UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

LUCAS ENERGY, INC.

 (Name of Registrant as Specified In Its Charter)

 (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 450 Gears Road, Suite 860

Houston, Texas 77067

August 1, 2016

Dear Stockholder:

The Board of Directors and officers of Lucas Energy, Inc., a Nevada corporation, join us in extending to you a cordial invitation to attend a special meeting of our stockholders. This meeting will be held on August 23, 2016 at 9:00 a.m. Central Standard Time at River Oaks Executive Center, Highland Village Boardroom, 4265 San Felipe, Suite 1100, Houston, Texas 77027 (the “Special Meeting”).

In December 2015, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), as purchaser, with twenty-one separate sellers (the “Sellers”). Pursuant to the Asset Purchase Agreement and subject to the terms and conditions thereof, we agreed to acquire from the Sellers (the “Acquisition”), working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith as well as producing shale properties in Glasscock County, Texas (collectively, the “Assets”).

Because the shares of our common stock (the “Common Stock”), including the shares of Common Stock issuable upon conversion of shares of our amended and restated designated form of Series B redeemable convertible preferred stock (the “Series B Preferred Stock”), to be issued to finance the Acquisition, represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), Sections 712 and 713 of the NYSE MKT rules mandate stockholder approval to issue any such shares of Common Stock and/or Series B Preferred Stock to purchase the Assets, to be paid to International Bank of Commerce (“IBC”) as a fee to refinance the Sellers’ debt being assumed in the Acquisition and finance the cash portion of the Acquisition consideration. Accordingly, at the Special Meeting, stockholders will be asked to approve two proposals involving the prospective issuance of our Common Stock and/or Series B Preferred Stock in connection with the Acquisition, including: (1) the issuance of 13,009,664 shares of Common Stock to the Sellers, the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and the issuance of such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares issuable pursuant to the dividend provisions of the Series B Preferred Stock, exceeding 19.99% of our outstanding Common Stock, to acquire the Assets; and (2) the issuance of 390,290 shares of Common Stock to IBC as a fee to refinance the Sellers’ debt being assumed in the Acquisition and finance the cash portion of the Acquisition consideration.

In April 2016, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited institutional investor, pursuant to which we issued a $530,000 face amount redeemable convertible subordinated debenture at a 5% original issue discount convertible into 163,077 shares of Common Stock and a warrant to purchase 1,384,616 shares of Common Stock. In April 2016, we also entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with the same accredited institutional investor, pursuant to which we agreed, subject to certain conditions, to issue 527 shares of newly designated Series C redeemable convertible preferred stock (the “Series C Preferred Stock”) at a 5% original issue discount convertible into 1,618,462 shares of Common Stock, and a warrant to purchase 1,111,112 shares of Common Stock. Because the shares of our Common Stock issuable upon conversion of the convertible debenture (including shares issuable for interest and conversion premiums) and exercise of the warrant (including shares issuable for premiums and conversion premiums) issued pursuant to the Securities Purchase Agreement, and upon conversion of the Series C Preferred Stock (including shares issuable for dividends and conversion premiums) and exercise of the warrant (including shares issuable for premiums and conversion premiums) issuable pursuant to the Stock Purchase Agreement, collectively represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), Section 713 of the NYSE MKT rules mandate stockholder approval to issue any such shares of Common Stock. Accordingly, at the Special Meeting, stockholders will be asked to approve two proposals involving the prospective issuance of our Common Stock in connection with the Securities Purchase Agreement and Stock Purchase Agreement, including: (1) the issuance of such number of shares of Common Stock exceeding 19.99% of our outstanding Common Stock, issuable upon conversion of principal and interest under the $530,000 face amount redeemable convertible subordinated debenture, including shares issuable for conversion premiums thereon, and upon exercise of the warrant, including shares issuable for premiums and conversion premiums thereon, issued under the Securities Purchase Agreement, and ratification of the terms of such Securities Purchase Agreement and of the terms and issuance of such redeemable convertible subordinated debenture and such warrant; and (2) the issuance of such number of shares of Common Stock exceeding 19.99% of our outstanding Common Stock, issuable upon conversion of the 527 shares of newly designated Series C redeemable convertible preferred stock, including shares issuable for dividends and conversion premiums thereon, and upon exercise of the warrant, including shares issuable for premiums and conversion premiums thereon, to be issued under the Stock Purchase Agreement, and issuable upon conversion of up to an additional 4,473 shares of newly designated Series C redeemable convertible preferred stock, including shares issuable for dividends and conversion premiums thereon, that may be sold to the same investor on substantially the same terms within 90 days after stockholder approval, and ratification of the terms of such Stock Purchase Agreement and of the terms and issuance of such Series C redeemable convertible preferred stock and such warrant.

In August 2015, we entered into a Non-Revolving Line of Credit Agreement (as amended, the “Line of Credit”) with Silver Star Oil Company and have, to date, issued $1 million in convertible promissory notes under the Line of Credit. In March 2016, we entered into a Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”) with HFT Enterprises, LLC, pursuant to which we agreed to issue an aggregate of $600,000 in convertible promissory notes. We also agreed to issue HFT Enterprises warrants to purchase 124,285 shares of common stock at an exercise price of $1.50 per share, at such time as the aggregate of $600,000 in convertible promissory notes have been issued. In April 2016, we entered into an Assignment, Assumption and Amendment to Line of Credit and Notes Agreement (the “Line of Credit Amendment”) with Target Alliance London Limited, pursuant to which we agreed to issue the remaining $1.4 million in convertible promissory notes under the Line of Credit at a conversion price of $3.25 per share to Target Alliance London Limited and to issue warrants to purchase 51,562 shares of common stock at an exercise price of $3.25 per share for each $250,000 in convertible promissory notes that are issued to Target Alliance London Limited. Because the shares of our Common Stock issuable upon conversion of principal and interest under convertible promissory notes and upon exercise of warrants issued or to be issued in connection with the Line of Credit, the Note Purchase Agreement, the Line of Credit Amendment or similar facility, represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), Section 713 of the NYSE MKT rules mandate stockholder approval to issue any such shares of Common Stock. Accordingly, at the Special Meeting, stockholders will be asked to approve the issuance of such number of shares of Common Stock exceeding 19.99% of our outstanding Common Stock, issuable upon conversion of principal and interest under convertible promissory notes and upon exercise of warrants issued or to be issued in connection with the Line of Credit, the Note Purchase Agreement, the Line of Credit Amendment or, within 90 days after stockholder approval, similar future facilities on substantially the same or better terms, not to exceed $3.0 million in the aggregate principal amount of convertible promissory notes and not to exceed warrants to purchase 500,000 shares of common stock in the aggregate.

Our Board of Directors determined that it was advisable and in the best interests of the Company and our stockholders to enter into the Securities Purchase Agreement, the Stock Purchase Agreement, the Line of Credit, and the transactions related to the Line of Credit, in order to improve our ability to continue as a going concern and to raise the working capital necessary to execute on our business strategy, including but not limited to our plans to acquire, develop, and produce crude oil and natural gas from areas located in, or near, established oil fields that can provide long-term growth and sustainability for us. 

In addition, at the Special Meeting, stockholders will be asked to approve an amendment to our Articles of Incorporation to change our name to Camber Energy, Inc., to ratify the appointment of GBH CPAs, PC as our independent auditors for the fiscal year ending March 31, 2017 and to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting for a quorum or to approve any of the proposals.

Details regarding the business to be conducted are more fully described in the accompanying Notice of Special Meeting and Proxy Statement.

Whether or not you plan to attend the Special Meeting, it is important that your shares be represented and voted at the meeting. Therefore, you are urged to complete, sign, date and promptly return the enclosed proxy card in the enclosed postage-paid envelope. Returning your completed proxy card will ensure your representation at the Special Meeting. If you later decide to attend the Special Meeting and wish to change your vote, you may do so simply by voting in person at the meeting. Due to voting rules that may prevent your bank or broker from voting your uninstructed shares on a discretionary basis, it is very important that you cast your vote.

So that we may accommodate attendees, and if you plan to attend, we ask that you RSVP to info@lucasenergy.com. We look forward to seeing you on August 23, 2016. Your vote and participation in our governance is very important to us.

	Sincerely yours,
	Anthony C. Schnur
	Chief Executive Officer

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to Be Held on August 23, 2016:

Our proxy statement and the documents incorporated by reference therein are available at the following cookies-free website that can be accessed anonymously: https://www.iproxydirect.com/LEI.

 450 Gears Road, Suite 860 

Houston, Texas 77067

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 23, 2016

NOTICE IS HEREBY GIVEN that the Special Meeting of the Stockholders of Lucas Energy, Inc., a Nevada corporation (the “Company”), will be held on August 23, 2016 at 9:00 a.m. Central Standard Time at River Oaks Executive Center, Highland Village Boardroom, 4265 San Felipe, Suite 1100, Houston, Texas 77027 (the “Special Meeting” or the “Meeting”) for the purpose of considering and voting upon the following matters:

THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMEND THAT YOU VOTE “FOR” EACH OF PROPOSALS ONE THROUGH EIGHT.

Any action may be taken on any one of the foregoing proposals at the Special Meeting on the date specified above or on any date or dates to which the Special Meeting may be adjourned or postponed. Only common stockholders of record on the close of business on July 18, 2016 are entitled to notice of, and to vote at, the Special Meeting and any adjournments or postponements thereof. Our stock transfer books will remain open between the record date and the date of the meeting. A list of common stockholders entitled to vote at the Special Meeting will be available for inspection at our principal executive offices and at the Special Meeting.

Even if you plan to attend the Special Meeting in person, we request that you mark, sign, date and return the enclosed proxy card promptly in the postage-paid envelope enclosed for that purpose as soon as possible and thus ensure that your shares will be represented at the Special Meeting if you are unable to attend. Should you receive more than one proxy card because your shares are registered in different names and addresses, each proxy card should be signed and returned to assure that all your shares will be voted. Stockholders may have a choice of voting their shares over the Internet or by telephone or facsimile. If Internet, telephone or facsimile voting is available to you, voting instructions are printed on the proxy card(s) sent to you.

You may revoke your proxy at any time prior to the Special Meeting. If you attend the Special Meeting and vote by ballot, your proxy will be revoked automatically and only your vote at the Special Meeting will be counted. If your shares are held in the name of a bank, broker, or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record in order to be able to vote in person at the Special Meeting.

Please note: If you hold your shares in the name of a broker, bank or other nominee, your nominee may determine to vote your shares at its own discretion, absent instructions from you. However, due to voting rules that may prevent your bank or broker from voting your uninstructed shares on a discretionary basis for non-routine matters, it is very important that you cast your vote. Accordingly, please provide appropriate voting instructions to your broker or bank to ensure your vote will count.

The enclosed proxy statement is also available at https://www.iproxydirect.com/LEI. This website also includes copies of the form of proxy and the documents incorporated by reference in the enclosed proxy statement, including the Company’s Annual Report to stockholders for the year ended March 31, 2015. Stockholders may also request a copy of such materials by contacting our main office at (713) 528-1881.

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to Be Held on August 23, 2016:

Our proxy statement and the documents incorporated by reference therein are available at the following cookies-free website that can be accessed anonymously: https://www.iproxydirect.com/LEI.

By Order of the Board of Directors,
Anthony C. Schnur
Chief Executive Officer and Director
Houston,Texas
August 1, 2016

TABLE OF CONTENTS

PROXY STATEMENT

FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 23, 2016

General

The enclosed proxy is solicited on behalf of Lucas Energy, Inc., a Nevada corporation (“Lucas,” “we,” “us”, “our” or the “Company”), by our Board of Directors (the “Board”) for use at our Special Meeting of Stockholders (the “Special Meeting”) to be held on August 23, 2016 at 9:00 a.m. Central Standard Time at River Oaks Executive Center, Highland Village Boardroom, 4265 San Felipe, Suite 1100, Houston, Texas 77027, or at any adjournments or postponements thereof, for the purposes set forth in this proxy statement and in the accompanying notice. These proxy solicitation materials were first sent or given on or about August 1, 2016 to all stockholders entitled to vote at the Special Meeting.

Purpose of the Meeting

In December 2015, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), as purchaser, with twenty-one separate sellers (the “Sellers”). Pursuant to the Asset Purchase Agreement and subject to the terms and conditions thereof, we agreed to acquire from the Sellers (the “Acquisition”), working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith as well as producing shale properties in Glasscock County, Texas (collectively, the “Assets”).

Because the shares of our common stock (the “Common Stock”), including the shares of Common Stock issuable upon conversion of shares of our amended and restated designated form of Series B redeemable convertible preferred stock (the “Series B Preferred Stock”), to be issued to finance the Acquisition, represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), Sections 712 and 713 of the NYSE MKT rules mandate stockholder approval to issue any such shares of Common Stock and/or Series B Preferred Stock to purchase the Assets, to be paid to International Bank of Commerce (“IBC”) as a fee to refinance the Sellers’ debt being assumed in the Acquisition and finance the cash portion of the Acquisition consideration. Also in connection with the Acquisition, we are required to rebrand and change our name to Camber Energy, Inc. Proposals One, Two and Seven specifically authorize: (1) the issuance of 13,009,664 shares of Common Stock to the Sellers, the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and the issuance of such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares issuable pursuant to the dividend provisions of the Series B Preferred Stock, exceeding 19.99% of our outstanding Common Stock, to acquire the Assets; (2) the issuance of 390,290 shares of Common Stock to IBC as a fee to refinance the Sellers’ debt being assumed in the Acquisition and finance the cash portion of the Acquisition consideration; and (3) an amendment to our Articles of Incorporation to change our name to Camber Energy, Inc.

In April 2016, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited institutional investor, pursuant to which we issued a $530,000 face amount redeemable convertible subordinated debenture at a 5% original issue discount convertible into 163,077 shares of Common Stock and a warrant to purchase 1,384,616 shares of Common Stock. In April 2016, we also entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with the same accredited institutional investor, pursuant to which we agreed, subject to certain conditions, to issue 527 shares of newly designated Series C redeemable convertible preferred stock (the “Series C Preferred Stock”) at a 5% original issue discount convertible into 1,618,462 shares of Common Stock, and a warrant to purchase 1,111,112 shares of Common Stock. Because the shares of our Common Stock issuable upon conversion of the convertible debenture (including shares issuable for interest and conversion premiums) and exercise of the warrant (including shares issuable for premiums and conversion premiums) issued pursuant to the Securities Purchase Agreement, and upon conversion of the Series C Preferred Stock (including shares issuable for dividends and conversion premiums) and exercise of the warrant (including shares issuable for premiums and conversion premiums) issuable pursuant to the Stock Purchase Agreement, collectively represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), Section 713 of the NYSE MKT rules mandate stockholder approval to issue any such shares of Common Stock. Proposals Three and Four specifically authorize: (1) the issuance of such number of shares of Common Stock exceeding 19.99% of our outstanding Common Stock, issuable upon conversion of principal and interest under the $530,000 face amount redeemable convertible subordinated debenture, including shares issuable for conversion premiums thereon, and upon exercise of the warrant, including shares issuable for premiums and conversion premiums thereon, issued under the Securities Purchase Agreement, and ratification of the terms of such Securities Purchase Agreement and of the terms and issuance of such redeemable convertible subordinated debenture and such warrant; and (2) the issuance of such number of shares of Common Stock exceeding 19.99% of our outstanding Common Stock, issuable upon conversion of the 527 shares of newly designated Series C redeemable convertible preferred stock, including shares issuable for dividends and conversion premiums thereon, and upon exercise of the warrant, including shares issuable for premiums and conversion premiums thereon, to be issued under the Stock Purchase Agreement, and issuable upon conversion of up to an additional 4,473 shares of newly designated Series C redeemable convertible preferred stock, including shares issuable for dividends and conversion premiums thereon, that may be sold to the same investor on substantially the same terms within 90 days after stockholder approval, and ratification of the terms of such Stock Purchase Agreement and of the terms and issuance of such Series C redeemable convertible preferred stock and such warrant.

In August 2015, we entered into a Non-Revolving Line of Credit Agreement (as amended, the “Line of Credit”) with Silver Star Oil Company and have, to date, issued $1 million in convertible promissory notes under the Line of Credit. In March 2016, we entered into a Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”) with HFT Enterprises, LLC, pursuant to which we agreed to issue an aggregate of $600,000 in convertible promissory notes. We also agreed to issue HFT Enterprises warrants to purchase 124,285 shares of common stock at an exercise price of $1.50 per share, at such time as the aggregate of $600,000 in convertible promissory notes have been issued. In April 2016, we entered into an Assignment, Assumption and Amendment to Line of Credit and Notes Agreement (the “Line of Credit Amendment”) with Target Alliance London Limited, pursuant to which we agreed to issue the remaining $1.4 million in convertible promissory notes under the Line of Credit at a conversion price of $3.25 per share to Target Alliance London Limited and to issue warrants to purchase 51,562 shares of common stock at an exercise price of $3.25 per share for each $250,000 in convertible promissory notes that are issued to Target Alliance London Limited. Because the shares of our Common Stock issuable upon conversion of principal and interest under convertible promissory notes and upon exercise of warrants issued or to be issued in connection with the Line of Credit, the Note Purchase Agreement, the Line of Credit Amendment or similar facility, represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), Section 713 of the NYSE MKT rules mandate stockholder approval to issue any such shares of Common Stock. Proposal Five specifically authorizes the issuance of such number of shares of Common Stock exceeding 19.99% of our outstanding Common Stock, issuable upon conversion of principal and interest under convertible promissory notes and upon exercise of warrants issued or to be issued in connection with the Line of Credit, the Note Purchase Agreement, the Line of Credit Amendment or, within 90 days after stockholder approval, similar future facilities on substantially the same or better terms, not to exceed $3.0 million in the aggregate principal amount of convertible promissory notes and not to exceed warrants to purchase 500,000 shares of common stock in the aggregate.

If all of the proposals in this proxy statement are approved by our stockholders and all of the transactions described herein are consummated, the effect would be to increase our total outstanding shares of Common Stock from 1,739,397 to a range of between approximately 27,769,944 and 40,137,913 shares, depending on our stock price and the interest rate, dividend rate, premium, conversion premium and holding period of the Debenture, Series B Preferred Stock, Series C Preferred Stock, First Warrant, Second Warrant and convertible notes. Please see pages 51, 80, 85, 90 and 94 of this proxy statement for more detailed information, including the assumptions we have relied upon in estimating such potential number of outstanding shares of Common Stock that could result from the consummation of the transactions described in this proxy statement. 

The specific proposals to be considered and acted upon at the Special Meeting are summarized in the accompanying notice and are described in more detail in this proxy statement.

Record Date and Shares Entitled to Vote

You are entitled to notice of and to vote at the Special Meeting if you were a stockholder of record as of the close of business on July 18, 2016 (the “Record Date”). Each stockholder of record as of the Record Date is entitled to one vote for each share of Common Stock held by him, her or it on all matters presented at the Special Meeting. At the close of business on the Record Date, there were 1,739,397 shares of our Common Stock outstanding and eligible to vote at the Special Meeting. Other than our Common Stock we have no other voting securities currently outstanding. Our stockholders do not have dissenters’ rights or similar rights of appraisal with respect to the proposals described herein.

Voting Process

You may vote over the Internet, by telephone, by mail or in person at the Special Meeting. Please be aware that if you vote by telephone or over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible.

Voting over the Internet. You can vote via the Internet. The website address for Internet voting is provided on your proxy card. You will need to use the control number appearing on your proxy card to vote via the Internet. You can use the Internet to transmit your voting instructions up until 11:59 p.m. Eastern Time on August 22, 2016. Internet voting is available 24 hours a day. If you vote via the Internet, you do not need to vote by telephone or return a proxy card.

Voting by Telephone. You can vote by telephone by calling the toll-free telephone number provided on your proxy card. You will need to use the control number appearing on your proxy card to vote by telephone. You may transmit your voting instructions from any touch-tone telephone up until 11:59 p.m. Eastern Time on August 22, 2016. Telephone voting is available 24 hours a day. If you vote by telephone, you do not need to vote over the Internet or return a proxy card.

Voting by Facsimile. You can vote by faxing your proxy to the facsimile number provided on your proxy card.

Voting by Mail. If you received a printed proxy card, you can vote by marking, dating and signing it, and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Special Meeting.

Voting in Person at the Meeting. If you attend the Special Meeting and plan to vote in person, we will provide you with a ballot at the Special Meeting. If your shares are registered directly in your name, you are considered the stockholder of record and you have the right to vote in person at the Special Meeting. If your shares are held in the name of your broker or other nominee, you are considered the beneficial owner of shares held in street name. As a beneficial owner, if you wish to vote at the Special Meeting, you will need to bring to the Special Meeting a legal proxy from your broker or other nominee authorizing you to vote those shares.

Providing and Revoking Proxies

Any stockholder giving a proxy may revoke it at any time provided written notice of the revocation is received by our Corporate Secretary before the proxy is voted; otherwise, if received prior to or at the Special Meeting, properly executed proxies will be voted at the Special Meeting in accordance with the instructions specified on the proxy or, if no such instructions are given, in accordance with the recommendations of the Board of Directors (the “Board”) described herein. Stockholders attending the Special Meeting may revoke their proxies and vote in person.

Attendance at the Special Meeting

Attendance at the Special Meeting is limited to holders of record of our Common Stock at the close of business on the Record Date and the Company’s guests. Admission will be on a first-come, first-served basis. You will be asked to present valid government-issued picture identification, such as a driver’s license or passport, in order to be admitted into the Special Meeting. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Special Meeting, you must present proof of your ownership of our common stock or preferred stock, such as a bank or brokerage account statement indicating that you owned shares of our Common Stock or Preferred Stock at the close of business on the Record Date, in order to be admitted. For safety and security reasons, no cameras, recording equipment or other electronic devices will be permitted in the Special Meeting. A written agenda and rules of procedure for the Special Meeting will be distributed to those persons in attendance at the Special Meeting.

Conduct at the Meeting

The Chairman of the Special Meeting has broad responsibility and legal authority to conduct the Special Meeting in an orderly and timely manner. This authority includes establishing rules for stockholders who wish to address the Meeting. Only stockholders or their valid proxy holders may address the meeting. Copies of these rules will be available at the Meeting. The Chairman may also exercise broad discretion in recognizing stockholders who wish to speak and in determining the extent of discussion on each item of business. In light of the number of business items on this year’s agenda and the need to conclude the meeting within a reasonable period of time, we cannot ensure that every stockholder who wishes to speak on an item of business will be able to do so.

Quorum

The presence at the Special Meeting of the holders of at least 33% of the outstanding shares of voting stock entitled to vote at the Special Meeting (1,739,397 shares of common stock) is necessary to constitute a quorum. Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present.

Votes Required To Approve Each Proposal

Votes cast by proxy or in person at the Meeting will be tabulated by the inspector of election appointed for the Meeting and who will determine whether a quorum is present. The inspector of election will treat abstentions and broker non-votes (i.e., shares held by a broker or nominee that are represented at the Special Meeting, but with respect to which such broker or nominee is not instructed to vote on a particular proposal and does not have discretionary voting power) as shares that are present for purposes of determining the presence of a quorum. With respect to Proposals One through Five and Proposals Seven and Eight, abstentions and broker non-votes will not be counted for purposes of determining whether such proposal has been approved and will not have the effect of negative votes. With respect to Proposal Six, both abstentions and broker non-votes will be counted towards the tabulations of votes cast on such proposal presented to the stockholders and will have the same effect as negative votes.

If your shares are held by a bank or broker in street name, it is very important that you cast your vote if you want it to count in voting on non-routine matters as determined by the New York Stock Exchange. Voting rules may prevent your bank or broker from voting your uninstructed shares on a discretionary basis for non-routine matters. Accordingly, if your shares are held by a bank or broker in street name and you do not instruct your bank or broker how to vote for the proposals in this proxy statement, no votes will be cast on your behalf.

Board of Directors Voting Recommendations

Our Board recommends that you vote your shares:

Voting of Proxies

When a proxy is properly executed and returned, the shares it represents will be voted at the meeting as directed. If no specification is indicated, the shares will be voted:

Mailing Costs and Solicitation of Proxies

We have retained Issuer Direct Corporation, located at 500 Perimeter Park Drive, Morrisville, North Carolina 27560, to assist us with the solicitation of proxies for a fee, which we believe will be approximately $20,000 to $30,000, plus expenses.

We will bear the cost of this solicitation. In addition, we may reimburse brokerage firms and other persons representing beneficial owners of shares for reasonable expenses incurred in forwarding solicitation materials to such beneficial owners. Proxies also may be solicited by our directors, officers or employees, personally, by telephone, facsimile, Internet or other means, without additional compensation. Except as described above, we do not presently intend to solicit proxies other than by mail.

Inspector of Election

Representatives of Issuer Direct Corporation will tabulate the votes and act as inspector of election at the Special Meeting.

List of Stockholders Entitled to Vote

A complete list of stockholders entitled to vote at the Special Meeting will be available to view during the Special Meeting. You may also access this list at our principal executive offices, for any purpose germane to the Special Meeting, during ordinary business hours, for a period of ten days prior to the Special Meeting.

Voting Instructions

Your vote is very important. Whether or not you plan to attend the Special Meeting, we encourage you to read this proxy statement and submit your proxy or voting instructions as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on your enclosed proxy card.

Confidential Voting

Independent inspectors count the votes. Your individual vote is kept confidential from us unless special circumstances exist. For example, a copy of your proxy card will be sent to us if you write comments on the card.

Stockholder of Record and Shares Held in Brokerage Accounts

If on the Record Date your shares were registered in your name with the Company’s transfer agent, then you are a stockholder of record and you may vote in person at the meeting, by proxy or by any other means supported by the Company. If on the Record Date your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are required to be forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the Special Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

Multiple Stockholders Sharing the Same Address

In some cases, one copy of this proxy statement and the documents incorporated by reference herein are being delivered to multiple stockholders sharing an address, at the request of such stockholders. We will deliver promptly, upon written or oral request, a separate copy of this proxy statement and the documents incorporated by reference herein to such a stockholder at a shared address to which a single copy of the documents was delivered. Stockholders sharing an address may also submit requests for delivery of a single copy of this proxy statement and/or the documents incorporated by reference herein, but in such event will still receive separate forms of proxy for each account. To request separate or single delivery of these materials now or in the future, a stockholder may submit a written request to our Corporate Secretary, at our principal executive offices at 450 Gears Road, Suite 860, Houston, Texas 77067, or a stockholder may make a request by calling our Corporate Secretary at (713) 528-1881.

If you receive more than one proxy card, it means that your shares are registered differently and are held in more than one account. To ensure that all shares are voted, please either vote each account as discussed above under “Voting Instructions”, or sign and return by mail all proxy cards or voting instruction forms.

Voting Results

The preliminary voting results will be announced at the Special Meeting. The final voting results will be tallied by the inspector of election and published in the Company’s Current Report on Form 8-K, which the Company is required to file with the SEC within four business days following the Special Meeting.

Company Mailing Address

The mailing address of our principal executive offices is 450 Gears Road, Suite 860, Houston, Texas 77067.

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to Be Held on August 23, 2016:

Our proxy statement and the documents incorporated by reference therein are available at the following cookies-free website that can be accessed anonymously: https://www.iproxydirect.com/LEI.

SUMMARY TERM SHEET

The following summary term sheet provides information to help you understand the essential features and material terms of our proposed acquisition of working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith as well as producing shale properties in Glasscock County, Texas, pursuant to an Asset Purchase Agreement. The term sheet also contains cross-references to more detailed discussions elsewhere in the proxy statement, for your further information and review. Please refer to the Asset Purchase Agreement, which is attached as Annex A-1 to this proxy statement, and the form of First Amendment to Asset Purchase Agreement, which is attached as Annex A-2 to this proxy statement, for further details.

Information About the Parties and the Assets

We are an independent oil and natural gas company based in Houston, Texas with a field office in Gonzales, Texas. We are engaged in the acquisition and development of crude oil and natural gas from various known productive geological formations, including the Austin Chalk and Eagle Ford formations, primarily in Gonzales, Wilson and Karnes Counties, south of the city of San Antonio, Texas. All of our oil and gas interests and equipment existing as of December 16, 2015 are held by our wholly-owned Texas subsidiary, CATI Operating LLC. Our goal is to acquire, develop, and produce crude oil and natural gas from areas located in, or near, established oil fields that can provide long-term growth and sustainability for us.

You can find more information about us on page 53 of this proxy statement under the caption “The Parties to the Acquisition—Lucas Energy.”

The Sellers

The Sellers are a collection of 21 separate individuals and private entities:

Al Thaggard 

Alan Dreeben 

RAD2 Minerals, Ltd. 

Azar-Dreeben A&D Fund, LP 

Ben Azar 

Branch Energy Services, LLC 

Buschman Energy, Ltd. LTD

Coyle Manna Management LLC 

DBS Investments, Ltd. 

Dudley Energy, Ltd.

GBC Minerals, Ltd. 

Guy R. Buschman, Trustee 

John W. Taylor 

Julian Stewart 

Kristen B. Hicks, Trustee of the Kristen B. Hicks Portions B Trust 

Larry and Judy Votaw 

Azar, MPII & Range A&D Fund, LP 

Rockin’ S FLP, Ltd. 

Saxum Energy, LLC 

Scott Lake Energy, L.P. 

Segundo Resources, LLC

The Assets consist of working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith as well as producing shale properties in Glasscock County, Texas. The properties currently produce approximately 1,000 net barrels of oil equivalent per day (BOE/d), of which 53% are liquids from 114 producing wells. The bulk of the production is from the Hunton formation holding approximately 43,000 gross acres (9,900 net acres) in central Oklahoma. Additionally, further, offset development drilling opportunities for at least 40 additional wells have been identified.

You can find information about the Sellers’ Assets on page 53 of this proxy statement under the caption “The Parties to the Acquisition—The Sellers.”

Summary of Reasons for the Acquisition

The decision of our Board to enter into the Asset Purchase Agreement was based on a thorough analysis of the Company’s strengths and weaknesses. This analysis allowed our Board to identify several potential benefits to us and our stockholders that, if realized, could increase stockholder value. These reasons for the Acquisition include:

Subject to the rights, preferences and privileges of the Series B Preferred Stock, your rights as a stockholder will not change following the closing of the Acquisition. In addition, the Sellers and IBC who become new common stockholders of Lucas Energy will have the same rights as you do (except for the Seller receiving Series B Preferred Stock). Please refer to the section entitled “Effect upon Rights of Existing Stockholders” on page 51 of this proxy statement for more detailed information.

To fully understand the proposed Acquisition and the legal terms of the transactions, we urge you to read the Asset Purchase Agreement carefully. The entire text of the Asset Purchase Agreement is set forth as Annex A-1 to this proxy statement and the entire text of the form of First Amendment to Asset Purchase Agreement is set forth as Annex A-2 to this proxy statement.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement and the documents incorporated by reference in this proxy statement contain 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 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 could cause actual results to differ materially from those in the forward-looking statements which include, among others:

We identify forward-looking statements by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “hope,” “plan,” “believe,” “predict,” “envision,” “if,” “intend,” “would,” “probable,” “project,” “forecasts,” “outlook,” “aim,” “might,” “likely” “positioned,” “strategy,” “continue,” “potential,” “ensure,” “should,” “confident,” “could” and similar words and expressions, and the negative thereof, 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 beginning on page 17 of this proxy statement and elsewhere in, or incorporated by reference into, this proxy statement, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements, and the following factors:

Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference in this proxy statement. 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 proxy statement or after the date of any document incorporated by reference in this proxy statement, or to reflect the occurrence of unanticipated events.

You should read the matters described in “Risk Factors” below and disclosed in the documents incorporated by reference in this proxy statement and the other cautionary statements made in this proxy statement and in the documents incorporated by reference in this proxy statement as being applicable to all related forward-looking statements wherever they appear in this proxy statement and in the documents incorporated by reference in this proxy statement. We cannot assure you that the forward-looking statements in this proxy statement and in the documents incorporated by reference in this proxy statement will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.

RISK FACTORS

The risks and uncertainties described below are not the only ones that we face. Other sections of this proxy statement and the documents incorporated by reference herein include additional factors that could have an effect on our business and financial performance. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business and results of operations. If any of these risks actually occur, our business, financial condition or results of operations could be seriously harmed. In that event, the market price for our Common Stock could decline.

You should carefully consider the following risk factors before you decide whether to vote to approve the issuance of shares in connection with the Acquisition. You should also consider the other information in this proxy statement, the documents incorporated by reference in this proxy statement, the other documents appended to this proxy statement, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports filed on Form 8-K, and our other filings with the Securities and Exchange Commission. In addition, please read “Cautionary Note Regarding Forward-Looking Statements” in this proxy statement, where we describe additional uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this proxy statement.

Risks Relating to the Acquisition

In the event the Asset Purchase Agreement closes, it will cause immediate and substantial dilution to existing stockholders and will result in a change of control of the Company.

Pursuant to the Asset Purchase Agreement and in consideration for the Assets, we agreed to assume $31.35 million of commercial bank debt; issue 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, which are under common control with the Seller Representative, with a total liquidation value of $13.8 million; issue 13,009,664 shares of common stock to certain of the Sellers; and pay $4,975,000 in cash to certain of the Sellers. The Series B Preferred Stock will have a liquidation preference of $25 per share. The Series B Preferred Stock will be convertible into common stock at a rate of approximately 7.14:1 (issuable into an aggregate of 3,942,857 shares of common stock if fully converted), at the option of the holder thereof, and also will be subject to certain automatic conversion provisions. Each outstanding share of Series B Preferred Stock will be entitled to one vote per share on all stockholder matters. As such, in the event the contemplated Acquisition closes, the issuance of the common stock consideration and Series B Preferred Stock will result in immediate and substantial dilution to the interests of our then stockholders and result in a change of control of the Company.

Additionally, pursuant to the Asset Purchase Agreement, the Sellers will have the right to appoint three members to our Board of Directors, and it is anticipated that one of their director nominees will be Richard N. Azar II. Mr. Azar, the principal Seller and manager of the properties, is planned to be appointed as Executive Chairman following the closing. Mr. Azar is a founding partner of the Seller Representative, and for over 20 years has been instrumental in developing the Hunton resource play in Central Oklahoma through his direction of the Seller Representative, ownership in Altex Resources, Inc., and various other successful oil and gas ventures. Mr. Azar will also be receiving a significant amount of the shares of common stock issuable upon closing of the Acquisition and all of the Series B Preferred Stock issuable at closing, either personally or through entities which he controls. By the six month anniversary of the closing of the Asset Purchase Agreement, one of the three current members of our Board of Directors will be required to resign in order that we will have five members of our Board of Directors, including three appointed by the Sellers, on such date.

In the event the Asset Purchase Agreement closes, we will be required to assume significant amounts of debt and our operation and management of the Assets may not be able to generate sufficient cash flows to meet our debt service obligations, which could reduce our financial flexibility, increase interest expenses and adversely impact our operations.

As described above, one of the requirements of the closing of the Asset Purchase Agreement is that we assume $31.35 million of commercial bank debt. Our ability to make payments on such indebtedness will depend on our ability to generate cash from the Assets. The Assets may not generate sufficient cash flow from operations to enable us to repay this indebtedness and to fund other liquidity needs, including capital expenditure requirements. Such indebtedness could affect our operations in several ways, including the following:

The indebtedness to be incurred by us in connection with the Acquisition will bear interest at variable rates, and therefore if interest rates increase, our debt service requirements will increase. In such case, we may need to refinance or restructure all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness, including the assumed indebtedness, on commercially reasonable terms, or at all.

A high level of indebtedness increases the risk that we may default on our debt obligations. We may not be able to generate sufficient cash flows to pay the principal or interest on our debt. If we cannot service or refinance our indebtedness, we may have to take actions such as selling significant assets, seeking additional equity financing (which will result in additional dilution to stockholders) or reducing or delaying capital expenditures, any of which could have a material adverse effect on our operations and financial condition. If we do not have sufficient funds and are otherwise unable to arrange financing, our assets may be foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations.

The Asset Purchase Agreement limits our ability to pursue alternatives to the acquisition.

The Asset Purchase Agreement contains provisions that could adversely impact competing proposals to acquire us and for us to acquire properties. These provisions include the prohibition on us generally from soliciting any acquisition proposal or offer for a competing transaction. These provisions, might discourage a third party that might have an interest in acquiring all or a significant part of our company from considering or proposing an acquisition, even if that party were prepared to pay consideration with a higher value than the current proposed acquisition consideration.

Failure to complete the Acquisition could negatively impact our stock price and future business and financial results.

If the Acquisition is not completed, our ongoing business may be adversely affected and we would be subject to a number of risks, including the following:

We will be subject to business uncertainties and contractual restrictions while the Acquisition is pending.

Uncertainty about the effect of the Acquisition on employees and partners may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Acquisition is completed, and could cause partners and others that deal with us to seek to change existing business relationships, cease doing business with us or cause potential new partners to delay doing business with us until the Acquisition has been successfully completed. Retention of certain employees may be challenging during the pendency of the Acquisition, as certain employees may experience uncertainty about their future roles or compensation structure. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business following the Acquisition could be negatively impacted. In addition, the Asset Purchase Agreement restricts us from making certain acquisitions and taking other specified actions until the Acquisition is completed. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Acquisition.

The total number of shares to be issued by us as consideration to the Sellers in the Acquisition, and the resulting dilution that our current stockholders will experience because of it, will be significant.

Under the terms of the Asset Purchase Agreement, we have agreed to issue to the Sellers, in the aggregate, 13,009,664 shares of our Common Stock and 552,000 shares of Series B Preferred Stock at the closing of the Acquisition. Although following the Acquisition, shares held by our current stockholders will each represent a piece of a larger company, our issuance of the Acquisition Shares to the Sellers at closing will result in significant dilution to our current stockholders in terms of their ownership percentages. Immediately after the closing of the Acquisition, we estimate the outstanding shares held by our current stockholders will represent only 11.8% of our outstanding shares of Common Stock.

The newly issued shares of Series B Preferred Stock will be convertible into shares of Common Stock and, when and if converted, will result in additional dilution to our current stockholders.

Each share of Series B Preferred Stock will be convertible, at the option of the holder, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Original Issue Price for the Series B Preferred Stock ($25.00, as may be adjusted for recapitalizations) by the Conversion Price ($3.50, as may be adjusted for recapitalizations). Each share of Series B Preferred Stock will automatically convert into shares of Common Stock under certain conditions set forth in the Certificate of Designations of the Series B Preferred Stock. Assuming the conversion of all such shares as of the closing of the Acquisition, this would result in the issuance of approximately 3,942,857 shares of Common Stock, which is equivalent to approximately 21.1% of our Common Stock that will be outstanding as of immediately after the closing of the Acquisition.

Concentration of share ownership by our largest stockholders may prevent other stockholders from influencing significant corporate decisions.

If the Acquisition is completed, certain Sellers will own significant portions of our stock. For example, RAD2 Minerals, Ltd. and its affiliate will beneficially own approximately 37.0% of our outstanding shares of Common Stock, Coyle Manna Management LLC will beneficially own approximately 12.1% of our outstanding shares of Common Stock and, collectively, the Sellers will beneficially own approximately 90.7% of our outstanding shares of Common Stock. As a result, certain Sellers, and the persons and entities that control such Sellers, will have the ability to exert significant influence over matters requiring approval by our stockholders, including the election and removal of directors, and on the outcome of corporate actions, including a change of control of the Company, a business combination involving the Company, the incurrence of indebtedness, the issuance of equity securities and the payment of dividends on our stock. This concentration of ownership could be disadvantageous to other stockholders with differing interests from such persons.

The Sellers will have significant control over our Board of Directors following the Acquisition.

Following the Acquisition, the Sellers will have the right to appoint three members to our Board of Directors, and it is anticipated that one of their director nominees will be Richard N. Azar II. Upon such appointments, the Sellers will have significant control over our Board of Directors and the decisions made by our Board of Directors.

Servicing debt could limit funds available for other purposes.

Following the Acquisition, we will use cash from operations to pay the principal and interest on our consolidated debt. These payments limit funds available for other purposes, including expansion of our operations through acquisitions and funding future capital expenditures.

The Acquisition may go forward even if the Assets experience a material adverse change.

Although we have the right to not consummate the Acquisition if the Assets suffer certain material adverse changes in financial condition prior to the closing (subject to certain exceptions), we may elect to proceed with the Acquisition despite such a material adverse change, and can do so without approval of our stockholders. If the Assets suffer a material adverse change, but we still complete the Acquisition, neither we nor our stockholders will have the benefit, if any, of the condition waived.

Completion of the Acquisition is subject to a number of conditions and if these conditions are not satisfied or waived, the Acquisition will not be completed.

The Acquisition is subject to customary closing conditions, including (1) approval by our stockholders of the issuance of the shares of Common Stock and Series B Preferred Stock in connection with the Acquisition, (2) receipt by us of the $4.975 million required to be paid to the Sellers at closing, which we plan to raise from the Sellers’ debt holders from whom we are required to assume the $31.35 million in debt; (3) receipt of required regulatory approvals, (4) the absence of any law or order prohibiting the consummation of the Acquisition, and (5) approval of the NYSE MKT of the continued listing of our Common Stock on the NYSE MKT prior to and following the closing. Each party’s obligation to complete the Acquisition is also subject to certain additional customary conditions, including (a) subject to certain exceptions, the accuracy of the representations and warranties of the other parties, and (b) performance in all material respects by the other parties of its obligations under the Asset Purchase Agreement. Failure to fulfill any of such closing conditions could prevent us from completing the Acquisition and have a material adverse effect on the Company.

The Asset Purchase Agreement also includes customary termination provisions for both the Company and the Sellers and, if the Asset Purchase Agreement is terminated prior to closing, such termination could have a material adverse effect on the Company.

The Asset Purchase Agreement includes customary termination provisions for both us and the Sellers, which include, subject to the terms of the Asset Purchase Agreement and in certain circumstances rights to cure or other prerequisites, that the Asset Purchase Agreement can be terminated by us, if (i) any issues arise in connection with our due diligence on the Assets which in aggregate would constitute a material adverse effect on such Assets (as described in the Asset Purchase Agreement) and such issues cannot be reasonably cured by the parties; (ii) our stockholders fail to approve the issuance of the Acquisition Shares at a meeting called for such purpose; (iii) we fail to obtain all required consents; (iv) we fail to raise the cash necessary to acquire the Assets; (v) the Sellers fail to provide all required closing deliverables; or (vi) the Sellers breach any representation or warranty in the Asset Purchase Agreement, subject to the right to cure. The termination rights of the Sellers include a termination by the Sellers if (i) any issues arise in connection with the Seller’s due diligence of us which in aggregate would constitute a material adverse effect (as described in the Asset Purchase Agreement) and such issues cannot be reasonably cured by the parties; (ii) we have more than 1.8 million shares of Common Stock outstanding at closing, or the Sellers would own less than 80% of each class of our outstanding shares, on a fully-diluted basis, at closing; (iii) our stockholders fail to approve the items required to be approved for closing; (iv) we fail to maintain our listing on the NYSE MKT prior to and following closing; (v) we fail to assume the $31.35 million in debt required to be assumed at closing; (vi) we fail to provide all required closing deliverables; (vii) we breach any representation or warranty in the Asset Purchase Agreement, subject to the right to cure; or (viii) our Board withdraws its recommendation for the stockholders to approve the issuance of the Acquisition Shares because we have been presented with a superior acquisition proposal. The Asset Purchase Agreement can also be terminated by either party with five days prior written notice if the Acquisition has not been completed by September 30, 2016, provided that such failure is not the result of the breach of the agreement by the terminating party. As a result of the above, the Asset Purchase Agreement may be terminated by us or the Sellers prior to closing.

Termination of the Asset Purchase Agreement could negatively impact us.

In the event the Asset Purchase Agreement is terminated, our business may have been adversely impacted by our failure to pursue other beneficial opportunities due to the focus of management on the Acquisition, and the market price of our common stock might decline to the extent that the current market price reflects a market assumption that the Acquisition will be completed. If the Asset Purchase Agreement is terminated and our Board of Directors seeks another acquisition or business combination, our stockholders cannot be certain that we will be able to find a party willing to offer equivalent or more attractive consideration than the consideration provided for by the acquisition.

Misrepresentations made to us by the Sellers regarding the Assets could cause us to incur substantial financial obligations and harm our business.

If we were to discover that there were misrepresentations made to us by the Sellers or their representatives regarding the Assets, we would explore all possible legal remedies to compensate us for any loss, including our rights to indemnification under the Asset Purchase Agreement. However, there is no assurance that legal remedies would be available or collectible. If such unknown liabilities exist and we are not fully indemnified for any loss that we incur as a result thereof, we could incur substantial financial obligations, which could materially adversely affect our financial condition and harm our business.

If we are not able to integrate the Assets into our operations in a timely manner, the anticipated benefits of the Acquisition may not be realized in a timely fashion, or at all, and our existing businesses may be materially adversely affected.

The success of the Acquisition will depend, in part, on our ability to realize the growth opportunities and synergies of combining the Assets with ours and our ability to effectively utilize the additional resources we will have following the Acquisition. The integration of the Assets may involve unforeseen difficulties. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses, which could have a material adverse effect on our business, financial condition and operating results.

The Acquisition will result in significant costs to us, whether or not it is completed, which could result in a reduction in our income and cash flows.

We will be required to pay our costs related to the Acquisition even if the Acquisition is not completed, such as amounts payable to legal and financial advisors and independent accountants, and such costs will be significant. All of these costs will be incurred whether or not the Acquisition is completed.

Because the valuation of the Assets is based in part on certain financial projections about future results, and projections are subject to inherent risks and uncertainties, the Sellers may receive Acquisition consideration that is greater than the fair market value of the Assets.

The Sellers provided financial projections to us in connection with the determination of the consideration to be paid for the Assets, and we, our Board and our financial advisor relied in part on the Sellers’ projections for purposes of valuing the Assets and agreeing on the purchase price set forth in the Asset Purchase Agreement. Our valuation is not necessarily indicative of the actual value of the Assets. Accordingly, if actual financial results in the future are lower than the projections we relied upon, the Acquisition consideration may be greater than the fair market value of the Assets.

The financial projections we relied upon may not be accurate and may not be met in the future because the projections reflect numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond the Sellers’ and our control. As a result, actual results may differ materially from these projections. It is expected that there will be differences between actual and projected results because the projections cover multiple years and such information by its nature becomes less reliable with each successive year.

If the benefits of the Acquisition do not meet the expectations of the marketplace, or financial or industry analysts, the market price of our Common Stock may decline.

The market price of our Common Stock may decline as a result of the Acquisition if the Assets do not perform as expected, or we do not otherwise achieve the perceived benefits of the Acquisition as rapidly as, or to the extent, anticipated by the marketplace, or financial or industry analysts. Accordingly, investors may experience a loss as a result of a decreasing stock price and we may not be able to raise future capital, if necessary, in the equity markets.

Transaction-related accounting impairment and amortization charges may delay and reduce our profitability.

Under generally accepted accounting principles, the Assets and assumed liabilities of the Sellers will be recorded on our books post-Acquisition at their fair values at the date the Acquisition is completed. Any excess of the value of the consideration paid by us at the date the Acquisition is completed over the fair value of the identifiable tangible and intangible assets of the Sellers will be treated as excess of purchase price over the fair value of net assets acquired. Under current accounting standards, to the extent applicable, intangible assets, other than goodwill, will be amortized to expense over their estimated useful lives, which will affect our post-Acquisition profitability over several years beginning in the period in which the Acquisition is completed. The Assets will be tested at a minimum on an annual basis for impairment, which may result in additional accounting impairment charges.

Any weakness in internal control over financial reporting or disclosure controls and procedures could result in a loss of investor confidence in our financial reports and lead to a stock price decline.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and report the results in our annual report on Form 10-K. We are also required to maintain effective disclosure controls and procedures. After the Acquisition, our internal controls and our disclosure controls and procedures will need to expand to encompass activities related to the Assets. If material weaknesses arise as a result and they are not remedied, we will be unable to assert that our internal controls are effective. Any failure to have effective internal control over financial reporting or disclosure controls and procedures covering the combined business post-Acquisition could cause investors to lose confidence in the accuracy and completeness of our financial reports, limit our ability to raise financing or lead to regulatory sanctions, any of which could result in a material adverse effect on our business or decline in the market price of our Common Stock post-Acquisition.

The loss of key executives could adversely affect our operations up to and following the closing of the Acquisition.

The success of the Acquisition will be dependent upon the continued service of a relatively small group of our key executives. Following the closing of the Acquisition, we expect that our existing executives will remain with us and Mr. Azar, the principal Seller, is planned to be appointed as Executive Chairman of our Board. The unexpected loss of the services of one or more of these executives or members of our Board could adversely affect our ability to manage the business going forward and to manage our operations following the closing of the Acquisition.

Risks Relating to Our Operations and Industry

We require financing to execute our business plan and fund capital program requirements.

Our anticipated cash flow from operations, possible proceeds from sales of properties and funding provided by leveraging our capital structure, may not be sufficient to meet our working capital and operating needs for approximately the next twelve months. Additionally, in order to continue growth and to fund our business and expansion plans, we will require additional financing. Moving forward, we hope to pursue third party capital in the form of debt (subordinated to IBC), equity or some combination of the two for certain funding requirements. We may be unsuccessful in obtaining additional financing on attractive terms, if at all. We currently require approximately $2.0 million of additional funding within the next few months related to the closing and finance costs associated with the transactions contemplated by and requirements set forth in the Asset Purchase Agreement, Stock Purchase Agreement and Securities Purchase Agreement, and additional funding of approximately $0.5 million for additional drilling and workover activities on existing properties.

Due to our need for immediate funding, in the event we do not receive the full amount of the proceeds expected under the Securities Purchase Agreement and Stock Purchase Agreement entered into in April 2016 due to the failure to satisfy any of the conditions to receive such proceeds, we may be forced to raise capital through the sale of debt (subordinated to IBC) or equity in the near term. In order to issue additional securities, we must, subject to certain exceptions, obtain the consent of the investor in our April 2016 financing. If we are unable to obtain the consent of this investor in connection with future financings, we may be unable to raise additional capital on acceptable terms, or at all. If external financing sources are not available in a timely manner or at all, or are inadequate to fund our operations, it could materially harm our financial condition and results of operation. Additionally, we may not have the time or resources available to seek stockholder approval (if required pursuant to applicable NYSE MKT rules and requirements) for such transactions which may result in the issuance of more than 20% of our outstanding common stock. As such, we may instead rely on an exemption from the NYSE MKT stockholder approval rules which allows an NYSE MKT listed company an exemption from such rules when a delay in securing stockholder approval would seriously jeopardize the financial viability of the company. Consequently, our stockholders may not be offered the ability to approve transactions we may undertake in the future, including those transactions which would ordinarily require stockholder approval under applicable NYSE MKT rules and regulations, and/or those transactions which would result in substantial dilution to existing stockholders.

We require significant additional financing to continue as a going concern and pay outstanding liabilities and our lack of available funding raises questions regarding our ability to continue as a going concern.

Due to the nature of oil and gas interests, i.e., that rates of production generally decline over time as oil and gas reserves are depleted, if we are unable to drill additional wells and develop our proved undeveloped reserves (PUDs), either because we are unable to raise sufficient funding for such development activities, or otherwise, or in the event we are unable to acquire additional operating properties; we believe that our revenues will continue to decline over time. Furthermore, in the event we are unable to raise additional funding in the future, we will not be able to participate with Earthstone Energy, Inc. in the drilling of planned additional wells, will not be able to complete other drilling and/or workover activities, and may not be able to make required payments on our outstanding liabilities, including amounts owed on the Letter Loan Agreement with Louise H. Rogers (as amended and modified to date, the “Rogers Loan”). Therefore, in the event we do not raise additional funding in the future we will be forced to scale back our business plan, sell or liquidate assets to satisfy outstanding debts and/or take other steps which may include seeking bankruptcy protection.

These conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The financial statements incorporated by reference herein also include a going concern footnote from our auditors.

Additionally, due to our need for immediate funding, in the event we do not receive the full amount of the proceeds expected under the Securities Purchase Agreement and Stock Purchase Agreement entered into in April 2016 due to the failure to satisfy any of the conditions to receive such proceeds, we may be forced to raise capital through the sale of debt (subordinated to IBC) or equity in the near term. In order to issue additional securities, we must, subject to certain exceptions, obtain the consent of the investor in our April 2016 financing. If we are unable to obtain the consent of this investor in connection with future financings, we may be unable to raise additional capital on acceptable terms, or at all. If external financing sources are not available in a timely manner or at all, or are inadequate to fund our operations, it could materially harm our financial condition and results of operation. We may not have the time or resources available to seek stockholder approval (if required pursuant to applicable NYSE MKT rules and requirements) for such transactions which may result in the issuance of more than 20% of our outstanding common stock. As such, we may instead rely on an exemption from the NYSE MKT stockholder approval rules which allows an NYSE MKT listed company an exemption from such rules when a delay in securing stockholder approval would seriously jeopardize the financial viability of the company. Consequently, our stockholders may not be offered the ability to approve transactions we may undertake in the future, including those transactions which would ordinarily require stockholder approval under applicable NYSE MKT rules and regulations, and/or those transactions which would result in substantial dilution to existing stockholders.

In the event we are unable to raise funding in the future or complete a business combination or similar transaction in the near term, we will not be able to pay our liabilities. In the event we are unable to raise adequate funding in the future for our operations and to pay our outstanding debt obligations or in the event we fail to enter into a business combination or similar transaction, we would be forced to liquidate our assets (or our creditors may undertake a foreclosure of such assets in order to satisfy amounts we owe to such creditors) or may be forced to seek bankruptcy protection, which could result in the value of our outstanding securities declining in value or becoming worthless.

We are subject to production declines and loss of revenue due to shut-in wells.

The majority of our production revenues come from a small number of producing wells. In the event those wells are required to be shut-in (as they were for various periods in the past), our production and revenue could be adversely effected. Our wells are shut-in from time-to-time for maintenance, workovers, upgrades and other matters outside of our control, including repairs, adverse weather (including hurricanes, flooding and tropical storms), inability to dispose of produced water or other regulatory and market conditions. Any significant period where our wells, and especially our top producing wells, are shut-in, would have a material adverse effect on our results of production, revenues and net income or loss for the applicable period.

Many of our leases are in areas that have been partially depleted or drained by offset wells.

Many of our leases are in areas that have been partially depleted or drained by offset drilling. Interference from offset drilling may inhibit our ability to find or recover commercial quantities of oil and/or may result in an acceleration in the decline in production of our wells, which may in turn have an adverse effect on our recovered barrels of oil and consequently our results of operations.

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 oil and natural gas 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 oil and natural gas fluctuate widely in response to a variety of factors beyond our control, such as:

Further, oil and natural gas prices do not necessarily fluctuate in direct relation to each other. Our revenue, profitability, and cash flow depend upon the prices of supply and demand for oil and natural gas, and a drop in prices can significantly affect our financial results and impede our growth. In particular, declines in commodity prices may:

We may have difficulty managing growth in our business, which could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business plan in a timely fashion.

Because of our small size, growth in accordance with our business plans, if achieved, will place a significant strain on our financial, technical, operational and management resources. If we expand our activities, development and production, and increase the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the inability to recruit and retain experienced managers, geoscientists, petroleum engineers and landmen could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business plan in a timely fashion.

We face intense competition.

We are in direct competition for properties with numerous oil and natural gas companies, drilling and income programs and partnerships exploring various areas of Texas and will face competition for properties in Oklahoma in the event the Acquisition closes. Many competitors are large, well-known 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 a viable marketplace exists for smaller producers of natural gas and crude oil.

Our competitors may use superior technology and data resources that we may be unable to afford or that would require a costly investment by us in order to compete with them more effectively.

Our industry is subject to rapid and significant advancements in technology, including the introduction of new products and services using new technologies and databases. As our competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. In addition, many of our competitors will have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. One or more of the technologies that we will use or that we may implement in the future may become obsolete, and we may be adversely affected.

Our wholly-owned subsidiary currently owes significant funds under an outstanding promissory note, the repayment of which is secured by a first priority security interest in substantially all of our subsidiary’s assets.

Effective on August 13, 2013, we entered into the Rogers Loan, as described in greater detail under “Note 6 – Notes Payable” to our consolidated financial statements included in “Part II – Item 8. Financial Statements and Supplementary Data”, in our Annual Report on Form 10-K filed July 13, 2016, which is incorporated herein by reference. The maturity date of the Rogers Loan is currently October 31, 2016. We have also (i) transferred all of our oil and gas interests and equipment existing as of December 16, 2015 (the “CATI Properties”) to our wholly-owned Texas subsidiary, CATI; (ii) clarified that following the transfer, Louise H. Rogers (“Rogers”) has no right to foreclose upon us (at the Nevada corporate parent level) upon the occurrence of an event of default under the Rogers Loan, and that instead Rogers can only take action against CATI and the CATI Properties; and (iii) required Rogers to release all UCC and other security filings on us (provided that Rogers is allowed to file the same filings on CATI and its assets). Finally, we have entered into an Assignment, Novation, and Assumption Agreement (the “Assignment Agreement”). Pursuant to the Assignment Agreement, we assigned our obligations under the Rogers Loan and related loan documents, to CATI, as if CATI had originally been a party thereto, CATI agreed to assume such obligations and to take whatever actions requested by Rogers in order for Rogers to secure the amounts owed under the Rogers Note, and Rogers agreed to release us (at the parent company level) from any obligations under the Rogers Loan and related loan documents, other than under the amendment above. Notwithstanding the above, we do not have sufficient funds to repay the Rogers Loan. In the event of the default in the payment when due of the amounts owed under the Rogers Loan, as amended, Rogers may seek to secure her interest pursuant to the aforementioned security rights in CATI and the CATI Properties. If CATI is in default of the Rogers Loan, Rogers can take certain actions under the Rogers Loan, including demanding immediate repayment of all amounts outstanding or initiating foreclosure proceedings against CATI and the CATI Properties. As the Rogers Loan is secured by substantially all of the CATI Properties, Rogers (or where applicable, her agent) can foreclose on the CATI Properties which would cause us to significantly curtail or cease operations. Because our ownership interest in CATI currently constitutes significantly all of our assets, a foreclosure on the CATI Properties could cause the value of our securities to decline or become worthless. Additionally, as a result of the above, CATI may be forced to seek bankruptcy protection.

The future occurrence or continuance of an event of default under the Rogers Loan or the acceleration of amounts owed thereunder could have a material adverse effect on us and our financial condition.

The Rogers Loan and note issued in connection therewith include standard and customary events of default. Upon the occurrence of an event of default, Rogers may declare the entire unpaid balance (as well as any interest, fees and expenses) immediately due and payable. Funding to repay such amounts, if required by Rogers, may not be available timely, on favorable terms, if at all, and if Rogers were to require immediate repayment of the amounts owed, it would likely have a material adverse effect on our results of operations, financial condition and the value of our common stock.

We may not timely receive funds under the April 2016 Securities Purchase Agreement and Stock Purchase Agreement and/or may not receive such funds at all.

Pursuant to our April 2016 Securities Purchase Agreement and Stock Purchase Agreement, we may not receive up to $14.5 million in proceeds if the Acquisition does not close, stockholder approval of Proposals Three and Four in this proxy statement is not obtained, certain equity conditions are not met, or there is not an effective registration statement covering the common stock underlying the securities issued or to be issued to the Investor. In the event that we do not timely receive funds under the April 2016 Securities Purchase Agreement and Stock Purchase Agreement, and/or we do not receive such funds at all, it will have a material adverse effect on our ability to satisfy our liabilities and could force us to curtail our operations or seek bankruptcy protection, which could result in the value of our securities declining in value or becoming worthless.

We have various outstanding Convertible Promissory Notes which are convertible into shares of our common stock at a discount to our current market price.

Through the Record Date we have issued or agreed to issue $3,000,000 in Convertible Promissory Notes. The Convertible Promissory Notes are due and payable on various dates between October 1, 2016 and April 26, 2017. The Convertible Promissory Notes accrue interest at the rate of 6% per annum (15% upon the occurrence of an event of default), and allow the holders thereof the right to convert the principal and interest due thereunder into our common stock at a conversion price of $1.50 per share or $3.25 per share, as applicable, provided that any conversion is subject to us first receiving approval for the issuance of shares of our common stock under the Convertible Promissory Notes under applicable NYSE MKT rules and regulations (“NYSE Approval”). Each conversion is also subject to a per holder 9.99% ownership limitation upon conversion. We have the right to prepay the Convertible Promissory Notes. The Convertible Promissory Notes include customary events of default for facilities of similar nature and size. Upon the conversion of the Convertible Promissory Notes (which are each limited to 19.9% of our outstanding shares of Common Stock on the date each transaction was entered into, prior to shareholder approval for such issuances), the notes will be convertible into a significant number of shares of our common stock at $1.50 per share or $3.25 per share, as applicable, which is a discount to the trading price of our common stock as of the Record Date. As a result, any conversion of the Convertible Promissory Notes and sale of shares of common stock issuable in connection with the conversion thereof will likely cause the value of our common stock, if any, to decline in value, as described in greater detail under the Risk Factors below.

The issuance and sale of common stock upon conversion of the Convertible Promissory Notes, the Debenture and, if the proposals in this proxy statement are approved by stockholders, the other convertible securities to be issued, may depress the market price of our common stock.

If there are sequential conversions of the Convertible Promissory Notes, the Debenture and, if the proposals in this proxy statement are approved by stockholders, the other convertible securities to be issued, and sales of such converted shares take place, the price of our common stock may decline. The shares of common stock issuable upon conversion of these securities may be sold without restriction after the applicable holding period under Rule 144 has elapsed. In addition, we have agreed to file resale registration statements for the shares of common stock issuable upon conversion of the Debenture and related warrant, Series C Preferred Stock and related warrant, and certain of the Convertible Promissory Notes and related warrants subject to certain conditions, which will make those shares freely tradable when the registration statements become effective. As a result, the sale of these shares may adversely affect the market price of our common stock.

In addition, the common stock issuable upon conversion of these convertible securities may represent overhang that may also adversely affect the market price of our common stock. Overhang occurs when there is a greater supply of a company’s stock in the market than there is demand for that stock. When this happens the price of the company’s stock will decrease, and any additional shares which shareholders attempt to sell in the market will only further decrease the share price. The Convertible Promissory Notes are currently convertible into shares of our common stock at a discount to the current market price of our common stock as described above, and such discount to market provides the holders with the ability to sell their common stock at or below market and still make a profit. In the event of such overhang, the note holders will have an incentive to sell their common stock as quickly as possible. If the share volume of our common stock cannot absorb the discounted shares, then the value of our common stock will likely decrease.

The issuance of common stock upon conversion of the Convertible Notes and other convertible securities will cause immediate and substantial dilution.

The issuance of common stock upon conversion of the Convertible Notes and other convertible securities will result in immediate and substantial dilution to the interests of other stockholders.

Restrictions on drilling activities intended to protect certain species of wildlife may adversely affect our ability to conduct drilling activities in some of the areas where we operate.

Oil and natural gas operations in our operating areas can be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife. Seasonal restrictions may limit our ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs. Permanent restrictions imposed to protect endangered species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures. Specifically, applicable laws protecting endangered species prohibit the harming of endangered or threatened species, provide for habitat protection, and impose stringent penalties for noncompliance. The designation of previously unprotected species as threatened or endangered in areas where we operate could cause us to incur increased costs arising from species protection measures or could result in limitations, delays, or prohibitions on our exploration and production activities that could have an adverse impact on our ability to develop and produce our reserves.

The derivatives legislation adopted by Congress, and implementation of that legislation by federal agencies, could have an adverse impact on our ability to hedge risks associated with our business.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Dodd-Frank Act, which, among other things, sets forth the new framework for regulating certain derivative products including the commodity hedges of the type that we may elect to use, but many aspects of this law are subject to further rulemaking and will take effect over several years. As a result, it is difficult to anticipate the overall impact of the Dodd-Frank Act on our ability or willingness to enter into and maintain such commodity hedges and the terms of such hedges. There is a possibility that the Dodd-Frank Act could have a substantial and adverse impact on our ability to enter into and maintain these commodity hedges. In particular, the Dodd-Frank Act could result in the implementation of position limits and additional regulatory requirements on derivative arrangements, which could include new margin, reporting and clearing requirements. In addition, this legislation could have a substantial impact on our counterparties and may increase the cost of our derivative arrangements in the future. If these types of commodity hedges become unavailable or uneconomic, our commodity price risk could increase, which would increase the volatility of revenues and may decrease the amount of credit available to us. Any limitations or changes in our use of derivative arrangements could also materially affect our future ability to conduct acquisitions.

If we do not hedge our exposure to reductions in oil and natural gas prices, we may be subject to significant reductions in prices. Alternatively, we may use oil and natural gas price hedging contracts, which involve credit risk and may limit future revenues from price increases and result in significant fluctuations in our profitability.

In the event that we choose not to hedge our exposure to reductions in oil and natural gas prices by purchasing futures and by using other hedging strategies, we may be subject to significant reduction in prices which could have a material negative impact on our profitability. Alternatively, we may elect to use hedging transactions with respect to a portion of our oil and natural gas production to achieve more predictable cash flow and to reduce our exposure to price fluctuations. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.

Our operations are substantially dependent on the availability of water. Restrictions on our ability to obtain water may have an adverse effect on our financial condition, results of operations and cash flows.

Water is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing, or fracking processes. Our operations in West Texas and future operations in other areas could be adversely impacted if we are unable to locate sufficient amounts of water, or dispose of or recycle water used in our exploration and production operations. Currently, the quantity of water required in certain completion operations, such as hydraulic fracturing, and changing regulations governing usage may lead to water constraints and supply concerns (particularly in some parts of the country). As a result, future availability of water from certain sources used in the past may be limited. Moreover, the imposition of new environmental initiatives and conditions could include restrictions on our ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and natural gas. The federal Clean Water Act, or CWA and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants, including produced waters and other oil and natural gas waste, into navigable waters or other regulated federal and state waters. Permits or other approvals must be obtained to discharge pollutants to regulated waters and to conduct construction activities in such waters and wetlands. Uncertainty regarding regulatory jurisdiction over wetlands and other regulated waters has, and will continue to, complicate and increase the cost of obtaining such permits or other approvals. The CWA and analogous state laws provide for civil, criminal and administrative penalties for any unauthorized discharges of pollutants and unauthorized discharges of reportable quantities of oil and other hazardous substances. Many state discharge regulations, and the Federal National Pollutant Discharge Elimination System General permits issued by the EPA, prohibit the discharge of produced water and sand, drilling fluids, drill cuttings and certain other substances related to the oil and natural gas industry into coastal waters. While generally exempt under federal programs, many state agencies have also adopted regulations requiring certain oil and natural gas exploration and production facilities to obtain permits for storm water discharges. In October 2011, the EPA announced its intention to develop federal pretreatment standards for wastewater discharges associated with hydraulic fracturing activities. If adopted, the pretreatment rules will require coalbed methane and shale gas operations to pretreat wastewater before transferring it to treatment facilities Some states have banned the treatment of fracturing wastewater at publicly owned treatment facilities. There has been recent nationwide concern over earthquakes associated with Class II underground injection control wells, a predominant storage method for crude oil and gas wastewater. It is likely that new rules and regulations will be developed to address these concerns, possibly eliminating access to Class II wells in certain locations, and increasing the cost of disposal in others. Finally, the EPA study noted above has focused and will continue to focus on various stages of water use in hydraulic fracturing operations. It is possible that, following the conclusion of the EPA’s study, the agency will move to more strictly regulate the use of water in hydraulic fracturing operations. While we cannot predict the impact that these changes may have on our business at this time, they may be material to our business, financial condition, and operations. Compliance with environmental regulations and permit requirements governing the withdrawal, storage and use of surface water or groundwater necessary for hydraulic fracturing of wells or the disposal or recycling of water will increase our operating costs and may cause delays, interruptions or termination of our operations, the extent of which cannot be predicted. In addition, our inability to meet our water supply needs to conduct our completion operations may impact our business, and any such future laws and regulations could negatively affect our financial condition, results of operations and cash flows.

If we acquire crude oil and natural gas properties in the future, our failure to fully identify existing and potential problems, to accurately estimate reserves, production rates or costs, or to effectively integrate the acquired properties into our operations could materially and adversely affect our business, financial condition and results of operations.

From time to time, we seek to acquire crude oil and natural gas properties. Although we perform reviews of properties to be acquired in a manner that we believe is duly diligent and consistent with industry practices, reviews of records and properties may not necessarily reveal existing or potential problems, and may not permit us to become sufficiently familiar with the properties in order to fully assess their deficiencies and potential. Even when problems with a property are identified, we may assume environmental and other risks and liabilities in connection with acquired properties pursuant to the acquisition agreements. Moreover, there are numerous uncertainties inherent in estimating quantities of crude oil and natural gas reserves (as discussed further below), actual future production rates and associated costs with respect to acquired properties. Actual reserves, production rates and costs may vary substantially from those assumed in our estimates. We may be unable to locate or make suitable acquisitions on acceptable terms and future acquisitions may not be effectively and profitably integrated. Acquisitions involve risks that could divert management resources and/or result in the possible loss of key employees and customers of the acquired operations. For the reasons above, among others, an acquisition may have a material and adverse effect on our business and results of operations, particularly during the periods in which the operations of the acquired properties are being integrated into our ongoing operations or if we are unable to effectively integrate the acquired properties into our ongoing operations.

If we make any acquisitions or enter into any business combinations in the future, they may disrupt or have a negative impact on our business.

If we make acquisitions or enter into any business combinations in the future, funding permitting, we could have difficulty integrating the acquired companies’ assets, personnel and operations with our own. Additionally, acquisitions, mergers or business combinations we may enter into in the future could result in a change of control of the Company, and a change in the Board of Directors or officers of the Company. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in making an acquisition or completing a business combination, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions and business combinations are accompanied by a number of inherent risks, including, without limitation, the following:

Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with an acquisition or business combination, many of which cannot be presently identified. These risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.

Any acquisition or business combination transaction we enter into in the future could cause substantial dilution to existing stockholders, result in one party having majority or significant control over the Company or result in a change in business focus of the Company.

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

We depend to a significant degree upon the involvement of our management, specifically, our Chief Executive Officer and director, Anthony C. Schnur, who is in charge of our strategic planning and operations. Our performance and success are dependent to a large extent on the efforts and continued employment of Mr. Schnur. We do not believe that Mr. Schnur could be quickly replaced with personnel of equal experience and capabilities, and his successor(s) may not be as effective. If Mr. Schnur or any of our other key personnel resign or become unable to continue in their present roles and if they are not adequately replaced, our business operations could be adversely affected.

We have an active Board of Directors that meets several times throughout the year and is intimately involved in our business and the determination of our operational strategies. Members of our Board of Directors work closely with management to identify potential prospects, acquisitions and areas for further development. If any of our directors resign or become unable to continue in their present role, it may be difficult to find replacements with the same knowledge and experience and as a result, our operations may be adversely affected.

Certain of our undeveloped leasehold assets are subject to leases that will expire over the next several years unless production is established on units containing the acreage.

Leases on natural gas and oil properties typically have a term of three to five years, after which they expire unless, prior to expiration, a well is drilled and production of hydrocarbons in paying quantities is established. If our leases expire and we are unable to renew the leases, we will lose our right to develop the related properties. Although we seek to actively manage our undeveloped properties, our drilling plans for these areas are subject to change based upon various factors, including drilling results, natural gas and oil prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints and regulatory approvals.

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, our operations may 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. The implementation of new, or the modification of existing, laws or regulations could have a material adverse effect on us.

Future increases in our tax obligations; either due to increases in taxes on energy products, energy service companies and exploration activities or reductions in currently available federal income tax deductions with respect to oil and natural gas exploration and development, may adversely affect our results of operations and increase our operating expenses.

Federal, state and local governments have jurisdiction in areas where we operate and impose taxes on the oil and natural gas products we sell. There are constant discussions by federal, state and local officials concerning a variety of energy tax proposals, some of which, if passed, would add or increase taxes on energy products, service companies and exploration activities. Additionally, the current administration has proposed legislation which would make significant changes to federal tax laws, including the elimination of certain key United States federal income tax incentives currently available to oil and natural gas exploration and production companies. These proposed changes include, but are not limited to: (1) the repeal of the percentage depletion allowance for oil and natural gas properties, (2) the elimination of current deductions for intangible drilling and development costs, (3) the elimination of the deduction for certain domestic production activities, and (4) an extension of the amortization period for certain geological and geophysical expenditures. It is unclear whether any such changes will be enacted into law or how soon any such changes could become effective in the event they were enacted into law. The passage of any legislation as a result of these proposals or any other changes in U.S. federal income tax laws could impact or increase the taxes that we are required to pay and consequently adversely affect our results of operations and/or increase our operating expenses.

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 report in our filings with the SEC now and in the future 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 therefrom 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.

Additionally, “probable” and “possible reserve estimates” are considered unproved reserves and as such, the SEC views such estimates to be inherently unreliable, may be misunderstood or seen as misleading to investors that are not “experts” in the oil or natural gas industry. Unless you have such expertise, you should not place undue reliance on these estimates. Except as required by applicable law, we undertake no duty to update this information and do not intend to update this information.

The calculated present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of our estimated oil and natural gas reserves.

You should not assume that the present value of future net cash flows as included in our public filings is the current market value of our estimated proved oil and natural gas reserves. We generally base the estimated discounted future net cash flows from proved reserves on current costs held constant over time without escalation and on commodity prices using an unweighted arithmetic average of first-day-of-the-month index prices, appropriately adjusted, for the 12-month period immediately preceding the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs used for these estimates and will be affected by factors such as:

In addition, the 10% discount factor that is required to be used to calculate discounted future net revenues for reporting purposes under GAAP is not necessarily the most appropriate discount factor based on the cost of capital in effect from time to time and risks associated with our business and the oil and natural gas industry in general.

Crude oil and natural gas development, re-completion of wells from one reservoir to another reservoir, restoring wells to production and exploration, 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. Even considering our business philosophy to avoid wildcat wells, 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 exploration, 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. Furthermore, we cannot provide investors with any assurance that we will be able to obtain rights to additional producing properties in the future and/or that any properties we obtain rights to will contain commercially exploitable quantities of oil and/or gas.

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 natural 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. Our overall drilling success rate and/or our drilling success rate for activities within a particular geographic area may decline in the future. 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; 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.

These projects may not be successfully developed and the wells discussed, if drilled, may not 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. If we are unable to find commercially exploitable quantities of oil and natural gas in any properties we may acquire in the future, and/or we are unable to commercially extract such quantities we may find in any properties we may acquire in the future, the value of our securities may decline in value.

Recent commodity price declines have resulted in impairment of our oil and gas properties, and future natural gas and oil price declines may result in additional write-downs of the carrying amount of our assets, which could materially and adversely affect our results of operations.

The value of our assets depends on prices of natural gas and oil. Declines in these prices as well as increases in development costs, changes in well performance, delays in asset development or deterioration of drilling results may result in our having to make material downward adjustments to our estimated proved reserves, and could result in an impairment charge and a corresponding write-down of the carrying amount of our oil and natural gas properties. For example, in March 2016, we recorded an impairment of approximately $21.4 million associated with oil and gas properties in certain non-core fields in south Texas. The impairment of these fields was due to a significant decline in commodity prices during the 2016 fiscal year.

We evaluate our oil and gas properties for impairment using the full cost method 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. In the event that commodity prices decline further, there could be a significant revision in the future.

Because of the inherent dangers involved in oil and gas exploration, there is a risk that we may incur liability or damages as we conduct our business operations, which could force us to expend a substantial amount of money in connection with litigation and/or a settlement.

The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, we may be liable for environmental damages caused by previous owners of property purchased and leased by us in the future. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for the purchase of properties and/or property interests, exploration, development or acquisitions or result in the loss of our properties and/or force us to expend substantial monies in connection with litigation or settlements. As such, our current insurance or the insurance that we obtain in the future may not be adequate to cover any losses or liabilities. We cannot predict the availability of insurance or the availability of insurance at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition and operations. We may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations, which could lead to any investment in us declining in value or becoming worthless.

Unless we replace our oil and natural gas reserves, our reserves and production will decline, which would adversely affect our business, financial condition and results of operations.

The rate of production from our oil and natural gas properties will decline as our reserves are depleted. Our future oil and natural gas reserves and production and, therefore, our income and cash flow, are highly dependent on our success in (a) efficiently developing and exploiting our current reserves on properties owned by us or by other persons or entities and (b) economically finding or acquiring additional oil and natural gas properties. In the future, we may have difficulty acquiring new properties. During periods of low oil and/or natural gas prices, it will become more difficult to raise the capital necessary to finance expansion activities. If we are unable to replace our production, our reserves will decrease, and our business, financial condition and results of operations would be adversely affected.

The unavailability or high cost of drilling rigs, completion equipment and services, supplies and personnel, including hydraulic fracturing equipment and personnel, could adversely affect our ability to establish and execute exploration and development plans within budget and on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.

Shortages or the high cost of drilling rigs, completion equipment and services, supplies or personnel could delay or adversely affect our operations. When drilling activity in the United States increases, associated costs typically also increase, including those costs related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. These costs may increase, and necessary equipment and services may become unavailable to us at economical prices. Should this increase in costs occur, we may delay drilling activities, which may limit our ability to establish and replace reserves, or we may incur these higher costs, which may negatively affect our business, financial condition and results of operations.

We incur certain costs to comply with government regulations, particularly regulations relating to environmental protection and safety, and could incur even greater costs in the future.

Our exploration, production and marketing operations are regulated extensively at the federal, state and local levels and are subject to interruption or termination by governmental and regulatory authorities based on environmental or other considerations. Moreover, we have incurred and will continue to incur costs in our efforts to comply with the requirements of environmental, safety and other regulations. Further, the regulatory environment in the oil and natural gas industry could change in ways that we cannot predict and that might substantially increase our costs of compliance and, in turn, materially and adversely affect our business, results of operations and financial condition.

Specifically, as an owner or lessee and operator of crude oil and natural gas properties, we are subject to various federal, state, local and foreign regulations relating to the discharge of materials into, and the protection of, the environment. These regulations may, among other things, impose liability on us for the cost of pollution cleanup resulting from operations, subject us to liability for pollution damages and require suspension or cessation of operations in affected areas. Moreover, we are subject to the United States (U.S.) Environmental Protection Agency’s (U.S. EPA) rule requiring annual reporting of greenhouse gas (GHG) emissions. Changes in, or additions to, these regulations could lead to increased operating and compliance costs and, in turn, materially and adversely affect our business, results of operations and financial condition.

We are aware of the increasing focus of local, state, national and international regulatory bodies on GHG emissions and climate change issues. In addition to the U.S. EPA’s rule requiring annual reporting of GHG emissions, we are also aware of legislation proposed by U.S. lawmakers to reduce GHG emissions.

Additionally, there have been various proposals to regulate hydraulic fracturing at the federal level, including possible regulations limiting the ability to dispose of produced waters. Currently, the regulation of hydraulic fracturing is primarily conducted at the state level through permitting and other compliance requirements. Any new federal regulations that may be imposed on hydraulic fracturing could result in additional permitting and disclosure requirements (such as the reporting and public disclosure of the chemical additives used in the fracturing process) and in additional operating restrictions. In addition to the possible federal regulation of hydraulic fracturing, some states and local governments have considered imposing various conditions and restrictions on drilling and completion operations, including requirements regarding casing and cementing of wells, testing of nearby water wells, restrictions on the access to and usage of water and restrictions on the type of chemical additives that may be used in hydraulic fracturing operations. Such federal and state permitting and disclosure requirements and operating restrictions and conditions could lead to operational delays and increased operating and compliance costs and, moreover, could delay or effectively prevent the development of crude oil and natural gas from formations which would not be economically viable without the use of hydraulic fracturing.

We will continue to monitor and assess any new policies, legislation, regulations and treaties in the areas where we operate to determine the impact on our operations and take appropriate actions, where necessary. We are unable to predict the timing, scope and effect of any currently proposed or future laws, regulations or treaties, but the direct and indirect costs of such laws, regulations and treaties (if enacted) could materially and adversely affect our business, results of operations and financial condition.

Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

Hydraulic fracturing is a common practice that is used to stimulate production of hydrocarbons from tight formations. The process involves the injection of water, sand and chemicals under pressure into rock formations to fracture the surrounding rock and stimulate production. There has been increasing public controversy regarding hydraulic fracturing with regard to the transportation and use of fracturing fluids, impacts on drinking water supplies, use of waters, and the potential for impacts to surface water, groundwater, air quality and the environment generally. A number of lawsuits and enforcement actions have been initiated implicating hydraulic fracturing practices. Additional legislation or regulation could make it more difficult to perform hydraulic fracturing, cause operational delays, increase our operating costs or make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings. New legislation or regulations in the future could have the effect of prohibiting the use of hydraulic fracturing, which would prevent us from completing our wells as planned and would have a material adverse effect on production from our wells. If these legislative and regulatory initiatives cause a material delay or decrease in our drilling or hydraulic fracturing activities, our business and profitability could be materially impacted.

Possible regulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and gas.

Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere. In response to these studies, governments have begun adopting domestic and international climate change regulations that require reporting and reductions of the emission of greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a by-product of the burning of oil, natural gas and refined petroleum products, are considered greenhouse gases. In the United States, at the state level, many states, either individually or through multi-state regional initiatives, have begun implementing legal measures to reduce emissions of greenhouse gases, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs or have begun considering adopting greenhouse gas regulatory programs. At the federal level, Congress has considered legislation that could establish a cap and trade system for restricting greenhouse gas emissions in the United States. The ultimate outcome of this federal legislative initiative remains uncertain. In addition to pending climate legislation, the EPA has issued greenhouse gas monitoring and reporting regulations. Beyond measuring and reporting, the EPA issued an “Endangerment Finding” under section 202(a) of the Clean Air Act, concluding that greenhouse gas pollution threatens the public health and welfare of current and future generations. The finding served as a first step to issuing regulations that require permits for and reductions in greenhouse gas emissions for certain facilities. Moreover, the EPA has begun regulating greenhouse gas emission from certain facilities pursuant to the Prevention of Significant Deterioration and Title V provisions of the Clean Air Act. In the courts, several decisions have been issued that may increase the risk of claims being filed by government entities and private parties against companies that have significant greenhouse gas emissions. Such cases may seek to challenge air emissions permits that greenhouse gas emitters apply for and seek to force emitters to reduce their emissions or seek damages for alleged climate change impacts to the environment, people, and property. Any existing or future laws or regulations that restrict or reduce emissions of greenhouse gases could require us to incur increased operating and compliance costs. In addition, such laws and regulations may adversely affect demand for the fossil fuels we produce, including by increasing the cost of combusting fossil fuels and by creating incentives for the use of alternative fuels and energy.

The lack of availability or high cost of drilling rigs, equipment, supplies, insurance, personnel and oilfield services could adversely affect our ability to execute our exploration and development plans on a timely basis and within our budget.

Our industry is cyclical and, from time to time, there is a shortage of drilling rigs, equipment, supplies or qualified personnel. During these periods, the costs and delivery times of rigs, equipment and supplies tend to increase, in some cases substantially. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases within a geographic area. If increasing levels of exploration and production result in response to strong prices of oil and natural gas, the demand for oilfield services will likely rise, and the costs of these services will likely increase, while the quality of these services may suffer. The future lack of availability or high cost of drilling rigs, as well as any future lack of availability or high costs of other equipment, supplies, insurance or qualified personnel, in the areas in which we operate could materially and adversely affect our business and results of operations.

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 stockholders 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 stockholders’ ability to hold officers and directors liable for breaches of fiduciary duty, and may require us to indemnify our officers and directors.

We currently have outstanding indebtedness and we may incur additional indebtedness which could reduce our financial flexibility, increase interest expense and adversely impact our operations and our unit costs.

We currently have outstanding indebtedness and in the future, we may incur significant amounts of additional indebtedness in order to make acquisitions or to develop our properties (including, but not limited to, in connection with the Acquisition). Our level of indebtedness could affect our operations in several ways, including the following:

A high level of indebtedness increases the risk that we may default on our debt obligations. We may not be able to generate sufficient cash flows to pay the principal or interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. If we do not have sufficient funds and are otherwise unable to arrange financing, we may have to sell significant assets or have a portion of our assets foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations.

Our CATI Properties are located in the Austin Chalk and Eagle Ford trends, making us vulnerable to risks associated with operating in one major geographic area.

Our CATI Properties are located in the Austin Chalk and Eagle Ford trends south, and southeast of San Antonio, Texas. As a result, we may be disproportionately exposed to the impact of delays or interruptions of production from wells caused by transportation capacity constraints, curtailment of production, availability of equipment, facilities, personnel or services, significant governmental regulation, natural disasters, adverse weather conditions, or interruption of transportation of oil or natural gas produced from the wells in this area. In addition, the effect of fluctuations on supply and demand may become more pronounced within specific geographic oil and gas producing areas such as the ones we operate in, which may cause these conditions to occur with greater frequency or magnify the effect of these conditions. Due to the concentrated nature of our portfolio of CATI Properties, a number of our CATI Properties could experience any of the same conditions at the same time, resulting in a relatively greater impact on our results of operations than they might have on other companies that have a more diversified portfolio of properties. Such delays or interruptions could have a material adverse effect on our financial condition and results of operations.

Servicing our debt requires a significant amount of cash, which we may not have available when payments are due.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, will depend upon our future operating performance, which is subject to general economic and competitive conditions and to financial, business and other factors, many of which we cannot control. In the future, we may incur additional indebtedness in order to make future acquisitions or to develop our properties, including under our current liabilities. If we do not have sufficient funds on hand to pay our debt, we may be required to seek a waiver or amendment from our lenders, refinance our indebtedness, sell assets or sell additional securities. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time. We may not be able obtain such financing or complete such transactions on terms acceptable to us, or at all. In addition, we may not be able to consummate an asset sale to raise capital or sell assets at prices that we believe are fair, and proceeds that we do receive may not be adequate to meet any debt service obligations then due. Our failure to generate sufficient funds to pay our debts or to undertake any of these actions successfully could result in a default on our debt obligations, which would materially adversely affect our business, results of operations and financial condition.

Future acquired properties may not be worth what we pay due to uncertainties in evaluating recoverable reserves and other expected benefits, as well as potential liabilities.

Successful property acquisitions require an assessment of a number of factors beyond our control. These factors include estimates of recoverable reserves, exploration potential, future natural gas and oil prices, operating costs, production taxes and potential environmental and other liabilities. These assessments are complex and inherently imprecise. Our review of the properties we acquire may not reveal all existing or potential problems. In addition, our review may not allow us to fully assess the potential deficiencies of the properties. We do not inspect every well, and even when we inspect a well we may not discover structural, subsurface, or environmental problems that may exist or arise. There may be threatened or contemplated claims against the assets or businesses we acquire related to environmental, title, regulatory, tax, contract, litigation or other matters of which we are unaware, which could materially and adversely affect our production, revenues and results of operations. We may not be entitled to contractual indemnification for pre-closing liabilities, including environmental liabilities, and our contractual indemnification may not be effective. At times, we acquire interests in properties on an “as is” basis with limited representations and warranties and limited remedies for breaches of such representations and warranties. In addition, significant acquisitions can change the nature of our operations and business if the acquired properties have substantially different operating and geological characteristics or are in different geographic locations than our existing properties.

We have limited control over activities in properties we do not operate, which could reduce our production and revenues, affect the timing and amounts of capital requirements and potentially result in a dilution of our respective ownership interest in the event we are unable to make any required capital contributions.

We do not operate all of the properties in which we have an interest. As a result, we may have a limited ability to exercise influence over normal operating procedures, expenditures or future development of underlying properties and their associated costs. For all of the properties that are operated by others, we are dependent on their decision-making with respect to day-to-day operations over which we have little control. The failure of an operator of wells in which we have an interest to adequately perform operations, or an operator’s breach of applicable agreements, could reduce production and revenues we receive from that well. The success and timing of our drilling and development activities on properties operated by others depend upon a number of factors outside of our control, including the timing and amount of capital expenditures, the available expertise and financial resources, the inclusion of other participants and the use of technology. Since we do not own the majority interest in many of the wells we do not operate, we may not be in a position to remove the operator in the event of poor performance.

The employment agreement of our Chief Executive Officer includes certain provisions which may prevent or delay a change of control.

Effective November 1, 2012, we entered into an Employment Agreement with Anthony C. Schnur, our Chief Executive Officer and Interim Chief Financial Officer, which agreement was amended and restated effective December 12, 2012. The agreement had a term of two years, expiring on October 31, 2014, provided that the agreement is automatically extended for additional one year terms, unless either party provides notice of their intent not to renew within the 30 day period prior to any automatic renewal date and because neither party has provided notice, the agreement has been automatically extended until October 31, 2016. The Company agreed to pay Mr. Schnur a base annual salary of $310,000 during the term of the agreement, of which $290,000 is payable in cash and $20,000 is payable in shares of the Company’s common stock. In the event the agreement is terminated by the Company for a reason other than cause (as described in the agreement) or by Mr. Schnur for good reason (as described in the agreement), Mr. Schnur is due in the form of a lump sum payment, the product of the base salary and bonus he was paid under the agreement for the prior 12 month period, provided that if such termination occurs six months before or 24 months following the occurrence of a Change of Control (as described in the agreement), Mr. Schnur is due 200% of the amount described above upon such termination. The requirement to pay severance fees under the Employment Agreement may prevent or delay a change of control of the Company.

Risks Relating To Our Outstanding Securities

If we are unable to maintain compliance with NYSE MKT continued listing standards, our common stock may be delisted from the NYSE MKT equities market, which would likely cause the liquidity and market price of our common stock to decline.

Our common stock currently is listed on the NYSE MKT. The NYSE MKT will consider suspending dealings in, or delisting, securities of an issuer that does not meet its continued listing standards. If we cannot meet the NYSE MKT continued listing requirements, the NYSE MKT may delist our common stock, which could have an adverse impact on us and the liquidity and market price of our stock.

We may be unable to comply with NYSE MKT continued listing standards. Our business has been and may continue to be affected by worldwide macroeconomic factors, which include uncertainties in the credit and capital markets. External factors that affect our stock price, such as liquidity requirements of our investors, as well as our performance, could impact our market capitalization, revenue and operating results, which, in turn, could affect our ability to comply with the NYSE MKT’s listing standards. The NYSE MKT has the ability to suspend trading in our common stock or remove our common stock from listing on the NYSE MKT if in the opinion of the exchange: (a) the financial condition and/or operating results of the Company appear to be unsatisfactory; or (b) it appears that the extent of public distribution or the aggregate market value of our common stock has become so reduced as to make further dealings on the exchange inadvisable; or (c) we have sold or otherwise disposed of our principal operating assets, or have ceased to be an operating company; or (d) we have failed to comply with our listing agreements with the exchange; or (e) any other event shall occur or any condition shall exist which makes further dealings on the exchange unwarranted.

If we are unable to maintain compliance with the NYSE MKT criteria for continued listing, our common stock would be subject to delisting. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock and reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing. In addition, delisting from the NYSE MKT might negatively impact our reputation and, as a consequence, our business. Additionally, if we were delisted from the NYSE MKT and are not able to list our common stock on another national exchange we will no longer be eligible to use Form S-3 registration statements and will instead be required to file a Form S-1 registration statement for any primary or secondary offerings of our common stock, which would delay our ability to raise funds in the future, may limit the type of offerings of common stock we could undertake, and would increase the expenses of any offering, as, among other things, registration statements on Form S-1 are subject to SEC review and comments whereas take downs pursuant to a previously filed Form S-3 are not.

If we are delisted from the NYSE MKT, your ability to sell your shares of our common stock would also be limited by the penny stock restrictions, which could further limit the marketability of your shares.

If our common stock is delisted from the NYSE MKT, it would come within the definition of “penny stock” as defined in the Exchange Act and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of stockholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.

We do not intend to pay cash dividends to our stockholders.

We currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our Board of Directors. As a result, only appreciation of the price of our common stock, which may not occur, will provide a return to our stockholders.

We currently have an illiquid and volatile market for our common stock, and the market for our common stock is and may remain illiquid and volatile in the future.

We currently have a highly sporadic, illiquid and volatile market for our common stock, which market is anticipated to remain sporadic, illiquid and volatile in the future. Factors that could affect our stock price or result in fluctuations in the market price or trading volume of our common stock include:

Our common stock is listed on the NYSE MKT under the symbol “LEI.” Our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Additionally, general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. Due to the limited volume of our shares which trade, we believe that our stock prices (bid, ask and closing prices) may not be related to our actual value, and not reflect the actual value of our common stock. You should exercise caution before making an investment in us.

Additionally, as a result of the illiquidity of our common stock, investors may not be interested in owning our common stock because of the inability to acquire or sell a substantial block of our common stock at one time. Such illiquidity could have an adverse effect on the market price of our common stock. In addition, a stockholder may not be able to borrow funds using our common stock as collateral because lenders may be unwilling to accept the pledge of securities having such a limited market. An active trading market for our common stock may not develop or, if one develops, may not be sustained.

A prolonged decline in the market price of our common stock could affect our ability to obtain additional financing which would adversely affect our operations.

Historically, we have relied on equity and debt financing as primary sources of financing. A prolonged decline in the market price of our common stock or a reduction in our accessibility to the global markets may result in our inability to secure additional financing which would have an adverse effect on our operations.

If the holders of our outstanding convertible securities and warrants sell a large number of shares all at once or in blocks after converting such convertible securities and exercising such warrants, or the holders of our registered shares sell a large number of shares, the trading value of our shares could decline in value.

As of the Record Date, we have Series B Warrants outstanding to purchase an aggregate of 100,422 shares of common stock which have an exercise price of $71.50 per share; outstanding warrants to purchase 41,300 shares of common stock sold in April 2012, which have an exercise price of $57.50 per share; outstanding warrants to purchase 13,000 shares of our common stock at an exercise price of $37.50 per share, which were issued in connection with our April and May 2013 loan agreements; outstanding warrants to purchase 11,195 shares of our common stock at an exercise price of $0.01 per share, which were issued in connection with our August 2013 Rogers Loan; outstanding warrants to purchase 66,668 shares of our common stock at a current exercise price of $9.75 per share, which were issued in connection with our April 2014 offering; outstanding convertible promissory notes convertible into 966,667 shares of our common stock at $1.50 per share; an outstanding Debenture convertible into 163,077 shares of our common stock at a conversion price of $3.25 per share; and outstanding warrants to purchase 1,384,616 shares of our common stock at an exercise price of $3.25 per share, which were issued in connection with the sale of the Debenture. The trading price of our common stock has fluctuated significantly during the last 52 weeks.

We have 1,739,397 shares of common stock issued and outstanding as of the Record Date and, if Proposals One and Two in this proxy statement are approved by stockholders, we will have 15,139,351 shares of common stock issued and outstanding after the issuance of common stock pursuant to the Asset Purchase Agreement described herein and in connection with refinancing the Sellers’ debt being assumed in the Acquisition and financing the cash portion of the Acquisition consideration. As a result, the exercise of outstanding warrants, or conversion of outstanding convertible promissory notes or Debenture, and the subsequent resale of such shares of common stock (which shares of common stock issuable upon exercise of the Series B Warrants, the warrants sold in our April and September 2012 offerings and the warrants sold in our April 2014 offering, will be eligible for immediate resale, and which shares of common stock issuable upon conversion of the convertible promissory notes and Debenture and exercise of the warrants issued in April, May and August 2013, will be eligible for immediate resale subject to the terms and conditions of Rule 144) may cause dilution to existing stockholders and cause the market price of our securities to decline in value. Additionally, the common stock issuable upon exercise of the warrants or conversion of the convertible promissory notes or Debenture may represent overhang that may also adversely affect the market price of our common stock. Overhang occurs when there is a greater supply of a Company’s stock in the market than there is demand for that stock. When this happens the price of the Company’s stock will decrease, and any additional shares which stockholders attempt to sell in the market will only further decrease the share price. Finally, the offer or sale of large numbers of shares of common stock in the future, including those shares previously registered in our registration statements and prospectus supplements, and/or in connection with future registration statements or prospectus supplements may cause the market price of our securities to decline in value.

The warrants sold in our April 2014 offering and the warrants issuable pursuant to our March 2016 Note Purchase Agreement have anti-dilution rights which could cause their exercise price to be reduced.

The warrants sold in our April 2014 offering include anti-dilution rights, which provide that if at any time the warrants are outstanding, we issue or are deemed to have issued (which includes shares issuable upon exercise of warrants and options and conversion of convertible securities) for consideration less than the then current exercise price of the warrants, the exercise price of such warrants is automatically reduced (a) to the lowest price per share of consideration provided or deemed to have been provided for such securities, not to be deemed less than $0.01 per share, during the one year period following the closing date of the offering (April 21, 2014), which date has passed without any required adjustments; and thereafter (b) to the product of (x) the exercise price then in effect, and (y) a fraction, the numerator of which is the number of shares of common stock outstanding immediately prior to such issuance plus the number of shares of common stock which the aggregate consideration received by us would purchase at the exercise price in effect immediately prior to such issuance, and the denominator of which is the number of shares of common stock outstanding immediately prior to such issuance plus the number of such additional shares of common stock issued. Notwithstanding the above, no adjustment of the exercise price is required in connection with any issuances or deemed issuance of shares of common stock (1) to our officers, directors, consultants or employees pursuant to stock option or stock purchase plans or agreements on terms approved by our Board of Directors, subject to adjustment for all subdivisions and combinations; and (2) in connection with the re-negotiation, modification, extension or re-pricing of debt of the Company outstanding on the closing date, subject to the prior written approval of the holders of the warrants. Additionally, in the event we acquire ownership of another entity or a significant amount of assets from another person or entity by way of an asset purchase agreement, merger (pursuant to which we are the surviving entity and our common stock is not converted or exchanged), business combination or share exchange pursuant to which shares of our common stock or convertible securities (including options or warrants) are issued or granted by us as partial or sole consideration to the counterparty or counterparties in such transaction or series of transactions (a “Company Combination”), then and in such event, the exercise price of the warrants is automatically reduced, to the average of the highest bid and lowest asked prices of our common stock averaged over the thirty (30) business days after the closing of the Company Combination if such exercise price as adjusted is less than the exercise price in effect on the date such Company Combination Price is determined.

The warrants issuable pursuant to our March 2016 Note Purchase Agreement include anti-dilution rights, for the first 12 months following the issuance date of such warrants, which automatically reduce the exercise price of the warrants to any lower priced security sold, granted or issued by us during such anti-dilution period, subject to certain exceptions, including officer and director grants and the transactions contemplated by the Acquisition.

We may be forced to expend significant resources and pay significant costs and expenses associated with outstanding registration rights.

In connection with our entry into the April 2014 Securities Purchase Agreement, we provided the investors in the offering registration rights pursuant to a Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the purchasers in the April 2014 Securities Purchase Agreement have demand and piggy-back registration rights. We also agreed to register certain securities in connection with the April 2016 Stock Purchase Agreement and Securities Purchase Agreement. We also have agreed to register for resale the shares of common stock issuable in connection with the Acquisition. We will have to expend significant resources and pay significant costs and expenses, including filing fees, legal fees and accounting fees, in connection with such registration statements.

Nevada law and our Articles of Incorporation authorize us to issue shares of stock which shares may cause substantial dilution to our existing stockholders.

We have authorized capital stock consisting of 100,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share. As of the Record Date, we have 1,739,397 shares of common stock outstanding and, if Proposals One and Two in this proxy statement are approved by stockholders, we will have 15,139,351 shares of common stock outstanding after issuance of the shares of common stock issuable in connection with the Asset Purchase Agreement described herein and in connection with refinancing the Sellers’ debt being assumed in the Acquisition and financing the cash portion of the Acquisition consideration, but does not take into account the 552,000 shares of Series B Preferred Stock issuable in connection with the Asset Purchase Agreement described herein, each convertible into approximately 7.14 shares of our common stock, or the Series C Preferred Stock we have agreed to sell upon the closing of the Acquisition and subject to certain conditions. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without stockholder approval, subject to the requirements of the NYSE MKT (which generally require stockholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing over 20% of our then outstanding shares of stock), which if issued could cause substantial dilution to our then stockholders. Shares of additional preferred stock may also be issued by our Board of Directors without stockholder approval, with voting powers and such preferences and relative, participating, optional or other special rights and powers as determined by our Board of Directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our Board of Directors which cause the holders to have majority voting power over our shares, provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock stockholders and/or have other rights and preferences greater than those of our common stock stockholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to our existing stockholders. Additionally, the dilutive effect of any preferred stock which we may issue may be exacerbated given the fact that such preferred stock may have super voting rights and/or other rights or preferences which could provide the preferred stockholders with substantial voting control over us subsequent to the date of this proxy statement and/or give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or Preferred Stock may cause the value of our securities to decrease and/or become worthless.

Stockholders may be diluted significantly through our efforts to obtain financing and/or satisfy obligations through the issuance of additional shares of our common stock.

Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of shares of our common stock. Subject to certain consent rights of the investor in our April 2016 financing, our Board of Directors has authority, without action or vote of the stockholders, to issue all or part of the authorized but unissued shares of common stock (subject to NYSE MKT rules which limit among other things, the number of shares we can issue without stockholder approval to no more than 20% of our outstanding shares of common stock). These actions will result in dilution of the ownership interests of existing stockholders, and that dilution may be material.

If persons engage in short sales of our common stock, including sales of shares to be issued upon exercise of our outstanding warrants, the price of our common stock may decline.

Selling short is a technique used by a stockholder to take advantage of an anticipated decline in the price of a security. In addition, holders of options and warrants will sometimes sell short knowing they can, in effect, cover through the exercise of an option or warrant, thus locking in a profit. A significant number of short sales or a large volume of other sales within a relatively short period of time can create downward pressure on the market price of a security. Further sales of common stock issued upon exercise of our outstanding warrants could cause even greater declines in the price of our common stock due to the number of additional shares available in the market upon such exercise, which could encourage short sales that could further undermine the value of our common stock. You could, therefore, experience a decline in the value of your investment as a result of short sales of our common stock.

The market price for our common stock may be volatile, and our stockholders 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.

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 that we have or 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 (including shares previously registered in our registration statements and prospectus supplements, and/or in connection with future registration statements or prospectus supplements) 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 stockholders. 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.

We face potential liability in the event we do not satisfy the current public information requirements of Rule 144(c) of the Securities Act of 1933, as amended, prior to the date the Series B Warrants and shares of common stock issuable upon exercise thereof have been sold by the holders thereof or have expired.

Pursuant to an agreement entered into with the Series B Warrant holders, we agreed that if at any time prior to the date that all of the Series B Warrants and any shares of common stock issuable upon exercise of such warrants are sold by the holders thereof, we fail to satisfy the current public information requirement of Rule 144(c) of the Securities Act of 1933, as amended (a “Public Information Failure”), as partial relief for the damages to any holder of warrants, we would pay the holders, based on their pro rata ownership of non-exercised and non-expired warrants on the first day of a Public Information Failure, an aggregate of $80,000 for the first thirty calendar days that there is a Public Information Failure (pro-rated for a period of less than thirty days) and an amount in cash equal to one and one-half percent (1.5%) of the aggregate Black Scholes Value (as defined in the warrants) of such holder’s non-exercised and non-expired warrants on the sixty-first (61st) calendar day after the Public Information Failure (covering the 31st to 60th calendar days) and on every thirtieth day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (i) the date such Public Information Failure is cured; (ii) such time that such public information is no longer required pursuant to Rule 144; and (iii) the expiration date of the warrants. Additionally, upon the occurrence of any Public Information Failure during the 12 months prior to the expiration of any warrant, the expiration date of such warrant will be automatically extended for one day for each day that a Public Information Failure occurs and is continuing. As such, in the event of the occurrence of a Public Information Failure, we will face liability and penalties.

We incur significant costs as a result of operating as a fully reporting publicly traded company and our management is required to devote substantial time to compliance initiatives.

We incur significant legal, accounting and other expenses in connection with our status as a fully reporting public company. Specifically, we are required to prepare and file annual, quarterly and current reports, proxy statements and other information with the SEC. Additionally, our officers, directors and significant stockholders are required to file Form 3, 4 and 5’s and Schedule 13D/G’s with the SEC disclosing their ownership of the Company and changes in such ownership. Furthermore, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and rules subsequently implemented by the SEC have imposed various new requirements on public companies, including requiring changes in corporate governance practices. In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures. The costs and expenses of compliance with SEC rules and our filing obligations with the SEC, or our identification of deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, could materially adversely affect our results of operations or cause the market price of our stock to decline in value.

Securities analyst coverage or lack of coverage may have a negative impact on our common stock’s market price.

The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If securities or industry analysts stop their coverage of us or additional securities and industry analysts fail to cover us in the future, the trading price for our common stock would be negatively impacted. If any analyst or analysts who cover us downgrade our common stock, changes their opinion of our shares or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If any analyst or analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease and we could lose visibility in the financial markets, which could cause our stock price and trading volume to decline.

Due to the fact that our common stock is listed on the NYSE MKT, we are subject to financial and other reporting and corporate governance requirements which increase our cost and expenses.

We are currently required to file annual and quarterly information and other reports with the SEC that are specified in Sections 13 and 15(d) of the Exchange Act. Additionally, due to the fact that our common stock is listed on the NYSE MKT, we are also subject to the requirements to maintain independent directors, comply with other corporate governance requirements and are required to pay annual listing and stock issuance fees. These obligations require a commitment of additional resources including, but not limited, to additional expenses, and may result in the diversion of our senior management’s time and attention from our day-to-day operations. These obligations increase our expenses and may make it more complicated or time consuming for us to undertake certain corporate actions due to the fact that we may require the approval of the NYSE MKT for such transactions and/or NYSE MKT rules may require us to obtain stockholder approval for such transactions.

You may experience future dilution as a result of future equity offerings or other equity issuances.

We may in the future issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock.

Additional Risks Related to our Business, Industry and an Investment in our common stock

For a discussion of additional risks associated with our business, our industry and an investment in our common stock, see the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K, as filed with the SEC on July 13, 2016, as well as the disclosures contained in documents filed by us thereafter pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, which are incorporated by reference into, and deemed to be a part of, this proxy statement.

MATTERS TO BE CONSIDERED AT SPECIAL MEETING

PROPOSAL ONE:

APPROVAL OF ISSUANCE OF 13,009,664 SHARES OF COMMON STOCK TO THE SELLERS, THE ISSUANCE OF 552,000 SHARES OF SERIES B PREFERRED STOCK TO ONE OF THE SELLERS AND ITS AFFILIATE, AND THE ISSUANCE OF SUCH NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE SERIES B PREFERRED STOCK, INCLUDING SHARES ISSUABLE PURSUANT TO THE DIVIDEND PROVISIONS OF THE SERIES B PREFERRED STOCK, EXCEEDING 19.99% OF OUR OUTSTANDING COMMON STOCK, TO ACQUIRE THE ASSETS

Acquisition of Assets

In December 2015, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), as purchaser, with twenty-one separate sellers (the “Sellers”). Pursuant to the Asset Purchase Agreement and subject to the terms and conditions thereof, we agreed to acquire from the Sellers (the “Acquisition”), working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith as well as producing shale properties in Glasscock County, Texas (collectively, the “Assets”), in consideration for, among other things, the issuance of 13,009,664 shares of Common Stock to the Sellers and its affiliate and the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, upon approval of the Company’s stockholders.

Because the shares of our Common Stock, including the shares of Common Stock issuable upon conversion of shares of our Series B Preferred Stock, to be issued to finance the Acquisition, represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), Sections 712 and 713 of the NYSE MKT rules mandate stockholder approval to issue any such shares of Common Stock and Series B Preferred Stock to purchase the Assets. Accordingly, stockholders are being asked to approve the issuance of 13,009,664 shares of Common Stock to the Sellers and its affiliate, the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and the issuance of such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares issuable pursuant to the dividend provisions of the Series B Preferred Stock, exceeding 19.99% of our outstanding Common Stock, to acquire the Assets.

Our Board has unanimously determined that it is advisable and in the best interests of the Company and our stockholders to issue 13,009,664 shares of Common Stock to the Sellers and to issue 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate in consideration for the Assets in accordance with the terms of the Asset Purchase Agreement. Under Nevada law, the Company’s stockholders do not have any “dissenters’ rights” or rights to an appraisal of the value of their shares in connection with the Acquisition.

Our Board unanimously recommends that the stockholders vote FOR approval of the issuance of 13,009,664 shares of Common Stock to the Sellers and its affiliate, the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and the issuance of such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares issuable pursuant to the dividend provisions of the Series B Preferred Stock, exceeding 19.99% of our outstanding Common Stock, to acquire the Assets.

Reasons for the Issuance of Common Stock and Series B Preferred Stock to the Sellers

Given our current balance sheet, our Board believes that the issuance of Common Stock and Series B Preferred Stock to the Sellers is the only currency available for the Company to acquire the Assets.

Reasons for Stockholder Approval

Our Common Stock is listed on the NYSE MKT. Section 712(b) of the NYSE MKT rules requires stockholder approval in connection with a transaction involving the issuance by the issuer of common stock (or securities convertible into common stock) as sole or partial consideration for an acquisition of assets where the present or potential issuance of common stock (or securities convertible into common stock) could result in an increase in outstanding common shares of 20% or more. Section 713(a) of the NYSE MKT rules requires stockholder approval in connection with a transaction involving the sale, issuance, or potential issuance by the issuer of common stock (or securities convertible into common stock) equal to 20% or more of presently outstanding shares of common stock at a price less than the greater of book value or market value. Section 713(b) of the NYSE MKT rules requires stockholder approval in connection with a transaction involving the issuance or potential issuance of additional shares which would result in a change of control of the issuer.

Because the shares of our Common Stock, including the shares of Common Stock issuable upon conversion of shares of our Series B Preferred Stock, to be issued to finance the Acquisition, represent greater than 20% of our outstanding Common Stock and a change in control (as defined by NYSE MKT), we are asking our stockholders to approve the issuance of 13,009,664 shares of Common Stock to the Sellers and its affiliate, the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and the issuance of such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares issuable pursuant to the dividend provisions of the Series B Preferred Stock, exceeding 19.99% of our outstanding Common Stock, to acquire the Assets. Stockholder approval of this proposal is being sought solely to comply with Sections 712 and 713 of the NYSE MKT rules governing the issuance of securities in connection with an acquisition when any such issuances in the aggregate would exceed 20% of an issuer’s outstanding capital stock or might be considered a change of control (as defined by NYSE MKT). The Asset Purchase Agreement requires us to submit this Proposal to stockholders at our Special Meeting. Because this transaction is an acquisition of assets, however, our stockholders are not being asked to approve the Acquisition itself or the Asset Purchase Agreement.

Description of Series B Preferred Stock

Please refer to the description of the Series B Preferred Stock under “Description of Capital Stock of Lucas Energy, Inc.” beginning on page 101 of this proxy statement.

Effect upon Rights of Existing Stockholders

Our current stockholders will continue to own their existing shares after the transaction described in this proposal. Our stockholders are not participating in nor receiving any consideration from the transaction described in this proposal. Our stockholders should not send in their share certificates because their share certificates will not be exchanged in connection with the transaction described in this proposal.

If stockholders approve this proposal, and 13,009,664 shares of Common Stock are issued to the Sellers, and 552,000 shares of Series B Preferred Stock are issued to one of the Sellers and its affiliate, the principal effect upon the rights of existing stockholders will be a dilution in their current percentage ownership in the Company. The Sellers will hold in the aggregate approximately 88.2% of our outstanding voting securities upon consummation of the Acquisition and approximately 90.7% of our outstanding voting securities upon conversion of the Series B Preferred Stock. These percentages do not give effect to (i) the issuance of securities in connection with any of the other proposals in this proxy statement, (ii) the issuance of shares of Common Stock pursuant to our other outstanding options, warrants and convertible securities, or (iii) any other future issuances of our Common Stock. The sale into the public market of the shares issued to the Sellers also could materially and adversely affect the market price of our Common Stock.

The total number of shares of Common Stock potentially issuable in connection with Proposal One is approximately 18,608,521, which consists of approximately (i) 13,009,664 shares of Common Stock issuable to the Sellers, (ii) 3,942,857 shares of Common Stock issuable upon conversion in full of the Series B Preferred Stock issuable to the Sellers at the assumed initial conversion price per share of $3.50 and (iii) 1,656,000 shares of Common Stock issuable as dividends on the Series B Preferred Stock (assuming dividends are paid in shares of Common Stock, the Series B Preferred Stock is held for seven years, the dividend rate is 6% per annum, the conversion price is $3.50, there are no defaults, and dividends are not paid in kind with Series B Preferred Stock). If any of the foregoing assumptions change, additional shares of Common Stock will be issuable.

If stockholders approve this proposal and the Acquisition is closed, the exercise price of our April 2014 warrants will be reduced, if applicable, to the fair market value of our Common Stock on the date 30 days after the closing of the Acquisition.

Interests of Directors, Officers and Affiliates

None of our current directors, officers or affiliates have an interest in the Acquisition. However, the Sellers will have the right pursuant to the Asset Purchase Agreement to appoint three members to the Board of Directors, and it is anticipated that one of their director nominees will be Richard N. Azar II. Mr. Azar, who is the principal Seller and manager of the properties and is planned to be appointed as Executive Chairman following the closing. Mr. Azar will also be receiving a significant amount of the shares of Common Stock issuable upon closing of the Acquisition and all of the Series B Preferred Stock issuable at closing, either personally or through entities which he controls. By the sixth month anniversary of the closing of the Acquisition, one of the three current members of our Board will be required to resign in order that we will have five members of our Board, including three appointed by the Sellers, on such date.

Stockholders are urged to carefully consider the present and future interests described above prior to voting on this Proposal One.

Registration Rights

The shares of Common Stock and Series B Preferred Stock issued to the Sellers in connection with the Acquisition will be issued in reliance on one or more exemptions from the registration requirements of federal and state securities laws. As a result, the Sellers may not sell any of the shares of Common Stock, Series B Preferred Stock or shares of Common Stock issuable upon conversion of the Series B Preferred Stock that they receive in the Acquisition except pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering the resale of those shares, or an applicable exemption under the Securities Act. We have agreed to register for resale the shares of Common Stock issued to the Sellers. Upon such registration, these shares will be freely tradable in the public market without restriction (other than restrictions imposed on any affiliates of the Company).

Vote Required

We will not be able to complete the Acquisition unless all of the conditions to closing contemplated by the Asset Purchase Agreement are satisfied, including (i) the approval of the issuance of shares of Common Stock and Series B Preferred Stock by a majority of the votes cast on Proposal One and (ii) the approval of the issuance of 390,290 shares of our Common Stock to IBC as an underwriting equity fee for the term loan, which will be considered by the stockholders at the Special Meeting as Proposal Two and is described herein beginning on page 79 of this proxy statement.

A majority of the votes cast is required by the NYSE MKT rules to approve the issuance of 13,009,664 shares of Common Stock to the Sellers and its affiliate, the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and the issuance of such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares issuable pursuant to the dividend provisions of the Series B Preferred Stock, exceeding 19.99% of our outstanding Common Stock, to acquire the Assets.

Consequences of Not Approving this Proposal

If we do not obtain stockholder approval of this Proposal at the Special Meeting, we will not be able to consummate the Acquisition or acquire the Assets, the failure of which could materially adversely affect our results of operations, our financial condition, our stock price and our ability to continue as a going concern.

Recommendation of Our Board

Our Board has unanimously determined that the issuance of shares of Common Stock and Series B Preferred Stock to the Sellers in consideration for the Assets is fair to, and advisable and in the best interests of, the Company and our stockholders. Our Board unanimously recommends that stockholders vote “FOR” the issuance of 13,009,664 shares of Common Stock to the Sellers and its affiliate, the issuance of 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and the issuance of such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares issuable pursuant to the dividend provisions of the Series B Preferred Stock, exceeding 19.99% of our outstanding Common Stock, to acquire the Assets.

The Parties to the Acquisition and the Assets

Lucas Energy, Inc.

We are an independent oil and natural gas company based in Houston, Texas with a field office in Gonzales, Texas. We are engaged in the acquisition and development of crude oil and natural gas from various known productive geological formations, including the Austin Chalk and Eagle Ford formations, primarily in Gonzales, Wilson and Karnes Counties, south of the city of San Antonio, Texas. All of our oil and gas interests and equipment existing as of December 16, 2015 are held by our wholly-owned Texas subsidiary, CATI Operating LLC. Our goal is to acquire, develop, and produce crude oil and natural gas from areas located in, or near, established oil fields that can provide long-term growth and sustainability for us.

We were incorporated in Nevada in December 2003 under the name “Panorama Investments Corp.” and changed our name to “Lucas Energy, Inc.” effective June 9, 2006. Our principal executive offices are located at 450 Gears Road, Suite 860, Houston, Texas 77067, and our telephone number is (713) 528-1881. Our website address is www.lucasenergy.com. Information contained on our website or any other website does not constitute part of, and is not incorporated into, this proxy statement.

The Sellers

The Sellers are a collection of 21 separate individuals and private entities:

The Assets

The Assets consist of working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith as well as producing shale properties in Glasscock County, Texas. The properties currently produce approximately 1,000 net barrels of oil equivalent per day (BOE/d), of which 53% are liquids from 114 producing wells. The bulk of the production is from the Hunton formation holding approximately 43,000 gross acres (9,900 net acres) in central Oklahoma. Additionally, further, offset development drilling opportunities for at least 40 additional wells have been identified.

Please refer to Exhibits A-1 and A-2 to the Asset Purchase Agreement, which is attached as Annex A-1 to this proxy statement, for a summary description of each of the Assets, consisting of (a) the wells being sold to us by the Sellers and (b) the working interests and net revenue interests in such wells owned by each Seller and being sold to us pursuant to the terms of the Asset Purchase Agreement.

Reasons for the Acquisition

Our Board, having concluded that the Acquisition is fair to, and in the best interests of, us and our stockholders, unanimously approved the Acquisition and all transactions and documents necessary to its consummation.

The decision of our Board to enter into the Asset Purchase Agreement was based on a thorough analysis of the Company’s strengths and weaknesses. This analysis allowed our Board to identify several potential benefits to us and our stockholders that, if realized, could increase stockholder value. These reasons for the Acquisition include:

Our Board reviewed a number of additional factors in evaluating the Acquisition, including, but not limited to the following:

Our Board also considered a number of countervailing factors that may pose a risk to the success of the Acquisition after its consummation including:

For a discussion of the existing risk factors and their possible effect on the success of the Acquisition, see “Risk Factors” beginning on page 17.

In the view of our Board, these potentially countervailing factors did not, individually or in the aggregate, outweigh the advantages of the Acquisition.

TERMS OF THE ACQUISITION

Stockholders are urged to carefully read the Asset Purchase Agreement that is attached to this Proxy Statement as Annex A-1 and the form of First Amendment to Asset Purchase Agreement that is attached as Annex A-2 because they are the legal documents that govern the Acquisition.

The Acquisition

On December 30, 2015, we entered into the Asset Purchase Agreement, as purchaser, with twenty-one separate Sellers and Segundo Resources, LLC, as a Seller and as the Representative. Pursuant to the Asset Purchase Agreement and subject to the terms and conditions thereof, we agreed to acquire from the Sellers, working interests in producing properties and undeveloped acreage in Texas and Oklahoma, including varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region of the United States, and related wells, leases, records, equipment and agreements associated therewith, as well as producing shale properties in Glasscock County, Texas. The properties currently produce approximately 1,000 net barrels of oil equivalent per day (BOE/d), of which 53% are liquids from 114 producing wells. The bulk of the production is from the Hunton formation holding approximately 43,000 gross acres (9,900 net acres) in central Oklahoma. Additionally, further, offset development drilling opportunities for at least 40 additional wells have been identified. Revenues generated from the Assets effective from April 1, 2016 will be credited to us. Any sale by the Sellers of the properties in Glasscock County, Texas prior to closing the Acquisition must be approved by us, and the proceeds from any such sale will be placed in escrow until the closing of the Acquisition, where they can be drawn upon by mutual consent of the parties.

Acquisition Consideration

As consideration for the Acquisition, we agreed to assume $31.35 million of commercial bank debt; issue 552,000 shares of our amended and restated designated Series B Preferred Stock to one of the Sellers and its affiliate, which are under common control with the Seller Representative, with a total liquidation value of $13.8 million; issue 13,009,664 shares of Common Stock to certain of the Sellers; and pay $4,975,000 in cash to certain of the Sellers. Notwithstanding the above, in the event there are any title or other material issues associated with the Assets, the parties agreed to work in good faith to address such issues, and if such issues cannot be addressed, to adjust the purchase price, provided that no adjustment will be made unless such issues in aggregate total more than 5% of the aggregate purchase price, and provided further that if such issues in aggregate total more than 20% of the aggregate purchase price, we can terminate the Asset Purchase Agreement, all of which are subject to the terms of the Asset Purchase Agreement. We and the Sellers also agreed to a true-up for certain joint interest billings and authorization for expenditures at and/or after closing, and to effect a true-up in connection with any material agreements, if the rights thereto are not provided by the Sellers at closing. We may pay fees and expenses attributable to the Sellers incurred prior to April 1, 2016 as long as those expenses do not exceed $960,000.

Terms of Series B Preferred Stock

The Series B Preferred Stock has a liquidation preference of $25 per share. The Series B Preferred Stock is convertible into Common Stock at a rate of approximately 7.14:1; therefore, if fully converted, such shares of Series B Common Stock will convert into an aggregate of 3,942,857 shares of Common Stock, at the option of the holder thereof, or automatically as to 25% of the Series B Preferred Stock shares if our Common Stock trades above $6.125 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume per day during such period; an additional 50% of the Series B Preferred Stock shares if our Common Stock trades above $7.00 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume per day during such period; and as to the remaining Series B Preferred Stock shares, if our Common Stock trades above $7.875 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume per day during such period. Each outstanding share of Series B Preferred Stock will be entitled to one vote per share on all stockholder matters. The Series B Preferred Stock is redeemable at any time by the Company upon the payment by the Company of the face amount of the Series B Preferred Stock ($25 per share) plus any and all accrued and unpaid dividends thereon. Among other things, we agreed to not take any action to adversely affect the rights of the holders of the Series B Preferred Stock so long as the Series B Preferred Stock is outstanding and to not designate any capital stock with powers greater than the Series B Preferred Stock, without the approval of the holders of a majority of the outstanding Series B Preferred Stock shares.

Financing for the Acquisition

In order to finance the debt and cash portions of the Acquisition consideration, at the closing of the Acquisition, we intend to enter into a three-year $40 million senior secured term loan (subject to a loan-to-value ratio of 50% or less) with IBC. The term loan is expected to require repayment in monthly installments of the greater of 50% of net monthly income or monthly principal and interest payments of $425,000, and to require a sinking fund to be created with an initial deposit of $3.36 million to be used for principal reductions. The term loan is expected to bear interest at the prime rate plus 2.0% with a floor of 5.50%. We expect to be required to pay IBC (1) a loan commitment fee of $400,000, with half due at closing and half due six months thereafter, (2) an annual engineering fee of $10,000, and (3) an underwriting equity fee of 390,290 shares of Common Stock. Our obligations under the term loan are expected to be secured by a first priority lien on various working interests in our oil and gas properties located in Texas and Oklahoma.

Name Change

We agreed that, after the closing of the Acquisition, we will rebrand and change our name to “Camber Energy, Inc.”

Board Representation

There are no significant management changes planned at this time in connection with the transactions contemplated by the Asset Purchase Agreement, as Anthony C. Schnur will maintain his role as our President and Chief Executive Officer following the closing. However, the Sellers will have the right pursuant to the Asset Purchase Agreement to appoint three members to our Board, and it is anticipated that one of their director nominees will be Richard N. Azar II. Mr. Azar is the principal Seller and manager of the properties being acquired, and is planned to be appointed as Executive Chairman following the closing of the Acquisition. Mr. Azar is a founding partner of the Representative, and for over 20 years has been instrumental in developing the Hunton resource play in Central Oklahoma through his direction of the Representative, ownership in Altex Resources, Inc., and various other successful oil and gas ventures. Mr. Azar will also be receiving a significant amount of the shares of Common Stock issuable upon closing of the Acquisition and all of the Series B Preferred Stock issuable at closing, either personally or through entities which he controls. By the sixth month anniversary of the closing of the Acquisition, one of the three current members of our Board will be required to resign in order that we will have five members of our Board, including three appointed by the Sellers, on such date.

Representations and Covenants

The parties have made customary representations, warranties and covenants in the Asset Purchase Agreement including, among others, covenants relating to (1) the conduct of each party’s business during the interim period between the execution of the Asset Purchase Agreement and the consummation of the transactions described therein, (2) the Company’s obligations to facilitate its stockholders’ consideration of, and voting upon, the issuance of shares of Common Stock upon the closing of the Acquisition and upon conversion of the Series B Preferred Stock pursuant to applicable NYSE MKT rules and regulations, (3) the recommendation by the Company’s Board in favor of approval of the matters presented to the stockholders, (4) the obligation of the Company to submit approval of the planned name change, and such other matters as the parties may deem desirable at a stockholders’ meeting, and to register for resale the shares of Common Stock issued to the Sellers, (5) each party’s non-solicitation obligations relating to alternative business combination transactions, and (6) the indemnification obligations of the parties, subject to the limits of liability, deductibles and other terms set forth in the Asset Purchase Agreement.

The Sellers’ representations and warranties are set forth in Article V to the Asset Purchase Agreement (See Annex A-1 and Annex A-2). Please refer to Article V of the Asset Purchase Agreement for further details regarding the Sellers’ representations and warranties, breaches of which may trigger the Sellers’ indemnification obligations.

Covenants and agreements by the Sellers are set forth in Article VIII to the s Asset Purchase Agreement (See Annex A-1 and Annex A-2). Please refer to Article VIII of the Asset Purchase Agreement for further details regarding the Sellers’ covenants and agreements, breaches of which may trigger the Sellers’ indemnification obligations.

The Asset Purchase Agreement requires that the parties deliver, on or prior to twenty days from the date of the parties’ entry into the Asset Purchase Agreement, to be updated at least seven days prior to closing, copies of the disclosure schedules required pursuant to the terms of the Asset Purchase Agreement. In the event there are any issues associated with such disclosures, the parties agreed to negotiate such issues in good faith, and if such differences cannot be addressed within the time periods set forth in the Asset Purchase Agreement and such issues would constitute a material adverse effect under the terms of the Asset Purchase Agreement, that the Asset Purchase Agreement can be terminated without penalty by the party receiving such disclosure schedule(s).

Conditions to Closing

The Acquisition is subject to customary conditions which must be satisfied or waived prior to the closing, including (1) approval by our stockholders of the issuance of the Acquisition Shares, (2) receipt by us of the $4.975 million required to be paid to the Sellers at closing, which we plan to raise from the Sellers’ debt holders from whom we are required to assume the $31.35 million in debt; (3) receipt of required regulatory approvals, (4) the absence of any law or order prohibiting the consummation of the Acquisition, and (5) approval by the NYSE MKT of the continued listing of our Common Stock on the NYSE MKT prior to and following the closing. Each party’s obligation to complete the Acquisition is also subject to certain additional customary conditions, including (a) subject to certain exceptions, the accuracy of the respective representations and warranties of the other parties, and (b) performance in all material respects by the other parties of their respective obligations under the Asset Purchase Agreement.

Termination Provisions

The Asset Purchase Agreement also includes customary termination provisions for both the Company and the Sellers, which include, subject to the terms of the Asset Purchase Agreement and in certain circumstances rights to cure or other prerequisites, that the Asset Purchase Agreement can be terminated by us, if (i) any issues arise in connection with our due diligence on the Assets which in aggregate would constitute a material adverse effect on such Assets (as described in the Asset Purchase Agreement) and such issues cannot be reasonably cured by the parties; (ii) our stockholders fail to approve the issuance of the Acquisition Shares at a meeting called for such purpose; (iii) if we fail to obtain all required consents; (iv) if we fail to raise the cash necessary to acquire the Assets; (v) the Sellers fail to provide all required closing deliverables; or (vi) if the Sellers breach any representation or warranty in the Asset Purchase Agreement, subject to the right to cure; and by the Sellers, if (i) any issues arise in connection with the Seller’s due diligence of us which in aggregate would constitute a material adverse effect (as described in the Asset Purchase Agreement) and such issues cannot be reasonably cured by the parties; (ii) if we have more than 1.8 million shares of Common Stock outstanding at closing, or the Sellers would own less than 80% of each class of our outstanding shares, on a fully-diluted basis, at closing; (iii) if our stockholders fail to approve the items required to be approved for closing; (iv) if we fail to maintain our listing on the NYSE MKT prior to and following closing; (v) if we fail to assume the $31.35 million in debt required to be assumed at closing; (vi) if we fail to provide all required closing deliverables; (vii) if we breach any representation or warranty in the Asset Purchase Agreement, subject to the right to cure; or (viii) our Board withdraws their recommendation for the stockholders to approve the Acquisition because the Company has been presented with a superior acquisition proposal. The Asset Purchase Agreement can also be terminated by either party with five days prior written notice if the Acquisition has not been completed by September 30, 2016, provided that such failure is not the result of the breach of the Asset Purchase Agreement by the terminating party.

Background of the Transaction

In early September 2015, a representative of ROTH Capital Partners met with Richard N. Azar II in San Antonio about the concept of selling a series of oil and gas assets to a public company. On October 8, 2015, Anthony C. Schnur, our Chief Executive Officer, met with Mr. Azar in San Antonio. Mr. Azar intimated to Mr. Schnur that there may be a transaction for us with Segundo Resources, LLC, a holding company owned by Mr. Azar with ownership in and management of certain non-operated oil and gas assets in Central Oklahoma and West Texas. As a result of the meeting, the parties executed a Mutual Non-Disclosure Agreement on October 13, 2015 and decided to meet again in person at a later date with participation from ROTH as their financial advisor to explore in more detail the potential for a business combination. Shortly after this meeting, Segundo determined to pursue a transaction with Lucas. During the week of October 19, 2015, ROTH and Segundo made preparations to meet with Segundo’s senior lender, International Bank of Commerce of San Antonio (“IBC Bank”). On October 27, 2015, Mr. Richard Azar, Mr. Benjamin Azar and representatives of ROTH met with Mr. Schnur to discuss the plausibility from a business perspective to effect a merger between Segundo and Lucas. During the meeting, various pros and cons of the transaction were discussed as well as critical conditions that would need to be met in the near-term in order for both parties to be comfortable in moving forward with a transaction. On October 28, 2015, ROTH and Segundo met with IBC Bank in San Antonio, where they provided a prepared presentation as to the acquisition of certain oil and gas assets from Segundo and other Sellers, the pledging of additional debt collateral to IBC Bank and the strategy to roll all of the Segundo assets into a publicly listed company. On November 10 and 11, 2015, meetings were held with certain Sellers in San Antonio at Segundo offices to discuss the value of the pro forma assets and the potential acquisition of their assets by Lucas in exchange for common stock, cash and any combination thereof. Over this period, ROTH, Segundo and Lucas met with several of the Sellers to discuss the transaction. In addition, the parties meet with a representative of Silver Star Oil Company, which was the unsecured lender to Lucas, and whose consent would be required to pursue a transaction. Discussions related to the concept of Lucas acquiring the Assets and a go-forward plan after the Acquisition. On November 16, 2015, ROTH finalized the allocation of consideration to each of the individual Sellers, which consisted of a combination of cash, shares of common stock, shares of preferred stock and assumption of debt held by IBC Bank. On November 18, 2015, ROTH prepared form letters which provided an attributed dollar value for the Sellers’ assets and a transaction proposal by Lucas to acquire the Assets for a combination of Lucas common stock and required cash. In addition, individuals in receipt of the transaction proposal agreed to confidentiality and restrictions on transacting in any Lucas securities until the earlier of public announcement of the transaction or notification by ROTH of the abandonment of the transaction. Segundo distributed the transaction proposal to the Sellers via e-mail. On November 23, 2015, ROTH received responses from the potential Sellers indicating their interest in selling their assets. On November 24, 2015, Segundo and Lucas executed a non-binding letter of intent. On November 25, 2015, ROTH hosted an Organizational Call between Segundo and Lucas to discuss the status of the transaction. ROTH subsequently circulated organizational materials containing details of the transaction. On November 30, 2015, representatives of ROTH and Segundo met with representatives of IBC Bank in San Antonio to discuss the signed letter of intent and request financing for the acquisition of the assets owned by the Sellers. Discussions included the value of the assets to be acquired, and the impact to IBC from a lending perspective. IBC agreed to present a preliminary financing proposal related to the transaction. On November 30, 2015, ROTH and Segundo met with another Seller and subordinated lender to Segundo, in San Antonio to discuss the transaction and outcome of the meeting with IBC Bank. On December 1, 2015, ROTH and Segundo met with another Seller at Segundo offices, to discuss the potential transaction with Lucas and exchange of that Seller’s assets for Lucas common stock. On December 8, 2015, ROTH hosted a conference call which included participation from representatives of ROTH, Segundo, the Sellers and their respective legal and accounting advisors. On December 7, 2015, a representative of ROTH met with management of Segundo in San Antonio, to review the oil and gas assets to be acquired. On December 9, 2015, Segundo received a discussion term sheet from IBC Bank outlining proposed terms on a credit facility from IBC Bank for purpose of refinancing existing debt and purchasing additional interest in various oil and gas properties owned by the Sellers.

On December 15, 2015, ROTH hosted a conference call, which included participation from representatives of ROTH, Segundo, the Sellers and their respective legal and accounting advisors, to discuss the status of several agreements including the Asset Purchase Agreement, Designation of Preferred Stock, Assignments and a Registration Rights Agreement. It was also discussed that Lucas engage an investment bank that would be able to deliver a fairness opinion on the transaction. On December 16, 2015, ROTH was introduced by Mr. Schnur to a representative of Canaccord Genuity Inc. (“Canaccord”), whom Lucas had engaged to render a fairness opinion on the transaction. Starting on December 28, 2015, Mr. Azar began to send the final forms of the Asset Purchase Agreement to the Sellers for their review, comment and execution. On December 29, 2015, the executed Asset Purchase Agreement was delivered to Segundo legal counsel to hold in escrow.

On December 28, 2015, Lucas held a meeting of its board of directors to approve the transaction in consideration of the draft fairness opinion as provided by Canaccord. Due to holiday conflicts, it was going to take several days to receive a final approved opinion. At this meeting, the Lucas board of directors approved the Asset Purchase Agreement and its terms and conditions, substantially in the form presented to the board of directors contingent on the final approval of the fairness opinion. On December 30, 2015, Canaccord delivered to Lucas its oral fairness opinion, with the final written opinion to be delivered within several days. On January 5, 2016, Canaccord delivered to Lucas its written fairness opinion on the fairness of the transaction, from a financial point of view, to Lucas of the consideration to be paid by it under the terms of the transaction. On December 30, 2015, the Sellers and Lucas executed the Asset Purchase Agreement. On December 31, 2015, Lucas publicly announced that it had signed a purchase agreement with the Sellers.

On February 5, 2016, we received a non-binding term sheet for senior debt financing from IBC. Also in April 2016, we negotiated a First Amendment to Asset Purchase Agreement with the Sellers.

On March 28, 2016 and on June 13, 2016, we borrowed $250,000 and $100,000, respectively, from Alan Dreeben, who is one of the sellers of the Assets, pursuant to an Amended and Restated Short Term Promissory Note (the “Short Term Note”). The Short Term Note has a principal balance of $385,000 (the $350,000 borrowed plus a 10% original issue discount), does not accrue interest unless an event of default occurs thereunder, at which time the note accrues interest at 15% per annum, has a maturity date of August 31, 2016 and contains standard and customary events of default. The Short Term Note may be prepaid at any time without penalty. As additional consideration for Mr. Dreeben agreeing to make the loan we agreed to issue Mr. Dreeben 15,000 restricted shares of common stock.

Fairness Opinion

In connection with the Acquisition, our Board received a written opinion, dated December 30, 2015, of our financial advisor, Canaccord Genuity Inc. (“Canaccord”), as to the fairness, from a financial point of view, to the Company, of the consideration to be paid by us in the Acquisition. The full text of Canaccord’s written opinion, dated December 30, 2015, is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. Canaccord has consented to the use of its opinion in this proxy statement and to the references thereto. Canaccord’s opinion was prepared for the information of Lucas’ Board only in connection with its evaluation of the total Acquisition consideration from a financial point of view. Canaccord’s opinion does not address any other aspect of the Acquisition or any matter to be presented to our stockholders. The summary of Canaccord’s opinion described below is qualified in its entirety by reference to the full text of its opinion. Holders of our Common Stock are encouraged to read the opinion carefully in its entirety.

In connection with rendering its opinion, Canaccord, among other things:

In conducting its review and arriving at its opinion, Canaccord relied and assumed, with Lucas’ consent, upon the accuracy and completeness of all of the financial and other information provided to or discussed with Canaccord by Lucas or otherwise publicly available, and further assumed, with Lucas’s consent, that there were no material changes in Lucas’ business operations, financial condition or prospects since the respective dates of such information. Canaccord did not independently verify such information. With respect to the financial forecasts and estimates reviewed by or discussed with Canaccord, Canaccord was advised by Lucas’ management, and assumed at Lucas’ direction, that such financial forecasts and estimates were reasonably prepared on bases reflecting the best currently available estimates and judgments of each of Segundo’s management and Lucas’ management. Canaccord expressed no view as to such financial forecasts or estimates or the assumptions underlying such financial forecasts or estimates. Canaccord did not conduct a physical inspection of any of Lucas’ or Segundo’s assets, properties or facilities, nor did it make or obtain any independent evaluation or appraisals of any such assets, properties or facilities or any liabilities (contingent or otherwise) of Lucas or Segundo.

Canaccord further assumed, with Lucas’ consent, that the Acquisition would be consummated in accordance with the terms described in the original asset purchase agreement and related documents, without amendments, modifications or waivers, and that all governmental, regulatory or other approvals, consents and agreements required for the Acquisition and related transactions would be obtained without any adverse effect on Lucas or the Acquisition.

Canaccord expressed no view or opinion as to any terms or aspects of the form or structure of the Acquisition. Canaccord was not asked to consider, and its opinion did not address, the relative merits of the Acquisition as compared to any alternative business strategy that might exist for Lucas. In addition, Canaccord expressed no opinion as to the merits of the underlying business decision of Lucas’ board of directors to proceed with the Acquisition or any related transaction. Canaccord’s opinion was directed to and for the information of the Board of Directors of Lucas only in connection with its evaluation of the Acquisition, and does not constitute advice or a recommendation to any stockholder of Lucas as to how such stockholder should vote with respect to the Acquisition or any matter related to the Acquisition. Canaccord’s opinion did not constitute an opinion as to the price at which Lucas common stock may trade at any time. Except as described above, Lucas imposed no other instructions or limitations on Canaccord with respect to the investigations made or the procedures followed by it in rendering its opinion.

This summary is not a complete description of Canaccord’s opinion or the financial analyses performed and factors considered by Canaccord in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Canaccord arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Canaccord believes that its analyses and this summary must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Canaccord’s analyses and opinion.

In performing its analyses, Canaccord considered market, economic and other conditions and circumstances involving the assets to be acquired, Lucas and its industry existing as of the date of its opinion, many of which are beyond Lucas’ control. No company, business or transaction used in the analyses is identical or directly comparable to the assets to be acquired, Lucas or the Acquisition, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the Acquisition, public trading or other values of the companies, business segments or transactions analyzed.

The estimates contained in Canaccord’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not necessarily purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Canaccord’s analyses are inherently subject to substantial uncertainty.

The type and amount of consideration payable in the Acquisition were determined through negotiation between Lucas and Segundo, and the decision to enter into the Acquisition was solely that of Lucas’ board of directors. Canaccord’s opinion was only one of many factors considered by Lucas’ board of directors in its evaluation of the Acquisition and should not be viewed as determinative of the views of Lucas’ board of directors or management with respect to the Acquisition or Acquisition consideration.

The following is a summary of the material financial analyses reviewed with the Lucas board of directors in connection with Canaccord’s opinion dated December 30, 2015. The financial analyses summarized below include information presented in tabular format. In order to fully understand Canaccord’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Canaccord’s financial analyses. Financial data of Lucas utilized in the analyses described below were prepared by Lucas’ management. Financial data with respect to the assets to be acquired and utilized in the analyses described below were prepared by Segundo management and provided to Canaccord by Lucas management.

Selected Publicly Traded Companies Analysis

Canaccord reviewed, among other things, enterprise values of the selected companies, calculated as equity value based on closing stock prices on December 30, 2015, plus book value of debt, plus the liquidation value of preferred stock, less excess cash and cash equivalents, as multiples of latest net daily production, expressed as dollar value per barrel of oil equivalent per day. Canaccord then applied a range of selected multiples of latest net daily production, based on the median and mean valuation multiples, derived from the selected companies to corresponding data of Segundo. Canaccord also added the adjusted net value of undeveloped acreage to be acquired. Financial data of the selected companies were based on publicly available research analysts’ estimates and public filings. Financial data of Lucas were based on internal financial data prepared by Segundo’s management. This analysis indicated the following range of implied enterprise values as compared to the original proposed Acquisition consideration:

Selected Precedent Transactions Analysis

Canaccord reviewed transaction values in the following 29 selected transactions involving the acquisition or divestiture of oil and gas assets located in Lincoln, Logan and Payne Counties, Oklahoma and Glasscock County, Texas announced since January 1, 2014:

Lincoln, Logan and Payne Counties Precedent Transactions – Since 2014

Glasscock County Precedent Transactions – Since 2014

Canaccord reviewed transaction values in the selected transactions, calculated as the purchase price multiples of acquired assets’ net daily production plus an adjustment for value of undeveloped acreage. Canaccord then applied a range of selected multiples, based on the mean and median valuation multiples, derived from the selected transactions to corresponding data of Segundo. Multiples for the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Financial data of Segundo were based on internal financial data prepared by Segundo’s management. This analysis indicated the following range of implied enterprise values as compared to the original proposed Acquisition consideration:

Discounted Cash Flow Analysis

Canaccord reviewed a management prepared engineering report dated December 1, 2015 in order to determine the present value of Segundo’s oil and natural gas reserves discounted at an industry standard annual discount rate of 10% (“PV-10”). Canaccord further applied a 10% discount and premium to the PV-10 value to establish a range of valuation. This analysis indicated the following range of implied enterprise values as compared to the original proposed Acquisition consideration:

In the two years prior to the issuance of its opinion, Canaccord has not had a material relationship with Lucas or Segundo where compensation was received or that it contemplates will be received after the closing of the Acquisition. Pursuant to the terms of the engagement of Canaccord, Lucas paid Canaccord a fee of $170,000 upon delivery of the opinion. No portion of such fee is based upon whether Canaccord delivered a favorable opinion with respect to the Acquisition, and such fee was not contingent upon consummation of the Acquisition. Lucas also agreed to reimburse Canaccord for reasonable expenses, and to indemnify Canaccord and related parties against certain liabilities arising out of its engagement, including liabilities and expenses which may arise under the federal securities laws.

Accounting Treatment

The Acquisition will be accounted for as a purchase of assets, so that the operating revenues and expenses pertaining to the Assets will be included in our consolidated financial statements following the Acquisition.

Tax Treatment

The transactions contemplated by the Acquisition are intended to constitute a single transaction for purposes of Section 351 of the Internal Revenue Code of 1986, as amended, such that the Acquisition is expected to be a tax-free transfer for the Sellers.

Regulatory Approvals

NYSE MKT Notification

Due to the number of shares of our Common Stock proposed to be issued in connection with the Acquisition, we must file a notification with, and meet the initial listing standards of, NYSE MKT prior to the closing of the Acquisition.

Securities and Exchange Commission and Applicable State Securities Commissions

The Acquisition Shares that will be issued to the Sellers in connection with the Acquisition will be exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D thereunder, and similarly exempt from registration under applicable state securities laws. Please note that the Securities and Exchange Commission and applicable state securities commissions do not provide regulatory review or approvals for these transactions.

We do not believe that any regulatory review or approvals are necessary.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information presented below combine the historical financial information of Lucas and the historical statements of revenues and direct operating expenses of the Assets, giving effect to the Acquisition, as if it had occurred on March 31, 2016. The historical financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the Acquisition and (ii) factually supportable. With respect to the operational financial information, the pro forma events must be expected to have a continuing impact on the combined results. You should read this information in conjunction with the:

The pro forma adjustments are described in the notes accompanying the pro forma financial information (the “Notes”).

The pro forma financial information has been prepared based on information currently available to us, using assumptions that our management believes are reasonable. The pro forma financial information does not purport to represent the actual results of operations that would have occurred if the Acquisition had taken place on the dates specified. The pro forma financial information is not necessarily indicative of the results of operations that may be achieved in the future. The pro forma financial information includes certain reclassifications to conform the historical results of operations of the Assets to our results of operations.

The assumptions used and adjustments made in preparing the pro forma financial information are described in the Notes, which should be read in conjunction with the pro forma financial information. The pro forma financial information and related Notes contained herein should be read in conjunction with our financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016 which was filed with the SEC on July 13, 2016, and the separate historical audited statements of revenues and direct operating expenses of the Assets for the years ended March 31, 2016 and 2015, included in this proxy statement.

The unaudited pro forma financial information is presented for informational purposes only.

LUCAS ENERGY, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF MARCH 31, 2016

LUCAS ENERGY, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF MARCH 31, 2016

The accompanying notes are an integral part of these pro forma combined financial statements.

LUCAS ENERGY, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED MARCH 31, 2016