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

FORM 10-Q

 
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
 [  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
Commission File Number: 1-32508
 
LUCAS ENERGY, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
20-2660243
(State of other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

3555 Timmons Lane, Suite 1550, Houston, Texas  77027
(Address of principal executive offices)  (Zip code)
 
Registrant's telephone number, including area code: 713-528-1881
 
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.    Yesx    Noo

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 x    No 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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of each class
Number of Shares
Common Stock, par value $0.001 per share
25,025,785 (as of August 3, 2012) 

 
 
 

 
 LUCAS ENERGY, INC.

TABLE OF CONTENTS

 
   
Page
PART I. 
FINANCIAL INFORMATION
 
     
ITEM 1.
Financial Statements (Unaudited)
 
     
 
Condensed Consolidated Balance Sheets as of June 30, 2012 and March 31, 2012
3
     
 
Condensed Consolidated Statements of Operations for the three-month periods ended June 30, 2012 and 2011
4
     
 
Condensed Consolidated Statements of Cash Flows for the three-month periods ended June 30, 2012 and 2011
5
     
 
Notes to the Condensed Consolidated Financial Statements
6
 
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
     
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
21
     
ITEM 4.
Controls and Procedures
21
 
PART II.     
OTHER INFORMATION
 
     
ITEM 1.
Legal Proceedings
22
     
ITEM 1A.
Risk Factors
22
     
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22
     
ITEM 4.
Mine Safety Disclosures
22
     
ITEM 6.
Exhibits
22
 
SIGNATURES
  23
     
EXHIBIT INDEX
  24

 
 
 
2

 

PART 1.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
 

LUCAS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
   
June 30,
   
March 31,
 
   
2012
   
2012
 
ASSETS
 
Current Assets
           
Cash
  $ 679,388     $ 683,979  
Accounts Receivable
    752,149       1,416,819  
Inventories
    63,868       63,868  
Other Current Assets
    193,444       199,677  
Current Portion of Note Receivable
    60,760       60,157  
      Total
    1,749,609       2,424,500  
                 
Property and Equipment
               
Oil and Gas Properties (Full Cost Method)
    69,150,678       66,240,375  
Other Property and Equipment
    661,750       646,611  
Total Property and Equipment
    69,812,428       66,886,986  
Accumulated Depletion, Depreciation and Amortization
    (6,523,780 )     (5,716,989 )
      Total Property and Equipment, Net
    63,288,648       61,169,997  
                 
Other Assets
    416,214       426,570  
                 
Total Assets
  $ 65,454,471     $ 64,021,067  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities
               
Accounts Payable
  $ 5,451,739     $ 8,605,490  
Common Stock Payable
    75,830       84,431  
Accrued Expenses
    1,417,064       1,686,096  
Advances From Working Interest Owners
    1,748,407       1,349,066  
Notes Payable
    22,000,000       22,000,000  
Asset Retirement Obilgation
    90,000       90,000  
Current Portion of Long-Term Debt
    485,673       76,894  
Total
    31,268,713       33,891,977  
                 
Asset Retirement Obligation
    1,081,152       985,152  
Notes Payable
    16,167       25,489  
Commitments and Contingencies (see Note 8)
               
                 
Stockholders' Equity
               
Preferred Stock Series A, 2,000 Shares Authorized of
               
 $0.001 Par, 2,000 Shares issued and Outstanding
    3,095,600       3,095,600  
Preferred Stock Series B, 3,000 Shares Authorized of
               
 $0.001 Par,  2,824 Shares issued and Outstanding
    5,166,754       5,166,754  
Common Stock, 100,000,000 Shares Authorized of $0.001 Par,
         
22,748,909 Shares Issued and 22,712,009 Outstanding Shares
         
at June 30, 2012 and 19,581,657 Issued and 19,544,757
         
Outstanding Shares at March 31, 2012, respectively
    22,749       19,582  
Additional Paid in Capital
    41,665,340       35,791,345  
Accumulated Deficit
    (16,812,845 )     (14,905,673 )
Common Stock Held in Treasury, 36,900 Shares
    (49,159 )     (49,159 )
        Total Stockholders' Equity
    33,088,439       29,118,449  
                 
Total Liabilities and Stockholders' Equity
  $ 65,454,471     $ 64,021,067  
 
 
3

 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
LUCAS ENERGY, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
Three Months Ended June 30
 
2012
   
2011
 
             
Net Operating Revenues
           
Crude Oil
  $ 1,712,951     $ 1,204,420  
Natural Gas
    4,854       28,027  
     Total
    1,717,805       1,232,447  
Operating Expenses
               
 Lease Operating Expenses
    929,755       601,483  
 Severance and Property Taxes
    93,179       59,775  
 Depreciation, Depletion,
               
      Amortization and Accretion
    821,791       407,933  
 General and Administrative
    1,448,219       1,044,715  
     Total
    3,292,944       2,113,906  
Operating Loss
    (1,575,139 )     (881,459 )
Other Expense, Net
    9,136       846  
Interest Expense
    (341,169 )     (3,487 )
Loss Before Income Taxes
    (1,907,172 )     (884,100 )
Income Tax Provision
    -       -  
Net Loss
  $ (1,907,172 )   $ (884,100 )
                 
Net Loss Per Share
               
Basic  and Diluted
  $ (0.09 )   $ (0.05 )
Weighted Average Number of
               
Common Shares Outstanding
               
Basic  and Diluted
    22,141,785       16,844,380  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 

LUCAS ENERGY, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
Three Months Ended June 30
 
2012
   
2011
 
 Cash Flows from Operating Activities
           
 Reconciliation of Net Loss to
           
 Net Cash Provided by (Used in) Operating Activities:
           
 Net Loss
  $ (1,907,172 )   $ (884,100 )
 Items Not Requiring Cash
               
 Depreciation, Depletion, Amortization and Accretion
    821,791       407,933  
 Share-Based Compensation
    97,748       104,610  
 Changes in Components of Working Capital and Other Assets
               
 Accounts Receivable
    664,670       139,572  
 Prepaid Expenses and Other Current Assets
    6,233       65,212  
 Accounts Payable and Accrued Expenses
    (3,270,597 )     (1,295,810 )
 Advances from Working Interest Owners
    399,341       625,463  
 Other Assets
    -       (500 )
 Changes in Components of Working Capital
               
 Associated with Investing Activities
    3,088,317       1,036,950  
 Net Cash Provided by (Used in) Operating Activities
    (99,669 )     199,330  
                 
 Investing Cash Flows
               
 Additions of Oil and Gas Properties
    (2,379,303 )     (882,389 )
 Additions of Other Property and Equipment
    (15,139 )     (23,000 )
 Proceeds from Sale of Oil and Gas Properties
    -       71,196  
 Payments Received on Notes Receivable
    9,753       -  
 Changes in Components of Working
               
 Capital Associated with Investing Activities
    (3,088,317 )     (1,036,950 )
 Net Cash Used in Investing Activities
    (5,473,006 )     (1,871,143 )
                 
 Financing Cash Flows
               
 Net Proceeds from the Sale of Common Stock
    5,618,627       -  
 Repayment of Borrowings
    (50,543 )     (9,838 )
 Net Cash Provided by (Used in) Financing Activities
    5,568,084       (9,838 )
                 
 Decrease in Cash and Cash Equivalents
    (4,591 )     (1,681,651 )
 Cash and Cash Equivalents at Beginning of the Period
    683,979       2,471,108  
 Cash and Cash Equivalents at End of the Period
  $ 679,388     $ 789,457  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
5

 
LUCAS ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
NOTE 1 - GENERAL
 
History. Incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective June 9, 2006.

Basis of Presentation. The accompanying unaudited interim condensed consolidated financial statements of Lucas Energy, Inc., together with its subsidiaries (collectively, Lucas or the Company) have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Lucas' annual report filed with the SEC on Form 10-K for the year ended March 31, 2012.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the condensed consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2012 as reported in Form 10-K have been omitted.

Fiscal Year. The Company's fiscal year ends on the last day of March of the calendar year.  The Company refers to the twelve-month periods ended March 31, 2013 and 2012 as our 2013 and 2012 fiscal year, respectively.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Lucas' condensed consolidated financial statements are based on a number of significant estimates, including oil and gas reserve quantities which are the basis for the calculation of depreciation, depletion and impairment of oil and gas properties, and timing and costs associated with its retirement obligations, as well as those related to the fair value of stock options, stock warrants and stock issued for services.

Cash and Cash Equivalents. Cash and cash equivalents include cash in banks and financial instruments which mature within three months of the date of purchase.

Income Taxes.  Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and accrued tax liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Lucas has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements as of June 30, 2012. The Company’s policy is to classify assessments, if any, for tax related interest and penalties as interest expense.

 
6

 
Concentration of Credit Risk.  Financial instruments that potentially subject Lucas to concentration of credit risk consist of accounts receivable. Accounts receivable are recorded at the invoiced amount and generally do not bear interest. Any allowance for doubtful accounts is based on management's estimate of the amount of probable losses due to the inability to collect from customers. As of June 30, 2012, no allowance for doubtful accounts has been recorded.

Under Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, for the two-year period of January 1, 2011 through December 31, 2012, cash balances in noninterest-bearing transaction accounts at all FDIC-insured depository institutions are provided temporary unlimited deposit insurance coverage.  At June 30, 2012, cash balances in interest-bearing accounts totaled $4,800.

Fair Value of Financial Instruments.  As of June 30, 2012 and March 31, 2012, the fair value of Lucas' cash, accounts receivable, note receivable, accounts payable and notes payable approximate their carrying values because of the short-term maturity of these instruments.

Earnings per Share of Common Stock.  Basic and diluted net income per share calculations are calculated on the basis of the weighted average number of shares of the Company's common stock (Common Shares) outstanding during the period. Purchases of treasury stock reduce the outstanding shares commencing on the date that the stock is purchased. Common stock equivalents, for example, stock option, warrant and convertible preferred stock, are excluded from the calculation when a loss is incurred as their effect would be anti-dilutive.

At June 30, 2012, stock options to purchase 456,000 Common Shares at an average exercise price of $2.88 per share and warrants to purchase 3,898,636 Common Shares at an average exercise price of $2.62 per share were outstanding.

At June 30, 2011, stock options to purchase 456,000 Common Shares at an average exercise price of $2.88 per share and warrants to purchase 5,476,642 Common Shares at an average exercise price of $2.65 per share were outstanding at June 30, 2011.

Recently Issued Accounting Standards.  In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, "Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs."  ASU 2011-04 amends the Fair Value Measurement Topic of the Accounting Standards Codification (ASC) to clarify the FASB's intent about the application of existing fair value measurement requirements and change certain principles or requirements for measuring fair value or disclosing information about fair value measurements.  ASU 2011-04 became effective for interim and annual fiscal periods beginning after December 15, 2011.  The adoption of ASU 2011-04 did not have a material impact on Lucas’ financial statements.

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income."  ASU 2011-05 is intended to increase the prominence of comprehensive income in the financial statements by requiring that an entity that reports items of comprehensive income do so in either one continuous or two consecutive financial statements.  ASU 2011-05 also requires separate presentation on the face of the financial statements for items reclassified from other comprehensive income into net income.  Subsequently, in December 2011, the FASB deferred the effective date of the provisions of ASU 2011-05 relating to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-05 not deferred by the FASB became effective for interim and annual fiscal periods beginning after December 15, 2011.  Retroactive application is required.  The adoption of ASU 2011-05 did not have a material impact on Lucas’ financial statements.

 
7

 
NOTE 2 – PROPERTY AND EQUIPMENT

Oil and Gas Properties

Lucas uses the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.  Properties not subject to amortization consist of acquisition, exploration and development costs, which are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired and the corresponding costs are added to the capitalized costs subject to amortization.  Costs of oil and gas properties are amortized using the units of production method. Amortization expense calculated per equivalent physical unit of production amounted to $40.93 per barrel of oil equivalent (“BOE”) for the three months ended June 30, 2012, and was $30.52 per BOE for the three months ended June 30, 2011.   Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool and generally, no gain or loss is recognized.
 
In applying the full cost method, Lucas performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the “estimated present value,” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense. As of June 30, 2012, no impairment of oil and gas properties was indicated.
 
All of Lucas' oil and gas properties are located in the United States.  Below are the components of Lucas’ oil and gas properties recorded at cost as of June 30, 2012:
 
   
Amount
 
 Proved leasehold costs
  $ 36,233,356  
 Costs of wells and development
    31,909,157  
 Capitalized asset retirement costs
    1,008,165  
        Total oil & gas properties
    69,150,678  
 Accumulated depreciation and depletion
    (6,415,961 )
    Net Capitalized Costs
  $ 62,734,717  
 
The following table sets forth the changes in the total cost of oil and gas properties during the three months ended June 30, 2012:

   
Amount
 
 Balance at  beginning of period
  $ 66,240,375  
 Acquisition using:
       
    Cash
    50,000  
    Assumption of note
    450,000  
 Tangible and intangible drilling
       
     costs and title related expenses
    2,329,303  
 Other non-cash transactions
    81,000  
 Balance at end of period
  $ 69,150,678  
 
Acquisitions using cash and tangible and intangible drilling costs and title related expenses for the three months ended June 30, 2012 totaled to $2,379,303.

 
8

 
Other Property and Equipment

On November 21, 2011, Lucas entered into a purchase agreement for a building in Gonzales County for $450,000 to be used as office space.  Pursuant to the agreement, the Company agreed to pay $325,000 in the form of a promissory note to be repaid in monthly installments. The final payment was made on May 1, 2012. 
 
NOTE 3 – ASSET RETIREMENT OBLIGATIONS
 
The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with the retirement of oil and gas property and equipment for the three-month periods ended June 30, 2012 and 2011.  Lucas recorded short-term asset retirement obligations of $90,000 as of June 30, 2012.
 
   
Three Months Ended June 30,
 
   
2012
   
2011
 
Carrying amount at beginning of year
  $ 1,075,152     $ 409,112  
Accretion
    15,000       9,000  
Additions for purchase of oil and gas property
    81,000       -  
Carrying amount at end of year
  $ 1,171,152     $ 418,112  
NOTE 4 – NOTE PAYABLE

In November 2011, Lucas closed a purchase and sale transaction with Nordic Oil USA I, LLLP (Nordic 1), with an effective date of July 1, 2011, to purchase all of Nordic 1’s interests in certain oil, gas and mineral leases, rights and assets located in Gonzales, Karnes and Wilson Counties, Texas, which represented all of Nordic 1's interests in the existing two capital programs operated by Lucas.  Pursuant to the transaction, Lucas agreed to pay $22.0 million to Nordic 1 in the form of a non-recourse senior secured promissory note.  As such, Nordic 1's only recourse is against the properties acquired in the transaction, and the note is not secured by any of the Company’s other assets. The note is due on or before November 17, 2012 and bears interest at 6% per annum.  As of June 30, 2012, Lucas has accrued approximately $957,000 of interest payable for this note.

NOTE 5 – STOCKHOLDERS' EQUITY

Preferred Stock

As of June 30, 2012, Lucas had 2,000 shares of Series A Convertible Preferred Stock issued and outstanding and 2,824 shares of Series B Convertible Preferred Stock issued and outstanding.  The shares of preferred stock were issued for property acquisitions and were recorded at the fair value of the shares on the date of issuance.  Each share of both the Series A and Series B Convertible Preferred Stock is convertible into 1,000 shares of the Company’s common stock.  Both Series have no liquidation preference and no maturity date.  The Series B Preferred Stock has dividend rights when and if cash dividends are declared by the Company on an “if converted” basis. Additionally, the conversion rate of the Series A and B Convertible Preferred Stock adjusts automatically in connection with and in proportion to any dividends payable by the Company in common stock.

 
9

 

Common Stock

The following summarizes Lucas' common stock activity during the three-month period ended June 30, 2012:

 
         
Common Shares
         
Issued
             
   
Amount
   
Per Share
     
Shares
   
Treasury
   
Outstanding
 
Balance at March 31, 2012
                  19,581,657       (36,900 )     19,544,757  
     Unit Offering
  $ 5,518,627     $ 1.87    (1)     2,950,000       -       2,950,000  
     Warrants Exercised
    100,000       1.00         100,000       -       100,000  
     Share-Based Compensation
    207,676       1.77         117,252       -       117,252  
Balance at June 30, 2012
                      22,748,909       (36,900 )     22,712,009  
 
 
(1)
In April 2012, the Company sold an aggregate of 2,950,000 units at $2 each, with each unit consisting of one share of Company common stock (the "Shares") and 0.35 of a warrant to purchase one share of the Company's common stock at an exercise price of $2.30 per share (the "Warrants") in a registered direct offering.  A total of 2,950,000 Shares and 1,032,500 Warrants were sold in connection with the offering.  The Company received an aggregate of $5,900,000 (or $2 per unit) in gross funding and approximately $5,500,000 (or $1.87 per unit) in net proceeds after paying commissions and other expenses associated with the offering. The Company used the net proceeds to pay down expenses related to drilling, lease operating and workover activities; and for general corporate purposes, including general and administrative expenses.

See Note 7 – Share-Based Compensation for information on common stock activity related to Share-Based Compensation, including shares granted to the board of directors, officers, employees and consultants. 

Warrants

During the three months ended June 30, 2012, warrants to purchase 100,000 shares with an exercise price of $1 per share were exercised.  The warrants were issued in connection with the sale of units in a private equity placement in September 2009.  As discussed above, in April 2012, the Company issued 1,032,500 warrants with an exercise price of $2.30 in connection with the unit offering.  None of the Company’s outstanding warrants expired during the three months ended June 30, 2012.  

The following is a summary of the Company's outstanding warrants at June 30, 2012:
 
Warrants
     
Exercise
 
 Expiration
 
Intrinsic Value
 
Outstanding
     
Price ($)
 
 Date
 
at June 30, 2011
 
  205,000    (1)   1.00  
August 31, 2012
  $ 377,200  
  150,630    (2)   2.98  
July 3, 2014
    -  
  2,510,506    (3)   2.86  
July 3, 2016
    -  
  1,032,500    (4)   2.30  
October 19, 2017
    -  
                  $ 377,200  
 
(1)  
Warrants issued in connection with the sale of units in a private equity placement in September 2009.
(2)  
Placement agent warrants issued in connection with the sale of units in the Company's unit offering in December 2010.
(3)  
Series B Warrants issued in connection with the sale of units in the Company’s unit offering in December 2010.
(4)  
Warrants issued in connection with the sale of units in the Company’s unit offering in April 2012. The warrants will not be exercisable until October 19, 2012 and will remain exercisable thereafter until October 19, 2017.
 
 
10

 
NOTE 6 – INCOME TAXES

The Company has estimated that its effective tax rate for U.S. purposes will be zero for the 2013 fiscal year and consequently, recorded no provision or benefit for income taxes for the three months ended June 30, 2012.

NOTE 7 – SHARE-BASED COMPENSATION

In accordance with the provisions of ASC Topic 718, Lucas measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

Common Stock

Lucas awarded 117,252 shares of its common stock with an aggregate grant date fair value of $207,676 during the three-month period ended June 30, 2012, which was valued based on the trading value of Lucas’ common stock on the date of grant.  The shares were awarded according to the employment agreements with certain officers and other managerial personnel.  

Stock Options

None of the Company’s outstanding options expired, were exercised or forfeited during the three months ended June 30, 2012.

The following table sets forth stock option activity for the three-month periods ended June 30, 2012 and 2011:
 
   
Three Months Ended
   
Three Months Ended
 
   
June 30, 2012
   
June 30, 2011
 
         
Weighted
         
Weighted
 
   
Number of
   
Average
   
Number of
   
Average
 
   
Stock Options
   
Grant Price
   
Stock Options
   
Grant Price
 
 Outstanding at March 31
    456,000     $ 2.88       256,000     $ 1.96  
 Granted
    -       -       200,000       4.05  
 Outstanding at June 30
    456,000     $ 2.88       456,000     $ 2.88  
 
During the quarter ended June 30, 2012, Lucas did not grant any stock options.  Lucas did grant stock options to purchase 200,000 shares to an officer valued at $604,000 during the three months ended June 30, 2011.  The grant date fair values of the stock options are amortized and recognized as compensation expenses over the service period.

Compensation expense related to stock options granted during the three-month period ended June 30, 2012 was approximately $50,900. The options vest 25% on each of the first four anniversary dates and have a 5 year exercise period.  The exercise prices for the options equal the closing price of the Company stock on the grant dates.  All issuances were valued at fair value on the date of grant based on the market value of Lucas’ common stock using the Black Scholes option pricing model with the following weighted average assumptions used for grants; dividend yield of 0.00%; expected volatility of 116%; risk-free interest rate of 1.31% and expected term of 3.1 years.

Options outstanding and options exercisable at June 30, 2012 had no intrinsic value.  Options outstanding and options exercisable at June 30, 2011 had an intrinsic value of $224,600 and $80,640, respectively.  The intrinsic value is based upon the difference between the market price of Lucas’ common stock on the date of exercise and the grant price of the stock options.

 
11

 

The following tabulation summarizes the remaining terms of the options outstanding:
 
Exercise
   
Remaining
   
Options
   
  Options
 
Price
   
Life (Yrs)
   
Outstanding
   
Exercisable
 
$ 2.07       3.20       96,000       96,000  
$ 1.94       3.60       160,000       40,000  
$ 4.05       3.70       200,000       50,000  
       
Total
      456,000       186,000  

 
As of June 30, 2012, total unrecognized stock-based compensation expense related to all non-vested stock options was $548,530, which is being recognized over a weighted average period of approximately 2.7 years.

On December 16, 2011, the shareholders of the Company approved the Company's 2012 Stock Incentive Plan (the 2012 Plan).  The 2012 Plan is intended to secure for the Company the benefits arising from ownership of the Company's common stock by the employees, officers, directors and consultants of the Company, all of whom are and will be responsible for the Company's future growth. The 2012 Plan provides an opportunity for any employee, officer, director or consultant of the Company to receive incentive stock options (to eligible employees only), nonqualified stock options, restricted stock, stock awards, and shares in performance of services. As of June 30, 2012, there were 1,386,301 shares available for issuance under the 2012 Plan.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Legal Proceedings. The Company is periodically named in legal actions arising from normal business activities. Lucas evaluates the merits of these actions and, if the Company determines that an unfavorable outcome is probable and can be reasonably estimated, we will establish the necessary reserves. Lucas does not anticipate any material losses as a result of commitments and contingent liabilities. Lucas is not involved in any material legal proceedings.

NOTE 9 – POSTRETIREMENT BENEFITS

On April 1, 2011, Lucas established a matched defined contribution savings plan for its employees.  During the three months ended June 30, 2012 and June 30, 2011, Lucas' total costs recognized for the savings plan were approximately $8,600 and $7,300, respectively.

NOTE 10 – SUPPLEMENTAL CASH FLOW INFORMATION

Net cash paid for interest and income taxes was as follows for the three-month periods ended June 30, 2012 and 2011:

   
Three Months Ended June 30,
 
   
2012
   
2011
 
 Interest
  $ 341,169     $ 3,487  
 Income taxes
    -       -  
 
 
 
 
12

 

Non-cash investing and financing activities for the three-month periods ended June 30, 2012 and 2011 included the following:
 
   
Three Months Ended June 30,
 
   
2012
   
2011
 
 Issuance of common stock for the
           
 purchase of certain oil and gas properties
  $ -     $ 411,000  
 Increase in asset retirement obligations
    81,000       9,000  
 Net assumption of note payable
               
 in acquisition of oil and gas properties
    450,000       -  

NOTE 11 – SUBSEQUENT EVENTS

In July 2012, the holder of our Series B Convertible Preferred Stock converted 2,270 shares of such Series B Convertible Preferred Stock into 2,270,000 shares of our common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
13

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere in this report, and should be read in conjunction with management’s discussion and analysis contained in Lucas’ Annual Report on Form 10-K for the fiscal year ended March 31, 2012 (the 2012 Annual Report) and related discussion of our business and properties contained therein.  The terms "Company," "Lucas Energy," "Lucas," "we," "us" and "our" refer to Lucas Energy, Inc. and its subsidiary. See also, “Cautionary Note Regarding Forward-Looking Statements”, below.
 
General
 
Lucas Energy, Inc., a Nevada corporation, is an independent oil and gas company based in Houston, Texas. Lucas Energy, Inc. together with its subsidiary, LEI Alcalde Holdings, LLC explores for, develops, produces and markets primarily crude oil and to a much lesser extent, natural gas, from various known productive geological formations, including the Austin Chalk, Eagle Ford and Buda formations, primarily in Gonzales, Wilson, Karnes and Atascosa Counties south of the City of San Antonio; and the Eaglebine formation in Leon and Madison Counties north of the City of Houston in Texas.  Incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective June 9, 2006.  Our goal is to acquire, develop, and produce crude oil and natural gas from areas located in, or near, established oil fields.
 
The Company's strategy is as follows:
 
·  
Locate and acquire what we believe to be undervalued, underdeveloped oil and gas properties in known areas which were neglected when oil prices were below $20 per barrel.  Re-establish or improve production from existing well bores.  Look for underlying potential in the form of new drilling, new laterals from existing wells, and/or deeper undeveloped horizons.  The Company does not participate in exploration activities, or rank wildcat drilling activities,
 
·  
Develop the properties out of current cash flow, or using project financing, which may include joint interest participation partners (what are commonly known as joint ventures), and
 
·  
Seek out additional product financing and joint venture partners to expand the asset base and increase production.
 
Our website address is http://www.lucasenergy.com. Our fiscal year ends on the last day of March of each year.  We refer to the twelve-month periods ended March 31, 2012 and March 31, 2011 as our 2012 fiscal year and 2011 fiscal year, respectively.
 
At June 30, 2012, the Company had leasehold interests (working interests) in approximately 27,000 gross acres.  Total net developed and undeveloped acreage as measured from the surface to the base of the Austin Chalk formation was approximately 21,900 acres.  The Company has approximately 5,900 net acres in the Eagle Ford (and lower depths) in the southern part of the Eagle Ford trend near San Antonio, Texas.  Further, the Company has approximately 3,700 net acres in the Eaglebine area of the Eagle Ford trend to the north of Houston, Texas.
 
At the end of June 2012, Lucas was producing approximately 430 BOPD (approximately 260 BOPD net) from 56 active well bores, of which 11 wells accounted for more than half of the production.  The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well.  An affiliate of Marathon Oil Corporation operates two Eagle Ford horizontal wells, in each of which we have a 15% working interest.  The wells have produced a cumulative of approximately 120,000 barrels of oil through July 31, 2012 recently put on artificial lift.  
 
 
 
14

 
 
At March 31, 2012, Lucas Energy's total estimated net proved reserves were 8.8 million barrels of oil equivalent (BOE), of which 7.0 million barrels (BBLs) were crude oil reserves, and 10.7  million cubic feet (MMCF) were natural gas reserves (see Supplemental Information to Consolidated Financial Statements).  As of June 30, 2012, Lucas employed 16 full-time employees.  We also utilized approximately 10 contractors on an "as-needed" basis to carry out various functions of the Company, including but not limited to field operations, land administration, corporate activity and information technology maintenance.

Industry Segments

            Lucas Energy's operations are all crude oil and natural gas exploration and production related.  

Operations and Oil and Gas Properties

We operate in known productive areas; that is, we do not drill wildcat wells.  Our holdings are found in a broad area of current industry activity in Gonzales, Wilson, Karnes, Atascosa, Leon and Madison Counties in Texas.  We concentrate on three vertically adjoining formations in Gonzales, Wilson, Karnes and Atascosa Counties: the Austin Chalk, Eagle Ford and Buda formations, listed in the order of increasing depth measuring from the land surface. The recent development of the Eagle Ford as a high potential producing zone has heightened industry interest and success.  Lucas Energy’s acreage position is in the oil window of the Eagle Ford trend. Prior to the active development of the Eagle Ford trend in the Gonzales County, Texas area, Lucas investigated the potential of the Eagle Ford formation using modern well logs.  Subsequent to this research, Lucas sought to acquire over 15,000 acres in the Gonzales and Wilson County, Texas area.  In 2010 the Company sold an 85% working interest in the acreage in Gonzales County, Texas to Hilcorp Resources, LLC (now Marathon Resources EF, LLC); and in 2011 the Company sold a 50% working interest to Marathon Oil Company in  Wilson County, Texas. In December 2011, we acquired 3,745 net acres in Leon and Madison Counties and thereby expanded our holdings of the Eagle Ford trend into the Eaglebine area.

Austin Chalk

The Company’s original activity started in Gonzales County by acquiring existing shut-in and stripper wells and improving production from those wells. Most of the wells had produced from the Austin Chalk. The Austin Chalk is a dense limestone, varying in thickness along its trend from approximately 200 feet to more than 800 feet. It produces by virtue of localized fractures within the formation.

Eagle Ford

Drilling activities by other operators and the improvement in horizontal drilling, well stimulation, and completion technologies, have brought the Eagle Ford play to prominence as one of the foremost plays in the United States today.
 
On Lucas’ leases, the Eagle Ford is a porous limestone with organic shale matter.  The Eagle Ford formation directly underlies the Austin Chalk formation and is believed to be the primary source of oil and gas produced from the Austin Chalk. Reservoir thickness in the area of the Company’s leases varies from approximately 60 feet to 80 feet.

Buda

The Buda limestone underlies the Eagle Ford formation separated by a 10 foot to 20 foot inorganic shale barrier. Its thickness varies from approximately 100 feet to more than 150 feet in this area. The Buda produces from natural fractures and matrix porosity and is prospective across this whole area. There are a number of Buda wells with cumulative production of more than 100,000 barrels of oil.

 
 
15

 
Eaglebine
 
The Eaglebine is so named because the Eagle Ford formation overlies the Woodbine formation. This is a continuation of the Eagle Ford trend that is productive from south Texas to the east north of Houston, Texas.  The Woodbine formation is best known as the prolific reservoir in the famous East Texas Oil Field. There has been increased interest and activity in the Eaglebine formation in the Leon, Houston, and Madison County areas.  There is established production from horizontal and vertical wells to the east and south of Lucas’ holdings and numerous permits for horizontal wells have been filed for additional exploratory and development drilling.

General

The ultimate goal of the management of Lucas is to maximize shareholder value.   Specific targets include: increasing production, increasing new revenues, increasing profitability margins, increasing property values and reserves, and expanding the asset base.

Overview of Properties

During our 2012 fiscal year, the Company continued to acquire Austin Chalk and Eagle Ford assets.  These acquisitions were done with minimal cash outlay and at prices which Lucas believes were under the current market.  These acquisitions included the following:

·  
Acquisition of Austin Chalk producing and non-producing properties, along with some Eagle Ford assets, from our Nordic Oil USA I LLLP joint venture partner,
·  
Acquisition of Eagle Ford undeveloped properties from an affiliate of Hall Financial Group of Dallas, Texas, and
·  
Acquisition of Eaglebine producing and non-producing properties north of Houston, Texas from an affiliate of Hall Financial Group.

The Company ended the 2012 fiscal year with approximately 5,900 net acres in the Eagle Ford trend and approximately 3,700 net acres in the Eaglebine trend.

Lucas continues to review additional areas of interest.  During the 2011 fiscal year, the Company invested approximately $2 million in a property in New Mexico.  After careful review of the property, it was decided that the New Mexico property was not as good an investment as the Austin Chalk and Eagle Ford areas.  Therefore, Lucas sold its New Mexico assets for more than it paid for them within less than a year.

The Company evaluated its Eagle Ford assets in the Gonzales, Wilson, Atascosa, and Karnes Counties, Texas areas with respect to potential reserves and benefit to shareholder value with the conclusion that the cash resulting from a sale of these Eagle Ford assets would be more beneficial to the price of the common stock than to have the proved undeveloped reserves of the same properties.  The Company does not believe that there exists a development plan that would benefit the shareholders more than having the cash and investing it in the Austin Chalk, and other, asset development.

Operations and New Drilling

During the first three months of the 2013 fiscal year, the Company had very little new activity in either drilling or workovers.  The Company did however complete the drilling of two new laterals from existing well bores in the Austin Chalk formation.

Expense workovers of wells with production of less than 10 BOPD continue to have an impact on lease operating expenses.  As newer wells, or newer laterals from existing well bores, are drilled on these leases, the expense of workover costs will diminish in the future.  An increase in the drilling program of the older leases could significantly reduce expense workover costs, and as a result, reduce our lifting costs per BBL (barrel).

 
 
16

 
Our Strengths

We believe our strengths will help us successfully execute our business strategies:

We benefit from the increasing value, attention and activity in the Eagle Ford. Activity levels in the Eagle Ford continue to increase. It was reported by the US Energy Information Administration (“USEIA”) on April 23, 2012, that the number of oil and natural gas well starts in the Eagle Ford increased from around 50 in January 2010 to approximately 350 in March 2012.  We benefit from the increasing number of wells drilled and the corresponding data available from public and governmental sources. This activity and data have begun to define the geographic extent of the Eagle Ford formation, which we believe will assist us in evaluating future leasehold acquisitions and development operations. In addition, the leading operators in the Eagle Ford have developed drilling and completion technologies that have significantly reduced production risk and decreased per unit drilling and completion costs.

Our size, local knowledge and contacts allow us to pursue a broader range of acquisition opportunities. Our size provides us with the opportunity to acquire smaller acreage blocks that may be less attractive to larger operators in the area.  Certain local landowners have expressed their preference to have Lucas operate on their properties rather than other companies. We believe that our acquisition of these smaller blocks will have a meaningful impact on our overall acreage position.

Experienced management team with proven acquisition, operating and financing capabilities. Mr. William A. Sawyer, our Chief Executive Officer, has 35 years of oil and gas experience.  His operations experience includes ARCO, Houston Oil & Minerals, Superior Oil and ERCO.  Mr. Sawyer is a registered professional engineer and is the founder of Exploitation Engineers, a petroleum consulting firm. He is complemented by Mr. K. Andrew Lai, our Chief Financial Officer, who has 25 years of upstream oil and gas industry finance experience.  His career includes various finance managerial positions at EOG Resources, Inc. and UMC Petroleum Corp., which was eventually merged into Devon Energy, Inc.

 
RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations for the three months ended June 30, 2012 and 2011 should be read in conjunction with the condensed consolidated financial statements of Lucas Energy and notes thereto included in this Quarterly Report on Form 10-Q.  As used below, the abbreviations "Bbls" stands for barrels, "Mcf" for thousand cubic feet and "Boe" for barrels of oil equivalent on the basis of six Mcf per barrel.

Three Months Ended June 30, 2012 vs. Three Months Ended June 30, 2011

We reported a net loss for the three months ended June 30, 2012 of $1.9 million, or $0.09 per share. For the same period a year ago, we reported a net loss of $0.9 million, or $0.05 per share. Our net loss increased by $1.0 million primarily due to increased operating expenses and interest expenses, partially offset by an increase in operating revenues.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
17

 
The following table sets forth the operating results and production data for the three months ended June 30, 2012 and 2011:
 
   
Three Months Ended June 30,
           
%
 
   
2012
   
2011
   
Incr(Decr)
   
Incr(Decr)
 
Sale Volumes:
                       
Crude Oil (Bbls)
    19,077       12,167       6,910       57 %
Natural Gas (Mcf)
    1,463       4,100       (2,637 )     -64 %
Total (Boe)
    19,321       12,850       6,471       50 %
                                 
Crude Oil  (Bbls per day)
    210       134       76       57 %
Natural Gas (Mcf per day)
    16       45       (29 )     -64 %
Total (Boe per day)
    213       142       71       50 %
                                 
Average Sale Price:
                               
Crude Oil ($/Bbl)
  $ 89.79     $ 98.99     $ (9.20 )     -9 %
Natural Gas ($/Mcf)
  $ 3.32     $ 6.84     $ (3.52 )     -51 %
                                 
                                 
Net Operating Revenues:
                               
Crude Oil
  $ 1,712,951     $ 1,204,420     $ 508,531       42 %
Natural Gas
    4,854       28,027       (23,173 )     -83 %
           Total Revenues
  $ 1,717,805     $ 1,232,447     $ 485,358       39 %
 
Oil and Gas Revenues
 
Total crude oil and natural gas revenues for the three months ended June 30, 2012 increased to $1.7 million from $1.2 million for the same period a year ago due primarily to a favorable volume variance of $0.6 million offset by an unfavorable price variance of $0.1 million.

Operating and Other Expenses

   
Three Months Ended June 30,
   
Increase
   
%
 
   
2012
   
2011
   
(Decrease)
   
Incr(Decr)
 
Lease Operating Expenses
  $ 929,755     $ 601,483     $ 328,272       55 %
Severance and Property Taxes
    93,179       59,775       33,404       56 %
Depreciation,
                               
    Depletion, and Amortization
    821,791       407,933       413,858       101 %
                                 
General and Administrative
  $ 1,350,472     $ 940,105     $ 410,367       44 %
Share-Based Compensation
    97,747       104,610       (6,863 )     -7 %
    Total General and Administrative Expense
  $ 1,448,219     $ 1,044,715     $ 403,504       39 %
                                 
Interest Expense
  $ 341,169     $ 3,487     $ 337,682       9684 %
                                 

Lease Operating Expenses

Lease operating expenses increased $0.3 million for the current quarter as compared to the prior year period principally due to higher work-over costs of $0.2 million as well as increased production costs of $0.1 million from expanded efforts during the current quarter to increase production volumes from existing wells.

 
 
18

 
Depreciation, Depletion, Amortization and Accretion (DD&A)
 
DD&A increased $0.4 million primarily due to an increase in production for the current quarter ended June 30, 2012 totaling 6,471 barrels of oil equivalent in excess of the prior year period.  The rate per Boe increased from $30.52 to $40.93.
 
General and Administrative Expenses
 
General and administrative expenses, including share-based compensation, increased $0.4 million for the current quarter as compared to the prior year’s quarter.  The increase is primarily due to higher employee-related costs of $0.2 million and higher legal and other professional fees of $0.1 million.

Interest Expense

During the three months ended June 30, 2012, we incurred interest expense of approximately $341,000 on the Nordic 1 note issued in connection with the property acquisition in late 2011.

LIQUIDITY AND CAPITAL RESOURCES
 
The primary sources of cash for Lucas during the three months ended June 30, 2012 were funds generated from sales of crude oil and natural gas production and proceeds from sale of shares of the Company's common stock. The primary uses of cash were funds used in operations and additions of oil and gas properties.
 
At June 30, 2012, our total current liabilities of $31.3 million exceeded our total current assets of $1.7 million due primarily to the $22.0 million non-recourse senior secured promissory note issued in connection with the Nordic 1 acquisition.  The Company intends to repay the note and the accrued interest on or before the note's maturity date using proceeds from one of or a combination of various sources, which may include the sale of its Eagle Ford and Eaglebine formation acreage, joint venture arrangements, sales of crude oil and natural gas production, exercise of warrants issued to investors in conjunction with the previously completed equity offerings, and entering into farm-out agreements and other arrangements with strategic partners, among other alternatives.  In the event that the Company is not successful in obtaining any funds from these sources, the Company might be forced to reduce its discretionary spending in workover of its existing wells, curtail drilling and other activities or be forced to sell some assets on an untimely or unfavorable basis, which could have a material adverse effect on our business, financial condition and results of operations.
 
Cash Flow

Net cash used in operating activities was $0.1 million for the three months ended June 30, 2012 as compared to net cash provided by operating activities of $0.2 million for the same period a year ago. The increase in net cash used in operating activities of $0.3 million was due primarily to an increase in cash operating expenses of $0.8 million, partially offset by an increase in crude oil sales of $0.5 million.

Net cash used in investing activities was $5.5 million for the three months ended March 31, 2012 as compared to net cash used in investing activities of $1.9 million for the same period a year ago.  The increase in net cash used in investing activities of $3.6 million is due primarily to a $1.5 million increase in additions of oil and gas properties and a $2.1 million unfavorable change in working capital components associated with investing activities.

Net cash provided by financing activities of $5.6 million was mainly related to the issuances of shares of our common stock for the three months ended June 30, 2012.  Net cash used in financing activities of $9,838 for the three months ended June 30, 2011 was solely due to the repayment of borrowings.

 
 
19

 
The only material debt that the Company has other than the accounts payable and accrued interest is the $22.0 million non-recourse senior secured promissory note issued in connection with the Nordic Oil USA I, LLLP (Nordic 1), acquisition.  In November 2011, Lucas entered into a purchase and sale agreement with Nordic 1, with an effective date of July 1, 2011, to purchase all of Nordic 1’s interests in certain oil, gas and mineral leases, rights and assets located in Gonzales, Karnes and Wilson Counties, Texas, which represent all of Nordic 1's interests in the existing two capital programs operated by Lucas (the “Nordic 1 Transaction”).  Lucas paid $22 million to Nordic 1 in the form of a non-recourse senior secured promissory note.  The note bears interest at 6% per annum and both the principal and interest are due and payable on or before November 17, 2012.  As of June 30, 2012, $23 million was outstanding under the note including interest accrued but not paid.
 
In April 2012, the Company closed its registered direct offering of $5.9 million (approximately $5.5 million net, after deducting commissions and other expenses) of securities to certain institutional investors. In total, the Company sold 2.95 million units at a price of $2 per unit. Each unit consists of one share of the Company's common stock and 0.35 of a warrant to purchase one share of the Company's common stock. Each warrant can be exercised to purchase one share of the Company's common stock at an exercise price of $2.30 per share and will become exercisable after six months from the closing date of the offering and for a period of five years thereafter. A total of 2,950,000 shares and 1,032,500 warrants were sold in connection with the offering.  The Company used the net proceeds received from the offering to pay down expenses related to drilling, lease operating, and workover activities and for general corporate purposes, including general and administrative expenses.
 
Moving forward, Lucas plans to continue to focus a substantial portion of its capital expenditures in various known prolific and productive geological formations, including the Austin Chalk, Eagle Ford and Buda formations, primarily in Gonzales, Wilson, Karnes and Atascosa Counties south of the City of San Antonio, Texas and in the Eaglebine formation in Leon and Madison Counties north of the City of Houston, Texas.  Lucas expects capital expenditures to be greater than cash flow from operating activities for the 2013 fiscal year.  To cover the anticipated shortfall, our business plan includes selling certain non-core assets, establishing a reserve-based line of credit, bank borrowings, and equity and debt offerings.
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act).  These forward-looking statements are generally located in the material set forth under the headings “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. 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;
 
 
 
20

 
·
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 our Annual Report on Form 10-K, 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; and
·
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.
 
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
       Market risk is the risk of loss arising from adverse changes in market rates and prices. We are exposed to risks related to increases in the prices of fuel and raw materials consumed in exploration, development and production. We do not engage in commodity price hedging activities.
 
ITEM 4.  CONTROLS AND PROCEDURES.
 
Disclosure 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. The Company’s management, including the Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2012.

 
 
21

 
Changes in Internal Control Over Financial Reporting
 
There have not been any changes in our internal control over financial reporting during the three months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS.
 
From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

ITEM 1A.  RISK FACTORS.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012 (2012 Annual Report), as filed with the SEC on June 29, 2012.  The information in such risk factors, in addition to the other information set forth in this quarterly report, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition or results of operations.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In July 2012, the holder of our Series B Convertible Preferred Stock converted 2,270 shares of such Series B Convertible Preferred Stock into 2,270,000 shares of our common stock.

We claim an exemption from registration afforded by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Act”), for the above conversion as the securities were exchanged by the Company with its existing security holder exclusively in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.


ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 6. EXHIBITS.

EXHIBIT INDEX

Exhibit No.
 
Description
 
       
*31.1
 
Section 302 Certification of Periodic Report of Principal Executive Officer.
 
       
*31.2
 
Section 302 Certification of Periodic Report of Principal Financial Officer.
 
       
*32.1
 
Section 906 Certification of Periodic Report of Principal Executive Officer.
 
       
*32.2
 
Section 906 Certification of Periodic Report of Principal Financial Officer.
 
 
 
 
22

 
       
* **101.INS
 
XBRL Instance Document.
 
 
* **101.SCH
 
XBRL Schema Document.
 
       
* **101.CAL
 
XBRL Calculation Linkbase Document.
 
       
***101.DEF   XBRL Definition Linkbase Document  
 
* **101.LAB
 
XBRL Label Linkbase Document.
 
       
* **101.PRE
 
XBRL Presentation Linkbase Document.
 
 
* Exhibits filed herewith

** Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language):  (i) the Condensed Consolidated Balance Sheets –June 30, 2012 and March 31, 2012, (ii) the Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2012 and 2011, (iii) the Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2012 and 2011; and (iv) Notes to Condensed Consolidated Financial Statements.  Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 

LUCAS ENERGY, INC.
(Registrant)


Date: August 14, 2012                                                                   
 
By:  /s/ K. ANDREW LAI
K. Andrew Lai
Chief Financial Officer
(Principal Financial Officer and
 Duly Authorized Officer)
 
 
 
 
 
 
23

 
 

 

EXHIBIT INDEX
 
 
 

Exhibit No.
 
Description
 
       
*31.1
 
Section 302 Certification of Periodic Report of Principal Executive Officer.
 
       
*31.2
 
Section 302 Certification of Periodic Report of Principal Financial Officer.
 
       
*32.1
 
Section 906 Certification of Periodic Report of Principal Executive Officer.
 
       
*32.2
 
Section 906 Certification of Periodic Report of Principal Financial Officer.
 
       
* **101.INS
 
XBRL Instance Document.
 
 
* **101.SCH
 
XBRL Schema Document.
 
       
* **101.CAL
 
XBRL Calculation Linkbase Document.
 
       
***101.DEF   XBRL Definition Linkbase Document  
 
* **101.LAB
 
XBRL Label Linkbase Document.
 
       
* **101.PRE
 
XBRL Presentation Linkbase Document.
 
 
* Exhibits filed herewith
 
** Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language):  (i) the Condensed Consolidated Balance Sheets –June 30, 2012 and March 31, 2012, (ii) the Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2012 and 2011, (iii) the Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2012 and 2011; and (iv) Notes to Condensed Consolidated Financial Statements.  Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
 
 
 
 

 
 
24