the reporting date.
F-
20
The fair value of the warrants was
calculated using the Monte Carlo simulation valuation model based on factors present at the time of closing of the private placement
offering on July 15, 2011 and the credit facility on September 21, 2011 and updated for the periods ended March 31, 2012 and December
31, 2011.
Assets and Liabilities Measured
at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are
reported at fair value on a nonrecurring basis in the Company's consolidated balance sheets. The following methods and assumptions
were used to estimate the fair values:
Impairments of Long-Lived Assets.
The Company reviews its long-lived assets to be held and used, including proved oil and natural gas properties, whenever
events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated
if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. In this circumstance,
the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. The Company reviews its oil and natural gas properties by amortization base or by individual well for those
wells not constituting part of an amortization base. For each property determined to be impaired, an impairment loss equal to
the difference between the carrying value of the properties and the estimated fair value (discounted future cash flows) of the
properties is recognized at that time. Estimating future cash flows involves the use of judgments, including estimation of the
proved and unproved oil and natural gas reserve quantities, timing of development and production, expected future commodity prices,
capital expenditures and production costs.  During the three months ended March 31, 2012 and 2011, the Company recorded impairments
of $0 and $0, respectively.
Asset Retirement Obligations ("ARO").
The initial recognition of AROs is based on fair value.  The Company estimates the fair value of AROs based on
discounted cash flow projections using numerous estimates, assumptions and judgments regarding such factors as the existence of
a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted, risk-free rate to be used; and inflation
rates. See Note E for a summary of changes in ARO for the periods ended March 31, 2012 and 2011.
Acquisitions.
Acquisitions
not under common control are recorded at fair value.  The Company closed acquisitions on August 22, 2011, November 1,
2011 and March 5, 2012 which were recorded at fair value as described in Note J.
Long-Term Notes Payable and Debt
.
The carrying amount of the long-term notes payable to Geronimo and Pentwater as of
March 31, 2012 approximates fair value because the Company's current borrowing rate does not materially differ from market
rates for similar bank borrowings.  The long-term notes payable have only been outstanding for a short period of time and
as such, the carrying value approximates fair value.  The book value of our term loan and credit facility with Macquarie
approximates fair value because of its floating rate structure.  The Company has classified the long-term notes payable and
credit facility as Level 2 items within the fair value hierarchy.
Note I.  Major Customers
The Company's producing oil and natural
gas properties are located in Texas, New Mexico, Arkansas, Oklahoma, North Dakota, Nebraska and Wyoming.  At March 31, 2012,
the Company contracts with a number of operators and notes one operator, XOG, in which revenues received by the Company were greater
than 10% of the Company's total revenues.  During the first three months of 2012 and 2011, revenue through XOG
accounted for approximately 63% and 77%, respectively.  Although operators are not the end purchasers of oil and natural
gas, the Company is of the opinion that the loss of any one purchaser other than XOG would not have a material adverse effect
on the ability of the Company to sell its oil and natural gas production as such production can be sold to other purchasers.
F-
21
Note J.  Acquisitions
On August 22, 2011, the Company acquired
approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks (the "Bakken 4 Properties") area from
XOG Group for approximately $14.6 million. A cash deposit of $13,500,000 was made on April 15, 2011, and the Company subsequently
issued 208,200 shares of common stock upon closing, which were valued at $1,093,050 using the stock price of $5.25 per share on
the closing date. The acquisition was recorded at fair value as the XOG Group and the Company were not under common control at
the time of the asset acquisition.
On November 1, 2011, the Company acquired
approximately 391 net undeveloped leasehold acres in the Bakken/Three Forks area from the XOG Group for approximately $1.2 million
dollars in cash. The acquisition was recorded at fair value as the XOG Group and the Company were not under common control at
the time of the asset acquisition.
On March 5, 2012, the Company acquired
the March 2012 Properties in exchange for the delivery by the Company to the Sellers of $10 million in cash, less a $1.5 million
cash deposit previously paid by the Company, the Geronimo Note (as discussed in Note D) made by the Company in favor of Geronimo
and 5,000,000 shares of the common stock of the Company, which had a closing price of $2.70 per share on the closing date of the
acquisition. The March 2012 Properties were purchased pursuant to the terms of a Purchase and Sale Agreement dated as of February
24, 2012, (the "PSA"), by and among the Company, XOG and Geronimo. The effective date of this purchase was December
1, 2011. The operating results from these March 2012 Properties have been included from their acquisition on March 5, 2012.
Minimal purchase price was allocated
to well bores acquired. The Company allocated virtually all value to acreage for further development, despite the fact that some
acquired properties were producing from legacy development.
Pro Forma Operating Results
The following table reflects the unaudited
pro forma results of operations as though the acquisition of the March 2012 Properties had occurred on January 1, 2012 and 2011.
The pro forma amounts are not necessarily indicative of the results that may be reported in the future:
Three Months
Ended March
31, 2012
Pro Forma
Combined
Revenues
$
6,093,688
Net loss
    (1)
$
(41,545,987
)
Loss per share basic and diluted
$
(0.92
)
Shares used in computing income (loss) per share:
Basic and diluted (2)
45,086,879
Three Months
Ended March
31, 2011
Pro Forma
Combined
Revenues
$
3,404,760
Net loss
    (1)
$
(1,359,160
)
Loss per share basic and diluted
$
(0.04
)
Shares used in computing income (loss) per share:
Basic and diluted (2)
37,154,300
F-
22
(1) Includes pro forma interest expense of $857,157
(2) Includes pro forma shares of 5,000,000
The amount of revenues and revenues
in excess of direct operating expenses included in our consolidated statements of operations and attributable to the March 2012
Properties is shown in the table that follows. Direct operating expenses include lease operating expenses and production and other
taxes.
Three Months
Ended
March 31, 2012
Revenues
$
390,567
Excess direct operating expenses over revenues
$
(216,725
)
The PSA provides that if certain defects
are found with the March 2012 Properties within 120 days from closing, or if XOG or Geronimo breaches any representation or warranty
in the Agreement within one year from closing, XOG and Geronimo shall, at the option of the Company, in its sole and absolute
discretion, either (i) provide additional or alternative oil and gas properties, subject to the Company's applicable due
diligence review and acceptance or (ii) for as long as the Geronimo Note is outstanding, decrease the principal amount of the
Note in an amount equal to the loss resulting from such property defect or breach.
XOG and Geronimo have piggyback registration
rights with respect to up to five million shares of common stock held by XOG or Geronimo.
Note K.  Related Party
Transactions
The XOG Group
.
XOG is currently contracted to operate the existing wells held by the Company in the Permian Basin region. XOG historically
performed this service for Geronimo and CLW. XOG, Geronimo, CLW and Randall Capps combine as the largest shareholder
in the Company and these entities are considered related parties to the Company. As a result, accounts receivable and accounts
payable due from/to XOG are classified as accounts receivable and payables due from/to a related party.   For the
three months ended March 31, 2012 and 2011, sales through XOG were $3,194,904 and $2,311,335, respectively. Lease operating expenses
were $1,590,325 and $459,284 for the three months ended March 31, 2012 and 2011. Net cash paid to XOG (other than in connection
with acquisitions) for the three months ended March 31, 2012 and 2011 was $7,607,715 and $2,544,574, respectively, of which $6,017,390
and $2,085,290 was for drilling costs, respectively.
Randall Capps has controlling ownership
of XOG, Geronimo and CLW and is a member of the Company's board of directors.  Through his ownership interest
in the XOG Group, Mr. Capps is the largest and majority shareholder of our common stock.  Mr. Capps is also the father-in-law
of Scott Feldhacker, our chief executive officer and director.
Overriding Royalty and Royalty Interests.
In some instances, the XOG Group may hold overriding royalty and royalty interests ("ORRI")
in wells acquired by the Company. All revenues and expenses presented herein are net of any ORRI effects.
XOG Group Acquisitions.
The Company has made significant acquisitions of oil and natural gas properties and undeveloped leases from the XOG Group
as discussed in Note A and Note J. On March 5, 2012, the Company acquired the March 2012 Properties in exchange for the delivery
by the Company to the Sellers of $10 million in cash, less a $1.5 million cash deposit previously paid by the Company, the Geronimo
Note of $35,000,000 (as discussed in Note D) made by the Company in favor of Geronimo and 5,000,000 shares of the common stock
of the Company, which had a closing price of $2.70 per share on the closing date of the acquisition.
F-
23
Note L.  Commitments and
Contingencies
Employment Agreements.
At March 31, 2012, the Company's cash contractual obligations related to its employment agreements
with executive officers for each of the following three years ending December 31 are as follows:
2012
$
613,500
2013
818,000
2014
272,667
Total
$
1,704,167
Operating Leases.
The Company leases
its 4,092 square-foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease agreement, dated
September 30, 2010, for a 66-month term.  The lease provides for no lease payments until February 1, 2011 and a reduced square
footage charge for the first year.  The initial rental was $23.00 per square foot, beginning February 1, 2011, and increases
$.50 per square foot annually thereafter.  For the three months ended March 31, 2012 and 2011, the Company recorded lease
expense of $13,991 and $21,840, respectively.
At March 31, 2012, the future minimum
lease commitments under the non-cancellable operating leases for each of the following five years ending December 31 are as follows:
2012
$
46,952
2013
97,356
2014
99,402
2015
101,448
2016
42,625
Total
$
387,783
Drilling Commitments.
At March 31, 2012, the Company had various oil and natural gas wells in multiple stages of drilling and completion of which the
balance of the Company's unpaid approval for expenditures was estimated to be approximately $15,592,000.
F-
24
American Standard Energy Corp. and
Subsidiary
Consolidated Financial Statements
Index to Consolidated Financial Statements
Consolidated Financial Statements of American Standard Energy Corp.
Report of Independent Registered Public Accounting Firm
F-26
Consolidated Balance Sheets as of December 31, 2011 and 2010
F-27
Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009
F-28
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009
F-29
Consolidated Statements of Stockholders' Equity for the years ended December 31,
    2011, 2010 and 2009
F-30
Notes to Consolidated Financial Statements
F-31 – F-49
Unaudited Supplementary Information
F-50 – F-53
F-
25
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
American Standard Energy Corp.
Scottsdale, Arizona
We have audited the accompanying consolidated
balance sheets of American Standard Energy Corp. and subsidiary (the "Company") as of December 31, 2011 and 2010 and
the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Notes A, K, L, and
N, the Company engages in significant transactions with related parties.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of American Standard Energy Corp.
at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2011
,
in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), American Standard Energy Corp.'s internal
control over financial reporting as of December 31, 2011, based on criteria established in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March
20, 2012 expressed an adverse opinion thereon.
/s/ BDO USA, LLP
Houston, Texas
March 20, 2012
F-
26
American Standard Energy Corp. and
Subsidiary
Consolidated Balance Sheets
December
31,
December
31,
2011
2010
Current assets:
Cash and cash equivalents
$
733,049
$
519,996
Oil and gas sales receivables
1,556,414
701,754
Oil and gas sales receivables - related parties
639,714
89,630
Stock subscriptions receivable and other current
    assets
308,208
1,565,548
Total current assets
3,237,385
2,876,928
Oil and natural gas properties at cost, successful efforts method
Proved
76,919,789
29,881,328
Unproved
25,212,635
9,954,354
Accumulated depletion and depreciation
(14,310,006
)
(10,044,746
)
Total oil and natural gas properties, net
87,822,418
29,790,936
Debt issuance costs, net of amortization of $69,184
720,175
-
Prepaid drilling costs
2,590,356
101,946
Deposit on properties with affiliate
1,500,000
-
Other assets, net of accumulated depreciation of $7,380 and $1,023
24,403
29,670
Total assets
$
95,894,737
$
32,799,480
Current liabilities:
Accounts payable - trade
$
3,373,262
$
925,654
Accounts payable and accrued liabilities - related parties
8,574,017
2,856,312
Accrued withholding tax
1,338,308
-
Commodity derivatives
243,996
-
Other accrued liabilities
36,665
1,708,695
Total current liabilities
13,566,248
5,490,661
Term loan and revolving credit facility, net of discount of $9,907,057
7,262,832
-
Asset retirement obligations
394,177
242,632
Commodity derivatives
421,964
-
Warrant derivative liabilities
15,298,658
-
Total liabilities
36,943,879
5,733,293
Stockholders' equity
Preferred stock, $.001 par value; 1,000,000 shares
    authorized; None issued and outstanding
-
-
Common stock, $.001 par value; 100,000,000 shares
    authorized, 40,178,060 shares issued and 39,971,367 shares outstanding at December 31, 2011 and 28,343,905 shares issued and
    outstanding at December 31, 2010
40,178
28,344
Additional paid-in capital
75,504,243
28,841,004
Treasury stock, 206,693 shares at cost
(1,116,514
)
-
Accumulated deficit
(15,477,049
)
(1,803,161
)
Total stockholders' equity
58,950,858
27,066,187
Total liabilities and stockholders' equity
$
95,894,737
$
32,799,480
F-
27
American Standard Energy Corp. and
Subsidiary
Consolidated Statements of Operations
Years Ended December 31,
2011
2010
2009
Operating revenues:
Oil & natural gas revenues
$
12,407,774
$
6,861,385
$
5,666,710
Gain on sale of oil and natural gas leases
-
35,560
-
12,407,774
6,896,945
5,666,710
Operating costs and expenses:
Oil and natural gas production costs
3,067,087
2,163,887
1,786,280
Exploration expense
-
247,463
240,382
General and administrative (including non cash
    stock-based compensation of $10,401,110, $4,227,274 and none)
16,387,633
5,674,985
553,542
Impairment of oil and natural gas properties
1,027,552
46,553
253,258
Depreciation, depletion and amortization
3,313,250
1,556,288
1,490,926
Accretion of discount on asset retirement obligations
20,951
15,607
12,399
Total operating costs and expenses
23,816,473
9,704,783
4,336,787
Income (loss) from operations
(11,408,699
)
(2,807,838
)
1,329,923
Other income (expense), net:
Realized and unrealized loss on commodity derivatives
(670,659
)
-
-
Interest expense, including accretion of debt discount
(1,184,862
)
-
-
Unrealized expense on warrant derivatives
(409,668
)
-
-
Total other income (expense), net
(2,265,189
)
-
-
Income tax benefit
-
-
92,000
Net income (loss)
$
(13,673,888
)
$
(2,807,838
)
$
1,421,923
Weighted average common shares outstanding
$
35,413,541
$
23,755,750
$
18,695,849
Loss per share basic and diluted (1)
$
(0.39
)
$
(0.12
)
$
0.08
(1)     Proforma presentation for 2010
and 2009, refer to Note B
F-
28
American Standard Energy Corp. and
Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31,
2011
2010
2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(13,673,888
)
$
(2,807,838
)
$
1,329,923
Adjustments to reconcile net loss to net cash provided by operating
    activities:
Depreciation, depletion and amortization
3,313,250
1,556,288
1,490,926
Amortization of debt discount
1,010,924
-
-
Unrealized loss on commodity derivative
665,960
-
-
Unrealized expense on warrant derivatives
409,668
-
-
Exploration expenses
-
247,463
240,382
Accretion of asset retirement obligations
20,951
15,607
12,399
Gain on sale of oil and natural gas leases
-
(35,560
)
-
Common stock issued for services
-
26,500
-
Impairment of oil and natural gas properties
1,027,552
46,553
253,258
Non-cash stock-based compensation expense
10,401,110
4,227,274
-
Penalties for delayed registration, paid for by common stock
2,019,943
-
-
Changes in operating assets and liabilities:
Oil and natural gas sales receivables
(2,411,823
)
(104,466
)
(266,341
)
Other current assets
(300,358
)
26,282
(100,617
)
Accounts payable and accrued
    liabilities
1,919,460
541,522
(23,247
)
Net cash provided by operating activities
4,402,749
3,739,625
2,936,683
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and natural gas property additions
(54,372,042
)
(13,021,284
)
(2,393,249
)
Prepaid drilling costs
(2,590,356
)
(101,946
)
-
Proceeds from sale of oil and natural gas leases
-
244,855
-
Deposit on properties with affiliate
(1,500,000
)
-
-
Net cash used in investing activities
(58,462,398
)
(12,878,375
)
(2,393,249
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceed from changes in predecessor net investment
-
4,783,839
(543,434
)
Cash payment to Geronimo - deemed distribution
(10,000,000
)
(500,000
)
-
Proceeds from the sale of stock, net
46,334,474
3,506,985
-
Proceeds from exercise of warrants
-
1,867,922
-
Proceeds from stock subscription receivable
1,557,698
-
-
Proceeds from revolving credit facility
17,169,889
-
-
Debt issuance costs paid
(789,359
)
-
-
Net cash provided by financing activities
54,272,702
9,658,746
(543,434
)
Net increase in cash and cash equivalents
213,053
519,996
-
Cash and cash equivalents at beginning of period
519,996
-
-
Cash and cash equivalents at end of period
$
733,049
$
519,996
$
-
Supplemental disclosure of cash flow information
Cash paid during the period for interest
$
144,456
$
-
$
-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accounts payable and accrued liabilities for oil and natural gas properties
    additions
$
5,623,612
$
4,744,180
$
(13,994
)
Stock and warrants subscription receivable
$
-
$
1,557,698
$
-
Additions and revisions to asset retirement cost and related obligation
$
130,594
$
(10,353
)
$
(6,482
)
Property acquired from Geronimo for shares of common stock
$
2,350,050
$
-
$
-
Founders shares remitted for accrued withholding tax
$
1,116,514
$
-
$
-
Non-Cash Deemed Dividend
$
459,495
$
-
$
-
Discount on debt - derviative warrants
$
10,917,981
$
-
$
-
F-
29
American Standard Energy Corp. and
Subsidiary
Consolidated Statements of Stockholders'
Equity
Year ended December 31, 2011
Common Stock
Treasury Stock
Shares
Value
Additional
paid-in capital
Shares
Value
Accumulated
(deficit)
Net
Investment
Total
stockholders'
equity
Balance at January 1, 2009
-
$
-
$
-
-
$
-
$
(325,246
)
$
13,942,564
$
13,617,318
Transfer from XOG Group
-
-
-
-
-
-
(543,434
)
(543,434
)
Net income
-
-
-
-
-
1,329,923
-
1,329,923
Balance at December 31, 2009
-
$
-
$
-
-
$
-
$
1,004,677
$
13,399,130
$
14,403,807
Transfer from XOG Group
-
-
-
-
-
-
4,783,839
4,783,839
Initial capitalization of ASEC
17,526,526
17,527
18,165,442
-
-
-
(18,182,969
)
-
Shares of shell treated
    as issued in connection with reverse merger
3,540,290
3,540
(3,540
)
-
-
-
-
-
Issuance of common
    stock for compensation
4,081,632
4,082
3,342,012
-
-
-
-
3,346,094
Stock-based compensation expense
-
-
881,180
-
-
-
-
881,180
Issuance of common stock for cash
2,275,442
2,275
4,254,713
-
-
-
-
4,256,988
Exercise of warrants
910,015
910
2,674,707
-
-
-
-
2,675,617
Issuance of common stock for services
10,000
10
26,490
-
-
-
-
26,500
Cash paid to Geronimo
    - deemed distribution
-
-
(500,000
)
-
-
-
-
(500,000
)
Net loss
-
-
-
-
-
(2,807,838
)
-
(2,807,838
)
Balance at December 31, 2010
28,343,905
$
28,344
$
28,841,004
-
$
-
$
(1,803,161
)
$
-
$
27,066,187
February 2011, common
    stock sold in private placement offering at $3.50 per share, less offering costs totaling $774,687
4,401,930
4,402
14,627,666
-
-
-
-
14,632,068
Property acquired
    from XOG Group recorded at historical cost
-
-
1,257,000
-
-
-
-
1,257,000
Shares issued for
    acquisition of properties from XOG Group recorded at historical cost
883,607
884
(884
)
-
-
-
-
-
Cash paid and deemed
    distribution for acquisition of properties from Geronimo recorded at historical cost
-
-
(10,000,000
)
-
-
-
-
(10,000,000
)
Deemed distribution
    for working capital not acquired in acquisition of properties
-
-
(459,495
)
-
-
-
-
(459,495
)
March 2011, common
    stock sold in private placement offering at $5.75 per share, less offering costs totaling $1,537,375
3,697,005
3,697
19,716,706
-
-
-
-
19,720,403
July 2011, common
    stock and warrants sold in private placement offering at $5.75 per share, less offering costs totaling $998,000
2,260,870
2,261
8,008,733
-
-
-
-
8,010,994
Shares issued in
    August 2011 for acquisition of properties from XOG Group recorded at fair value
208,200
208
1,092,842
-
-
-
-
1,093,050
Shares issued for
    delayed registration penalties for shares of February and March 2011 private placements at $4.40 per share
459,074
460
2,019,483
-
-
-
-
2,019,943
Founder's Stock withheld
    for taxes at $5.40 per share
-
-
-
(206,693
)
(1,116,514
)
-
-
(1,116,514
)
Forfeited unvested
    Founder's Stock
(76,531
)
(78
)
78
-
-
-
-
-
Stock-based compensation
    expense
-
-
10,401,110
-
-
-
-
10,401,110
Net
    loss
-
-
-
-
-
(13,673,888
)
-
(13,673,888
)
Balance at December 31, 2011
40,178,060
$
40,178
$
75,504,243
(206,693
)
$
(1,116,514
)
$
(15,477,049
)
$
-
$
58,950,858
F-
30
American Standard Energy Corp. and
Subsidiary
Notes to Consolidated Financial Statements
Note A. Organization and Basis of
Presentation
American Standard Energy Corp., a Nevada
corporation ("Nevada ASEC") was incorporated on April 2, 2010 for the purposes of acquiring certain oil and gas leasehold
properties from Geronimo Holding Corporation ("Geronimo"), XOG Operating, LLC ("XOG") and CLW South Texas
2008, LP ("CLW") (collectively, the "XOG Group").  Randall Capps is the sole owner of XOG and
Geronimo, and the majority owner of CLW.  Nevada ASEC's principal business is the acquisition, development and exploration
of oil and natural gas leasehold properties primarily in the Permian Basin of west Texas and eastern New Mexico, the Eagle Ford
Shale formation of South Texas, the Bakken Shale formation in North Dakota and certain other oil and natural gas properties in
Arkansas and Oklahoma.
Uncle Al's Famous Hot Dogs &
Grille, Inc. ("FDOG") was incorporated as National Franchise Directors, Inc., under the laws of the State of Delaware
on March 4, 2005.  On October 1, 2010, FDOG entered into a Share Exchange Agreement (the "Agreement"), dated
October 1, 2010, with its then controlling shareholder and Nevada ASEC, a privately-held oil exploration and production company
owned substantially by the XOG Group.  Pursuant to the Agreement, FDOG (1) spun-off its franchise rights and related operations
to its controlling shareholder in exchange for and cancellation of 25,000,000 shares of FDOG's common stock and (2) acquired
100% of the outstanding shares of common stock of ASEC and additional consideration of $25,000 from the ASEC shareholders. In
exchange for the ASEC stock and the additional consideration, the XOG Group was issued approximately 22,000,000 shares of FDOG's
common stock on the closing date of the Share Exchange Agreement. As a result, Nevada ASEC owners acquired control of FDOG and
the transaction was accounted for as a recapitalization with Nevada ASEC as the accounting acquirer of FDOG. Accordingly, as a
result of the recapitalization, the financial statements of Nevada ASEC became the historical financial statements of FDOG. In
connection with the Share Exchange Agreement, FDOG changed its name to American Standard Energy Corp, a Delaware Company (the
"Company").  Nevada ASEC is a wholly-owned subsidiary of the Company.
A history of the Company's property
acquisitions from the XOG Group accounted for as a transaction under common control through December 31, 2011 is as follows:
·
Formation acquisition - On May 1, 2010, the XOG Group contributed certain developed
    and undeveloped oil and natural gas properties located in Texas and North Dakota (the "Formation Properties")
    to Nevada ASEC in exchange for 80% of Nevada ASEC's common stock. The exchange was accounted for as a transaction under
    common control and accordingly, the Company recognized the assets and liabilities acquired at their historical carrying values
    with no goodwill or other intangible assets recognized.  As a result, the historical assets, liabilities and operations
    of the Formation Properties are included in the accompanying consolidated financial statements retrospectively for all periods
    presented.
·
On December 1, 2010, the Company acquired certain developed and undeveloped
    oil and natural gas properties located in North Dakota (the "Bakken 1 Properties") from XOG Group for $500,000
    cash and 1,200,000 shares of the Company's common stock valued at approximately $3,960,000 based on the December 1,
    2010 closing price of the Company's stock.  The acquisition was accounted for as a transaction under common control
    and accordingly, the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values. 
    As a result, the historical assets, liabilities and operations of the Bakken 1 Properties are included in the accompanying
    consolidated financial statements retrospectively for all periods presented.
·
On February 11, 2011, the Company acquired certain developed oil and natural
    gas properties located in Texas, Oklahoma and Arkansas (the "Group 1 & 2 Properties") from XOG Group for $7,000,000
    cash.  The acquisition was accounted for as a transaction under common control and accordingly, the Company recorded
    the assets and liabilities acquired from XOG Group at their historical carrying values.  As a result, the historical
    assets, liabilities and operations of the Group 1 & 2 Properties are included in the accompanying consolidated financial
    statements retrospectively for all periods presented.
F-
31
·
On March 1, 2011, the Company acquired certain undeveloped mineral rights leaseholds
    held on properties in the Bakken Shale Formation in North Dakota (the "Bakken 2 Properties") from XOG Group in
    exchange for $3,000,000 cash and the issuance of 883,607 shares of the Company's common stock valued at $5,787,626 based
    on the March 1, 2011 closing price of the Company's stock.  The acquisition was accounted for as a transaction
    under common control and accordingly, the Company recorded the Bakken 2 Properties at their historical carrying values. 
    As a result, the historical cost basis of the Bakken 2 Properties is included in the accompanying consolidated financial statements
    from the period they were originally acquired by XOG Group. Certain of these mineral rights with a historical cost basis of
    $1,257,000 were acquired by Geronimo subsequent to December 31, 2010, and, as a result, were not under common control at that
    date and have been excluded from the historical consolidated financial statements as of December 31, 2010.  These subsequently-acquired
    undeveloped mineral rights are reflected in our December 31, 2011 consolidated financial statements.
·
On April 8, 2011, the Company acquired undeveloped leasehold acreage consisting
    of approximately 2,780 net acres located in Mountrail County of North Dakota's Williston Basin (the "Bakken 3
    Properties") from XOG Group for $1.86 million. The acquisition was accounted for as a transaction under common control
    and accordingly, the Company recorded the assets and liabilities acquired from XOG Group at their historical carrying values.
    The historical assets, liabilities and operations of the Bakken 3 Properties have been included retrospectively in the consolidated
    financial statements of the Company from the acquisition dates by XOG Group during 2011.
All of the acquisitions described above
are collectively referred to as the "Acquired Properties."
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.
GAAP"). For the periods prior to the acquisition dates of the Acquired Properties, the financial statements have been prepared
primarily on a "carve out" basis from the XOG Group's combined financial statements using historical results
of operations, assets and liabilities attributable to the Acquired Properties, including allocations of expenses from the XOG
Group. This carve-out presentation basis reflects the fact that the Acquired Properties represented only a portion of the XOG
Group and did not constitute separate legal entities. The consolidated financial statements including the carve outs may not be
indicative of the Company's future performance and may not reflect what its results of operations, financial position and
cash flows would have been had the Company owned the Acquired Properties on a stand-alone basis during all of the periods presented.
To the extent that an asset, liability, revenue or expense is directly associated with the Acquired Properties or the Company,
it is reflected in the accompanying consolidated financial statements.
Prior to the Company's acquisition
of the Acquired Properties, the XOG Group provided corporate and administrative functions to the Acquired Properties including
executive management, oil and gas property management, information technology, tax, insurance, accounting, legal and treasury
services. The costs of such services were allocated to the Acquired Properties based on the most relevant allocation method to
the service provided, primarily based on relative net book value of assets. Management believes such allocations are reasonable;
however, they may not be indicative of the actual expense that would have been incurred had the Acquired Properties been operating
as a separate entity for all of the periods presented. The charges for these functions are included in general and administrative
expenses for all periods presented.
In addition to the above, see Note
K for recent acquisitions from XOG Group accounted for at fair value.
Note B. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements
of the Company include the accounts of the Company and its wholly-owned subsidiary.  All material intercompany balances and
transactions have been eliminated.
F-
32
Use of Estimates in the Preparation
of Financial Statements
Preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.  Such estimates
include the following:
Depreciation, depletion and amortization
of oil and natural gas properties are determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties
inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing
of development expenditures.
Impairment evaluation of proved and
unproved oil and natural gas properties is subject to numerous uncertainties including, among others, estimates of future recoverable
reserves, future prices, operating and development costs, and estimated cash flows.
Other significant estimates include,
but are not limited to, the asset retirement costs and obligations, accrued revenue and expenses, and fair values of stock-based
compensation, commodity derivatives and warrants.
Oil and Gas Sales Receivable
Through the Company's operations,
oil and natural gas production is sold to purchasers generally on an unsecured basis. Allowances for doubtful accounts are determined
based on management's assessment of the creditworthiness. Receivables are considered past due if full payment is not received
by the contractual due date. Past due accounts will be generally written off against the allowance for doubtful accounts only
after all collection attempts have been exhausted. Management concluded that no allowance for doubtful accounts was necessary
at December 31, 2011, 2010 and 2009. Management believes that the allowance for doubtful accounts is adequate; however, actual
write-offs may exceed the recorded allowance.
Oil and Natural Gas Properties
The Company utilizes the successful
efforts method of accounting for its oil and natural gas properties. Under this method, all costs associated with productive wells
and nonproductive development wells are capitalized, while nonproductive exploration costs are expensed. Capitalized acquisition
costs relating to proved properties are depleted using the unit-of-production method based on total proved reserves. The depletion
of capitalized exploratory drilling and development costs (wells and related equipment) is based on the unit-of-production method
using proved developed reserves on a field basis.
Proceeds from the sales of individual
properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated
depletion. Generally, no gain or loss is recognized until the entire amortization base is sold. However, a gain or loss is recognized
from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion
rate of the remaining properties in the amortization base.
Ordinary maintenance and repair costs
are expensed as incurred.
Costs of significant nonproducing properties,
wells in the process of being drilled and development projects are excluded from depletion until such time as the related project
is developed and proved reserves are established or impairment is determined. These unproved oil and natural gas properties are
periodically assessed for impairment by considering future drilling plans, the results of exploration activities, commodity price
outlooks, planned future sales or expiration of all or a portion of such projects. Amounts capitalized to oil and natural gas
properties excluded from depletion at December 31, 2011, 2010 and 2009 were $25,212,635, $9,954,354 and $1,322,628, respectively.
During the years ended December 31, 2011, 2010 and 2009 the Company recorded unproved properties impairment of $447,552, $0, and
$0, respectively.
F-
33
Management of the Company reviews its
oil and natural gas properties for impairment by amortization base or by individual well for those wells not constituting part
of an amortization base whenever events or circumstances indicate that the carrying value of those assets may not be recoverable.
An impairment loss is indicated if the sum of the expected undiscounted future cash flows is less than the carrying amount of
the assets. For each property determined to be impaired, an impairment loss equal to the difference between the carrying value
of the properties and the estimated fair value (discounted future cash flows) of the properties is recognized at that time. Estimating
future cash flows involves the use of judgments, including estimation of the proved and unproved oil and natural gas reserve quantities,
timing of development and production, expected future commodity prices, capital expenditures and production costs. During the
years ended December 31, 2011, 2010 and 2009 the Company recorded proved properties impairment of $580,000, $46,553 and $253,258,
respectively.
Environmental
The Company is subject to extensive
federal, state and local environmental laws and regulations. These laws, which are often changing, regulate the discharge of materials
into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic
benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation
is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments
is fixed and readily determinable.
Oil and Natural Gas Sales and Imbalances
Oil and natural gas revenues are recorded
at the time of delivery of such products to pipelines for the account of the purchaser or at the time of physical transfer of
such products to the purchaser. The Company follows the sales method of accounting for oil and natural gas sales, recognizing
revenues based on the Company's share of actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas
imbalances are generated on properties for which two or more owners have the right to take production "in-kind" and
in doing so take more or less than their respective entitled percentage. At December 31, 2011, 2010 and 2009 the Company did not
have any oil and natural gas imbalances.
Debt Issuance Costs
In September 2011, the Company entered
into a $300 million credit facility with Macquarie Bank Limited ("Macquarie"). The Company incurred costs related
to this facility that were capitalized on the Balance Sheet as Debt Issuance Costs. Included in the Debt Issuance Costs are direct
costs paid to third parties for broker fees and legal fees. The total amount capitalized for Debt Issuance Costs is $789,359.
The capitalized costs will be amortized over the term of the facility. The amortization for the year ended December 31, 2011 was
$69,184.
Warrant Derivative Liabilities
Warrants that contain "down-round
protection" and therefore, do not meet the scope exception for treatment as a derivative under Financial Accounting Standards
Board's Accounting Standards Codification ("ASC") Topic 815 are measured at fair value and liability-classified
under ASC 815, Derivatives and Hedging. Since "down-round protection" is not an input into the calculation of the
fair value of the warrants, the warrants cannot be considered indexed to the Company's own stock which is a requirement
for the scope exception as outlined under ASC 815. The fair value of these warrants is determined using a Monte Carlo Stimulation
Analysis  and is affected by changes in inputs to that model including our stock price, expected stock price volatility,
the contractual term, and the risk-free interest rate. The Company will continue to classify the fair value of the warrants as
a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be
classified as a liability.
Asset Retirement Obligations
The Company records the fair value
of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying
amount of the related oil and gas properties. Subsequently, the asset retirement cost included in the carrying amount is allocated
to expense through depreciation, depletion and amortization. Changes in the liability due to passage of time are recognized as
an increase in the carrying amount of the liability and as corresponding accretion expense.
F-
34
General and Administrative Expense
In addition to general and administrative
("G&A") costs incurred directly by the Company, the accompanying financial statements include an allocated portion
of the actual costs incurred by the XOG Group for G&A expenses. The amounts allocated to the properties are for the period
prior to ownership by Nevada ASEC.  These allocated costs are intended to provide the reader with a reasonable approximation
of what historical administrative costs would have been related to the Acquired Properties had the Acquired Properties existed
as a stand-alone company.
In the view of management, the most
accurate and transparent method of allocating G&A expenses is by using the historical cost basis of the Acquired Properties
divided by the cost basis of the total oil and gas assets of the XOG Group.  Using this method, G&A expense allocated
to the Acquired Properties for the years ended December 31, 2011, 2010 and 2009 was approximately $36,129, $416,827 and $553,542,
respectively.
Treasury Stock
The Company utilizes the cost method for accounting for
its treasury stock acquisitions and dispositions.
Stock-Based Compensation
The Company accounts for stock-based
compensation at fair value in accordance with the provisions of ASC Topic 718, "Stock Compensation", which establishes
accounting for stock-based payment transactions for employee services and goods and services received from non-employees. Under
the provisions of ASC Topic 718, stock-based compensation cost is measured at the date of grant, based on the calculated fair
value of the award, and is recognized as expense in the consolidated statements of operations  pro ratably over the
employee's or non-employee's requisite service period, which is generally the vesting period of the equity grant.
The fair value of stock option awards is generally determined using the Black-Scholes option-pricing model. Restricted stock awards
and units are valued using the market price of the Company's common stock on the grant date. Additionally, stock-based compensation
cost is recognized based on awards that are ultimately expected to vest, therefore, the compensation cost recognized on stock-based
payment transactions is reduced for estimated forfeitures based on the Company's historical forfeiture rates. Additionally,
no stock-based compensation costs were capitalized for the years ended December 31, 2011 and 2010. The Company provides compensation
benefits to employees and non-employee directors under share-based payment arrangements, including various employee stock option
plans. See Note C for further discussion of the Company's stock-based compensation plans.
Income Taxes
Prior to the Company's acquisition
of the Acquired Properties, the Acquired Properties were part of a pass-through entity for federal income tax purposes with taxes
being the responsibility of the XOG Group owners.  As a result, the accompanying financial statements do not present any
income tax liabilities or assets related to the Acquired Properties prior to the Company's acquisition of the Acquired Properties.
Subsequent to the Company's acquisition
of the properties from the XOG Group, the Company recognizes deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance is established
to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.
The Company evaluates uncertain tax
positions for recognition and measurement in the consolidated financial statements. To recognize a tax position, the Company determines
whether it is more likely than not that the tax positions will be sustained upon examination, including resolution of any related
appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold
is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The amount of tax benefit
recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely
of being realized upon settlement. The Company had no uncertain tax positions that required recognition in the accompanying financial
statements. Any interest or penalties would be recognized as a component of income tax expense.
F-
35
Fair Value of Financial Instruments
The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current transaction between two willing parties. The carrying amount
of cash, oil and gas sales receivable, stock subscription receivable and other current assets, accounts payable and accrued liabilities
approximates fair value because of the short maturity of these instruments.
Reclassifications
Certain prior year information has
been reclassified to conform to current year presentation.
Earnings (Loss) per Common Share
Basic earnings (loss) per share is
computed on the basis of the weighted-average number of common shares outstanding during the periods. Diluted earnings per share
is computed based upon the weighted-average number of common shares outstanding plus the assumed issuance of common shares for
all potentially dilutive securities.
Weighted-average number of shares for
the years ended December 31, 2011, 2010 and 2009 was computed on a pro forma basis as if the 17,520,526 and 883,607 common shares
issued to the XOG Group in connection with the Company's acquisition of the Acquired Properties during 2010 and 2011, respectively,
and the 285,716 shares purchased by Randall Capps in the February 2011 private placement were issued and outstanding for all periods
presented.  As of December 31, 2011, 2,194,621 shares were excluded from the calculation due to being anti-dilutive.
Derivative Instruments and Price Risk Management
The Company uses derivative instruments
from time to time to manage market risks resulting from fluctuations in the prices of crude oil and natural gas. The Company may
periodically enter into derivative contracts, including price swaps, caps and floors, which require payments to (or receipts from)
counterparties based on the differential between a fixed price and a variable price for a fixed quantity of crude oil or natural
gas without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production
from existing wells. The Company has, and may continue to use exchange traded futures contracts and option contracts to hedge
the delivery price of crude oil at a future date.
The Company has elected not to designate
derivative contracts as accounting hedges under FASB ASC 815-20-25. As such, all derivative positions are carried at their fair
value on the balance sheet and are marked-to-market at the end of each period.  Any realized gains or losses on derivatives
are recorded in realized and unrealized gain (loss) on commodity derivatives and are included as a component of other income (expense).
Note C.  Stockholders' Equity
Founders Stock
On April 13, 2010, the Company issued
1,887,755 shares of its common stock to non-management individuals valued at $1.47 per share and recorded non-cash stock compensation
expense of $2,775,000 for the year ended December 31, 2010.
F-
36
On April 13, 2010, the Company issued
2,193,877 shares of its common stock to management.  These shares are restricted and vest over four years.  The Company
valued these shares at $1.47 per share and recorded non-cash stock compensation expense of $787,413 and $571,094 for the years
ended December 31, 2011 and 2010, respectively. On April 16, 2011, 548,655 shares of founder's stock issued to management
vested.  The Company has estimated that $1,116,513 in federal and state withholding taxes is due related to this vesting,
which has been recorded as an accrued liability on the accompanying balance sheet as of December 31, 2011.  The officers
of the Company have remitted to the Company 206,693 shares of the Company's common stock valued with a market price
of $5.40 per share when remitted to cover the withholding requirements.  The stock remittance is included in the
accompanying statement of stockholders' equity as treasury stock at December 31, 2011.  The Company is working
with its tax advisors to evaluate the taxable amount due and expects to remit the appropriate tax to the IRS in the first quarter
2012.  In addition, in accordance with the restricted stock agreements for each of the officers, the Company is to reimburse
a portion of these withholding taxes to the officers.  Based upon the agreement, the company estimates that it will
be required to reimburse in total $221,794 to these officers by December 31, 2012.  This amount is included in general
and administrative expenses for the year ended December 31, 2011 and in accrued withholding tax as of December 31, 2011. On February
13, 2012, the Company approved the immediate vesting of the remaining unvested founders shares.
Private Placements of Common Stock
and Warrants
On October 1, 2010, the Company sold
to accredited investors 1,591,842 shares of common stock for cash of $2,340,008.
On October 20, 2010, the Company closed
a private placement offering raising proceeds of $3,034,900, net of offering costs, through the sale of 452,830 shares of the
Company's common stock at a price of $2.65 per share and the issuance and exercise of four-month warrants exercisable into 679,245
shares of common stock at an exercise price of $2.75 per share.  The shares and warrants were acquired by two accredited
investors.  All of the warrants were exercised in 2010.  The Company incurred costs of $33,022 related to this offering.
On December 23, 2010, the Company closed
a private placement offering raising proceeds of $1,557,698, which were received in January 2011, through the sale of 230,770
shares of the Company's common stock at a price of $3.25 per share and the issuance and exercise of four-month warrants
exercisable into 230,770 shares of common stock at an exercise price of $3.50 per share.  The shares and warrants were sold
to an accredited investor.  All of the warrants were exercised in 2010.  At December 31, 2010 the $1,557,698 was classified
as a stock subscription receivable on the balance sheet.
On February 1, 2011, the Company closed
a private placement offering raising proceeds of $15,406,755 through the issuance of (i) 4,401,930 shares of common stock at a
price of $3.50 per share and (ii) 2 series of five-year warrants each exercisable into 1,100,482 shares of common stock at exercise
prices of $5.00 and $6.50 per share, respectively, subject to certain adjustments.  The Company also issued to the placement
agents warrants to purchase up to 220,097 shares of common stock, the terms and exercise price are the same as investors under
this private placement offering.  The shares and warrants were sold to certain accredited investors.  Subject to certain
conditions, the Company has the right to call for the exercise of such warrants.  The Company incurred costs of $0.8 million
in connection with this offering.
Par value of common stock issued
$
4,402
Paid-in capital
14,627,666
Offering expenses
774,687
Total gross proceeds
$
15,406,755
On March 31, 2011, the Company closed
a private placement offering of securities raising proceeds of $21,257,778 through the issuance of (i) 3,697,005 shares of common
stock at a price of $5.75 per share and (ii) five-year warrants exercisable into 1,848,502 shares of common stock at exercise
prices of $9.00 per share, subject to certain adjustments.  The Company also issued to the placement agents warrants to purchase
up to 96,957 shares of common stock at an exercise price of $9.00.  The shares and warrants were sold to certain accredited
investors.  Subject to certain conditions, the Company has the right to call for the exercise of such warrants.  The
Company incurred costs of $1.5 million in connection with this offering.
Par value of common stock issued
$
3,697
Paid-in capital
19,716,706
Offering expenses
1,537,375
Total gross proceeds
$
21,257,778
F-
37
On July 15, 2011, the Company closed
a private placement offering of $12,980,003 through the issuance of (i) 2,260,870 shares of our common stock at a price of $5.75
per share, (ii) Series A warrants to purchase 1,130,435 shares of common stock at a per share exercise price of $9.00 subject
to certain adjustment provisions; and (iii) Series B warrants to purchase a number of shares of common stock, which shall only
be exercisable if (A) the market price (as defined below) of our common stock on the 30th trading day following the earlier of
(i) the effective date of a registration statement to sell the shares of common stock and the Series A warrant shares, and (ii)
the date on which the purchasers in the private placement can freely sell the shares of common stock pursuant to Rule 144 promulgated
under the Securities Act of 1933, as amended, without restriction (the "Eligibility Date") is less than the purchase
price in the offering or $5.75; and (B) upon certain dilutive occurrences.
If made exercisable pursuant to (A)
in the preceding sentence, the Series B warrants will become immediately exercisable and will have an exercise price of $0.001
per share to purchase a number of shares of our common stock such that the aggregate average price per share purchased by the
investors is equal to the market price (defined as the average of volume weighted average price for each of the previous 30 days
as reported on the Over-The-Counter Bulletin Board during the 30 trading days preceding the measurement date).  Exclusive
of the non-cash warrant expense, the Company incurred costs of approximately $1.0 million in connection with this offering.
Par value of common stock issued
$
2,261
Paid-in capital
8,008,733
Derivative warrant instruments
3,971,009
Offering expenses
998,000
Total gross proceeds
$
12,980,003
In connection with the February 1,
2011 and March 31, 2011 private placement offerings, the Company granted to the investors registration rights pursuant to Registration
Rights Agreements, dated February 1, 2011 and March 31, 2011, in which the Company agreed to register all of the related private
placement common shares and warrants within thirty (30) calendar days after February 1, 2011 and March 31, 2011, and use its best
efforts to have the registration statement declared effective within one hundred twenty (120) calendar days.  Upon the Company's
failure to comply with the terms of the Registration Rights Agreement and certain other conditions, the Company was required to
pay to each investor an amount in common stock equal to one percent (1%) per month of the aggregate purchase price paid by such
investor, up to 6% of the aggregate stock purchase price.  As the Company did not register the shares within thirty calendar
days of February 1, 2011 and March 31, 2011, they were required to pay in common stock 1% of the aggregate purchase price. Shares
distributed were calculated based on the price of issuance of $3.50 per share for the February 1, 2011 private placement offering
and $5.75 per share for the March 31, 2011 placement.  In November 2011, the Company remitted 459,074 penalty shares, calculated
by dividing the respective cash value of each private placements penalty by the respective unit price under which each private
placement was funded. For the year ended December 31, 2011, the Company recognized $2,019,943 of delinquent registration
penalties which are included in general and administrative expenses in the accompanying consolidated statement of operations.
Deferred Compensation Program
On April 15, 2010, the Nevada ASEC's
Board of Directors approved the Nevada ASEC 2010 Deferred Compensation Program. Under this plan, the President and CEO are
entitled to receive a one-time retainer fee consisting of common stock options in lieu of salary through June 30, 2011. The total
number of options granted under the plan was 1,600,000 in lieu of salary through December 31, 2010. The exercise price of the
options is $1.50 and the options vest over 26.5 months.  These options have a ten year life and had a grant date fair value
of $1.09 per share.  400,000 of these shares were exercised and converted to shares of stock on April 13, 2011.  The
rescission of the exercise of such options was approved by our board on August 29, 2011. For the year ended December 31,
2011 and 2010, the Company recorded non-cash stock compensation expense of $789,736 and $559,396, respectively, related to the
amortization of the fair value of these options which is included in general and administrative expenses.
F-
38
Other Share Based Compensation
On August 29, 2011, the Company's Board
of Directors adopted the Amended and Restated 2010 Equity Incentive Plan initially approved April 15, 2010.  The amended
plan provides for 12,000,000 shares to be eligible for issuance to officers, other key employees, directors and consultants.  Since
April 15, 2010, the Board of Directors authorized the grants of 11,265,000 stock options under the 2010 plan.
As part of management's employment
agreements, 7,400,000 options were granted to officers of the Company on April 15, 2011 under the 2010 Equity Incentive Plan with
an exercise price of $7.45. 120,000 options granted in 2010 and 400,000 options granted in 2011 were forfeited in August 2011,
relating to the departure of an employee from the Company.  2,200,000 of these options vest semiannually in equal installments
through April 2012, and the remaining 4,800,000 options vest over the subsequent 48 months thereafter in equal semiannual installments
per their original vesting schedule. These options have a ten year life and had a grant date fair value ranging from $4.59 to
$5.04 per share.
For the years ended December 31, 2011
and 2010, the Company recorded non-cash stock-based compensation expense of $8,855,320 and $375,169, respectively, related to
other share based compensation which is included in general and administrative expenses.
The following table summarizes the
stock options available and outstanding as of December 31, 2011:
Options
Available
for Grant
Under 2010
Plan
Outstanding
Options
Weighted
Average
Exercise
Price
Balance at December 31, 2009
6,000,000
-
$
-
Granted
(3,725,000
)
3,725,000
$
1.65
Balance at December 31, 2010
2,275,000
3,725,000
$
1.65
Additional options authorized under amended plan
6,000,000
-
$
-
Granted
(7,540,000
)
7,540,000
$
7.68
Forfeited
-
(520,000
)
$
6.08
Balance at December 31, 2011
735,000
10,745,000
$
5.67
The options outstanding as of December
31, 2011 have been segregated into 2 ranges for additional disclosure as follows:
Outstanding
    Options
Options
    Exercisable
Range of
Exercise
Price
Number
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Number
Exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
$1.50 - $3.30
3,605,000
1.66
8.33
1,665,000
$
1.65
8.33
$7.00 - $8.00
7,140,000
7.69
8.55
1,195,556
$
7.65
8.96
10,745,000
5.67
8.48
2,860,556
$
4.16
8.59
The aggregate intrinsic value of the
$1.50 to $3.00 options outstanding and options exercisable was $5,378,250 at December 31, 2011. The aggregate intrinsic value
of the $7.00 to $8.00 options outstanding and options exercisable was $0 and $0 at December 31, 2011 and 2010, respectively.
F-
39
The following table presents the future
non-cash stock compensation expense for the Company's outstanding restricted stock grants and stock options at December
31, 2011:
2012
$
11,674,375
2013
8,613,486
2014
8,354,095
2015
2,336,000
Total
$
30,977,956
The weighted average period over which the compensation
costs not yet recognized is expected to be 2.04 years.
The fair value of each option award
is estimated on the date of grant.  The fair values of stock options were determined using the Black-Scholes option valuation
method and the assumptions noted in the following table for 2011 and 2010.  Expected volatilities are based on implied volatilities
from the historical volatility of companies similar to the Company.  The expected term of the options granted used in the
Black-Scholes model represent the period of time that options granted are expected to be outstanding.  The Company utilizes
the simplified method for calculating the expected life of its options as the Company does not have sufficient historical data
to provide a basis upon which to estimate the term.
2011
2010
Expected volatility
68.96%
74.39% - 83.99%
Expected dividends
-
-
Expected term (in years)
5.5 - 6.5
6.0 - 7.3
Risk-free rate
3.43%
2.77% - 3.86%
The fair value of option grants during the year ended
December 31, 2011 and 2010 was $35,608,467 and $4,295,323, respectively.
Note D.  Long term debt
On September 21, 2011, Nevada
ASEC (the "Borrower"), entered into a Credit Agreement (the "Credit Agreement") with the lenders party
thereto and Macquarie Bank Limited ("Macquarie") as administrative agent. The Credit Agreement is fully and unconditionally
guaranteed by the Company (the "Guarantor").  The Guarantor has pledged as collateral 100% of their stock
in the Borrower.   The Borrower's obligations under the Credit Agreement are secured by the Borrower's
interest in certain oil and gas properties and the hydrocarbons produced from such properties, as well as the proceeds of the
sale of such hydrocarbons.
The Credit Agreement provides to the
Borrower a revolving credit facility in an amount not to exceed $100 million and a term loan facility in an amount not to exceed
$200 million. The interest rate on revolving loans is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 2.75%
to 3.25% per annum (2.75% at December 31, 2011), based on the borrowing base utilization, and the interest rate on term loans
is 30, 60 or 90 day LIBOR, as selected by the Borrower, plus a margin of 7.50%. The maturity date of the revolving credit facility
is September 21, 2015 and the maturity date of the term loan facility is September 21, 2014.  As part of the Credit
Agreement, the Borrower is required to comply with the financial covenants set forth in the Credit Agreement, including an interest
coverage ratio, a current ratio, and a debt coverage ratio, as of the end of each calendar quarter.  Further, the Credit
Agreement also limits the amount of general and administrative expenses the Company is permitted to incur in any calendar quarter.  The
Company failed to comply with the current ratio covenant and incurred general and administrative expenses in excess of the limit
contained in the Credit Agreement, in each case for the calendar quarter ended on December 31, 2011. The covenant violations were
waived by Macquarie on March14, 2012.
The initial borrowing base and amount
drawn on the revolving credit facility was $12 million.  The debt was initially recorded net of a debt discount of $10,917,981
related to warrants issued to the lenders as disclosed below.  The debt discount will be amortized over the term of
the credit facility. The outstanding amount on the revolving credit facility at December 31, 2011 was $12 million.  The borrowing
base is re-determined semiannually based on the reserve reports by category, oil and gas future sales prices as determined by
the lenders, and amount of expenses necessary to produce the oil and gas.
F-
40
The table below reflects the breakdown
of the components of the revolving credit facility at December 31, 2011:
Debt proceeds from revolver
$
12,000,000
Debt proceeds from term loan
5,169,889
Total debt proceeds
$
17,169,889
Discount on debt
(10,917,981
)
Amortization of debt discount
1,010,924
Net revolving facility and term loan
$
7,262,832
The term loan draws are subject to
approval by Macquarie on a case by case basis. Each drilling program is submitted for approval and Macquarie may approve the program
in its reasonable discretion. After Macquarie approves a program, the lenders are obligated to advance funds for development,
subject to the satisfaction of the conditions precedent to advances set forth in the Credit Agreement. Alternatively, the Company
may elect to submit successfully completed wells to the bank for review and reimbursement under the term loan. The outstanding
balance on the term loan was $5,169,889 at December 31, 2011. Beginning on March 21, 2013, the Company will begin making monthly
payments to amortize the term loan, each payment equal to the total outstanding term loan balance on that date divided by 18.
Based on the outstanding balance of the term loan on December 31, 2011, the Company expects to pay $2,584,944 in each of the years
2013 and 2014.
In connection with the Credit Agreement,
the Company issued to Macquarie Americas Corp. a five year warrant to purchase 5,000,000 shares of the Company's common
stock at a per share exercise price of $7.50. The warrant is exercisable on a cashless basis if there is no registration statement
covering the underlying common stock. The warrant is also subject to customary anti-dilution provisions. The fair value of the
5,000,000 warrants issued to Macquarie was calculated using the Monte Carlo valuation model based on factors present at the time
of closing. Macquarie can exercise these warrants at any time until the warrants expire in July 2016. The exercise price of the
warrants is $7.50 per warrant, subject to "down round" adjustments.  The fair value at issuance date of
$10,917,981 was recorded as a discount on the debt as described above.  See Note H for discussion of the modification
of the terms of these warrants in February 2012.
Note E.  Asset Retirement
Obligations
The Company's asset retirement obligations
represent the estimated present value of the estimated cash flows the Company will incur to plug, abandon and remediate its producing
properties at the end of their productive lives, in accordance with applicable state laws. The Company has no assets that are
legally restricted for purposes of settling asset retirement obligations.
The Company's asset retirement obligation
activity for the years ended December 31, 2011 and 2010 is as follows:
2011
2010
2009
Balance at beginning of period
$
242,632
$
237,378
$
231,461
Liabilities incurred from new wells
94,880
12,273
5,108
Accretion expense
20,951
15,607
12,399
Revisions due to changes in well life estimates
35,714
(22,626
)
(11,590
)
Balance at end of period
$
394,177
$
242,632
$
237,378
Note F. Income taxes
The following table reconciles the
Company's provision for income taxes for the year ended December 31, 2011 and 2010, included in the consolidated statements
of operations with the provision which would result from the application of the statutory federal tax rate to pre-tax financial
loss:
F-
41
2011
2010
Loss before tax
$
(13,673,888
)
$
(2,807,838
)
Statutory rate
35
%
34
%
Expected benefit at federal statutory rate
(4,785,861
)
(954,665
)
Increase (decrease) resulting from:
State income taxes, net of federal income tax effect
(255,042
)
(220,475
)
Pass-through income not subject to federal tax
-
(874,465
)
Accretion of debt discount
372,679
-
Book income not subject to tax
(164,221
)
-
Non-deductible stock compensation
-
448,192
One time charge for conversion to taxable entity
-
845,248
Change in valuation allowance
4,881,820
756,165
Other perm items and adjustments
(49,375
)
-
Provision for income taxes
$
-
$
-
Effective rate
0
%
0
%
The components of the Company's net deferred tax assets
as of December 31, 2011 and 2010 are as follows:
Deferred tax assets:
Equity compensation
$
4,957,972
$
1,101,723
Asset retirement obligations
145,292
1,295
Unrealized loss on derivatives
396,532
-
Net operating loss carry forward
23,801,479
2,742,764
Other
516
-
Valuation allowance
(7,082,769
)
(2,158,748
)
22,219,022
1,687,034
Deferred tax liability
Differences between book and tax basis of property
(22,219,022
)
(1,687,034
)
The Company's net operating loss
carry forward (NOL) at December 31, 2011 was $64,563,585 and will expire beginning in the year 2030. The Company continually assesses
both positive and negative evidence to determine whether it is more likely that not that deferred tax assets can be realized prior
to their expiration. Management monitors Company-specific, oil and natural gas industry and worldwide economic factors and assesses
the likelihood that the Company's NOLs and other deferred tax attributes in the United States, state, and local tax jurisdictions
will be utilized prior to their expiration. At December 31, 2011, the Company has a valuation allowance of $7,082,769 related
to its deferred tax assets.
As of December 31, 2011, the company
had no unrecognized tax benefits. 2011 and 2010 are the only taxable years that are open to examination by the major taxing jurisdictions
to which the Company is subject.
Note G. Commodity derivatives
To mitigate a portion of the exposure
to potentially adverse market changes in oil and natural gas prices and the associated impact on cash flows, the Company has entered
into various derivative commodity contracts.  The Company's derivative contracts in place include swap arrangements
for oil and natural gas.  As of December 31, 2011, and through the filing date of this report, the Company has commodity
derivative contracts in place through the third quarter of 2014 for a total of approximately 74,726 Bbls of anticipated crude
oil production and 655,074 MMBtu of anticipated natural gas production.
F-
42
The Company's oil and natural
gas derivatives are measured at fair value and are included in the accompanying balance sheets as commodity derivative assets
and liabilities.  The Company derives internal valuation estimates taking into consideration the counterparties' credit
ratings, the Company's credit rating, and the time value of money.  These valuations are then compared to the respective
counterparties' mark-to-market statements.  The pertinent factors result in an estimated exit-price that management
believes provides a reasonable and consistent methodology for valuing derivative instruments.  The derivative instruments
utilized by the Company are not considered by management to be complex, structured, or illiquid.  The oil and natural gas
derivative markets are highly active.  The fair value of oil and natural gas commodity derivative contracts was a net liability
of $665,960 and $0 at December 31, 2011 and 2010, respectively.
The Company recognizes all gains and
losses from changes in commodity derivative fair values immediately in earnings. For the year ended December 31, 2011, the Company
had a realized loss on commodity derivatives of $4,699 and an unrealized loss of $665,960 included in other income (expense).
A summary of our commodity derivatives
at December 31, 2011 is as follows:
Period of time
Barrels of Oil
Weighted
Average Oil
Prices
Estimated Fair
Market Value
January 1, 2012 through October 31, 2014
74,726
$
81.7
$
443,054
Period of time
MMBtu of
Natural Gas
Weighted
Average Gas
Prices
Estimated Fair
Market Value
January 1, 2012 through September 26, 2014
655,074
$
4.4
$
(1,109,014
)
Total fair market value
$
(665,960
)
The following table details the fair
value of derivatives recorded in the accompanying balance sheets, by category:
As of December 31, 2011
Derivative Assets
Derivative Liabilities
Balance Sheet
Balance Sheet
Classification
Fair Value
Classification
Fair Value
Commodity Contracts
Current Assets
$
-
Current Liabilities
$
(243,996
)
Commodity Contracts
Noncurrent Assets
-
Noncurrent Liabilities
(421,964
)
Total commodity derivatives
$
-
$
(665,960
)
Note H.    Derivative
warrant instruments (liabilities)
As part of the July 15, 2011, private
placement, the Company issued Series A and Series B Warrants to purchase common stock to certain accredited investors in
connection with its sale of 2,260,870 share-based units for gross proceeds of approximately $13.0 million.  There are
1,130,435 Series A warrants with an exercise price of $9.00 per share, subject to "down round" adjustments.  There
are an undermined amount of Series B warrants at an exercise price of $0.001 per share.  Exercise of these warrants
is subject to certain adjustment events.
In September of 2011, the Company issued
warrants that will allow Macquarie the right to purchase up to 5,000,000 shares of fully-paid and non-assessable common stock
at a per share purchase price of $7.50, subject to certain "down round" adjustments events. See Note N for discussion
of the modification of the terms of the Macquarie warrants in February 2012.
Because of the adjustment events, the
Warrants are not deemed to be "indexed to the Company's own stock" and, therefore, do not qualify for the scope
exception in ASC 815-40-15-5.  As such, the Company has concluded that these warrants are deemed to be derivative instruments
and are recorded as liabilities at fair value, and marked-to-market at each financial statement reporting date, pursuant
to the guidance in ASC 815-10.
F-
43
During the year ended December 31, 2011 the fair value of
the liability of the warrant derivative instruments increased by $409,668, from their initial fair values. Such changes were recorded
as unrealized losses on fair value of derivative warrant instruments in the accompanying consolidated statements of operations.
Activity for derivative warrant instruments during the year
ended December 31, 2011 was as follows:
Initial fair
value as
    of
July
15, 2011
Initial fair
value as
    of
September
21, 2011
Increase
(decrease)
in fair value
of
derivative
liability
Fair value
December
31, 2011
Derivative warrant instruments for Series A and Series B
    Warrants
$
3,971,009
$
-
$
4,148,444
$
8,119,453
Derivative warrant instruments for Macquarie warrants
-
10,917,981
(3,738,776
)
7,179,205
$
3,971,009
$
10,917,981
$
409,668
$
15,298,658
The fair value of the derivative warrant instruments is
estimated using a probability-weighted scenario analysis model with the following assumptions as of December 31, 2011:
For the Years
Ended December 31,
2011
Common stock issuable upon exercise of warrants
6,130,435
Estimated market value of common stock on measurement date (1)
$3.15
Exercise price
$7.50 - $9.00
Expected volatility (2)
66.9% - 74
%
Expected term (in months)
10.3 - 60
Risk-free rate (3)
0.02% - 0.83%
Expected dividend yields
-
Future financing event
50%
(1)
The estimated market value of the stock is measured each period-end and is
    based on the reported public market prices.
(2)
The volatility factor was estimated by management using the historical volatilities of
    comparable companies in the same industry and region.
(3)
The risk-free rate of return associated with the remaining term.
Source: The Federal
    Reserve Board
Note I.    Fair
value measurements
The Company follows fair value measurement
authoritative guidance for all assets and liabilities measured at fair value.  That guidance defines fair value as the price
that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market
participants at the measurement date.  Market or observable inputs are the preferred sources of values, followed by assumptions
based on hypothetical transactions in the absence of market inputs.  The hierarchy for grouping these assets and liabilities
is based on the significance level of the following inputs:
·
Level 1 — quoted prices in active markets for identical assets or liabilities
·
Level 2 — quoted prices in active markets for similar assets and liabilities, quoted prices
    for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable
    or whose significant value drivers are observable
F-
44
·
Level 3 — significant inputs to the valuation model are unobservable
The following is a listing of the Company's
financial assets and liabilities that are measured at fair value on a recurring basis and where they are classified within the
hierarchy as of December 31, 2011:
Level 1
Level 2
Level 3
Assets:
Commodity derivatives
$
-
$
-
$
-
Liabilities:
Commodity derivatives
$
-
$
665,959
$
-
Warrant derivatives
$
-
$
-
$
15,298,658
Term loan and credit facility
$
-
$
7,262,832
$
-
The Company uses Level 2 inputs to
measure the fair value of its commodity derivatives.  Fair values are based upon interpolated data.  The Company derives
internal valuation estimates taking into consideration the counterparties' credit ratings, the Company's credit rating,
and the time value of money.  These valuations are then compared to the respective counterparties' mark-to-market statements. 
The considered factors result in an estimated exit-price that management believes provides a reasonable and consistent methodology
for valuing derivative instruments. The book value of our term loan and credit facility approximates fair value because of it's
floating rate structure.
The following table reflects the activity
for warrant derivative liabilities measured at fair value using Level 3 inputs:
For the Years
Ended December
    31,
2011
2010
Beginning balance
$
-
$
-
Additions
(14,888,990
)
-
Net increase in liabilities
(406,668
)
-
Transfers in (out) of Level 3
-
-
Ending balance
$
(15,295,658
)
$
-
Generally, market quotes assume that
all counterparties have near zero, or low, default rates and have equal credit quality.  However, an adjustment may be necessary
to reflect the credit quality of a specific counterparty to determine the fair value of the instrument.
The methods described above may result
in a fair value estimate that may not be indicative of net realizable value or may not be reflective of future fair values and
cash flows.  While the Company believes that the valuation methods utilized are appropriate and consistent with accounting
authoritative guidance and with other marketplace participants, the Company recognizes that third parties may use different methodologies
or assumptions to determine the fair value of certain financial instruments that could result in a different estimate of fair
value at the reporting date.
The fair value of the warrants was
calculated using the Monte Carlo valuation model based on factors present at the time of closing of the private placement offering
on July 15, 2011 and the credit facility on September 21, 2011 and updated as of December 31, 2011.
Assets and Liabilities Measured
at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are
reported at fair value on a nonrecurring basis in the Company's consolidated balance sheets. The following methods and assumptions
were used to estimate the fair values:
F-
45
Impairments of Long-Lived Assets.
The Company reviews its long-lived assets to be held and used, including proved oil and natural gas properties, whenever
events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated
if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. In this circumstance,
the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. The Company reviews its oil and natural gas properties by amortization base or by individual well for those
wells not constituting part of an amortization base. For each property determined to be impaired, an impairment loss equal to
the difference between the carrying value of the properties and the estimated fair value (discounted future cash flows) of the
properties is recognized at that time. Estimating future cash flows involves the use of judgments, including estimation of the
proved and unproved oil and natural gas reserve quantities, timing of development and production, expected future commodity prices,
capital expenditures and production costs.  During the years ended December 31, 2011, 2010 and 2009, the Company recorded
impairments of $1,027,552, $46,553 and $253,258.
Asset Retirement Obligations ("ARO").
The initial recognition of AROs is based on fair value.  The Company estimates the fair value of AROs based on
discounted cash flow projections using numerous estimates, assumptions and judgments regarding such factors as the existence of
a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation
rates. See Note E for a summary of changes in ARO for the periods ended December 31, 2011, 2010 and 2009.
.
Acquisitions.
Assets
acquisitions not under common control are recorded at fair value.  The Company closed asset acquisitions on August
22, 2011 and November 1, 2011, which were recorded at fair value as described in Note K.
Note J.  Major Customers
The Company's producing oil and natural
gas properties are located in Texas, New Mexico, Arkansas, Oklahoma and North Dakota.  At December 31, 2011, the Company
contracts with a number of various operators and notes one operator in which revenues received were greater than 10% of total
revenues.  During 2011, 2010 and 2009, revenue through XOG accounted for approximately 67%, 48% and 60%, respectively.  Although
operators are not the end purchasers of oil and natural gas, the Company is of the opinion that the loss of any one purchaser
would not have a material adverse effect on the ability of the Company to sell its oil and natural gas production as such production
can be sold to other purchasers.
Note K.  Asset Acquisitions
On August 22, 2011, the Company acquired
approximately 13,324 net undeveloped leasehold acres in the Bakken/Three Forks (the "Bakken 4 Properties") area from
XOG Group for approximately $14.6 million. A cash deposit of $13,500,000 was made on April 15, 2011 and the Company subsequently
issued 208,200 shares of common stock upon closing, which was valued at $1,093,050 using the stock price of $5.25 on the closing
date. The acquisition was recorded at fair value as XOG Group and the Company were not under common control at the time of the
asset acquisition.
On November 1, 2011, the Company acquired
approximately 391 net undeveloped leasehold acres in the Bakken/Three Forks are from XOG Group for approximately $1.2 million
dollars paid in cash. The acquisition was recorded at fair value as XOG Group and the Company were not under common control at
the time of the asset acquisition.
Note L.  Related Party
Transactions
XOG
.
XOG
is currently contracted to operate the existing wells held by the Company in the Permian Basin region. XOG historically performed
this service for Geronimo and CLW. XOG, Geronimo, CLW and Randall Capps combine as the largest shareholder in the Company
and these entities are considered related parties to the Company. As a result, accounts receivable and accounts payable due
from/to XOG are classified as accounts receivable and payables due from/to a related party.   For the year ended
December 31, 2011, sales through XOG were $8,349,028 and lease operating expenses were $1,626,332. Net cash paid to XOG in 2011
was $18,763,680 of which $17,137,348 was for drilling costs.
F-
46
Randall Capps has controlling ownership
of XOG, Geronimo and CLW, and is a member of the Company's board of directors.  Through his ownership interest
in the XOG Group, Mr. Capps is the largest shareholder of our common stock.  Mr. Capps is also the father-in-law of
Scott Feldhacker, our chief executive officer and director.
Overriding Royalty and Royalty Interests.
In some instances, the XOG Group may hold overriding royalty and royalty interests ("ORRI")
in wells acquired by the Company. All revenues and expenses presented herein are net of any ORRI effects.
XOG Group Acquisitions.
The Company has made significant acquisitions of oil and gas properties and undeveloped leases from the XOG Group as discussed
in Note A and Note K.
Note M.  Commitments and
Contingencies
Employment Agreements.
At December 31, 2011, the Company's cash contractual obligations related to its employment agreements
with executive officers for each of the following three years ending December 31 are as follows:
2012
$
668,000
2013
668,000
2014
222,667
Total
$
1,558,667
Operating Leases.
The Company leases its 4,092 square foot primary office facilities in Scottsdale, Arizona under a non-cancellable operating lease
agreement, dated September 30, 2010, for a 66-month term.  The lease provides for no lease payments during the first six
months and a reduced square footage charge for the first year.  The initial rental is $23.00 per square foot, beginning February
1, 2011, and increasing $.50 per square foot annually thereafter.  For the years ended December 31, 2011 and 2010, the Company
recorded lease expense of $90,214 and $14,495, respectively.
At December 31, 2011, the future minimum
lease commitments under the non-cancellable operating leases for each of the following five years ending December 31 are as follows:
2012
$
67,606
2013
97,356
2014
99,402
2015
101,448
2016
42,625
Total
$
408,437
Drilling Commitments.
At December 31, 2011, the Company had various oil and natural gas wells in multiple stages of drilling and completion of which
the balance of the Company's unpaid approval for expenditures was estimated to be approximately $14,548,000.
Note N.  Subsequent Events
Convertible Note.
On
February 10, 2012, the Company and ASEN 2, Corp., a wholly-owned subsidiary of the Company formed on January 25, 2012, closed
on a Note and Warrant Purchase Agreement dated February 9, 2012, referred to herein as the Purchase Agreement, with Pentwater
Equity Opportunities Master Fund Ltd. and PWCM Master Fund Ltd., referred herein to as Pentwater, in connection with a $20 million
private financing. The initial funding made by Pentwater to ASEN 2 on February 10, 2012, referred to as the Pentwater Closing
Date, was in the amount of $10 million. The second funding for an additional $10 million, which closed on March 5, 2012, occurred
concurrently with the closing of the purchase and sale agreement by and among the Company, Geronimo and XOG .
F-
47
The borrowings under the Purchase Agreement
are evidenced by a $20 million secured convertible promissory note, referred to herein as the Pentwater Note, convertible into
shares of the Company's common stock at a conversion price of $9.00 per share and five year warrants to purchase 3,333,333
shares of common stock at a per share cash exercise price of $2.50. The Warrants are also subject to a mandatory exercise at the
Company's option with respect to (i) 50% of the number of shares underlying the Warrants if the closing sale price of the
common stock is equal to or greater than $5.00 per share for twenty consecutive trading days and (ii) 50% of the number of Warrant
Shares if the closing sale price of the common stock is equal to or greater than $9.00 per share for twenty consecutive trading
days.
From the Pentwater Closing Date through
December 9, 2012, the outstanding borrowings under the Pentwater Note bear an interest rate of 11% per annum, payable as follows
(i) interest at a rate of 9% per annum is payable on the first business day of each month, commencing on March 1, 2012 and (ii)
interest at a rate of 2% per annum is capitalized and added to the then unpaid principal amount monthly in arrears on the first
business day of each month commencing on March 1, 2012. On and after December 9, 2012 through the maturity date, the Pentwater
Note bears an interest rate of 16% per annum, payable as follows: (i) interest at a rate of 11% per annum is payable on the first
business day of each month commencing on December 1, 2012 and (ii) interest at a rate of 5% per annum is capitalized and added
to the then unpaid principal amount monthly on the first business day of each month commencing on December 1, 2012. The Pentwater
Note had a maturity date of February 9, 2015, which was amended on March 5, 2012 to December 1, 2013. ASEN 2 can prepay the Pentwater
Note without penalty prior to December 31, 2012. If the prepayment occurs after December 31, 2012, ASEN 2 must pay to Pentwater
106% of the then outstanding principal amount of the Pentwater Note that is prepaid. At any time after February 9, 2013, the principal
amount and interest of the Pentwater Note may be converted into shares of common stock at a conversion price of $9.00 per share.
The Pentwater Note was issued with an original discount in the amount of $350,000.
Warrant Restructure.
On
February 10, 2012, the Company, Pentwater and two affiliated entities of Pentwater, referred to herein as the Modification Investors,
entered into a modification agreement, referred to herein as the Modification Agreement, pursuant to which the parties agreed
to amend the terms of the Series B warrants, referred to herein as the Series B Warrants, issued to the Modification Investors
in a $13 million private placement offering of the Company's securities in July 2011, referred to herein as the July Offering,
in which the Modification Investors invested $12 million. Pursuant to the terms of the Modification Agreement, the parties agreed
to limit the dilutive effects of the Series B Warrants by including a floor of $3.00 per share in the calculation of the reset
provision included in the Series B Warrants. Accordingly, the aggregate number of shares of common stock underlying the Series
B Warrants held by the Modification Investors is 1,913,043 shares.
As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants,
referred to herein as Series C Warrants, to purchase 2.5 million shares of common stock, referred to herein as the Series C Warrant
Shares, with a cash exercise price of $3.00 per share. The Series C Warrants include a provision under which the Series C Warrants
must be exercised at the election of the Company by the Modification Investors for cash if the closing sales price of the common
stock is $6.00 per share or greater for 20-consecutive trading days. As a result of the issuance of the Warrants and the Series
C Warrants, the exercise prices and number of shares underlying the Series A warrants and Series B warrants held by the remaining
investor in the July Offering were adjusted pursuant to their terms.
Macquarie Warrant Restructure.
In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater Note and the transactions contemplated
under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company agreed (i) to pay to Macquarie Bank
a $1,100,000 modification fee and (ii) to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended
and restated Macquarie Warrant referred to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase two million
three hundred thirty-three thousand (2,333,000) shares of common stock, at an exercise price of $3.25 per share. The Amended Macquarie
Warrant is not subject to further anti-dilution provisions other than customary reset provisions for stock splits, subdivision
or combinations. The Amended Macquarie Warrant is exercisable on a cashless basis if there is no registration statement covering
the underlying common stock. The Company granted the holder piggy-back registration rights on the underlying common stock.
F-
48
Acceleration of Vesting of Founder's
Shares.
On February 13, 2012, the board of directors of American Standard Energy Corp. (the "Company")
approved the immediate vesting of a total of 1,568,877 restricted shares of the Company's common stock previously issued
to the chief executive officer, president and chief financial officer as founders shares which were to vest in equal portions
annually through April 16, 2014. At December 31, 2011, the unamortized compensation expense for these shares was $1,797,995
which will be expensed in the 1
st
quarter of 2012.
March Acquisition.
On
March 5, 2012, the Company acquired leasehold working interests in approximately 72,300 net developed and undeveloped acres across
the Permian Basin, the Bakken, the Eagle Ford, the Niobrara, the Eagle Bine, and the Gulf Coast (collectively, the "March
2012 Properties") in exchange for the delivery by the Company to the Sellers of $10 million in cash, less a $1.5 million
cash deposit previously paid by the Company, a note in the principal amount of $35,000,000 (the "March 2012 Note")
made by the Company in favor of Geronimo and 5,000,000 shares of the common stock of the Company, which has a closing price of
$2.70 on the closing date of the acquisition. The March 2012 Properties were purchased pursuant to the terms of a Purchase and
Sale Agreement dated as of February 24, 2012, referred to hereafter as the PSA, by and among the Company, XOG and Geronimo. The
Company is currently evaluating the accounting treatment for this transaction.
The March 2012 Note bears an interest
rate of 7% per annum, which shall be increased to 9% per annum upon an event of default, payable on the first business day of
each month commencing on June 1, 2012. The March 2012 Note matures on March 21, 2016. The Company may prepay the March 2012 Note
at any time without penalty.
The PSA provides that if certain defects
are found with the March 2012 Properties, or if XOG or Geronimo breach any representation or warranty in the Agreement within
one year from closing, XOG and Geronimo shall, at the option of the Company, in its sole and absolute discretion, either (i) provide
additional or alternative oil and gas properties, subject to the Company's applicable due diligence review and acceptance
or (ii) for as long as the March 2012 Note is outstanding, decrease the principal amount of the Note in an amount equal to the
loss resulting from such property defect or breach.
XOG and Geronimo have piggyback registration
rights with respect to up to five million shares of common stock held by XOG or Geronimo in such registration statement.
F-
49
American Standard Energy Corp.
Unaudited Supplementary Information
Selected Quarterly Financial Data (Unaudited)
For the three-month periods ended:
March 31,
June 30,
September
30,
December
31,
2011
Revenues
$
2,388,493
$
3,182,364
$
2,995,287
$
3,841,630
Expenses
3,146,337
7,048,436
5,881,655
7,740,045
Loss from operations
(757,844
)
(3,866,072
)
(2,886,368
)
(3,898,415
)
Other income (expense)
-
-
1,047,266
(3,312,455
)
Net income (loss)
(757,844
)
(3,866,072
)
(1,839,102
)
(7,210,870
)
Loss per share basic and diluted
(0.02
)
(0.10
)
(0.05
)
(0.19
)
For the three-month periods ended:
March 31,
June 30,
September
30,
December
31,
2010
Revenues
$
1,841,918
$
1,540,820
$
1,787,571
$
1,726,636
Expenses
1,218,570
4,272,383
1,855,393
2,358,437
Loss from operations
623,348
(2,731,563
)
(67,822
)
(631,801
)
Other income (expense)
-
-
-
-
Income tax benefit (expense)
-
-
96,228
(96,228
)
Net income (loss)
623,348
(2,731,563
)
28,406
(728,029
)
Loss per share basic and diluted (1)
(0.03
)
(0.12
)
0.00
(0.03
)
(1)
Proforma presentation for 2010, refer
    to Note B
Costs Incurred
Costs incurred for oil and natural
gas producing activities during the year ended December 31, 2011 and 2010 was as follows:
Years Ended December 31,
2011
2010
Unproved property acquisition costs
$
15,258,281
$
7,729,953
Exploration
46,958,052
5,787,926
Development
80,409
4,308,484
Total
$
62,296,742
$
17,826,363
Reserve Quantity Information
The following information represents
estimates of the proved reserves as of December 31, 2011 and 2010.  The Company's proved reserves as of December
31, 2011 and 2010 have been prepared and presented under new SEC rules. These new rules are effective for fiscal years ending
on or after December 31, 2009, and require SEC reporting companies to prepare their reserves estimates using revised reserve
definitions and revised pricing based on a 12-month unweighted average of the first-day-of-the-month pricing. The previous rules
required that reserve estimates be calculated using last-day-of-the-period pricing.
F-
50
The following table summarizes the
average prices utilized in the reserve estimates for 2011 and 2010 as adjusted for location, grade and quality:
As of December 31,
2011
2010
Prices utilized in the reserve estimates:
Texas oil and natural gas properties
Oil per Bbl(a)
$
92.21
$
75.43
Gas per MCF(b)
$
6.06
$
6.38
North Dakota oil and natural gas properties
Oil per Bbl(a)
$
90.25
$
70.82
Gas per MCF(b)
$
7.10
$
4.39
a)
The pricing used to estimate our 2011 and 2010 reserves was based on a 12-month
    unweighted average first-day-of-the-month West Texas Intermediate posted price as adjusted for location, grade and quality.
b)
The pricing used to estimate our 2011 and 2010 reserves was based on a 12-month
    unweighted average first-day-of-the-month Henry Hub spot price as adjusted for location, grade and quality.
The SEC has released only limited interpretive
guidance regarding reporting of reserve estimates under the new rules and may not issue further interpretive guidance on the new
rules. Accordingly, while the estimates of the proved reserves and related estimated discounted future net cash flows at December 31,
2011 and 2010 included in this report have been prepared based on what we and our independent reserve engineers believe to be
reasonable interpretations of the new SEC rules, those estimates could differ materially from any estimates prepared applying
more specific SEC interpretive guidance.
The Company's proved oil and
natural gas reserves are located primarily in the Permian Basin of West Texas and in the Bakken Shale formation located primarily
in North Dakota. The estimates of the proved reserves at December 31, 2011 and 2010 are based on reports prepared by an independent
petroleum engineer. Proved reserves were estimated in accordance with the guidelines established by the SEC and the FASB.
Oil and natural gas reserve quantity
estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection
of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the
quality of available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing
and production may cause either upward or downward revision of previous estimates. Further, the volumes considered to be commercially
recoverable fluctuate with changes in prices and operating costs. Reserve estimates are inherently imprecise and estimates of
new discoveries are more imprecise than those of currently producing oil and natural gas properties. Accordingly, these estimates
are expected to change as additional information becomes available in the future.
The following table provides a roll
forward of the total net proved reserves for the years ended December 31, 2011 and 2010, as well as disclosure of proved
developed and proved undeveloped reserves at December 31, 2011 and 2010.
The following table provides a roll-forward
of the total proved reserves for the years ended December 31, 2011 and 2010, as well as disclosures of proved developed and proved
undeveloped reserves at December 31, 2011 and 2010. Barrels of oil equivalent (BOE) are determined using a ratio of 6 Mcf of natural
gas to 1 Bbl of crude oil.
F-
51
Natural
Oil
Gas
Total
(Bbls)
(Mcf)
(Boe)
Total Proved Reserves:
Balance, January 1, 2011
2,290,830
14,511,630
4,709,436
Revisions
(1,431,844
)
(8,333,408
)
(2,820,745
)
Discoveries
1,414,818
1,872,750
1,726,943
Purchases of reserves
4,471
2,190
4,836
Production
(104,147
)
(547,280
)
(195,361
)
Balance, December 31, 2011
2,174,128
7,505,882
3,425,109
Proved developed reserves
1,368,461
6,334,000
2,424,128
Proved undeveloped reserves
805,669
1,171,884
1,000,983
Total proven reserves
2,174,130
7,505,884
3,425,111
Total Proved Reserves:
Balance, January 1, 2010
2,047,616
13,508,944
4,299,107
Revisions
173,505
1,527,388
428,070
Discoveries
126,366
15,370
128,928
Production
(56,657
)
(540,072
)
(146,669
)
Balance, December 31, 2010
2,290,830
14,511,630
4,709,436
Proved developed reserves
759,642
9,370,893
2,321,457
Proved undeveloped reserves
1,531,188
5,140,737
2,387,979
Total proven reserves
2,290,830
14,511,630
4,709,436
Total proved reserves as of December
31, 2010 were 4,709,436 BOE including 2,387,979 BOE in proved undeveloped reserves. Our 2010 reserves include reserves acquired
in the Group 1&2 acquisition in February 2011.  This transaction was between our Company and XOG Group while we were
under common control.  As a result, our proved reserves were recast to include the reserves acquired as if our Company has
owned those reserves at December 31, 2010.  Subsequently, we evaluated our proved undeveloped reserves and determined that
1,868,367 BOE in undeveloped reserves were unlikely to be developed in the next three years by the operators of record on which
these reserves were located.  As a result, the Company has excluded these locations and the associated reserves from proved
reserves as of December 31, 2011.  If these reserves were excluded from all periods presented, total proven reserves as of
December 31, 2011 and 2010 would be 3,425,111 BOE and 2,841,069 BOE, respectively.
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted
future net cash flows is computed by applying at December 31, 2011 the 12-month unweighted average of the first-day-of-the-month
pricing for oil and natural gas (with consideration of price changes only to the extent provided by contractual arrangements)
to the estimated future production of proved oil and natural gas reserves less estimated future expenditures (based on year-end
costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the
estimated timing of the future cash flows.
Future income taxes are calculated
by comparing undiscounted future cash flows to the tax basis of oil and natural gas properties plus available carry forwards and
credits and applying the current tax rates to the difference.
Discounted future cash flow estimates
like those shown herein are not intended to represent estimates of the fair value of oil and natural gas properties. Estimates
of fair value would also consider probable and possible reserves, anticipated future oil and natural gas prices, interest rates,
changes in development and production costs and risks associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
F-
52
The following table provides the standardized
measure of discounted future net cash flows at December 31, 2011 and 2010:
2011
2010
Future production revenues
$
241,879,576
$
249,528,763
Future costs:
Production
(72,479,264
)
(69,359,315
)
Development
(24,822,048
)
(15,618,950
)
Income taxes
(41,401,226
)
(50,368,060
)
10% annual discount factor
(53,375,271
)
(64,504,117
)
Standardized measure of discounted cash flows
$
49,801,767
$
49,678,321
Changes in Standardized Measure of Discounted Future
Net Cash Flows
The following table provides a roll
forward of the standardized measure of discounted future net cash flows for the years ended December 31, 2011 and 2010:
2011
2010
Increase (decrease):
Extensions and discoveries
23,024,041
$
4,626,389
Net changes in sales prices and production costs
27,230,290
19,421,293
Oil and gas sales, net of production costs
(9,340,687
)
(4,697,498
)
Change in estimated future development costs
12,786,697
1,871,994
Revision of quantity estimates
(67,025,217
)
10,483,274
Purchases of mineral interests
128,684
-
Previously estimated development costs incurred in the current period
2,832,253
-
Changes in income taxes
(904,315
)
(6,290,341
)
Accretion of discount
10,272,969
2,351,883
Changes in production rates, timing and other
1,118,731
(1,607,493
)
Net (decrease) increase
123,446
26,159,501
Standardized measure of discounted future cash flows:
Beginning of year
49,678,321
23,518,820
End of year
$
49,801,767
$
49,678,321
F-
53
AMERICAN STANDARD ENERGY CORP.
6,666,666 SHARES OF COMMON STOCK
PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT
OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS
IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
Until _____________, all dealers that effect transactions in
these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or
subscriptions.
The Date of This Prospectus is [     ],
2012
PART II   INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item 13.Other Expenses of Issuance and Distribution
Securities and Exchange Commission Registration Fee
$
787
Accounting fees and expenses
$
5,000
*
Legal fees and expense
$
25,000
*
Printing and miscellaneous expenses
$
1,000
*
Total
$
31,787
*
* Estimated. We are paying all expenses of the offering listed
above. No portion of these expenses will be borne by the selling shareholders. The selling shareholders, however, will pay any
other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.
Item 14.Indemnification of Directors and Officers
Under Section 145 of the General Corporation Law of the State
of Delaware, the registrant may indemnify its directors and officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act. The registrant's certificate of incorporation provides that, pursuant to Delaware law,
its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to the registrant
and its stockholders. This provision does not eliminate the duty of care, and in appropriate circumstances equitable remedies such
as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue
to be subject to liability for breach of the director's duty of loyalty to the registrant or its stockholders for acts or
omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
The registrant's bylaws provide for the indemnification
of its directors to the fullest extent permitted by the Delaware General Corporation Law. The registrant's bylaws further
provide that its Board of Directors has discretion to indemnify its officers and other employees. The registrant is required to
advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or executive
officer in connection with that proceeding on receipt of an undertaking by or on behalf of that director or executive officer to
repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under the bylaws or
otherwise. The registrant is not, however, required to advance any expenses in connection with any proceeding if a determination
is reasonably and promptly made by its Board of Directors by a majority vote of a quorum of disinterested Board members that (i)
the party seeking an advance acted in bad faith or deliberately breached his or her duty to the registrant or its stockholders
and (ii) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined
that such party is not entitled to indemnification pursuant to the applicable sections of the registrant's bylaws.
The registrant has been advised that in the opinion of the Securities
and Exchange Commission, insofar as indemnification for liabilities arising under the Securities Act may be permitted to its directors,
officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities
(other than the registrant's payment of expenses incurred or paid by an director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such indemnification by the registrant is against public
policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-
1
The registrant carries directors' and officers'
liability insurance covering its directors and officers for a period of one year commencing on October 2010. The limit of liability
of such insurance is $5,000,000 in the aggregate for the insured period.
The registrant is a party to indemnification agreements with
each of its directors and officers that are, in some cases, may be broader than the specific indemnification provisions permitted
by Delaware law, and that may provide additional procedural protection. Such indemnification agreements may require the registrant,
among other things, to indemnify officers and directors against certain liabilities that may arise because of their status as officers
or directors and advance expenses, as incurred, to officers and directors in connection with a legal proceeding, subject to limited
exceptions.
Item 15. Recent Sales of Unregistered Securities
On April 1, 2012, the Company issued 100,000 shares of
common stock to ERC Holding Corp. for consulting services rendered pursuant to a Consulting Agreement.
On June 30, 2012, the Company, ASEN 2, Nevada ASEC, and
XOG entered into the Payment Agreement whereby we agreed to issue 4,444,445 shares of Common Stock to XOG at a price per share
equal to $2.25 as payment of the $10,000,000 outstanding and owed to XOG pursuant to certain JIBs issued by XOG from January 1,
2012, through and including June 30, 2012 and delivered to our subsidiaries in connection with certain Joint Operating Agreements.
On April 11, 2012, the Modification Investors exercised
Series B warrants for the purchase of 1,000,000 shares of common stock at an exercise price of $0.001 per share.
On March 30, 2012, we issued 20,000
shares of restricted Common Stock to each of our three executive officers and one of our employees as compensation for services
rendered.
In February 2012, an investor exercised
Series B warrants for the purchase of 325,986 shares of common stock at an exercise price of $0.001.
Such Securities were not registered
under the Securities Act of 1933.  The issuance of the Securities was exempt from registration, pursuant to Section 4(2)
of the Securities Act of 1933.  These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933
since the issuance of the Securities by us did not involve a public offering. The offering was not a "public offering"
as defined in Section 4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and
the manner of the offering and number of the Securities offered. We did not undertake an offering in which we sold a high number
of securities to a high number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required
by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted
pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed
into the market and therefore not be part of a "public offering." Based on an analysis of the above factors, we have
met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Geronimo Acquisition
On March 5, 2012, we issued 5,000,000
shares of common stock as partial consideration for the acquisition of leasehold working interests in approximately 72,300 net
acres pursuant to a purchase and sale agreement with XOG Operating LLC and Geronimo Holding Corporation The shares were valued
at $2.70 per share based on the closing price of the Company's Common Stock on March 5, 2012.
On June 30, 2012, we entered into an
Exchange Agreement with Geronimo pursuant to which we agreed to issue 35,400 shares of the our newly created Series A Preferred
Stock to Geronimo, which are convertible into shares of our Common Stock at a rate of 333.333 shares of Common Stock per share
of Series A Preferred Stock, in exchange for the cancelation of the $35 million note issued to Geronimo.
II-
2
Such Securities were not registered under the Securities
Act of 1933.  The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.  These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a "public offering" as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high
number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required by Section 4(2) since
they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144
of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed into the market
and therefore not be part of a "public offering." Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Pentwater
Convertible
Note
On February 10, 2012, the Company and
ASEN 2 closed on a Note and Warrant Purchase Agreement dated February 9, 2012 with Pentwater in connection with a $20 million
private financing. The borrowings under the Purchase Agreement are evidenced by a $20 million secured convertible promissory
note ("Pentwater Note") convertible into shares of the Company's common stock at a conversion price of $9.00
per share and five-year warrants (the "Pentwater February Warrants") to purchase 3,333,333 shares of common stock
at a per share cash exercise price of $2.50.
On July 23, 2012, the Company, ASEN
2 and Pentwater entered into the Purchase Agreement Amendment pursuant to which Pentwater made an additional advance to ASEN 2
in the amount of $5 million. Pursuant to the terms of the Purchase Agreement Amendment, (i) the Pentwater Note was amended to
increase the principal amount to $25 million; (ii) the Pentwater Series C Warrants and the Pentwater February Warrants were amended
to reduce the exercise price to $2.25 per share and to change the expiration date to June 30, 2019 and (iii) we issued to Pentwater
warrants to purchase an additional 833,333 shares of Common Stock at an exercise price of $2.25 and an expiration date of June
30, 2019.
Such Securities were not registered
under the Securities Act of 1933.  The issuance of the Securities was exempt from registration, pursuant to Section 4(2)
of the Securities Act of 1933.  These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933
since the issuance of the Securities by us did not involve a public offering. The offering was not a "public offering"
as defined in Section 4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and
the manner of the offering and number of the Securities offered. We did not undertake an offering in which we sold a high number
of securities to a high number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required
by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted
pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed
into the market and therefore not be part of a "public offering." Based on an analysis of the above factors, we have
met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Modification Agreement
On February 10, 2012, the Modification
Investors entered into the Modification Agreement pursuant to which the parties agreed to amend the terms of the Series B warrants
pursuant to which the parties agreed to limit the dilutive effects of the Series B Warrants by including a floor of $3.00 per
share in the calculation of the reset provision included in the Series B Warrants. Accordingly, the aggregate number of shares
of common stock underlying the Series B Warrants held by the Modification Investors is 1,913,043 shares.
As additional consideration for the
modification of the Series B Warrants, the Company agreed to issue to the Modification Investors new five-year Series C warrants
to purchase 2.5 million shares of common stock with a cash exercise price of $3.00 per share, which were subsequently amended
on July 23, 2012 to reduce the exercise price to $2.25.
II-
3
Such Securities were not registered under the Securities
Act of 1933.  The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.  These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a "public offering" as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high
number of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required by Section 4(2) since
they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144
of the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed into the market
and therefore not be part of a "public offering." Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Credit Facility
On September 21, 2011, in connection with the credit agreement,
we issued to Macquarie Americas Corp. a five year warrant to purchase five million (5,000,000) shares of our common stock at a
per share exercise price of $7.50. In connection with the consent provided by Macquarie Bank to the issuance of the Pentwater
Note and the transactions contemplated under the Modification Agreement, pursuant to the terms of the Credit Agreement, the Company
agreed to amend and restate the Macquarie Warrant. Accordingly, the Company issued an amended and restated Macquarie Warrant referred
to herein as the Amended Macquarie Warrant, to Macquarie Americas to purchase 2,333,000 shares of common stock, at an exercise
price of $3.25 per share.
Such Securities were not registered under the Securities
Act of 1933.  The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.  These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a "public offering" as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high number
of investors. In addition, Macquarie Americas Corp. had the necessary investment intent as required by Section 4(2) since they
agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of
the 1933 Securities Act. This restriction ensures that the Securities would not be immediately redistributed into the market and
therefore not be part of a "public offering." Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Leasehold Acquisitions
On August 22, 2011, we acquired approximately 13,324 net undeveloped
leasehold acres in the Bakken/Three Forks area from Geronimo for approximately $14.8 million which comprised of $13.5 million in
cash on April 15, 2011 and 208,200 shares of the Company's common stock at a price per share of $6.435.
On March 1, 2011, we entered into a Purchase of Partial
Leaseholds Agreement with Geronimo, dated February 28, 2010, whereby we purchased certain mineral rights leaseholds held on properties
in the Bakken Shale Formation in North Dakota (the "Bakken Properties"). In consideration for the Bakken Properties,
we paid Geronimo $3,000,000 and issued 883,607 shares of common stock valued at $5,787,626, for a total transaction value of $8,787,626.
On December 1, 2010, we entered into an agreement with Geronimo
whereby we acquired certain oil and natural gas properties located in North Dakota for $500,000 cash and 1,200,000 shares of the
our common stock.   This transaction was valued at $4,460,000.
Such Securities were not registered under the Securities
Act of 1933.  The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.  These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a "public offering" as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high number
of investors. In addition, the investor had the necessary investment intent as required by Section 4(2) since they agreed to and
received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 Securities
Act. This restriction ensures that the Securities would not be immediately redistributed into the market and therefore not be part
of a "public offering." Based on an analysis of the above factors, we have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for this transaction.
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4
Private Placement Offerings
On July 15, 2011, we completed a closing of an offering of our
securities for total subscription proceeds of approximately $13 million through the issuance of (i) 2,260,870 shares of our common
stock at a price of $5.75 per share,
(ii) Series A Warrants to purchase 1,130,435 shares of common stock at a per
share exercise price of $9.00; and (iii) Series B Warrants to purchase a number of shares of common stock, which shall only
be exercisable if (A) the market price (as defined below) of the our common stock on the 30th trading day following the earlier
of (i) the effective date of a registration statement to sell the shares of common stock and the Series A Warrant Shares sold
in the Third PIPE, and (ii) the date on which the purchasers in the Third PIPE can freely sell the shares of common stock
pursuant to Rule 144 promulgated under the Securities Act without restriction (the "Eligibility Date") is less
than the purchase price in the offering or $5.75; and (B) upon certain dilutive occurrences. If made exercisable pursuant to (A)
in the preceding sentence, the Series B Warrants will become immediately exercisable and will have an exercise price of $0.001
per share to purchase a number of shares of our common stock such that the aggregate average price per share purchased by the investors
is equal to the market price (defined as the average of volume weighted average price for each of the previous 30 days as reported
on the Over-The-Counter Bulletin Board during the 30 trading days preceding the measurement date).
On March 31, 2011, pursuant to a securities purchase agreement
we completed the closing of the offering of our securities for total subscription proceeds of $21,257,778 through the issuance
of (i) 3,697,005 shares of our common stock at a price of $5.75 per share and (ii) five-year warrants of 1,848,502 shares of common
stock at an exercise price of $9.00 per share, to certain accredited investors.  We also issued to Northland Capital Markets,
as placement agent, warrants to purchase 102,425 shares of common stock.
On February 1, 2011, pursuant to a securities purchase agreement,
we completed the closing of the offering of our securities for total subscription proceeds of $15,406,755 through the issuance
of (i) 4,401,930 shares of our common stock at a price of $3.50 per share and (ii) 2 series of five-year warrants each exercisable
into an aggregate of 1,100,482 shares of common stock at exercise prices of $5.00 and $6.50 per share, respectively to certain
accredited investors.    We also issued to Northland Capital Markets, as placement agent, warrants to purchase 317,118
shares of common stock.
Issuance of securities to the investors and the Placement
Agent were not registered under the Securities Act of 1933 (the "Securities Act"). Such issuance of securities was
exempt from registration under the safe harbor provided by Regulation D Rule 506 and Section 4(2) of the Securities Act. We made
this determination in part based on the representations of investors, which included, in pertinent part, that such investors were
an "accredited investor" as defined in Rule 501(a) under the Securities Act, and upon such further representations
from the investors that (a) the investor is acquiring the securities for his, her or its own account for investment and not for
the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution
within the meaning of the Securities Act, (b) the investor agrees not to sell or otherwise transfer the purchased securities unless
they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such
registration are available, (c) the investor either alone or together with its representatives has knowledge and experience in
financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and
(d) the investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment. 
Our determination is made based further upon our action of (a) making written disclosure to each investor in the Securities Purchase
Agreement prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot
be resold unless they are registered or unless an exemption from registration is available and (b) making write description of
the securities being offered, the use of the proceeds from the offering and any material changes in the Company's affairs
that are not disclosed in the documents furnished and (b) placement of a legend on the certificate that evidences the securities
stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability
and sale of the securities, and upon such inaction of  the Company of any general solicitation or advertising for securities
herein issued in reliance upon Regulation D Rule 506 and Section 4(2) of the Securities Act.
II-
5
On December 23, 2010, we closed a private placement offering
by raising proceeds of $750,000, through the sale of 230,770 shares of our common stock at a price of $3.25 per share and a number
of four-month warrants exercisable into a number of shares of common stock equal to 100% of the number of common shares underlying
the Placement at an exercise price of $3.50 per share to an accredited investor
Such Securities were not registered under the Securities
Act of 1933.  The issuance of the Securities was exempt from registration, pursuant to Section 4(2) of the Securities Act
of 1933.  These Securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
the Securities by us did not involve a public offering. The offering was not a "public offering" as defined in Section
4(2) due to the insubstantial number of persons involved in the transaction, the size of the offering and the manner of the offering
and number of the Securities offered. We did not undertake an offering in which we sold a high number of securities to a high number
of investors. In addition, the investor had the necessary investment intent as required by Section 4(2) since they agreed to and
received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 Securities
Act. This restriction ensures that the Securities would not be immediately redistributed into the market and therefore not be part
of a "public offering." Based on an analysis of the above factors, we have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for this transaction.
On October 20, 2010, we closed on a private placement offering
by raising proceeds of $1,200,000, through the sale of 452,830 shares of our common stock at a price of $2.65 per share and a number
of four-month warrants exercisable into a number of shares of common stock equal to 150% of the number of common shares underlying
the placement at an exercise price of $2.75 per share to two accredited investors.
Such securities were not registered under the Securities
Act. The issuance of these securities was exempt from registration under the safe harbor provided by Section 4(2) of the Securities
Act. We made this determination based on the representations of investors, which included, in pertinent part, that such shareholders
were either (a) "accredited investors" within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, or (b) not a "U.S. person" as that term is defined in Rule 902(k) of Regulation S under the Act, and upon such
further representations from the investors that (a) the investor is acquiring the securities for his, her or its own account for
investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection
with any distribution within the meaning of the Securities Act, (b) the investor agrees not to sell or otherwise transfer the purchased
shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions
from such registration are available, (c) the investor has knowledge and experience in financial and business matters such that
he, she or it is capable of evaluating the merits and risks of an investment in us, (d) the investor had access to all of our documents,
records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding
the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without
unreasonable effort and expense, and (e) the investor has no need for the liquidity in its investment in us and could afford the
complete loss of such investment. In addition, there was no general solicitation or advertising involved in the sale securities.
October 1, 2010, we issued to the Nevada ASEC shareholders approximately
22,000,000 common shares pursuant to a Share Exchange Agreement.
Such securities were not registered under the Securities
Act.  These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a "public offering."
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.
II-
6
During the first quarter of 2008 we issued 414,000 shares at
$ 0.25 per share for a total of $103,500 cash as follows:  January 30, 2008 we issued 44,000 shares for $11,000; February
12, 2008 we issued 160,000 shares for $40,000; February 29, 2008 we issued 200,000 shares for $50,000; and on March 25, 2008 issued
10,000 shares for $2,500.
Such securities were not registered under the Securities
Act.  These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a "public offering."
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.
During the second quarter of 2008 211,000 shares of common stock
of the Company were issued as payment of $59,080 for services. During the second quarter of 2008 we received $50,000 for 200,000
shares at $ 0.25 per share, to be issued.
Such securities were not registered under the Securities
Act.  These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a "public offering."
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.
During the third quarter of 2008, we issued 614,000 shares of
common stock in exchange for $153,500 in cash.  We also issued 716,000 shares of stock in receipt of services valued at $261,080
or about $0.36 per share.
Such securities were not registered under the Securities
Act.  These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by
us did not involve a public offering. The offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the Merger, size of the offering, manner of the offering and number of securities offered.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates
bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these securities would not be immediately redistributed into the market and therefore not be part of a "public offering."
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.
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7
Item 16. Exhibits and Financial Statement Schedules
Exhibit No.
Description
2.1
Share Exchange Agreement by and between the Company, American Standard and the American
    Standard Shareholders, dated October 1, 2010 (1)
3.1
Articles of Incorporation (incorporated by reference in the Registration Statement on Form
    SB-2 filed on April 3, 2006)
3.2
Certificate of Amendment of the Certificate of Incorporation (19)
3.3
Bylaws (incorporated by reference in the Registration Statement on Form SB-2 filed on April
    3, 2006)
4.1
Certificate of Designation of Series A Cumulative Convertible Preferred Stock (23)
5.1
Opinion of Blank Rome LLP #
10.1
Scott Feldhacker Employment Agreement (1)
10.2
Richard Macqueen Employment Agreement (1)
10.3
Not used
10.4
Scott Mahoney Employment Agreement (1)
10.5
Scott Feldhacker Deferred Compensation Agreement (1)
10.6
Richard Macqueen Deferred Compensation Agreement (1)
10.7
2010 Equity Compensation Plan (1)
10.8
Lease Purchase Agreement by and between American Standard Energy Corp. and Geronimo Holding
    Corp. dated April 28, 2010 (Bakken, ND) (1)
10.9
Lease Purchase Agreement by and between American Standard Energy Corp. and CLW South Texas
    2008, LP dated April 28, 2010 (Eagle Ford, TX) (1)
10.10
Lease Purchase Agreement by and between American Standard Energy Corp. and XOG Operating
    LLC dated April 28, 2010 (University, TX) (1)
10.11
Lease Purchase Agreement by and between American Standard Energy Corp. and Geronimo Holding
    Corp. dated April 28, 2010 (Wolfberry, TX) (1)
10.12
Form of Subscription Agreement dated October 26, 2010 (2)
10.13
Form of Warrant dated October 26, 2010 (2)
10.14
Agreement for the purchase of Partial Leaseholds between Geronimo Holdings Corporation
    and American Standard Energy Corp. dated December 1, 2010 (4)
10.15
Form of Subscription Agreement dated December 27, 2010 (5)
10.16
Form of Warrant dated December 27, 2010 (5)
10.17
Securities Purchase Agreement dated February 1, 2011 (6)
10.18
Form of Warrant dated February 1, 2011 (6)
10.19
Registration Rights Agreement dated February 1, 2011 (6)
10.20
Agreement for the Purchase of Partial Leaseholds between Geronimo Holding Corporation and
    American Standard Energy Corp. dated February 10, 2011 (7)
10.21
Agreement for the Purchase of Partial Leaseholds between Geronimo Holding Corporation and
    American Standard Energy Corp. dated March 1, 2011 (8)
10.22
Amendment No.1  to Securities Purchase Agreement dated March 28, 2011 (originally dated February 1, 2011)
    (9)
10.23
Amendment No.1 to the Registration Rights Agreement dated March 28, 2011 (originally dated
    February 1, 2011) (9)
10.24
Securities Purchase Agreement dated March 31, 2011 (10)
10.25
Form of Warrant dated March 31, 2011 (10)
10.26
Registration Rights Agreement dated March 31, 2011 (10)
10.27
Agreement for the Purchase of Partial Leaseholds between Geronimo Holding Corporation and
    American Standard Energy Corp. dated April 8, 2011 (11)
10.28
Securities Purchase Agreement dated July 15, 2011 (12)
10.29
Form of Series A Warrant dated July 15, 2011 (12)
10.30
Form of Series B Warrant dated July 15, 2011 (12)
10.31
Registration Rights Agreement dated July 15, 2011 (12)
10.32
Form of Joint Operating Agreement
10.33
Credit Agreement by and among American Standard Energy Corp., a Nevada corporation, and
    Macquarie Bank Limited and certain lender parties thereto, dated September 21, 2011 (14)
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8
10.34
Pledge and Security Agreement by and among American Standard Energy Corp.,
    a Delaware corporation, and Macquarie Bank Limited, as administrative agent, and certain lender parties thereto dated September
    21, 2011 (14)
10.35
Guaranty Agreement by and among American Standard Energy Corp., a Delaware corporation,
    and Macquarie Bank Limited, as administrative agent, and certain lender parties thereto dated September 21, 2011 (14)
10.36
Letter Agreement dated December 30, 2011, by and between American Standard Energy Corp. and Scott Feldhacker (16)
10.37
Letter Agreement dated December 30, 2011, by and between American Standard Energy Corp. and Richard MacQueen (16)
10.38
Letter Agreement dated December 30, 2011, by and between American Standard Energy Corp. and Scott Mahoney (16)
10.39
Form of Warrant issued to Pentwater, dated February 9, 2012 (17)
10.40
Form of Series C Warrant issued to Pentwater, dated February 9, 2012 (17)
10.41
Amended and Restated Warrant issued to Macquarie Americas Corp., dated February 9, 2012
    (17)
10.42
Note and Warrant Purchase Agreement by and among the Company, ASEN 2, and Pentwater, dated
    as of February 9, 2012  (17) +
10.43
Secured Convertible Promissory Note issued by ASEN 2 to Pentwater, dated February 9, 2012
    (17)
10.44
Security Agreement by and among ASEN 2 to Pentwater, dated as of February 9, 2012 (17)
    +
10.45
Guaranty Agreement by and among the Company and Pentwater, dated as of February 9, 2012
    (17)
10.46
Registration Rights Agreement by and among the Company and Pentwater, dated as of February
    9, 2012 (17)
10.47
Modification Agreement by and among the Company, Pentwater and its affiliates, dated as
    of February 9, 2012 (17)
10.48
Amendment to Securities Purchase Agreement by and among the Company and certain holders
    thereto, dated February 9, 2012 (17)
10.49
Mortgage and Deed of Trust from ASEN 2 to Pentwater for LaSalle County, Texas (17) +
10.50
Mortgage and Deed of Trust from ASEN 2 to Pentwater for Frio County, Texas (17) +
10.51
Purchase and Sale Agreement by and among the Company, XOG Operating LLC, and Geronimo Holding
    Corporation, dated as of February 24, 2012 (18) +
10.52
Promissory Note issued by the Company to Geronimo Holding Corporation, dated March 5, 2012
    (18)
10.53
Letter Agreement regarding Secured Convertible Promissory Note by and among Pentwater Equity
    Opportunities Master Fund Ltd., PWCM Master Fund Ltd. and ASEN 2, Corp., dated as of March 5, 2012 (18)
10.54
Amended 2010 Equity Compensation Plan (20)*
10.55
2011 Equity Incentive Plan (21)*
10.56
Modification Agreement by and among the Company, Pentwater and its affiliates, dated as
    of April 5, 2012 (22)
10.57
Exchange Agreement by and between the Company and Geronimo Holding Corporation dated as
    of June 30, 2012 (23)
10.58
Payment and Settlement Agreement by and among the Company, ASEN 2, Corp. and XOG Operating
    LLC, dated as of June 30, 2012 (23)
10.59
Form of Warrant issued to Pentwater, dated July 23, 2012 (24)
10.60
Form of Amended and Restated Series C Warrant issued to Investor, dated July 23, 2012 (24)
10.61
Form of Amended and Restated Warrant issued to Pentwater, dated July 23, 2012 (24)
10.62
First Amendment to Note and Warrant Purchase Agreement by and among the Company, ASEN 2,
    and Pentwater, dated as of July 23, 2012 (24)
10.63
Amended Secured Convertible Promissory Note issued by ASEN 2 to Pentwater, dated July 23,
    2012 (24)
10.64
Modification Agreement by and among the Company, Pentwater and its affiliates, dated as
    of July 23, 2012 (24)
23.1
Consent of BDO USA, LLP
23.2
Consent of Blank Rome LLP (contained in Exhibit 5.1)
23.3
Consent of Bryant M. Mook, B.Sc. M.Eng. #
23.4
Consent of DeGolyer and MacNaughton #
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9
99.1
Williamson Petroleum Consultants, Inc. Look Back Report to the Interests of
    American Standard Energy Corp. effective December 31, 2009 (1)
99.2
Williamson Petroleum Consultants, Inc. Look Back Report to the Interests of American Standard
    Energy Corp. effective December 31, 2008 (1)
99.3
American Standard Energy Corp. Company Corporate Profile Fact Sheet (3)
99.4
Reserve Report by Bryant M. Mook, B.Sc. M.Eng., Petroleum Engineer and Geological Advisor
    as of December 31, 2010 (13)
99.5
Reserve Report by DeGolyer and MacNaughton as of December 31, 2011
(1)
Incorporated by reference to Form 8-K filed on October 4, 2010.
(2)
Incorporated by reference to Form 8-K filed on October 26, 2010.
(3)
Incorporated by reference to Form 8-K filed on November 17, 2010.
(4)
Incorporated by reference to Form 8-K filed on December 6, 2010.
(5)
Incorporated by reference to Form 8-K filed on December 27, 2010.
(6)
Incorporated by reference to Form 8-K filed on February 2, 2011.
(7)
Incorporated by reference to Form 8-K filed on February 16, 2011.
(8)
Incorporated by reference to Form 8-K filed on March 7, 2011.
(9)
Incorporated by reference to Form 8-K filed on April 1, 2011.
(10)
Incorporated by reference to Form 8-K filed on April 1, 2011.
(11)
Incorporated by reference to Form 8-K filed on April 14, 2011.
(12)
Incorporated by reference to Form 8-K filed on July 13, 2011.
(13)
Incorporated by reference to Form 10-K/A filed on March 22, 2011.
(14)
Incorporated by reference to Form 8-K filed on October 4, 2011.
(15)
Incorporated by reference to Form S-1/A filed on January 4, 2012.
(16)
Incorporated by reference to Form 8-K filed on January 6, 2012.
(17)
Incorporated by reference to Form 8-K filed on February 15, 2012.
(18)
Incorporated by reference to Form 8-K filed on March 9, 2012.
(19)
Incorporated by reference to Exhibit C filed with the Company's Definitive
    Proxy Statement on Schedule 14C dated December 30, 2011.
(20)
Incorporated by reference to Exhibit A filed with the Company's Definitive
    Proxy Statement on Schedule 14C dated December 30, 2011.
(21)
Incorporated by reference to Exhibit B filed with the Company's Definitive
    Proxy Statement on Schedule 14C dated December 30, 2011.
(22)
Incorporated by reference to Form 8-K filed on April 10, 2012.
(23)
Incorporated by reference to Form 8-K filed on July 6, 2012.
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(24)
Incorporated by reference to Form 8-K filed on July 27, 2012.
+ Schedules and exhibits have been omitted pursuant to Item
601(b)(2) of Regulation S-K. American Standard Energy Corp. hereby undertakes to furnish supplementally to the Securities and
Exchange Commission copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.
* Denotes management compensation plan or arrangement.
# To be filed by amendment.
Item 17.Undertakings
(A)
The undersigned Registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(B) The issuer is subject to Rule 430C (ss. 230. 430C of this
chapter): Each prospectus filed pursuant to Rule 424(b)(ss. 230. 424(b) of this chapter) as part of a registration statement relating
to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (ss.
230. 430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.
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(C) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling persons of the undersigned Registrant pursuant to the
foregoing provisions, or otherwise, the undersigned has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the undersigned of expenses incurred or paid by a director, officer or controlling
person of the undersigned in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the undersigned will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
American Standard Energy Corp. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the city of Scottsdale, State of Arizona on this 3
rd
day of August, 2012.
American Standard Energy Corp.
By:
/s/
Scott Feldhacker
Name: Scott Feldhacker
Title: Chief Executive Officer, Director
(Principal Executive Officer)
By:
/s/
Scott Mahoney
Name: Scott Mahoney
Title: Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Scott Feldhacker
Chief Executive Officer  and Director
August 3, 2012
Scott Feldhacker
/s/ Scott Mahoney
Chief Financial Officer, Principal Accounting Officer
August 3, 2012
Scott Mahoney
/s/ Richard MacQueen
President and Director
August 3, 2012
Richard MacQueen
/s/ Robert J. Thompson
Chairman of the Board of Directors
August 3, 2012
Robert J. Thompson
/s/ Randall Capps
Director
August 3, 2012
Randall Capps
/s/ James R. Leeton, Jr.
Director
August 3, 2012
James R. Leeton, Jr.
/s/ Scott David
Director
August 3, 2012
Scott David
/s/ William Killian
Director
August 3, 2012
William Killian
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