UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2010
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-51414

Logo  
 
LUCAS ENERGY, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
98-0417780
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

3555 Timmons Lane, Suite 1550
Houston, Texas 77027
(Address of principal executive offices)

(713) 528-1881
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yeso   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section 15(d) of the Act.  Yes o   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x   No o
 


 
 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  o    No  o

Indicate by check mark  if disclosure of delinquent filers pursuant to Item 405 of  Regulation  S-K  is not contained herein, and will not be contained,  to the best of the registrant's knowledge, in definitive proxy or information statements incorporated  by  reference  in Part III of this  Form 10-K or any amendment to this Form 10-K.o

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”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No  x
 
Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of September 30, 2009 (the last business day of the registrant’s most recently completed second fiscal quarter)
 
$
4,987,282
 
         
Number of shares of registrant’s common stock outstanding as of June 29, 2010
   
13,603,490
 
 
 
 

 

LUCAS ENERGY, INC.
FORM 10-K
For the Fiscal Year Ended March 31, 2010
TABLE OF CONTENTS
 
   
Page
PART 1
   
Item 1.
2
Item 1A.
5
Item 2.
12
Item 3.
16
Item 4.
(Removed and Reserved)
16
     
PART II
   
Item 5.
17
Item 6.
18
Item 7.
19
Item 7A
27
Item 8.
27
Item 9.
28
Item 9A.
28
Item 9B.
29
     
Part III
   
Item 10.
30
Item 11.
34
Item 12.
38
Item 13.
39
Item 14.
39
     
Part IV
   
     
Item 15.
41
 
42
 
F 1  – F 17
 
F- 18
 
 
 


Cautionary Statement

This report on Form 10-K and the documents or information incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, among others,

 
·
our growth strategies;
 
·
anticipated trends in our business;
 
·
our ability to make or integrate acquisitions;
 
·
our liquidity and ability to finance our exploration, acquisition and development strategies;
 
·
market conditions in the oil and gas industry;
 
·
the timing, cost and procedure for proposed acquisitions;
 
·
the impact of government regulation;
 
·
estimates regarding future net revenues from oil and natural gas reserves and the present value thereof;
 
·
planned capital expenditures (including the amount and nature thereof);
 
·
increases in oil and gas production;
 
·
the number of wells we anticipate drilling in the future;
 
·
estimates, plans and projections relating to acquired properties;
 
·
the number of potential drilling locations; and
 
·
our financial position, business strategy and other plans and objectives for future operations.

We identify forward-looking statements by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “hope,” “plan,” “believe,” “predict,” “envision,” “intend,” “will,” “continue,” “potential,” “should,” “confident,” “could” and similar words and expressions, although some forward-looking statements may be expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements. You should consider carefully the statements under the “Risk Factors” section of this report and other sections of this report which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements, and the following factors:

 
·
the possibility that our acquisitions may involve unexpected costs;
 
·
the volatility in commodity prices for oil and gas;
 
·
the accuracy of internally estimated proved reserves;
 
·
the presence or recoverability of estimated oil and gas reserves;
 
·
the ability to replace oil and gas reserves;
 
·
the availability and costs of drilling rigs and other oilfield services;
 
·
environmental risks;
 
·
exploration and development risks;
 
·
competition;
 
·
the inability to realize expected value from acquisitions;
 
·
the ability of our management team to execute its plans to meet its goals;
 
·
other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our businesses, operations and pricing.

Forward-looking statements speak only as of the date of this report or the date of any document incorporated by reference in this report. Except to the extent required by applicable law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

 
1


PART I
 
ITEM 1.   BUSINESS.
 
General

Lucas Energy, Inc. (“we,” “us,” “Lucas”, “Lucas Energy”, the “Company” and words of similar meaning) is an independent oil and gas company based in Houston, Texas with approximately 12,500 gross acres (10,400 acres net) of oil and gas leases in South Texas primarily in the Gonzales County and Wilson County, Texas.  We hold oil and gas interests in the Austin Chalk formation (proved and producing), Buda formation (proved and production), and Eagle Ford Shale formation (proved and undeveloped).  We focus on building, revitalizing and developing a portfolio of oil and gas properties by acquiring what we believe are undervalued and underperforming oil and gas assets for which we believe we can increase production.

We operate thirty (30) producing wells that currently produce approximately 190-200 barrels of oil per day (“BOPD”), gross. In total we hold interests in sixty-three (63) producing, shut-in, and previously plugged and abandoned wellbores.  Our oil production sales totaled 27,833 barrel oil equivalent, net to our interest for our fiscal year ended March 31, 2010.  We operate all of our oil and gas properties with the exception of one property located in Jasper County, Texas.

Acquisitions of oil and gas properties are a core part of our growth strategy.  We focus on acquiring shut-in wells that we believe have been overlooked by other companies and have, in our assessment, a high probability of additional recovery of reserves through our revitalization process or through the drilling of new laterals.  Specifically, we seek out opportunities to acquire wells located in mature oil fields that we believe are underdeveloped and have the potential to recover significant oil reserves that are still in place. The term underdeveloped is an industry term meaning that the reservoirs of interest have either not been fully exploited through drilling, or the reserves in current well bores, whether active or plugged and abandoned, have not been fully recovered by primary recovery techniques.  In many instances the fields that we target have lost some or all of the reservoir pressure required to drive the oil through the overlying rock and sand and into the well bores of the producing wells, or they have experienced mechanical problems.

Most of the acquisition prospects that we conduct initial screening on are sourced directly by our senior management or specialized third-party consultants with local area knowledge. Prospects that are of further interest to us after we complete of our initial review, are evaluated for technical and economic viability.  We target well acquisitions that we estimate: (a) have a good opportunity and the appropriate acreage to drill additional laterals; (b) payback period of less than 12 months; and (c) projected internal rate of return on capital invested is accretive to earnings.

Our revitalization process is directed toward bringing wells back into production or enhance production through ordinary practices used in the oil and gas industry.  Our revitalization procedures used on acquired wells include the installation of new or good used equipment on the well; cleaning out the well with open ended tubing, tubing with a bit, or tubing with a mule shoe; treating the well with acid, soapy water, or other proprietary chemicals sourced from third parties; re-entry of a plugged and abandoned well; and drilling of a new lateral extension on an existing well.  Our well revitalization program enables us to generate short-term cash and to hold leases for additional future development.  Additionally we have conducted reservoir engineering on a program to drill new laterals from existing well-bores or offset locations that we have already leased.  The purpose of these laterals are to provide more aerial access to the formation in order to increase the flow rate and to recover additional oil and gas reserves not recoverable from the existing vertical (straight) holes.

 
2


Our primary focus is to grow our portfolio of oil and gas properties. Our revenues are derived from the sale of the oil that we produce from our wells.  We derive ancillary revenue from associated natural gas produced in connection with production from our oil wells.  Our assets deplete as our oil and gas reserves are produced, and our business is capital intensive requiring substantial funding to make property acquisitions, to drill and complete wells and to conduct well revitalizations in order for us to maintain and increase our oil and gas reserve base.  Our primary recurring costs are expenses associated with lease operations and with operating the Company.

Historically, we have retained substantially all our earnings to fund our capital program and to grow our oil and gas reserve base.   Presented below are our actual sales of oil and gas production and average prices realized during the years ended March 31, 2010 and 2009:

   
For the Year Ended
March 31, 2010
   
For the Year Ended
March 31, 2009
   
Increase /
(Decrease)
 
Volumes, net:
                 
Oil (bbls)
    26,858       41,309       (14,451 )
Gas (mcf)
    5,849       7,505       (1,656 )
Total (boe)
    27,833       42,560       (14,727 )
Average price received:
                       
Oil
  $ 65.60     $ 80.82     $ (15.22 )
Gas
  $ 2.73     $ 5.77     $ (3.04 )
Total Revenues:
  $ 1,777,736     $ 3,382,060     $ (1,604,324 )

Our principal office is located at 3555 Timmons Lane, Suite 1550, Houston, Texas 77027. Our phone number is (713) 528-1881.  The Company is authorized to transact business in the state of Texas, and is a bonded operator with the Texas Railroad Commission.

Research and Development

We have not allocated funds for conducting research and development activities.  We do not anticipate allocating funds for research and development in the immediate future.
 
Marketing of Crude Oil and Natural Gas
 
We operate exclusively in the United States oil and gas industry. Crude oil production sales are made directly to GulfMark Energy, Inc. and Texon LP. Our sales are made on a month-to-month basis, and title transfer occurs  at an individual property’s tank battery when loaded onto the oil purchaser’s truck.  Crude oil prices realized from production sales are tied to published west Texas intermediate crude indexes.

Our natural gas production is associated gas resulting from crude oil production and is nominal.  Natural gas is sold to Houston Pipeline Company on a month-to-month basis.
 
Although we believe that we are not dependent upon any one customer, our marketing arrangement with GulfMark accounted for approximately 87% and 88% of our revenue for the years ended March 31, 2010 and 2009, respectively.  In the event that GulfMark is unwilling or unable to purchase our crude oil production, we believe alternative purchasers are readily available and sales would occur at competitive market prices.

Employees

As of our fiscal year ended March 31, 2010, we employed four full-time employees, consisting of the chief executive officer and the chief financial officer, and two administrative support staff.  In conjunction with the continued ramp up of our activities for increased drilling and development initiatives, we have increased our full-time employee complement by four comprised of a land manager, accountant and two administrative support staff in our Gonzales, Texas field office.  Other resource requirements are outsourced third parties through contractors and consultants that have specialized operational and technical skill sets, together with professional services for reserve estimations, audit, legal and public company compliance requirements.

 
3


None of our employees are a member of any union, nor have they entered into any collective bargaining agreements. We believe that our relationship with our employees is good. With the successful implementation of our business plan, we may seek additional employees in the next year to handle anticipated potential growth.

Facilities

We currently occupy approximately 3,793 square feet of office space in Houston, Texas for $6,572 per month pursuant to a 22-month sublease agreement with an expiry of April 30, 2012.  We have a Gonzales field office for which we pay $350 per month on a month-to-month basis.

Industry Segments

We are presently engaged in one industry segment, which is the exploration and production of oil and natural gas.  

 
ITEM 1A.   RISK FACTORS.

An investment in our common stock involves a number of risks.  These risks include those described in this confidential private placement memorandum and others we have not anticipated or discussed.  Before you purchase the Securities you should carefully consider the information about risks identified below, as well as the information about risks stated in other parts of this memorandum and in our filings with the Commission that we have incorporated by reference in this memorandum.  Any of the risks discussed below or elsewhere in this memorandum or in our Commission filings, and other risks we have not anticipated or discussed, could have a material impact on our business, results of operations, and financial condition.  As a result, they could have an impact on our ability to pay any amounts due with respect to the Securities, or our stock price.

Risks Relating to Our Business

We have a limited operating history, and we may not be able to operate profitably in the near future, if at all.

We have a limited operating history. Businesses which are starting up or in their initial stages of development present substantial business and financial risks and may suffer significant losses from which they cannot recover. We will face all of the challenges of a new business enterprise, including but not limited to, locating and successfully developing oil and gas properties, locating suitable office space, engaging the services of qualified support personnel and consultants, establishing budgets and implementing appropriate financial controls and internal operating policies and procedures. We will need to attract and retain a number of key employees and other service personnel.

We have limited operating capital.

While we believe that we have sufficient cash on hand and cash flow from operations to fund recurring production operating expenses and base general and administrative requirements, over the longer term we may not. The amount of capital available to us is limited, and may not be sufficient to enable us to fully execute our capital expenditure program and growth initiatives with additional funding sources.  Additional financing may also be required to achieve our objectives and provide working capital for organizational infrastructure developments necessary to achieve our growth plans and reach a level of oil and gas operating activities that allows us to take advantage of certain economies of scale inherent to our business which would provide us the ability to reduce costs on a per unit of production basis.   There can be no assurance that we will be able to obtain such financing on attractive terms, if at all. We have no firm commitments for additional cash funding.
 
Our Credit Facility was secured with substantially all existing and after acquired assets, and was subject to financial covenants that we were required to meet.

Our Revolving Line of Credit and Letter of Credit Facility with Amegy Bank that we entered into on October 8, 2008 was secured by substantially all of our existing and after acquired assets. The availability of funds and repayments of borrowed funds were subject to periodic borrowing base determinations. Amegy Bank’s lending commitment and our borrowing capacity was subject to increases or decreases as the collateral value of the oil and gas properties securing the Credit Facility fluctuates with factors such as changes in commodity prices, revisions to reserve estimates, and changes in capital expenditure and operating cost estimates. On March 31, 2010, the Amegy Bank’s lending commitment to us was approximately $2.0 million while the outstanding principal balance due to Amegy Bank under Credit Facility was $2.15 million.  The maturity of outstanding borrowings under the Credit Facility was three (3) years from closing the Credit Facility, or earlier if repayments are required pursuant to periodic borrow base redetermination. The Credit Facility contained financial covenants that we were required to meet and if not met, we would be required to request waiver(s).

 
5


On May 5, 2010, Lucas paid off the outstanding balance under the Amegy Bank Credit Facility, and terminated the Facility.  In connection with the repayment and termination of the Credit Facility, Amegy Bank released all liens. Future financings may necessitate that substantially all or a portion of our assets be pledged to a counterparty, and could include financial covenants requirements similar to the covenants that existed under the Amegy Credit Facility which we may or may not be able to meet.

We do not intend to pay dividends to our shareholders.

We do not currently intend to pay cash dividends on our common stock and do not anticipate paying any dividends at any time in the foreseeable future. At present, we will follow a policy of retaining all of our earnings, if any, to finance development and expansion of our business.

Our officers and directors have limited liability, and we are required in certain instances to indemnify our officers and directors for breaches of their fiduciary duties.

We have adopted provisions in our Articles of Incorporation and Bylaws which limit the liability of our officers and directors and provide for indemnification by us of our officers and directors to the full extent permitted by Nevada corporate law. Our articles generally provide that our officers and directors shall have no personal liability to us or our shareholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit our shareholders' ability to hold officers and directors liable for breaches of fiduciary duty, and may require us to indemnify our officers and directors.

We face intense competition.

We compete against many other energy companies, some of which have considerably greater resources and abilities. These competitors may have greater marketing and sales capacity, established distribution networks, significant goodwill and global name recognition.

We depend significantly upon the continued involvement of our present management.

Our success depends to a significant degree upon the involvement of our management, who are in charge of our strategic planning and operations. We may need to attract and retain additional talented individuals in order to carry out our business objectives.  The competition for such persons could be intense and there are no assurances that these individuals will be available to us.

Our business is subject to extensive regulation.

As many of our activities are subject to federal, state and local regulation, and as these rules are subject to constant change or amendment, there can be no assurance that our operations will not be adversely affected by new or different government regulations, laws or court decisions applicable to our operations.

Government regulation and liability for environmental matters may adversely affect our business and results of operations.

Crude oil and natural gas operations are subject to extensive federal, state and local government regulations, which may be changed from time to time. Matters subject to regulation include discharge permits for 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 crude oil and natural gas wells below actual production capacity in order to conserve supplies of crude oil and natural gas. There are federal, state and local laws and regulations primarily relating to protection of human health and the environment applicable to the development, production, handling, storage, transportation and disposal of crude oil and natural gas, byproducts thereof and other substances and materials produced or used in connection with crude oil and natural gas operations. In addition, we may inherit liability for environmental damages caused by previous owners of property we purchase or lease. As a result, we may incur substantial liabilities to third parties or governmental entities. We are also subject to changing and extensive tax laws, the effects of which cannot be predicted. The implementation of new, or the modification of existing, laws or regulations could have a material adverse effect on us.

 
6


The crude oil and natural gas reserves we report in our SEC filings are estimates and may prove to be inaccurate.

There are numerous uncertainties inherent in estimating crude oil and natural gas reserves and their estimated values. The reserves we will report in our filings with the SEC will only be estimates and such estimates may prove to be inaccurate because of these uncertainties. Reservoir engineering is a subjective and inexact process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable crude oil and natural gas reserves depend upon a number of variable factors, such as historical production from the area compared with production from other producing areas and assumptions concerning effects of regulations by governmental agencies, future crude oil and natural gas prices, future operating costs, severance and excise taxes, development costs and work-over and remedial costs. Some or all of these assumptions may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of crude oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected there from prepared by different engineers or by the same engineers but at different times may vary substantially. Accordingly, reserve estimates may be subject to downward or upward adjustment. Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material.

Crude oil and natural gas development, re-completion of wells from one reservoir to another reservoir, restoring wells to production and drilling and completing new wells are speculative activities and involve numerous risks and substantial and uncertain costs.

Our growth will be materially dependent upon the success of our future development program. Drilling for crude oil and natural gas and reworking existing wells involves numerous risks, including the risk that no commercially productive crude oil or natural gas reservoirs will be encountered. The cost of drilling, completing and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors beyond our control, including:

 
·
unexpected drilling conditions;
 
·
pressure or irregularities in formations;
 
·
equipment failures or accidents;
 
·
inability to obtain leases on economic terms, where applicable;
 
·
adverse weather conditions and natural disasters;
 
·
compliance with governmental requirements; and
 
·
shortages or delays in the availability of drilling rigs or crews and the delivery of equipment.

Drilling or reworking is a highly speculative activity. Even when fully and correctly utilized, modern well completion techniques such as hydraulic fracturing and horizontal drilling do not guarantee that we will find crude oil and/or natural gas in our wells. Hydraulic fracturing involves pumping a fluid with or without particulates into a formation at high pressure, thereby creating fractures in the rock and leaving the particulates in the fractures to ensure that the fractures remain open, thereby potentially increasing the ability of the reservoir to produce oil or gas. Horizontal drilling involves drilling horizontally out from an existing vertical well bore, thereby potentially increasing the area and reach of the well bore that is in contact with the reservoir. Our future drilling activities may not be successful and, if unsuccessful, such failure would have an adverse effect on our future results of operations and financial condition. We cannot assure you that our overall drilling success rate or our drilling success rate for activities within a particular geographic area will not decline. We may identify and develop prospects through a number of methods, some of which do not include lateral drilling or hydraulic fracturing, and some of which may be unproven. The drilling and results for these prospects may be particularly uncertain. Our drilling schedule may vary from our capital budget. The final determination with respect to the drilling of any scheduled or budgeted prospects will be dependent on a number of factors, including, but not limited to:

 
·
the results of previous development efforts and the acquisition, review and analysis of data;
 
·
the availability of sufficient capital resources to us and the other participants, if any, for the drilling of the prospects;
 
·
the approval of the prospects by other participants, if any, after additional data has been compiled;
 
 
7

 
 
·
economic and industry conditions at the time of drilling, including prevailing and anticipated prices for crude oil and natural gas and the availability of drilling rigs and crews;
 
·
our financial resources and results;
 
·
the availability of leases and permits on reasonable terms for the prospects; and
 
·
the success of our drilling technology.

We cannot assure you that these projects can be successfully developed or that the wells discussed will, if drilled, encounter reservoirs of commercially productive crude oil or natural gas. There are numerous uncertainties in estimating quantities of proved reserves, including many factors beyond our control.

Crude oil and natural gas prices are highly volatile in general and low prices will negatively affect our financial results.

Our revenues, operating results, profitability, cash flow, future rate of growth and ability to borrow funds or obtain additional capital, as well as the carrying value of our properties, are substantially dependent upon prevailing prices of crude oil and natural gas. Lower crude oil and natural gas prices also may reduce the amount of crude oil and natural gas that we can produce economically. Historically, the markets for crude oil and natural gas have been very volatile, and such markets are likely to continue to be volatile in the future. Prices for crude oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for crude oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control, including:

 
·
worldwide and domestic supplies of crude oil and natural gas;
 
·
the level of consumer product demand;
 
·
weather conditions and natural disasters;
 
·
domestic and foreign governmental regulations;
 
·
the price and availability of alternative fuels;
 
·
political instability or armed conflict in oil producing regions;
 
·
the price and level of foreign imports; and
 
·
overall domestic and global economic conditions.
 
It is extremely difficult to predict future crude oil and natural gas price movements with any certainty. Declines in crude oil and natural gas prices may materially adversely affect our financial condition, liquidity, ability to finance planned capital expenditures and results of operations. Further, oil and gas prices do not move in tandem.

Risks Related To Share Ownership

The market price for our common stock may be volatile, and you may not be able to sell our stock at a favorable price or at all.
 
Many factors could cause the market price of our common stock to rise and fall, including:  

 
actual or anticipated variations in our quarterly results of operations;
 
changes in market valuations of companies in our industry;
 
changes in expectations of future financial performance;
 
fluctuations in stock market prices and volumes;
 
issuances of dilutive common stock or other securities in the future;
 
the addition or departure of key personnel;
 
announcements by us or our competitors of acquisitions, investments or strategic alliances; and
 
the increase or decline in the price of oil and natural gas.

It is possible that the proceeds from sales of our common stock may not equal or exceed the prices you paid for it plus the costs and fees of making the sales.  

 
8


Substantial sales of our common stock, or the perception that such sales might occur, could depress the market price of our common stock.
 
We cannot predict whether future issuances of our common stock or resales in the open market will decrease the market price of our common stock. The impact of any such issuances or resales of our common stock on our market price may be increased as a result of the fact that our common stock is thinly, or infrequently, traded.  The exercise of any options or the vesting of any restricted stock that we may grant to directors, executive officers and other employees in the future, the issuance of common stock in connection with acquisitions and other issuances of our common stock could have an adverse effect on the market price of our common stock. In addition, future issuances of our common stock may be dilutive to existing shareholders. Any sales of substantial amounts of our common stock in the public market, or the perception that such sales might occur, could lower the market price of our common stock.
 
Our common stock is considered "penny stock" securities under Exchange Act rules, which may limit the marketability of our securities.

Our securities are considered low-priced or "designated" securities under rules promulgated under the Exchange Act. Under these rules, broker/dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker/dealer's duties, the customer's rights and remedies, certain market and other information, and make a suitability determination approving the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives. Broker/dealers must also disclose these restrictions in writing to the customer and obtain specific written consent of the customer, and provide monthly account statements to the customer. The likely effect of these restrictions is a decrease in the willingness of broker/dealers to make a market in the stock, decreased liquidity of the stock and increased transaction costs for sales and purchases of the stock as compared to other securities.

IN ADDITION TO THE RISK FACTORS SET FORTH ABOVE, THE COMPANY IS SUBJECT TO NUMEROUS OTHER RISKS SPECIFIC TO THE PARTICULAR BUSINESS OF THE COMPANY, AS WELL AS  GENERAL BUSINESS RISK. INVESTORS ARE URGED TO CONSIDER ALL OF THE RISKS INHERENT IN THE COMPANY'S SECURITIES PRIOR TO PURCHASING OR MAKING AN INVESTMENT DECISION. THE COMPANY'S SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A VERY HIGH DEGREE OF RISK.

Competition

We are in direct competition with numerous oil and natural gas companies, drilling and income programs and partnerships exploring various areas of Texas and elsewhere competing for properties.  Many competitors are large, well-known oil and gas and/or energy companies, although no single entity dominates the industry.  Many of our competitors possess greater financial and personnel resources enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than us. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry.  Management believes that there exists a viable market place for smaller producers of natural gas and oil.

Government Regulation

In the United States, legislation affecting the oil and gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous federal, state and local departments and agencies have issued extensive rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. These laws and regulations have a significant impact on oil and gas drilling, gas processing plants and production activities, increasing the cost of doing business and, consequently, affect profitability. Insomuch as new legislation affecting the oil and gas industry is common place and existing laws and regulations are frequently amended or reinterpreted, Lucas Energy may be unable to predict the future cost or impact of complying with these laws and regulations. Lucas Energy considers the cost of environmental protection a necessary and manageable part of its business. Lucas Energy has been able to plan for and comply with new environmental initiatives without materially altering its operating strategies.

 
9


Exploration and Production

Lucas Energy's operations are subject to various types of regulation at the federal, state and local levels. These regulations include requiring permits for the drilling of wells; maintaining prevention plans; submitting notification and receiving permits related to the presence, use and release of certain materials incidental to oil and gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface plugging and abandoning of wells and the transporting of production. Lucas Energy's operations are also subject to various conservation matters, including the number of wells which may be drilled in a unit, and the unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition state conservation laws establish maximum rates of production oil and gas wells, generally limit the venting or flaring of gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to limit the amounts of oil and gas Lucas can produce from its wells and to limit the number of wells or the locations at which Lucas Energy can drill.
 
Environmental

Our exploration, development, and production of oil and gas, including our operation of saltwater injection and disposal wells, are subject to various federal, state and local environmental laws and regulations. Such laws and regulations can increase the costs of planning, designing, installing and operating oil and gas wells. Our domestic activities are subject to a variety of environmental laws and regulations, including but not limited to, the Oil Pollution Act of 1990 ("OPA"), the Clean Water Act ("CWA"), the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA"), and the Safe Drinking Water Act ("SDWA"), as well as state regulations promulgated under comparable state statutes. We are also subject to regulations governing the handling, transportation, storage, and disposal of naturally occurring radioactive materials that are found in our oil and gas operations. Civil and criminal fines and penalties may be imposed for non-compliance with these environmental laws and regulations. Additionally, these laws and regulations require the acquisition of permits or other governmental authorizations before undertaking certain activities, limit or prohibit other activities because of protected areas or species, and impose substantial liabilities for cleanup of pollution.
 
Under the OPA, a release of oil into water or other areas designated by the statute could result in the company being held responsible for the costs of remediating such a release, certain OPA specified damages, and natural resource damages. The extent of that liability could be extensive, as set forth in the statute, depending on the nature of the release. A release of oil in harmful quantities or other materials into water or other specified areas could also result in the company being held responsible under the CWA for the costs of remediation, and civil and criminal fines and penalties.
 
CERCLA and comparable state statutes, also known as "Superfund" laws, can impose joint and several and retroactive liability, without regard to fault or the legality of the original conduct, on certain classes of persons for the release of a "hazardous substance" into the environment. In practice, cleanup costs are usually allocated among various responsible parties. Potentially liable parties include site owners or operators, past owners or operators under certain conditions, and entities that arrange for the disposal or treatment of, or transport hazardous substances found at the site. Although CERCLA, as amended, currently exempts petroleum, including but not limited to, crude oil, gas and natural gas liquids from the definition of hazardous substance, our operations may involve the use or handling of other materials that may be classified as hazardous substances under CERCLA. Furthermore, there can be no assurance that the exemption will be preserved in future amendments of the act, if any.
 
RCRA and comparable state and local requirements impose standards for the management, including treatment, storage, and disposal of both hazardous and non-hazardous solid wastes. We generate hazardous and non-hazardous solid waste in connection with our routine operations. From time to time, proposals have been made that would reclassify certain oil and gas wastes, including wastes generated during drilling, production and pipeline operations, as "hazardous wastes" under RCRA which would make such solid wastes subject to much more stringent handling, transportation, storage, disposal, and clean-up requirements. This development could have a significant impact on our operating costs. While state laws vary on this issue, state initiatives to further regulate oil and gas wastes could have a similar impact. Because oil and gas exploration and production, and possibly other activities, have been conducted at some of our properties by previous owners and operators, materials from these operations remain on some of the properties and in some instances require remediation. In addition, in certain instances we have agreed to indemnify sellers of producing properties from which we have acquired reserves against certain liabilities for environmental claims associated with such properties. While we do not believe that costs to be incurred by us for compliance and remediating previously or currently owned or operated properties will be material, there can be no guarantee that such costs will not result in material expenditures.

 
10


Additionally, in the course of our routine oil and gas operations, surface spills and leaks, including casing leaks, of oil or other materials occur, and we incur costs for waste handling and environmental compliance. Moreover, we are able to control directly the operations of only those wells for which we act as the operator. Management believes that the Company is in substantial compliance with applicable environmental laws and regulations.
 
We do not anticipate being required in the near future to expend amounts that are material in relation to our total capital expenditures program by reason of environmental laws and regulations, but inasmuch as such laws and regulations are frequently changed, we are unable to predict the ultimate cost of compliance. There can be no assurance that more stringent laws and regulations protecting the environment will not be adopted or that we will not otherwise incur material expenses in connection with environmental laws and regulations in the future.

Occupational Health and Safety

Lucas Energy is also subject to laws and regulations concerning occupational safety and health. Due to the continued changes in these laws and regulations, and the judicial construction of many of them, Lucas Energy is unable to predict with any reasonable degree of certainty its future costs of complying with these laws and regulations. Lucas Energy considers the cost of safety and health compliance a necessary and manageable part of its business. Lucas Energy has been able to plan for and comply with new initiatives without materially altering its operating strategies.
 
Lucas Energy is subject to certain laws and regulations relating to environmental remediation activities associated with past operations, such as the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and similar state statutes. In response to liabilities associated with these activities, accruals have been established when reasonable estimates are possible. Such accruals primarily include estimated costs associated with remediation. Lucas Energy has used discounting to present value in determining its accrued liabilities for environmental remediation or well closure, but no material claims for possible recovery from third party insurers or other parties related to environmental costs have been recognized in Lucas Energy's financial statements. Lucas Energy adjusts the accruals when new remediation responsibilities are discovered and probable costs become estimable, or when current remediation estimates must be adjusted to reflect new information.

Taxation
 
The operations of the Company, as is the case in the petroleum industry generally, are significantly affected by federal tax laws. Federal, as well as state, tax laws have many provisions applicable to corporations which could affect the future tax liability of the Company.
 
Commitments and Contingencies
 
Lucas Energy is liable for future restoration and abandonment costs associated with its oil and gas properties. These costs include future site restoration, post closure and other environmental exit costs. The costs of future restoration and well abandonment have not been determined in detail. State regulations require operators to post bonds that assure that well sites will be properly plugged and abandoned. Each state in which Lucas Energy operates requires a security bond varying in value from state to state and depending on the number of wells that Lucas Energy operates. Management views this as a necessary requirement for operations within each state and does not believe that these costs will have a material adverse effect on its financial position as a result of this requirement.

 
11

 
ITEM 2.        PROPERTIES.

Our properties consist of working and royalty interests owned by us in various oil and gas wells and oil and gas lease acreage located in Gonzales, Wilson, Karnes and Jasper Counties, Texas.

Oil and Gas Acreage

The following table sets forth the developed leasehold acreage held by us as of March 31, 2010 and 2009. Gross acres are the total number of acres we have a working interest. Net acres are the sum of our fractional working interests owned in the gross acres.

In certain leases, our ownership varies at different depths; therefore, the net acreage in these leases is calculated with consideration of the varying ownership interests.

All Acreage in Texas
 
March 31, 2010
   
March 31, 2009
 
             
Gross acreages, approximate
    12,526       15,159  
                 
Net acreage, approximate
    10,429       12,620  

Reserves

Our proved and probable reserves and the standardized measure of discounted future net cash flows of our interests in proved oil and gas reserves at March 31, 2010 are set forth below:

Proved Reserves
 
Oil (Bbls)
   
Natural Gas (MCF)
   
Discounted Future Net Cash Flow (at 10% per year)
 
                   
Developed Producing
    73,010       11,760     $ 1,614,720  
                         
Developed Non Producing
    63,540       19,410       2,549,300  
                         
Undeveloped
    1,833,680       -       43,354,360  
                         
Total, before income taxes
    1,970,230       31,170     $ 47,518,380  
                         
Less:  Estimated income taxes on future net cash flows (discounted at 10% per year)
    n/a       n/a     $ (8,311,887 )
                         
Total, March 31, 2010
    1,970,230       31,170     $ 39,206,493  

Probable Reserves
 
Oil (Bbls)
   
Natural Gas (MCF)
   
Discounted Future Net Cash Flow (at 10% per year)
 
                   
Undeveloped
    680,770       -     $ 4,464,910  

 
12


Revisions to SEC Oil and Gas Reserve Reporting Requirements.

Effective December 31, 2008, the SEC effected revisions designed to modernize the oil and gas company reserves reporting requirements. The revisions are effective for annual reports filed on or after December 15, 2009. Among other things, the revised reporting requirements include:

 
Commodity Prices—Economic predictibility of reserves and discounted cash flows are now based on a 12-month average commodity price unless contractual arrangements designate the price to be used.

 
Disclosure of Unproved Reserves—Probable and possible reserves may be disclosed separately on a voluntary basis.

 
Proved Undeveloped Reserves—Reserves may be classified as proved undeveloped if there is a high degree of confidence that the quantities will be recovered and they are scheduled to be drilled within the next five years.

 
Reserves Estimation Based on New Technologies—Reserves may be estimated through the use of reliable technology in addition to flow tests and production history.

 
Reserve Personnel and Estimation Process Disclosure—Additional disclosure is required regarding the qualifications of the chief technical person who oversees the reserves estimation process and internal controls used to assure the objectivity of the reserve estimates.

The required revisions to modernize the oil and gas reserve disclosures have been incorporated into our March 31, 2010 reserve reports and in the aggregate were not considered material to our reserves.

Our proved reserves and the standardized measure of discounted future net cash flows of our interests in proved oil and gas reserves at March 31, 2009 are set forth below:

Proved Reserves
 
Oil (Bbls)
   
Natural Gas (MCF)
   
Discounted Future Net Cash Flow (at 10% per year)
 
                   
Developed Producing
    218,200       67,510     $ 4,337,550  
                         
Developed Non Producing
    11,900       -       171,110  
                         
Undeveloped
    2,008,760       -       23,290,550  
                         
Total, before income taxes
    2,238,860       67,510     $ 27,799,210  
                         
Less:  Estimated income taxes on future net cash flows (discounted at 10% per year)
    n/a       n/a     $ (3,812,075 )
                         
Total, March 31, 2009
    2,238,860       67,510     $ 23,987,135  

The proved reserves estimates contained in the above tables at March 31, 2010 and 2009 are based primarily on reserve reports prepared by of Forest A. Garb & Associates, independent petroleum consultants to the Company.  The present values of the proved reserves as of March 31, 2010 identified in the tables are prepared by discounting future projected net cash flows computed with constant oil and gas prices of $69.54 per barrel (Bbl) and $3.96 per thousand cubic feet (Mcf), respectively and constant future production and development costs less estimated future income tax expense. The constant oil and gas prices used at March 31, 2009 were $48.16 per barrel and $3.64 per thousand cubic feet, respectively. The estimated future net cash flows are then discounted at a rate of 10 percent per year.

 
13


Reserve reports prepared by petroleum engineers and used by the Company are, by their very nature, inexact and subject to changes and revisions. Proved developed reserves are reserves expected to be recovered from existing wells with existing equipment and methods. Proved undeveloped reserves are expected to be recovered from new wells drilled to known reservoirs on undrilled acreage for which existence and recoverability of such reserves can be estimated with reasonable certainty, or from existing wells where a relatively major expenditure is required to establish production. No estimates of reserves have been included in any reports to any federal agency other than the SEC.

See Supplemental Information on Oil and Gas Producing Activities included as part of our consolidated financial statements.   A copy of the Forrest A. Garb & Associates, Inc. report “Estimated Reserves and Future Net Revenue as of April 1, 2010, Attributable to Interests Owned by Lucas Energy, Inc. In Certain Properties Located in Texas (SEC Case)” is attached as Exhibit 99.1 to this Annual Report on Form 10-K.

Wells

The following summarizes the Company's productive oil and gas wells as of March 31, 2010 and 2009.  Productive wells are producing wells and wells capable of production. Gross wells are the total number of wells in which the company has an interest. Net wells are the sum of the Company's fractional working interests owned in the gross wells.

   
Year ended March 31, 2010
   
Year ended March 31, 2009
 
Oil and gas wells, Texas:
    30       43  
Gross
    30       43  
Net
    26       40  

The following summarizes our net production sold and capital expenditures for the years ended March 31, 2010 and 2009:

   
March 31, 2010
   
March 31, 2009
 
Production sales:
           
Oil (barrels)
    26,858       41,309  
Natural gas (thousands cubic feet)
    5,849       7,505  
Total (barrels oil equivalent)
    27,833       42,560  
                 
Capital Expenditures (Cash and Non-Cash)
  $ 3,372,881     $ 4,004,694  

The following is a list of our oil and natural gas producing properties at March 31, 2010 and 2009 and the crude oil and the natural gas production sales for the years then ended, all volumes are net to our interest in the properties:

 
14

 
(Operated by Lucas Unless Otherwise Noted)
 
Fiscal Years Ending
 
Lease Name
 
County
 
March 31, 2010
   
March 31, 2009
 
       
(Unaudited)
   
(Unaudited)
 
Oil (bbls):
               
Ali-O No. 1
 
Gonzales
    61       77  
Barnett, W.L. et al #1
 
Gonzales
    794       525  
Barnett, W.L. et al #4
 
Gonzales
    194       299  
Bates # 2R
 
Wilson
    50       -  
Burnett #1
 
Gonzales
    70       -  
Cone-Dubose Unit #1
 
Gonzales
    59       2,039  
Copeland Karnes #1
 
Karnes
    550       384  
Ervin Et Al 1
 
Gonzales
    828       -  
FT Shauer
 
Gonzales
    -       224  
Green
 
Baylor
    -       225  
Griffin Oil Unit #2
 
Gonzales
    4,349       7,117  
Griffin Oil Unit #5
 
Gonzales
    220       1,197  
Griffin Ruddock #1
 
Gonzales
    1,530       1,264  
Hagen Ranch Unit
 
Gonzales
    572       730  
Hagen Ranch Unit #3
 
Gonzales
    3,001       6,811  
Henry Christian
 
Gonzales
    -       1,207  
Hindes
 
Atoscosa
    818       725  
Hindman #2
 
Gonzales
    53       365  
Hines Unit #1
 
Gonzales
    549       1,070  
Jim Davis #1
 
Gonzales
    741       655  
Kuntschik#1
 
Gonzales
    997       1,363  
Kuntschik#2
 
Gonzales
    1,127       1,057  
Mary Martha #1
 
Gonzales
    464       513  
Matthews #1
 
Atascosa
    215       293  
Merit-RVS #1
 
Gonzales
    911       614  
Norris #1
 
Gonzales
    531       -  
Paul Foerster #1
 
Gonzales
    414       447  
Perkins Oil Unit #1
 
Gonzales
    3,155       6,340  
Rozella Kifer No. 1
 
Gonzales
    57       51  
RVS Oil Unit
 
Gonzales
    62       -  
RVS #2
 
Gonzales
    248       212  
RVS #3
 
Gonzales
    356       1,715  
Sloan
 
Gonzales
    -       119  
Team Bank
 
Wilson
    2,109       1,709  
Upton Ruddock
 
Gonzales
    606       1,079  
Wright #1
 
Gonzales
    245       273  
Zavadil #1
 
Gonzales
    175       114  
Zavadil #2st
 
Gonzales
    747       496  
Total oil sales (bbls)
        26,858       41,309  
                     
Natural Gas (Mcf):
                   
Copeland Karnes #1H
 
Karnes
    -       40  
Griffin-Ruddock Oil Unit #1
 
Gonzales
    4,270       1,269  
Ruddock, Upton #1
 
Gonzales
    -       3,765  
Kaspar CP
 
Gonzales
    1,579       2,431  
Total natural gas sales (Mcf)
        5,849       7,505  
                     
Total barrels oil equivalent
        27,833       42,560  

 
15


The following summarizes the Company’s drilling activities for the years ending March 31, 2010, and 2009:

For the year ended March 31, 2010
 
Productive Wells
   
Dry Wells
 
             
Exploratory wells, net
    0       0  
                 
Development wells, net
    1       0  

For the year ended March 31, 2009
 
Productive Wells
   
Dry Wells
 
             
Exploratory wells, net
    0       0  
                 
Development wells, net
    1       0  

Set forth in the following schedule is the average sales price per unit of oil, expressed in barrels  ("bbl"), and of natural gas, expressed in thousand cubic feet ("mcf") and average cost of production produced by us for the past two fiscal years.

   
Year ended March 31,
 
   
2010
   
2009
 
Average sales price:
           
Gas (per mcf)
  $ 2.73     $ 5.77  
Oil (per bbl)
  $ 65.60     $ 80.82  
Average cost of production:
               
Gas (per mcf)
  $ -     $ -  
Oil (per bbl)*
  $ 37.66     $ 31.62  

*Gas sold is a byproduct of oil production; costs associated with the gas sold are included in the cost of oil production.

The following schedule sets forth the capitalized costs relating to oil and gas producing activities by us for the past two fiscal years.

   
March 31,
 
   
2010
   
2009
 
Proved oil and gas producing properties and related lease and well equipment
  $ 24,699,722     $ 22,794,893  
Accumulated depletion
    (2,482,433 )     (1,721,580 )
Net Capitalized Costs
  $ 22,217,289     $ 21,073,313  


We do not anticipate investing in or purchasing assets and/or property for the purpose of capital gains.  It is our intention to purchase assets and/or property for the purpose of enhancing our primary business operations.  We are not limited as to the percentage amount of our assets we may use to purchase any additional assets or properties.


ITEM 3.       LEGAL PROCEEDINGS.

The Company is not aware of any pending or threatened litigation.


ITEM 4       (REMOVED AND RESERVED)

 
PART II

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

 Market Information

Our common stock is quoted on the NYSE Amex (“AMEX”) under the symbol LEI.  Set forth in the table below are the quarterly high and low prices of our common stock for the past two fiscal years.

2010
 
High
   
Low
 
   
 
   
 
 
Quarter ended June 30, 2009
  $ 1.13     $ 0.80  
Quarter ended September 30, 2009
  $ 1.98     $ 0.69  
Quarter ended December 31, 2009
  $ 0.67     $ 0.44  
Quarter ended March 31, 2010
  $ 0.96     $ 0.61  

2009
 
High
   
Low
 
   
 
   
 
 
Quarter ended June 30, 2008
  $ 6.16     $ 2.81  
Quarter ended September 30, 2008
  $ 3.91     $ 1.45  
Quarter ended December 31, 2008
  $ 1.54     $ 0.51  
Quarter ended March 31, 2009
  $ 0.86     $ 0.38  


Holders

As of March 31, 2010, there were approximately 2,202 certificate and non-objecting beneficial holders of record of our common stock. This does not take into account those shareholders who object to disclosure on the non-objecting beneficial owners disclosure list.

Dividend Policy

We have not declared, paid cash dividends, or made distributions in the past. We do not  anticipate  that  we will  pay  cash  dividends  or  make distributions  in the  foreseeable  future.  We currently intend to retain and reinvest future earnings to finance operations.

Issuance of Unregistered Shares of Common Stock

On April 29, 2010 a warrant holder that purchased 25,000 shares of common stock and attached warrants for a share of common stock at $1.00 per share exercised his warrants and the Company issued 25,000 shares of common stock for total proceeds of $25,000.
 
All of the share issuances were conducted in compliance with the exemption from registration provided by Rule 4(2).

Purchases of Treasury Stock

On September 8, 2008, Lucas repurchased 10,000 shares of its common stock in the open market trading at a cost of $21,087. On October 29, 2008, Lucas repurchased 26,900 shares of its common stock in the open market trading at a cost of $28,072. The shares are held by Lucas’ transfer agent as treasury stock, and the shares are treated as issued but not outstanding at March 31, 2010.


These share purchases were effected through a Rule 10B-18 program with a third-party brokerage firm.


ITEM 6.       SELECTED FINANCIAL DATA.

Not applicable.

 
ITEM 7.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K. The terms “Lucas Energy,” “Lucas,” “we,” “us” and “our” refer to Lucas Energy, Inc.

Forward-Looking and Cautionary Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934.  These forward-looking  statements  may  relate  to such matters as  anticipated  financial  performance,  future  revenues or  earnings, business prospects,  projected ventures, new products and services,  anticipated market  performance  and similar  matters.  When used in this report,  the words "may,"  "will,"  "expect,"  "anticipate,"   "continue,"  "estimate,"  "project," "intend,"  and similar  expressions  are  intended  to identify  forward-looking statements  regarding events,  conditions,  and financial trends that may affect our future  plans of operations,  business  strategy,  operating  results,  and financial position. We caution readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in forward-looking statements.  These risks and uncertainties, many of which are beyond our control, include:

 
·
the sufficiency of existing capital resources and our ability to raise additional capital to fund cash requirements for future operations;
 
·
uncertainties involved  in the  rate of  growth  of our  business  and acceptance of any products or services;
 
·
volatility of the stock  market,  particularly within the  energy sector; and
 
·
general economic conditions.

Although we believe the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements.

All forward-looking statements included in this report and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made, other than as required by law, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Oil and Gas Properties

We hold approximately 12,500 gross acres (10,400 acres net) of oil and gas leases in South Texas primarily in the Gonzales County and Wilson County, Texas.  We hold oil and gas interests in the Austin Chalk formation (proved and producing), Buda formation (proved and production), and Eagle Ford Shale formation (proved and undeveloped).
 
We operate thirty (30) producing wells that currently produce approximately 190-200 barrels of oil per day (“BOPD”), gross.  Our oil production sales totaled 27,833 barrel oil equivalent, net to our interest for our fiscal year ended March 31, 2010.  We operate all of our oil and gas properties with the exception of one property located in Jasper County, Texas.
 
Hilcorp Energy I, L.P. Purchase and Sale Agreement dated April 1, 2010

On April 1, 2010 Lucas entered into a purchase and sale agreement with HilCorp Energy, I, L.P. (“HilCorp”) for the development of Lucas’ Eagle Ford Shale properties located in Gonzales County, Texas.  The agreement provides for HilCorp to acquire an undivided eighty-five (85%) working interest in the “deep rights” held by Lucas in Gonzales County, Texas.  On May 5, 2010 Lucas and HilCorp held the first closing with total gross proceeds to Lucas of $7,520,560.  The second closing of the “deep rights” sale transaction occurred on June 28, 2010 at which time gross proceeds to Lucas totaled $1,381,270 for total gross proceeds to date of $8,901,830.   Net proceeds to Lucas for the first and second closings were $7,492,200, after distribution to Lucas’ working interest participants their proportionate share of proceeds totaling $1,409,630.   A third closing of the remainder of the Company’s Eagle Ford Shale rights is expected to occur by the end of July 2010.


Our agreement with HilCorp provides for us to have a “carried” working interest in the initial two wells drilled by HilCorp on oil and gas properties purchased by them under the April 1, 2010 purchase and sale agreement.

A portion of the proceeds from the May 5, 2010 first closing was used to fully repay and terminate the Amegy Bank Credit Facility. In connection with the repayment Amegy Bank it released all liens and security interests held by Amegy Bank in Lucas’ oil and gas properties.
 
LEI 2009-II Capital Program

Lucas began the LEI 2009-II capital program in July 2009.  There are two working interest participants in the program.  One program participant holds an eighty percent (80%) working interest (before payout) in the six well program and bears eighty percent (80%) of the capital costs expended in the program.  In connection with the “buy-in” (i.e., “farm-in”) to the capital program, the working interest participant paid Lucas $872,100. The amount paid by the participant to Lucas for its interest in the six wells was reflected by Lucas as a reduction to the full cost pool with no gain or loss reported on the sale. A second participant holds a ten percent (10%) interest.  Lucas retained a ten percent (10%) working interest in the program prior to payout, and has an additional ten percent (10%) “back in” after payout to the 80% working interest participant (or a total 20% working interest, after payout).  Lucas is the operator of all wells in the program, and five wells are located in Gonzales County, Texas while the sixth well is located in Wilson County, Texas.

Through March 31, 2010, a total of approximately $3,035,000 has been expended in the LEI 2009-II capital program, with Lucas’ share of the capital expenditures totaling approximately $606,900.  Commercial sales of crude oil production have occurred from five wells in the program.

LEI 2009-III Capital Program

The LEI 2009-III capital program is comprised of four wells located in Gonzales County and Wilson County, Texas.  In November 2009 the principal working interest participant in the LEI 2009-II capital program, agreed to participate in the LEI 2009-III four well program through paying eighty percent (80%) of the capital costs to earn a seventy percent (70%) working interest in the wells.  In connection with the working interest participant’s “buy-in” (i.e., “farm-in”) to the four wells they paid Lucas approximately $682,352 for the interest in the wells. The amount paid to Lucas for the interests acquired was reflected as a reduction to the full cost pool with no gain or loss recorded by Lucas on the sale.

Total projected capital expenditures for the LEI 2009-III capital program are approximately $4.3 million. Through March 2010, a total of approximately $366,700 has been expended in the capital program, with Lucas’ share of the capital expenditures totaling approximately $73,300.   Fund received by Lucas pursuant to cash calls to the working interest participant in excess of funds expended in the capital program are reflected in Lucas’ financial statement as a current liability – “Advances from working interest owner”.

Acquisition of Oil and Gas Properties Located in Wilson County, Texas

Lucas entered into an agreement to acquire approximately 2,771 gross oil and gas lease acreage (approx. 2,078 acres net to our interest) located in Wilson County, Texas from El Tex Petroleum, LLC (“El Tex”).  The leases have eight shut-in or plugged wellbores that the Company believes are good candidates for restoration and revitalization procedures.  The leasehold, wellbore and surface equipment acquisition price totaled approximately $1.0 million with $490,000 of the consideration paid through the issuance of Lucas common stock to El Tex (specifically 637,887 shares of common stock at $0.77 per share); Lucas’ assumption of $500,000 in debt plus accrued interest; and remittance of $68,000 in cash.


One director of Lucas holds an approximate 25.2% interest in El Tex while a second Lucas director holds an indirect beneficial ownership interest of approximately 18.8% in El Tex.  Pursuant to NYSE Amex exchange rules, Company shareholders were required to approve the issuance of shares of common stock to El Tex due to the directors holding in the aggregate more than five percent (5%) indirect interest in the assets being acquired by Lucas from El Tex.  Additionally, the note holder of the debt assumed by Lucas from El Tex is a director of Lucas and in connection with the Lucas acquisition agreed to convert the debt plus accrued interest due him by El Tex into shares of common stock. Pursuant to NYSE Amex exchange rules Company shareholders were required to approve the issuance of the shares of common stock to the director.

At the Lucas shareholder meeting held on March 30, 2010, the Lucas shareholders approved the issuance of the shares of common stock to El Tex and the issuance of shares of common stock to the Company director in conversion of debt plus accrued interest assumed by Lucas from El Tex.  NYSE Amex approved the listing application for the shares to be issued and on May 25, 2010 Lucas issued 637,887 shares of common stock to El Tex and 683,686 shares of common stock to the Lucas director that held the debt assumed by Lucas.  The shares of common stock were issued at $0.77 per share which was the fair value of the shares at the time the acquisition was agreed and effected in September 2009.

Three wells acquired by Lucas from El Tex are part of the LEI 2009-III capital program, while one well is part of the LEI 2009-II six well program.

Working Interest Acquisition in Three Previously Non-operated Wells

We held nominal non-operating working interests in three wells located in Gonzales County, Texas (i.e., Rozella Kifer No. 1, Louis Zavadil No. 1 and Ali-O No. 1) of approximately 10% which were operated by Savoy Energy Corporation (“Savoy”). The wells had not produced commercial quantities of production for several months. We have increased our working interest in the wells through the acquisition of an incremental 22.5% from the secured debt holder of one working interest owner’s interests in the wells through the issuance of 220,000 shares of common stock (valued at $165,000), and an incremental 16% from Savoy in exchange for amounts due us by Savoy.   In connection with increasing our working interests in the three wells, we assumed operatorship of the wells effective November 1, 2009, and are in the process of restoring the wells to production.

Our capital program is comprised of development activities that involve: (i) drilling of new laterals from existing wells bores in the Austin Chalk formation, (ii) re-entry of shut-in or previously plugged wellbores; and (iii) workovers and stimulations of existing wells.  We also will participate in the drilling of the oil and gas acreage purchased by HilCorp, with a “carried interest” in the initial two wells drilled.

A portion of the capital projects we intend to undertake are:

New Laterals in Austin Chalk
       
Development
 
Projected Initial
Well
 
County
 
Costs
 
Production (1)
Barnett, WL 1
 
Gonzales
  $ 450,000  
100 bbl/day

Shut In & Re-entry Wells
       
       
Development
 
Projected Initial
Well
 
County
 
Costs
 
Production (1)
Ebrom (Pilarczyk) 1
 
Wilson
  $ 135,000  
50 bbl/day
Ebrom 1
 
Wilson
  $ 90,000  
50 bbl/day
Ebrom 1-B
 
Wilson
  $ 90,000  
50 bbl/day
Gescheidle 1
 
Gonzales
  $ 105,000  
100 bbl/day
Mills Oil Unit 1
 
Gonzales
  $ 15,000  
50 bbl/day
Milton Hines No.1
 
Gonzales
  $ 330,000  
150 bbl/day
Snoga 1
 
Wilson
  $ 90,000  
100 bbl/day
Snoga A et al
 
Wilson
  $ 90,000  
100 bbl/day
Valcher Emma 1
 
Wilson
  $ 300,000  
100 bbl/day
Wall Darden 1
 
Wilson
  $ 90,000  
50 bbl/day

 
Workovers & Stimulations
           
       
Development
 
Projected Initial
Well
 
County
 
Costs
 
Production (1)
Cone-BuBose Unit
 
Gonzales
  $ 8,000  
  2 bbl/day
Hagen Ranch 3
 
Gonzales
  $ 75,000  
10 bbl/day
Hines Unit 1
 
Gonzales
  $ 23,000  
  4 bbl/day
Perkins Oil Unit 1
 
Gonzales
  $ 75,000  
 170 bbl/day
Ruddock, Upton 1
 
Gonzales
  $ 8,300  
  4 bbl/day
RVS Oil Unit No. 1
 
Gonzales
  $ 5,000  
  2 bbl/day
               

(1)  Initial production is calculated at 8/8th interest.


Results of Operations
 
The  following  table  sets  forth  the  revenue and production data for continuing operations for the two most recent fiscal  years  ended  March  31,  2010 and  2009.  

   
For the Year Ended March 31,
   
Amount Increase/
   
% Increase/
 
   
2010
   
2009
   
(Decrease)
   
(Decrease)
 
                         
OIL AND GAS REVENUES:
  $ 1,777,736     $ 3,382,060     $ 1,604,324 )     -47 %
                                 
PRODUCTION SALES:
                               
Oil (barrels)
    26,858       41,309       (14,451 )     -35 %
Natural gas (thousand cubic feet)
    5,849       7,505       (1,656 )     -22 %
Total (barrels oil equivalent)
    27,833       42,560       (14,727 )     -35 %
                                 
Oil (barrels per day)
    74       113       (40 )     -35 %
Natural gas (thousand cubic feet per day)
    16       21       (5 )     -24 %
Total (barrels oil equivalent per day)
    76       117       (40 )     -35 %
                                 
AVERAGE SALES PRICES:
                               
Oil (per barrel)
  $ 65.60     $ 80.82     $ (15.22 )     -19 %
Natural gas (per thousand cubic feet)
  $ 2.73     $ 5.77     $ (3.04 )     -53 %
                                 
Lease operating expenses
    1,048,333       1,345,928       (297,595 )     -22 %
Severance and property taxes
    129,432       171,688       (42,256 )     -25 %
Depreciation, depletion, and amortization
    787,340       899,949       (112,609 )     -13 %
General and administrative
    1,690,170       1,594,598       95,572       6 %
                                 
Total Expenses
    3,655,275       4,012,163       (356,888 )     -9 %
                                 
LOSS  FROM OPERATIONS
    (1,877,539 )     (630,103 )     (1,247,436 )     198 %
                                 
OTHER INCOME (EXPENSES)
                               
Unrealized loss on investments
    (110,606 )     (2,095,019 )     1,984,413       -95 %
Realized loss on investments, net
    (30,785 )     (121,273 )     94,488       -75 %
Interest income
    -       1,970       (1,970 )     -100 %
Interest expense
    (301,787 )     (89,193 )     (212,594 )     238 %
Total Other Income (Expenses)
    (443,178 )     (2,303,515 )     1,860,337       -81 %
                                 
NET INCOME BEFORE INCOME TAXES
    (2,320,717 )     (2,933,618 )     612,901       -21 %
                                 
INCOME TAX BENEFIT
    -       (834,127 )     (834,127 )     -100 %
                                 
NET LOSS
  $ (2,320,717 )   $ (2,099,491 )   $ (221,226 )     11 %


For the Year Ended March 31, 2010 Compared to the Year Ended March 31, 2009

Management Analysis of Operation

Results of Operations:
 
Oil and Gas Revenue
 
The $1,604,324 decrease in our oil and gas revenues during the year ended March 31, 2010 was primarily attributable to a decline of $15.22 per barrel (19%) in the price realized for oil sales and a 14,451 barrel (35%) decrease in barrels of oil sold during the current year as compared to the prior fiscal year ended March 31, 2009. The decrease in oil volumes sold was due to lower production levels during the current fiscal year as compared to the prior year.  The lower production levels during the current period is the result of wells being down for work-over and treatments, and our allocation of discretionary expenditures to our capital expenditure requirements associated with the LEI 2009-II and LEI 2009-III capital programs.

Lease Operating Expenses

Lease operating expenses decreased by $297,595 during the year ended March 31, 2010 as compared to the prior year period principally due to: reductions in work-over and treatment costs; reductions in variable costs of production (e.g., fuel and water hauling) reflecting the lower levels of oil production; and attention and discretionary resources being directed to the LEI 2009-II and III capital programs.

General and Administrative Expenses
 
General and administrative expenses increased $95,572 for the year ended March 31, 2010 as compared to the prior period primarily due to reductions in field administration expenses, professional fees and stock based compensation offset with higher costs for investor awareness initiatives.

Depreciation, Depletion, Amortization and Accretion (“DD&A”)
 
DD&A decreased $112,609 primarily due to a decrease of 14,727 barrels of oil equivalent in production sales for the year ended March 31, 2010 as compared to the prior year period primarily resulting from lower production during the current year; partially offset by an increase in the DD&A rate per unit of production of $26.28 per barrel oil equivalent as compared to $20.56 barrel oil equivalent for the prior year.

Unrealized and Realized Losses

The unrealized loss on investments for the year ended March 31, 2010 of $110,606 is due to the mark-to-market accounting for shares held by Lucas in Bonanza Oil and Gas, Inc. The unrealized loss compares to a net unrealized loss totaling $2,095,019 for the same period ended March 31, 2009 on shares of common stock held in Bonanza that were the result of mark-to-market accounting for Bonanza shares held by Lucas.   Lucas sold 1,516,000 shares of Bonanza common stock during the current year period with cash proceeds of $92,495, and 1,000,000 shares of Bonanza common stock was transferred to a consultant for services valued at $38,000.  In the aggregate we had a total realized loss of $30,785 for the current fiscal year.  No sales of Bonanza shares of common stock were made during the same period in the prior year.
 
 
We reported a realized loss totaling $30,785 for the year ended March 31,2010 as compared to a realized loss of $121,273 for the prior year ended March 31, 2009.  The prior year realized loss was the result of a May 2008 purchase of six commodity contracts that were linked to NYMEX crude oil futures contracts.  The loss was realized at the time the contracts were closed out.  Lucas did not hold any similar contracts during the current year period.


Interest Expense

Interest expense increased by $212,594 due to interest, commitment fees and other fees associated with the Amegy Credit Facility executed in October 2008.  On May 5, 2010, Lucas paid off the outstanding balance under the Amegy Credit Facility, and terminated the credit agreement.

Interest Income

Interest income for the current year ended was -$0- compared to $1,970 for the prior year ended.  The interest income for the prior year was earnings on cash raised in a September 2007 private equity placement that remained to be expended as of March 31, 2008.

Income Tax Expense

Income tax expense was zero for the current period compared to a tax benefit of $834,127 for the same period in the prior year.  The prior year tax benefit was the result of expected future reductions to income tax liability for the net loss for the prior year period and the associated reduction in deferred income taxes.  Current year tax benefits from operating losses have been fully reserved in our valuation allowance.

Net Loss

The $221,226 increase in the net loss for the current year as compared to the prior year is primarily attributable to the $1,984,413 decrease in the unrealized loss on Bonanza shares of common stock between the current year and the prior year, and the reduction of $1,604,324 in revenues from oil and gas sales a reduction of $297,595 in lease operating costs offset with the $834,127 income tax benefit in the prior year due to a reduction in deferred income taxes due to the net loss in the prior year.

Liquidity and Capital Resources
 
From the end of our prior fiscal year of March 31, 2009 to March 31, 2010, our cash increased by $1,685,939 with cash at March 31, 20109 totaling $1,822,780.  With the inclusion of the total outstanding principal balance on the Amegy Credit Facility totaling $2,150,000 classified as a current liability, we had negative working capital at March 31, 2010 of $$4,149,283.  At March 31, 2009, our negative working capital totaled $513,240, which included $300,000 of the then total outstanding balance under the Credit Facility with Amegy of $2,650,000.

During the year ended March 31, 2010, we raised approximately $1.6 million in proceeds through working interest buy-in participation in our LEI 2009-II and LEI 2009-III capital programs and sales of interests in four non producing or marginally producing wellbores that did not meet our technical screening requirements for inclusion in our future drilling and development programs.  We also received net proceeds of $277,500 from private equity placements.  We used $500,000 to reduce the outstanding principal balance on our Credit Facility with Amegy Bank.   On May 5, 2010 we repaid the outstanding balance on the Credit Facility and terminated Facility.

We anticipate that cash flows from operating activities; proceeds from the farm-out of 85% of Eagle Ford formation deep rights in Gonzales County, Texas; equity placements under our S-3 shelf registration through at-the-market public placements; and cash on hand will be sufficient to repay the $2.15 million outstanding balance of our Amegy credit facility, fund our capital expenditure requirements for our interests in the LEI 2009-II and 2009-III capital programs, and cover our operating and general and administrative requirements for our fiscal year ended March 31, 2011.   Additionally, we expect to fund our oil and gas capital expenditure requirements through a combination of joint venture arrangements, working interest participants’ buy-in to existing wells and programs, and other sources of capital such as private equity and debt placements, public offerings, and traditional reserve based financing and credit facilities.

We currently have no definitive agreements or arrangements for additional funding, and financings could result in significant dilution to our shareholders or not be available on acceptable terms in the time frame necessary, or may not be available or acceptable to us at all.


Cash flow from operating activities
 
For the year ended March 31, 2010, net cash used in operating activities was $717,967 compared to net cash provided from operating activities of $581,929 for the prior year ended.  The $1,299,896 decrease in net cash was primarily due to a decline in revenues for the current year compared to the prior year.

Cash flow from investing activities
 
For the year ended March 31, 2010 net cash used in investing activities was $298,974 compared to net cash used in investing activities for the prior year of $3,921,369.  Cash provided by investing activities was principally derived from the sale of working interests in connection with the LEI 2009-II and 2009-III capital programs. Cash used in investment activities declined to due to a scaling back and reduction in capital expenditures associated with our oil and gas properties as the price for crude oil declined.

Cash flow from financing activities
 
For the year ended March 31, 2010, net cash flow provided by financing activities was $2,702,880.  Funds provided by financing activities were associated with advances from working interest owners totaling $2,305,292, short term borrowings of $740,000 and $277,500 raised through a private equity placement. Funds totaling $500,000 were used to reduce the outstanding principal balance on the Amegy Bank Credit Facility during the year ended March 31, 2010.

Hedging
 
We did not hedge any of our oil or natural gas production during fiscal 2010 or 2009 and have not entered into any such hedges from March 31, 2010 through the date of this filing.
 
Contractual Commitments

None

Off-Balance Sheet Arrangements
 
As of March 31, 2010, we had no off-balance sheet arrangements.
 
Related Party Transactions

As discussed under the “Nature of Operations – Acquisition of Oil and Gas Properties Located in Wilson County, Texas” one Lucas board of director member (J. Fred Hofheinz) holds an approximate 25.2% interest in El Tex Petroleum, LLC (the “El Tex”) while a second Lucas board of director member (W. Andrew Krusen, Jr.) holds an indirect beneficial ownership interest in the Seller of approximately 18.8%.  We entered into an agreement to acquire approximately 2,771 gross oil and gas lease acreage (approx. 2,078 net to our interest) located in Wilson County, Texas.  The leasehold, wellbore and surface equipment acquisition price totals approximately $1.0 million with approximately $490,000 of the consideration comprised from the issuance of Lucas common stock to El Tex (specifically 637,887 shares of common stock at $0.77 per share), assumption of $500,000 in debt and $68,000 in cash.  Pursuant to NYSE Amex exchange rules, issuance of shares of common stock in connection with the acquisition of the oil and gas properties from El Tex requires shareholders’ approval.   Lucas shareholders approved the share issuance in the annual shareholder meeting held on March 30, 2010.  Upon exchange approval of the listing application for the shares to be issued, the shares of common stock were issued on May 25, 2010.

Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.


In February 2007, the Financial Accounting Standards Board (“FASB”) issued ASC 825 “Financial Instruments.” This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. ASC 825 becomes effective as of the beginning of the first fiscal year that begins after November 15, 2007, with early adoption permitted. However, entities may not retroactively apply the provisions of ASC 825 to fiscal years preceding the date of adoption. We are currently evaluating the impact that ASC 825 may have on our financial position, results of operations or cash flows.

In December 2008, the SEC released Final Rule, “Modernization of Oil and Gas Reporting .”  The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes.  The new requirements also will allow companies to disclose their probable and possible reserves to investors.  In addition, the new disclosure requirements require that companies 1) report the independence and qualifications of its reserves preparer or auditor, 2) file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit, 3) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices.  The new disclosure requirements are effective for financial statements for fiscal years ending on or after December 31, 2009.  Early adoption is not permitted.  We are currently assessing the impact, if any, that the adoption of the pronouncement will have on our operating results, financial position or cash flows.

In June 2009, the FASB issued ASC 105-10 “Generally Accepted Accounting Principles.” ASC 105-10 will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date, ASC 105-10 will supersede all then existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in ASC 105-10 will become non-authoritative. ASC 105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASC 105-10 did not impact our results of operations or financial condition.
 
ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our consolidated financial statements as of March 31, 2010 and 2009 and for the fiscal years ended March 31, 2010 and 2009 have been audited by GBH CPAs, PC, an independent registered public accounting firm, and have been prepared in accordance with generally accepted accounting principles pursuant to Regulation S-X as promulgated by the SEC.  The aforementioned financial statements are included herein starting with page F-1.

 
ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A.     CONTROLS AND PROCEDURES

Disclosure controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2010, as required by Rule 13a-15 of the Exchange Act. Based on the evaluation described above, our management, including our principal executive officer and principal financial officer, has concluded that, as of March 31, 2010, our disclosure controls and procedures were effective.
 
We concluded that the consolidated financial statements in this Annual Report on Form 10-K present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows for the year ended March 31, 2010 in conformity with U.S. generally accepted accounting principals (“GAAP”).
 
Management’s Report on Internal Control over Financial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
 
Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.
 
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2010 based on the criteria framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on the assessment, our management has concluded that our internal control over financial reporting was effective as of March 31, 2010.
 
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over our financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this Annual Report.


Changes in Internal Control Over Financial Reporting.

There have not been any changes in our internal control over financial reporting during the year ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.     OTHER INFORMATION

None.

 
PART III

ITEM 10       DIRECTORS, EXECUTIVE OFFICERS, and CORPORATE GOVERNESS

The following table sets forth the names, ages, and offices held by our directors and executive officers:
 
       
Name
Position
Date First Elected
Age
J. Fred Hofheinz
Chairman of Board
September 18, 2008
72
William A. Sawyer
Chief Executive Officer, Director
April 6, 2005
62
Donald L. Sytsma
Chief Financial Officer, Treasurer
April 14, 2009
52
Peter K. Grunebaum
Director
January 29, 2007
76
W. Andrew Krusen, Jr.
Director
October 8, 2009
62

Information Concerning the Board of Directors and its Committees.

All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified.  There are no agreements with respect to the election of directors.  We have historically compensated our directors for service on the Board of Directors and committees thereof through the issuance of shares of common stock and nominal cash compensation for meeting fees. Additionally, we reimburse directors for expenses incurred by them in connection with the attendance at meetings of the Board and any committee thereof.  The Board of Directors appoint annually the executive officers of the Company and the executive officers serve at the discretion of the Board.  The Executive Committee of the Board of Directors, to the extent permitted under Nevada law, exercises all of the power and authority of the Board in the management of the business and affairs of the Company between meetings of the Board.

The business experience of each of the persons listed above during the past five years is as follows:

FRED J. HOFHEINZ, CHAIRMAN OF BOARD, Chair of Nominating Committee

Mr. Hofheinz, the former Mayor of the City of Houston (1974-1978), began his business career with his late father, Roy Hofheinz, Sr., who built the Houston Astrodome.  Mr. Hofheinz played a key role in the family real estate development projects surrounding the Astrodome, including an amusement park – Astroworld and four hotels.  He was the senior officer of Ringling Brothers Barnum and Bailey Circus, which was owned by the Hofheinz family.   In 1971, Mr. Hofheinz co-founded a closed circuit television company, Top Rank, which is now the leading professional boxing promotion firm in the nation.  He has served as President of the Texas Municipal League and served on the boards of numerous other state and national organizations for municipal government elected officials.  In addition to his law practice, Mr. Hofheinz also owned several direct interests in oil and gas companies.  He has also dealt extensively with business interests, primarily oil and gas related, in the People’s Republic of China and in the Ukraine.
 
For the past five years Mr. Hofheinz has been an investor and a practicing attorney with the firm of Williams, Birnberg & Anderson LLP in Houston, Texas, and the city that he served as mayor from 1974 to 1978.  While he has numerous investments in real estate, his principal investment interest is in oil and gas.  He has been actively engaged in successful exploration and production ventures, both domestic and international.  He holds a PhD in economics, from the University of Texas and takes an active interest in Houston’s civic and charitable affairs.  He was admitted to the Texas bar in 1964, having received his preparatory education at the University of Texas, (B.A., M.A., Ph.D., 1960-1964); and his Legal education at the University of Houston, (J.D., 1964).

WILLIAM A. SAWYER, DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER

Mr. Sawyer has been a director of the Company since April 6, 2005. Mr. Sawyer has over 30 years of diversified experience in the energy industry with firms such as; ARCO, Houston Oil & Minerals, Superior Oil (Mobil), and ERCO. Mr. Sawyer founded the petroleum consulting firm of Exploitation Engineers, Inc. and his clients included private investors, independent oil companies, banking institutions, major energy and chemical companies, and the US government. In connection with Exploitation Engineers, Mr. Sawyer evaluated and managed large projects such as a private trust that held working interests in several hundred producing and non-producing oil and gas properties.  Mr. Sawyer has been an expert witness in federal court, state court, and before several state agencies in Texas and Oklahoma, and he has testified as to the fair market value of mineral interests and sub-surface storage interests.  Mr. Sawyer co-founded the Company and was originally appointed to a position with the Company on June 13, 2006.  Mr. Sawyer has served as a Director of the Company and as its chief operating officer, until his appointment to president and chief executive officer on January 22, 2009.


PETER K. GRUNEBAUM – DIRECTOR, Chair of Audit Committee

Mr. Grunebaum is an independent investment banker with over 40 years of experience in the energy sector with a specialty in exploration and production. Previously he was the Managing Director of Fortrend International, an investment firm headquartered in New York, New York, a position he held from 1989 until the end of 2003. From 2003 to present, Mr. Grunebaum has been an independent investment banker. Mr. Grunebaum is a graduate of Lehigh University, and in addition to being a board member of Lucas, he is also on the Board of Prepaid Legal Services, Inc. [NYSE:PPD] and Stonemor Partners LP. [NASDAQ: STON].  

W. ANDREW KRUSEN, JR. – DIRECTOR, Chair of the Compensation Committee

Mr. Krusen has been Chairman and Chief Executive Officer of Dominion Financial Group, Inc. since 1987. Dominion Financial is a merchant banking organization that provides investment capital to the natural resources, communications and manufacturing and distribution sectors.  Mr. Krusen is currently a director and chairman of Florida Capital Group, Inc. – a Florida bank holding company, as well as Florida Capital Bank, N.A. its wholly owned subsidiary.  He also serves as a director of publicly traded Highpine Oil and Gas Ltd., a Canadian oil and gas concern; and Raymond James Trust Company, a subsidiary of Raymond James Financial, Inc. – and numerous privately held companies, including Beall’s Inc., Telovations, Inc., CoAdvantage Resources, Inc. and Romark Laboratories, LLC.  Mr. Krusen is a former member of the Young Presidents’ Organization, and he is currently a member of the World President’s Organization, Society of International Business Fellows and a Trustee of the International Tennis Hall of Fame.  He is past Chairman of Tampa's Museum of Science and Industry and a member of the Florida Council of 100.  Mr. Krusen graduated from Princeton University in 1970.
 
DONALD L. SYTSMA, CHIEF FINANCIAL OFFICER, AND TREASURER
 
Mr. Sytsma was appointed Chief Financial Officer and Treasurer of the Company on April 14, 2009, and he serves as the principal accounting and financial officer for the Company.  From January 2005 to October 2008, Mr. Sytsma was a director, Treasurer and Chief Financial Officer of Gulf Western Petroleum (formerly Wharton Resources).  Since April 2003, Mr. Sytsma has been president of DLS Energy Associates, LLC, an independent consulting company.  From November 2003 to June 2005, Mr. Sytsma was Chief Financial Officer of Altus, and from November 2003 through February 2006, Mr. Sytsma was a director of Altus.  From May 2001 to April 2003, Mr. Sytsma was Vice-President of R.J. Rudden Associates.  Mr. Sytsma has over 25 years’ experience in the energy industry in the upstream midstream and downstream segments. Mr. Sytsma received his bachelor’s of science in accounting from Indiana University in May 1979 with highest distinction.  Mr. Sytsma is a former Executive Committee Member of the North America Energy Standards Board and Co-Chaired multiple industry subcommittees, developing standards for the U.S. energy markets. Mr. Sytsma is a certified public accountant.  
 
There are no family relationships among our directors or our executive officers.  No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it.

DIRECTOR INDEPENDENCE  
 
During the year ended March 31, 2010, the Board has determined that a majority of the Board is independent under the definition of independence and in compliance with the listing standards of the NYSE Amex listing requirements. Based upon these standards, the Board has determined that all of the directors are independent, with the exception of Mr. Sawyer, our President and Chief Executive Officer.
 
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

During the fiscal year that ended on March 31, 2010, the Board held four meetings.  All directors attended all meetings of the Board and all committee meetings on which the Director served during fiscal year 2010. All of the current directors attended our fiscal year 2009 annual shareholder meeting held on March 30, 2010.
 
The Board has a standing Audit Committee, Compensation Committee, and Nominating Committee.  


The Audit Committee currently consists of Mr. Grunebaum (chair), Mr. Hofheinz and Mr. Krusen, each of whom is independent as defined in Section 803(A) of the NYSE Amex LLC Company Guide.  The Audit Committee’s function is to provide assistance to the Board in fulfilling the Board’s oversight functions relating to the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence and the performance of the Company’s independent auditors, and perform such other activities consistent with its charter and our By-laws as the Committee or the Board deems appropriate.  The Audit Committee produces an annual report for inclusion in our proxy statement.  The Audit Committee is directly responsible for the appointment, retention, compensation, oversight and evaluation of the work of the independent registered public accounting firm (including resolution of disagreements between our management and the independent registered public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The Audit Committee shall review and pre-approve all audit services, and non-audit services that exceed a de minims standard, to be provided to us by our independent registered public accounting firm. The Audit Committee carries out all functions required by the NYSE AMEX, the SEC and the federal securities laws. The Board has determined that Mr. Grunebaum, Mr. Hofheinz and Mr. Krusen are “independent,” and at least one member is an “audit committee financial expert” as defined in the SEC’s Regulation S-K, Item 407(d).  During fiscal year 2010, the Audit Committee held four meetings. The Audit Committee’s charter is available on our website at www.lucasenergy.com.

The Compensation Committee is comprised of Mr. Krusen (chair), Mr. Grunebaum and Mr. Hofheinz, each of whom is independent as defined in Section 803(A) of the NYSE Amex LLC Company Guide.  The purpose of the Compensation Committee is to oversee the responsibilities relating to compensation of our executives and produce a report on executive compensation for inclusion in our proxy statement.  The Compensation Committee may delegate its authority to subcommittees of independent directors, as it deems appropriate.  During fiscal year 2010, the Compensation Committee held four meetings. The Compensation Committee’s charter is available on our website at www.lucasenergy.com.

The Nominating Committee is comprised of Mr. Hofheinz (chair), Mr. Grunebaum and Mr. Krusen, each of whom is independent as defined in Section 803(A) of the NYSE Amex LLC Company Guide.   This Committee is responsible for (1) establishing criteria for selection of new directors and nominees for vacancies on the Board, (2) approving director nominations to be presented for shareholder approval at the Company annual meeting, (3) identifying and assisting with the recruitment of qualified candidates for Board membership and for the positions of Chairman of the Board and Chairmen of the committees of the Board, (4) recommending to the Board to accept or decline any tendered resignation of a director, (5) considering any nomination of director candidates validly made by shareholders, (6) reviewing any director conflict of interest issues and determining how to handle such issues, (7) insuring a review of incumbent directors’ performance and attendance at Board and committee meetings in connection with the independent directors’ decision regarding directors to be slated for election at the Company’s annual meeting, (8) providing appropriate orientation programs for new directors, (9) reviewing and assessing the adequacy of the Company’s corporate governance policies and practices and recommending any proposed changes to the Board, and (10) proposing any necessary actions to the Board.  We have not paid any third party a fee to assist in the process of identifying and evaluating candidates for director. During fiscal year 2010, the Nominating Committee held one meeting. The Nominating Committee’s charter is available on our website at www.lucasenergy.com.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires our directors and officers, and the persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership with the SEC. Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act.  Except as described below and based solely on the reports received by us and on the representations of the reporting persons, we believe that all complied with all applicable filing requirements during the fiscal year ended March 31, 2010.

CODE OF ETHICS

The Company adopted a code of ethics (“Code”) that applies to all of its directors, officers, employees, consultants, contractors and agents of the Company.  The Code of Ethics has been reviewed and approved by the Board of Directors.  The Company’s Code of Ethics is incorporated by reference to the Form 10-K dated March 31, 2009 filed with the SEC on June 29, 2009 as Exhibit 14.1.  Original copies of the Code of Ethics are available, free of charge, by submitting a written request to the Company at 3555 Timmons Lane, Suite 1550, Houston, Texas 77027.


WHISTLEBLOWER PROTECTION POLICY

The Company adopted a Whistleblower Protection Policy (“Policy”) that applies to all of its directors, officers, employees, consultants, contractors and agents of the Company. The Whistleblower Policy has been reviewed and approved by the Board of Directors. The Company’s Whistleblower Policy is incorporated by reference to the Form 10-K dated March 31, 2009 filed with the SEC on June 29, 2009 as Exhibit 14.2. Original copies of the Whistleblower Policy are available, free of charge, by submitting a written request to the Company at 3555 Timmons Lane, Suite 1550, Houston, Texas 77027.


ITEM 11.     EXECUTIVE COMPENSATION

The following table sets for compensation information with respect to our chief executive officer, our highly compensated executive officers at the end of our fiscal year, and individuals for whom disclosure would have been provided herein but for the fact they were not serving as an executive officer of the Company at the end of our fiscal year.
 
Summary Compensation Table

The following table sets for compensation information with respect to our chief executive officer, our highly compensated executive officers at the end of our fiscal year, and individuals for whom disclosure would have been provided herein but for the fact they were not serving as an executive officer of the Company at the end of our fiscal year.
 
Name and
Principal Position
 
Fiscal Year
 
Salary
($)
   
Stock Awards ($)
   
Option Awards
($)
   
All Other
Comp
($)
   
Total
($)
 
                                   
William A. Sawyer   (1) (2) (3)
 
2010
  $ 162,250     $ 29,000     $ -     $ 6,000     $ 197,250  
President and
 
2009
    150,000       -       -       2,000       152,000  
Chief Executive Officer
                                           
                                             
Donald L. Sytsma  (1) (4)
 
2010
  $ 120,000     $ 22,677     $ -     $ 4,000     $ 146,677  
Chief Financial Officer
 
2009
    -       -       -       -       -  
                                             
James J. Cerna, Jr.  (2)
 
2010
  $ 58,333     $ -     $ -     $ -     $ 58,333  
Former Chairman, President and
 
2009
    153,125       -       -       2,000       155,125  
Chief Executive Officer
                                           
                                             
William A. Sikora  (2) (5)
 
2010
  $ -     $ -     $ -     $ -     $ -  
Former President and  
 
2009
    63,736       8,846       267,083       2,000     $ 341,665  
Chief Executive Officer
                                           
                                             
Malek A. Bohsali   (2) (6)
 
2010
  $ -     $ 25,000     $ -     $ -     $ 25,000  
Former Chief Financial Officer
 
2009
    37,250       25,000       -       2,000       64,250  

(1)
During the fiscal year ended March 31, 2010 Mr. Sawyer as Director was paid $6,000 for attendance at three Board of Directors meeting, and Mr. Sytsma as chief financial officer and corporate secretary was paid $4,000 for attendance at Board meetings.
(2)
During the fiscal year ended March 31, 2009 Messrs Sawyer, Cerna and Sikora as Company Directors were paid $2,000 for attendance at a Board meeting.  Mr. Bohsali was paid $2,000 for attending the Board meeting.
(3)
Stock award granted to Mr. Sawyer of 50,000 shares of common stock for Lucas’ joint venture partner’s commitment to and initial funding of their 70% working interest in the LEI 2009-III capital program.  Fair value of shares on date earned was $0.58 per share for total stock award of $29,000.
(4)
Mr. Sytsma appointed chief financial officer and treasurer effective April 14, 2009. In addition monthly cash compensation, Mr. Sytsma’s employment arrangement with Company includes a non-cash compensation component of 2,000 shares of common stock per month. Company closing share price on date Mr. Sytsma appointed chief financial was $0.56 per share. The fair value of shares earned is determined based on closing share price on last trading day of each month.
(5)
Mr. Sikora was appointed President and Chief Executive Officer of the Company on September 2, 2008, pursuant to an employment agreement dated thereof and incorporated by reference to the Form 8-K dated September 2, 2008 that was filed with the Securities and Exchange on September 4, 2008.  Mr. Sikora was elected a Director on November 18, 2008.  Pursuant to the employment agreement, Mr. Sikora’s initial year base salary was set at $125,000; he was granted non-qualified stock options to purchase 200,000 shares of the Company common stock at $2.60 per share that vested over two years; and he was to receive 19,230 shares of Company common stock.   On January 22, 2009, Mr. Sikora’s services with the Company ended and in accordance with the referenced employment agreement the options became fully vested.  At the time the options were issued to Mr. Sikora they were valued at $267,083 using the Black-Sholes Option Pricing Model and the entire fair value of the options were recognized by the Company upon the termination of services.  Additionally the Company issued 19,230 shares of restricted common stock to Mr. Sikora that were valued at $8,846 at the time of issuance by the Company.
(6)
Mr. Bohsali served as Chief Financial Officer of the Company from April 10, 2007 through April 14, 2009.


Compensation of Named Executive Officers

William A. Sawyer

Mr. Sawyer co-founded the Company and was originally appointed to a position with the Company on June 13, 2006.  Mr. Sawyer has served as a Director of the Company and as its chief operating officer, until his appointment to president and chief executive officer on January 22, 2009. On March 20, 2007, the Company entered into an employment agreement with Mr. Sawyer (filed as exhibit 10.6 to the Company's Annual Report on Form 10-KSB for the year ended March 31, 2007).  Mr. Sawyer’s agreement was for a period of three (3) years and provided for payment of $150,000 annually. Additionally, Mr. Sawyer’s employment agreement provided for certain payments in the event termination of employment. Effective October 1, 2009 the Compensation Committee approved an increase to Mr. Sawyer’s base compensation to $162,000 per annum. Mr. Sawyer’s employment agreement terminated on March 20, 2010.

Donald L. Sytsma

Mr. Sytsma was appointed Chief Financial Officer and Treasurer of the Company on April 14, 2009, and he serves as the principal accounting and financial officer for the Company. Mr. Sytsma’s current compensation arrangement with the Company provides for a salary of $11,000 per month for services as required by the Company, plus 2,000 shares of Company common stock per month agreed to as a material inducement to entering into Mr. Sytsma’s employment with the Company.

James J. Cerna, Jr.

Mr. Cerna co-founded the Company and was originally appointed a Director and chief executive officer of the Company on May 19, 2006, and he was appointed as president on June 12, 2006.  On September 2, 2008, Mr. Cerna transferred his duties as president and chief executive officer to Mr. Sikora and continued his role as Chairman of the Board of Directors.  On May 5, 2009 Mr. Cerna’s resigned as Chairman and as a member of the Board. On March 20, 2007, the Company entered into employment agreement with Mr. Cerna (filed as exhibits 10.5 to the Company's Annual Report on Form 10-KSB for the year ended March 31, 2007).  Mr. Cerna's agreement is for a period of 3 years and provides for payment of $175,000 annually in exchange for services to the Company.  The agreement also provides for certain payments in the event termination of employment.  In connection with Company initiatives to scale back costs in response to low oil prices during our 4th fiscal quarter, Mr. Cerna agreed to suspend payment of his compensation under his employment agreement.  Mr. Cerna and the Company are in active discussions as to the settling up of amounts provided for in his referenced employment agreement.  Pursuant to an oral agreement, effective August 1, 2009 the Company commenced remitting one-half (½) of the monthly compensation provided for in his employment agreement on a semi-monthly basis, or $7,292 per month, until the remaining amount due under his employment agreement is paid.

William A. Sikora

Mr. Sikora was appointed President and Chief Executive Officer of the Company on September 2, 2008, pursuant to an employment agreement dated thereof and incorporated by reference to the Form 8-K dated September 2, 2008 that was filed with the Securities and Exchange on September 4, 2008.  Pursuant to the employment agreement, Mr. Sikora’s initial year base salary was set at $125,000; he was granted non-qualified stock options to purchase 200,000 shares of the Company common stock at $2.60 per share that vested over two years; and he was to receive 19,230 shares of Company common stock.   On January 22, 2009, Mr. Sikora’s services with the Company ended and in accordance with the referenced employment agreement the options became fully vested.  At the time the options were issued to Mr. Sikora they were valued at $267,083 using the Black-Sholes Option Pricing Model and the entire fair value of the options was recognized by the Company upon the termination of services.  Additionally the Company issued 19,230 shares of restricted common stock to Mr. Sikora that were valued at $8,846 at the time of issuance by the Company.

Malek A. Bohsali

Mr. Bohsali served as chief financial officer of the Company from April 10, 2007 through April 14, 2009, and served as corporate secretary of the Company until his resignation effective September 30, 2009. Mr. Bohsali received compensation listed in the above compensation table.


Other resources utilized in the Company’s operations are typically contractors or sub-contractors of vendors and service providers that are not owned directly or indirectly by the Company or any officer, director or shareholder owning greater than five percent (5%) of our outstanding shares, nor are they members of the referenced individual’s immediate family.  Such sub-contracting engagement and per job payments are commonplace in the Company's business.  The Company expects to continue to utilize and pay such service providers and third party contractors necessary to operate its day-to-day field operations.

Lucas 2010 Incentive Compensation Plan

The Company shareholders approved the Lucas Energy, Inc. 2010 Long Term Incentive Plan (“Incentive Plan” or “Plan”) at the annual shareholder meeting held on March 30, 2010.  The Incentive Plan provides the Company with the ability to offer stock options and restricted stock to employees, consultants and contractors as performance incentives.  Shares issuable under the Incentive Plan were registered on Form S-8 registration statement that was filed with the SEC on April 23, 2010.  The NYSE Amex approved this listing application for the shares issuable under the Incentive Plan on May 6, 2010.  At March 31, 2010 no shares had been issued under the Incentive Plan.

Under the Incentive Plan, 900,000 shares of the Company’s common stock are authorized for initial issuance.  The number of shares available under the Plan are reduced by one for each share delivered pursuant to an award under the Plan. Any issued shares that become available due to expiration, forfeiture, surrender, cancellation, termination or settlement in cash of an award under the Incentive Plan may be requested and used as part of a new award under the Plan.

The Plan is administered by the Compensation Committee of the Board of Directors.  The Committee interprets the Plan and has broad discretion to select the eligible persons to whom awards will be granted, as well as the type, size and terms and conditions of each award, including the exercise price of stock options, the number of shares subject to awards, the expiration date of awards, and the vesting schedule or other restrictions applicable to awards.  The Plan allows the Company to grant the following types of awards: (1) incentive stock options, (2) non-qualified stock options, and (3) restricted shares.
 
Outstanding Equity Awards at March 31, 2010

At the end of the Company’s fiscal year end, outstanding equity awards for issued and unexercised stock option awards are identified in the following table.  There are no outstanding equity awards that are unexercisable at the fiscal year ended March 31, 2010.

Outstanding Equity Awards at 2010 Fiscal Year End
 
Name
 
Number of securities underlying unexercised options (#) exercisable
   
Number of securities underlying unexercised options (#) unexercisable
   
Option exercise price ($)
 
Option expiration date
                     
William A. Sikora
    200,000       --     $ 2.60  
9/02/2011

The Company does not currently have in place or provide retirement, disability or other benefits to its employees.
 
DIRECTOR COMPENSATION
 
The following table sets for compensation information with respect to our directors during our fiscal year ended March 31, 2010.

Director Compensation
 
 
Name
 
Fees earned or paid in cash ($)
   
Stock awards ($)
   
Total ($)
 
                   
Peter K. Grunebaum
  $ 6,000     $ -     $ 6,000  
J. Fred Hofheinz
    6,000       -       6,000  
W. Andrew Krusen
    6,000       -       6,000  
 

Non employee and employee directors are paid $2,000 per meeting attended. Non-employee directors were paid $6,000 in cash for meeting fees during the fiscal year ended March 31, 2010.  Non-employee directors have historically been granted shares of common stock for services provided to the Company as a director.

Compensation for serving as a director for an individual that is a named executive officer is reflected in the above table on Executive Compensation.


ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK

The following table sets forth information, to the best of our knowledge as of March 31, 2010, with respect to each person known by us to own beneficially more than 5% of our outstanding common stock, and each director and officer, and all directors and officers as a group.  

Security Ownership of Certain Beneficial Owners.

 
Title of Class
 
Name and Address of Beneficial Owner
Amount and Nature of Beneficial Ownership
 
Percent of Class
     
(*)
Common
J. Fred Hofheinz
Chairman
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
792,020
5.73%
Common
William A. Sawyer
Chief Executive Officer and Director
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
333,474
2.41%
Common
W. Andrew Krusen, Jr.
Director
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
455,000 (1)
3.29%
Common
Peter Grunebaum
Director
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
100,229
0.73%
Common
Donald L. Sytsma
Chief Financial Officer and Treasurer
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
29,500
0.21%
Common
LGA, Inc.
377 S. Nevada St.
Carson City, Nevada 89703
1,318,700
9.68%
Common
James J. Cerna Jr.
Former Chairman, CEO and President
Revocable Trust
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
613,098
4.50%  
Common
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (5 Persons)
1,710,223
12.37%

(*)
Calculated based on total shares outstanding of 13,622,869 plus warrants exercisable into shares of common stock within 60 days.
(1)
Includes indirect beneficial ownership of 200,000 warrants exercisable for one share of common stock at $1.00 per share.


ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the past two fiscal years there have been no transactions between us and any officer, director, or any shareholder owning greater than five percent (5%) of our outstanding shares, nor any member of the above referenced individuals' immediate family, except as set forth below.

Related Party Transactions
 
As discussed under the “Nature of Operations – Acquisition of Oil and Gas Properties Located in Wilson County, Texas” one Lucas board of director member (J. Fred Hofheinz) holds an approximate 25.2% interest in El Tex Petroleum, LLC (the “El Tex”) while a second Lucas board of director member (W. Andrew Krusen, Jr.) holds an indirect beneficial ownership interest in the Seller of approximately 18.8%.  We entered into an agreement to acquire approximately 2,771 gross oil and gas lease acreage (approx. 2,078 net to our interest) located in Wilson County, Texas.  The leasehold, wellbore and surface equipment acquisition price totals approximately $1.0 million with approximately $490,000 of the consideration comprised from the issuance of Lucas common stock to El Tex (specifically 637,887 shares of common stock at $0.77 per share), assumption of $500,000 in debt and $68,000 in cash.  Pursuant to NYSE Amex exchange rules, issuance of shares of common stock in connection with the acquisition of the oil and gas properties from El Tex requires shareholders’ approval. Lucas shareholders approved the share issuance in the annual shareholder meeting held on March 30, 2010.  Upon exchange approval of the listing application for the shares to be issued, the shares of common stock were issued on May 25, 2010.

It is our policy that any future material transactions between us and members of management or their affiliates shall be on terms no less favorable than those available from unaffiliated third parties.

ITEM 14.      PRINCIPAL ACCOUNTANTS FEES AND SERVICES

Our Audit Committee of the board of directors approves in advance the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.  

Audit Fees

The aggregate fees billed by our independent auditors, GBH CPAs, for professional  services  rendered  for the audit  of our annual financial statements included  in our Annual  Reports on Form 10-K for the years ended March 31, 2010 and 2009, and for the review of quarterly financial statements included in our Quarterly Reports on Form 10-Q for the quarters  ending June 30, September 30, and December 31, 2009 and 2008, were:

   
2010
   
2009
 
GBH CPAs, PC
  $ 103,885     $ 89,525  

Audit fees incurred by the Company were pre-approved by the Audit Committee.

Audit Related Fees

For the years ended March 31, 2010 and 2009, there were no fees billed for assurance and  related  services  by  GBH CPAs, PC relating to  the performance of the audit of our  financial  statements  which are not reported under the caption "Audit Fees" above.

Tax Fees

For the years ended March 31, 2010 and 2009, fees billed by GBH CPAs, PC for tax compliance, tax advice and tax planning were $-0- and $-0-, respectively.

We do not use the auditors for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are  provided internally or by other service  providers.  We do not engage the auditors to provide compliance outsourcing services.


The Audit Committee of the board of directors has considered the nature and amount of fees billed by GBH CPAs, PC believes that the provision of services for activities unrelated to the audit  is compatible  with  maintaining GBH CPAs, PC independence.

 All Other Fees

None.


ITEM 15.     EXHIBITS
 
Exhibit No.
Description
3.1
Articles of Incorporation (incorporated by reference to the Company Annual Report of Form 10-KSB for the fiscal year ended November 30, 2005 filed with the SEC on February 14, 2006 as Exhibit 3.1)
3.2
Certificate of Amendment to Articles of Incorporation of Lucas Energy, Inc. (incorporated by reference to Exhibit B to the Information Statement on Schedule 14C filed with the SEC on February 16, 2007).
3.3
Bylaws (incorporated by reference to the Company Annual Report of Form 10-KSB for the fiscal year ended November 30, 2005 filed with the SEC on February 14, 2006 as Exhibit 3.2)
10.1
Contract with SMC (incorporated by reference to the Company Annual Report of Form 10-KSB for the fiscal year ended November 30, 2005 filed with the SEC on February 14, 2006 as Exhibit 10.1)
10.2
Consignment Agreement (incorporated by reference to the Company Annual Report of Form 10-KSB for the fiscal year ended November 30, 2005 filed with the SEC on February 14, 2006 as Exhibit 10.2)
10.3
Stock Purchase Agreement between Lucas Energy, Inc. and The Delphic Oil Co., LLC, dated December 20, 2006 (incorporated by reference to the Form 8-K dated December 20, 2006 filed with the SEC on December 21, 2009 as Exhibit 10.1)
10.4
Oil, Gas and Mineral Lease between Lucas Energy, Inc. and Griffin, filed of record on February 23, 2007 (incorporated by reference to the Form 8-K dated February 24, 2007 filed with the SEC on March 1, 2007 as Exhibit 10.4)
10.5
Employment Agreement between Lucas Energy, Inc. and James J. Cerna, dated March 20, 2007 (incorporated by reference to the Company Annual Report on Form 10-KSB for the fiscal year ended March 31, 2007 filed with the SEC on June 29, 2007, Exhibit 10.5)
10.6
Employment Agreement between Lucas Energy, Inc. and William A. Sawyer, dated March 20, 2007 (incorporated by reference to the Company Annual Report on Form 10-KSB for the fiscal year ended March 31, 2007 filed with the SEC on June 29, 2007, Exhibit 10.6)
10.7
Credit Agreement between Lucas Energy, Inc. and Amegy Bank National Association (Incorporated by reference to the Form 8-K dated October 8, 2008 filed with the SEC October 14, 2008)
10.8
Secured Promissory Note between Lucas Energy, Inc. and Amegy Bank National Association (Incorporated by reference to the Form 8-K dated October 8, 2008 filed with the SEC October 14, 2008)
10.9
Deed of Trust, Security Agreement, Financing Statement and Assignment of Production from Lucas Energy to Kenneth R. Batson, Trustee, for the benefit of Amegy Bank National Association (Incorporated by reference to the Form 8-K dated October 8, 2008 filed with the SEC October 14, 2008) 
10.10
Security Agreement by Lucas Energy, Inc. in favor of Amegy Bank National Association (Incorporated by reference to the Form 8-K dated October 8, 2008 filed with the SEC October 14, 2008) 
10.11
Unregistered Sale of Equity Securities and Departure of Director and Appointment of Director (Incorporated by reference to the Form 8-K dated October 8, 2009 filed with the SEC October 13, 2009) 
10.12
Placement Agent Agreement with WR Hambrecht & Co (Incorporated by reference to the Form 8-K dated March 26, 2009 filed with the SEC March 26, 2010)
10.13
Submission of Matters to a Vote of Security Holders, Election of Directors and Compensatory Arrangements of Certain Officers (Incorporated by reference to the Form 8-K/A dated March 30, 2010 filed with the SEC April 22, 2010).
10.14
Lucas Energy, Inc. 2010 Long Term Incentive Plan (Incorporated by reference to the Form S-8 filed with the SEC on April 23, 2010)
Purchase and Sale Agreement Between Lucas Energy, Inc. and HilCorp Energy I, L.P. dated April 1, 2010 (1)
10.16
Termination of Credit Agreement with Amegy Bank and Release of all Liens and Security Interests held dated May 5, 2010 (Incorporated by reference to the Form 8-K dated May 5, 2010 filed with the SEC May 6, 2010)
10.17
Unregistered Sale of Equity Securities (Incorporated by reference to the Form 8-K dated May 25, 2010 filed with the SEC May 27, 2010)
14.1
Code of Ethics (Incorporated by reference to the Company Annual Report on Form 10-K/A, Amendment No. 1, for the fiscal year ended March 31, 2009 filed with the SEC on July 29, 2009).
14.2
Whistleblower Protection Policy  (Incorporated by reference to the Company Annual Report on Form 10-K/A, Amendment No. 1, for the fiscal year ended March 31, 2009 filed with the SEC on July 29, 2009).
14.3
Charter of the Audit and Ethics Committee (Incorporated by reference to the Company Annual Report on Form 10-K/A, Amendment No. 1, for the fiscal year ended March 31, 2009 filed with the SEC on July 29, 2009).
14.4
Charter of the Nominating Committee (Incorporated by reference to the Company Annual Report on Form 10-K/A, Amendment No. 1, for the fiscal year ended March 31, 2009 filed with the SEC on July 29, 2009).
14.5
Charter of the Compensation Committee (Incorporated by reference to the Company Annual Report on Form 10-K/A, Amendment No. 1, for the fiscal year ended March 31, 2009 filed with the SEC on July 29, 2009).
Consent of GBH CPAs, PC (1)
Consent of Forrest A. Garb & Associates, Inc. (1)
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
Certification of CEO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
Certification of CFO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
Report of Forrest A. Garb & Associates, Inc.  (1)
 
 
(1)
Filed herewith.


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LUCAS ENERGY, INC.
 
BY:
/S/ WILLIAM A SAWYER
 
William A. Sawyer
 
President and C.E.O.

Dated:   July [ 13 ], 2010

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature
Title
Date
     
 
/ s / J. FRED HOFHEINZ
J. Fred Hofheinz
Chairman
 
July 14, 2010
 
     
/s/ WILLIAM SAWYER
William Sawyer
President, CEO, and Director
(Principal Executive Officer)
 
July 14, 2010
 
     
/s/ DONALD L. SYTSMA
Donald L. Sytsma
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
 
July 14, 2010
 
     
/s/ W. ANDREW KRUSEN
W. Andrew Krusen
Director
 
July 14, 2010
 
     
/s/ PETER GRUNEBAUM
Peter Grunebaum
Director
 
July 14, 2010
 
 
 
42

 
LUCAS ENERGY INC.
INDEX TO THE FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Stockholders’ Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Lucas Energy, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheets of Lucas Energy, Inc. as of March 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended March 31, 2010 and 2009.   These consolidated financial statements are the responsibility of Lucas Energy, Inc.’s management. Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also 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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lucas Energy, Inc. as of March 31, 2010 and 2009 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.


GBH CPAs, PC
www.gbhcpas.com
Houston, Texas

July 14, 2010


LUCAS ENERGY, INC.
Consolidated Balance Sheets

   
March 31, 2010
   
March 31, 2009
 
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 1,822,780     $ 136,841  
Marketable securities
    21,450       293,336  
Accounts receivable - oil and gas
    198,083       138,283  
Accounts receivable - trade
    46,081       -  
Deferred financing costs, net of amortization of $170,830 and $47,223 respectively
    250,921       121,606  
Deferred offering costs
    119,912       -  
Other current assets
    43,769       57,764  
TOTAL CURRENT ASSETS
    2,502,996       747,830  
                 
OIL AND GAS PROPERTIES, FULL COST METHOD
               
Properties subject to amortization
    24,699,722       22,794,893  
Accumulated depletion, depreciation and amortization
    (2,482,443 )     (1,721,580 )
OIL AND GAS PROPERTIES, NET
    22,217,289       21,073,313  
                 
Property, plant and equipment, net of accumulated depreciation of $15,062 and $3,738, respectively
    20,907       26,033  
Deferred financing costs
    -       250,922  
Other assets
    57,515       56,828  
                 
TOTAL ASSETS
  $ 24,798,707     $ 22,154,926  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Accounts payable - trade
  $ 1,391,446     $ 808,598  
Advances from working interest owner
    3,045,292       -  
Borrowings on credit facility, current portion
    2,150,000       300,000  
Accrued expenses
    65,541       152,472  
                 
TOTAL CURRENT LIABILITIES
    6,652,279       1,261,070  
                 
NON-CURRENT LIABILITIES
               
Borrowings on credit facility
    -       2,350,000  
Asset retirement obligations
    327,412       181,599  
                 
TOTAL LIABILITIES
    6,979,691       3,792,669  
                 
STOCKHOLDERS' EQUITY
               
                 
Preferred stock, 10,000,000 shares authorized of $0.001 par value, no shares issued and outstanding
    -       -  
Common stock, 100,000,000 shares authorized of $0.001 par value, 12,837,220 and 12,800,320 shares issued and outstanding at March 31, 2010, and 10,383,388 and 10,346,488 shares issued and outstanding at March 31, 2009, respectively
    12,837       10,383  
Additional paid-in capital
    20,639,247       18,864,225  
Treasury stock, at cost
    (49,159 )     (49,159 )
Accumulated deficit
    (2,783,909 )     (463,192 )
                 
TOTAL STOCKHOLDERS' EQUITY
    17,819,016       18,362,257  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 24,798,707     $ 22,154,926  

See notes to consolidated financial statements.


LUCAS ENERGY, INC.
Consolidated Statements of Operations

   
For the Year Ended March 31, 2010
   
For the Year Ended March 31, 2009
 
             
             
OIL AND GAS REVENUES
  $ 1,777,736     $ 3,382,060  
                 
EXPENSES
               
Lease operating expenses
    1,048,333       1,345,928  
Severance and property taxes
    129.432       171,688  
Depreciation, depletion, amortization and accretion
    787,340       899,949  
General and administrative
    1,690,170       1,594,598  
                 
Total Expenses
    3,655,275       4,012,163  
                 
LOSS FROM OPERATIONS
    (1,877,539 )     (630,103 )
                 
OTHER INCOME (EXPENSES)
               
Unrealized loss on marketable securities
    (110,606 )     (2,095,019 )
Realized loss on marketable securities
    (30,785 )     (121,273 )
Interest income
    -       1,970  
Interest expense
    (301,787 )     (89,193 )
Total Other Income (Expenses)
    (443,178 )     (2,303,515 )
                 
NET INCOME BEFORE INCOME TAXES
    (2,320,707 )     (2,933,618 )
                 
INCOME TAX BENEFIT
    -       834,127  
                 
NET LOSS
  $ (2,320,717 )   $ (2,099,491 )
                 
NET LOSS PER SHARE :
               
BASIC AND DILUTED
  $ (0.21 )   $ (0.21 )
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
               
BASIC AND DILUTED
    10,812,810       10,237,830  

See notes to consolidated financial statements.


LUCAS ENERGY, INC.