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VADDA ENERGY CORP
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">Vadda Energy
Corporation (“Vadda”) was originally incorporated in Florida in 1997. The foregoing consolidated financial statements
include the accounts of Vadda, its wholly owned subsidiary, Mieka Corporation (“Mieka”) and Mieka LLC, a variable
interest entity (“VIE”), which collectively are referred to as the “Company”.  All significant
intercompany balances and transactions have been eliminated and all normal recurring adjustments have been recorded that are necessary
for a fair presentation of the information contained herein.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The accompanying
interim consolidated financial statements and related notes are presented in accordance with U.S. generally accepted accounting
principles (“GAAP”) and are expressed in U.S dollars, and have been prepared by the Company without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnotes
have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented
not misleading. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial
statements of the Company for the years ended December 31, 2011 and 2010, and notes thereto contained in the Company’s audited
financial statements filed as part of its Form 10-K for the year ended December 31, 2011. The results of operations for such periods
are not necessarily indicative of the results expected for a full year or any future period.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The Company
is an independent developer and producer of natural gas and oil, with operations in Pennsylvania, Kentucky, Ohio and New York.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i>Oil and
Gas Producing Activities</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The Company’s
oil and gas producing activities were accounted for using the successful efforts method of accounting. Costs to acquire leasehold
rights in oil and gas properties, to drill and equip exploratory wells that find proved reserves, to drill and equip development
wells and costs of support equipment and facilities are capitalized.  Costs to drill exploratory wells that do not find
proved reserves, delay rentals and geological and geophysical costs are expensed.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The Company
earns carried working interests in wells drilled by joint ventures that it manages. Upon the successful completion of a well,
the joint ventures are assigned leasehold rights on acreage that comprises the legal spacing for the well. When a joint venture
sells ownership interests in excess of the total offering amount, such additional interests reduce the Company’s carried
working interest. The joint ventures typically pay 100% of the drilling and completion costs. The Company also intends to have
ownership in wells drilled in the Marcellus Shale on leases in which the joint ventures do not participate.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i>Turnkey
Drilling Revenue Recognition</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt; color: black">In
its role as the managing venturer of various oil and gas drilling joint ventures, the Company enters into turnkey drilling agreements
with operators whereby a profit is earned by arranging the drilling and completion of prospect wells funded by the individual
joint ventures. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 605, “Revenue Recognition,” revenue is deferred until wells are completed as producing wells
or determined to be nonproductive. The associated drilling costs of wells are deferred until revenue is recognized. During
the nine months ended September 30, 2012, the Company recognized $3,733,169 of turnkey drilling revenue and $1,891,055 of turnkey
drilling costs on three completed gas wells. As of September 30, 2012 and December 31, 2011, the Company had $5,122,806 and $6,528,474,
respectively, in deferred turnkey drilling revenue.  The Company had deferred drilling costs related to turnkey agreements
in the amount of $187,905 and $699,836, respectively, as of September 30, 2012 and December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">No drilling
costs are incurred by the Company for its carried working interests retained in wells drilled by managed joint ventures.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font-size: 8pt"><i>Prepayment to Operator</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The Company
acquired 18 oil and gas joint ventures in December 2009 and included in the assets were claims by certain of the joint ventures
against an operator relating to its business dealings with the joint ventures in the aggregate amount of $1,832,500, which was
recorded as a prepayment to operator. Effective December 30, 2011, the Company entered into a written settlement agreement pursuant
to which the operator executed a promissory note in the principal amount of $3,000,000 to satisfy its obligations to the Company.
The promissory note was recorded at the carrying value of the outstanding claims against operator in the amount of $1,832,500
as of the effective date of the note, December 30, 2011. However, based on the historical settlement issues involved, the Company
recorded a reserve of $1,832,500 against the note as of December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i>Depletion
and Depreciation</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">Estimates
of natural gas and oil reserves utilized in the calculation of depletion are prepared using certain assumptions. Reserve estimates
are based upon existing economic and operating conditions with no provision for price and cost escalations except by contractual
arrangements.  Natural gas and oil reserve estimates are inherently imprecise and are subject to change as more current
information becomes available. Capitalized costs are depleted and amortized using the units of production method, based upon
reserve estimates. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font-size: 8pt"><i>Impairments</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The carrying
value of oil and gas properties is assessed for possible impairment on at least an annual basis, or as circumstances warrant,
based on geological analysis or changes in proved reserve estimates. When impairment occurs, an adjustment is recorded as
a reduction of the asset carrying value.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i>Asset
Retirement Obligations</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">A provision
has been recorded for the estimated liability for the plugging and abandonment of natural gas and oil wells at the end of their
productive lives. The liability and the associated increase in the related asset are recorded in the period in which the asset
retirement obligation, or ARO, is incurred. The liability is accreted to its present value each period and the capitalized cost
is depreciated over the useful life of the related asset.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The estimated
liability is calculated annually using the estimated remaining lives of the wells based on reserve estimates and federal and state
regulatory requirements. The liability is discounted using an assumed credit-adjusted risk-free rate. At the time of abandonment,
the Company recognizes a gain or loss on abandonment to the extent that actual costs do not equal the estimated costs.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The Company
recognized $13,125 and $39,376 of accretion expense, respectively, during the three months and nine months ended September 30,
2012, and $0 during each of the three months and nine months ended September 30, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i>Goodwill</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">At September
30, 2012 and December 31, 2011, the Company had $2,740,171 of goodwill related to the acquisition of certain oil and gas joint
ventures on December 1, 2009.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">Goodwill
represents the excess of the purchase price over the fair value of the net assets acquired.  The Company follows ASC
Topic 350, “Goodwill and Intangible Asset Impairment Testing.” The Company’s analysis consists of two steps.
Step 1 tests the company for impairment by comparing the fair value of equity to the book value of equity. If the fair value is
less than the book value, then a Step 2 analysis must be performed. If the fair value of goodwill is less than its carrying amount,
impairment is recorded based on the difference. The Company annually assesses the carrying value of goodwill for impairment. No
impairment loss was recorded for the nine months ended September 30, 2012.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i>Recently
Issued Accounting Standards</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The SEC and
FASB continually adopt new reporting requirements and makes revisions to existing disclosures required for oil and gas companies,
which are intended to provide investors with a more meaningful and comprehensive understanding of such information. The following
recently adopted changes will have the greatest impact on the Company’s financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><u>Offsetting
Assets and Liabilities</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">In December
2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-11, “Disclosures about Offsetting Assets
and Liabilities.” The guidance requires additional disclosures about the impact of offsetting, or netting, on a company’s
financial position, and is effective for annual periods beginning on or after January 1, 2013 and interim periods within those
annual periods and retrospectively for all comparative periods presented. Under GAAP, derivative assets and liabilities can be
offset under certain conditions. The guidance requires disclosures showing both gross information and net information about instruments
eligible for offset in the balance sheet. The Company is currently evaluating the provisions of ASU 2011-11 and assessing the
impact, if any, it may have on its financial position or results of operations.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><u>Common
Fair Value Measurement and Disclosure</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">In May 2011,
the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US
GAAP and IFRSs.” The guidance amends previously issued authoritative guidance and requires new disclosures, clarifies existing
disclosures and is effective for interim and annual periods beginning after December 15, 2011. The amendments change requirements
for measuring fair value and disclosing information about those measurements. Additionally, the guidance clarifies the FASB’s
intent regarding the application of existing fair value measurement requirements and changes certain principles or requirements
for measuring fair value or disclosing information about its measurements. For many of the requirements, the FASB does not intend
the amendments to change the application of the existing fair value measurements guidance. The Company has evaluated the provisions
of ASU 2011-04 and has determined that there is no impact on its financial position or results of operations as of September 30,
2012.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><u>Comprehensive
Income</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">In June 2011,
authoritative guidance was issued on the presentation of comprehensive income. Specifically, the guidance allows an entity to
present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive
income, or in two separate but consecutive statements. The new guidance eliminates the current option to report other comprehensive
income and its components in the statement of changes in equity. The Company reviewed the changes in presentation of comprehensive
income during the third quarter of 2012 and determined that the changes have no effect on the calculation of the Company’s
net income, comprehensive income or earnings per share.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"><u>Impairment</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">In September
2011, the FASB issued an update to existing guidance on testing goodwill for impairment. This update simplifies the assessment
of goodwill for impairment by allowing an entity to first assess qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If impairment is indicated, it is necessary to perform
the two-step impairment review process. It also amends the examples of events or circumstances that would be considered in a goodwill
impairment evaluation. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. The Company adopted the new guidance in 2012.</font></p>
<p style="margin: 0pt"><font style="font-size: 8pt">The Company computes quarterly income taxes under the effective tax rate method
based on applying an anticipated annual effective rate to its quarterly net income (loss), except for discrete items. Income taxes
for discrete items are computed and recorded in the period that the specific transaction occurs. For the three and nine months
ended September 30, 2012, the Company’s overall effective tax rate on pre-tax income from operations used was 98.2%
and 14.9%, respectively.  Based on net income and losses for the three months and nine months ended September 30, 2012
and 2011, the Company had an estimated income tax benefit of $80,444 for the three months ended September 30, 2012, an estimated
income tax expense of $60,556 for the nine months ended September 30, 2012 and an estimated income tax benefit of $193,653 and
$510,233, respectively, for the three and nine months ended September 30, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">Pursuant
to an arrangement between the Company and Mieka LLC, an entity wholly owned by the Company’s principal stockholders, Mieka
LLC provides drilling and completion services on wells owned by the Company. Prices charged to the Company by Mieka LLC under
turnkey drilling arrangements do not reflect prevailing rates that would be charged by outside third parties in arms-length transactions.
During the three months ended September 30, 2012 and 2011, the Company incurred drilling costs associated with turnkey drilling
contracts with Mieka LLC of $1,000,035 and $277,200 respectively. During the nine months ended September 30, 2012 and 2011, the
Company incurred drilling costs associated with turnkey drilling contracts with Mieka LLC of $1,763,617 and $1,766,640, respectively.
As of September 30, 2012 and December 31, 2011, the Company was obligated to pay $1,176,456 and $662,292, respectively, to Mieka
LLC.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt; color: black">During
the nine months ended September 30, 2012, Daro and Anita Blankenship, principal shareholders of the Company, received aggregate
compensation from the Company of $76,000 and $97,500, respectively. During the nine months ended September 30, 2011, they received
aggregate compensation of $72,924 and $72,784, respectively. As of September 30, 2012, the Company was obligated to pay Daro and
Anita Blankenship $10,083 and $71,311 respectively. As of December 31, 2011, the Company was obligated to pay Daro and Anita Blankenship
$10,083 and $78,481 respectively.</font></p>
<p style="margin: 0pt"><font style="font-size: 8pt">During the third quarter 2012, the Company leased office space on a month-to-month
basis under the terms of an office lease that expired in June 2011 and paid $13,073 per month for rent expense. At the end of
September 2012, the Company relocated its principal offices to Flower Mound, Texas under a new lease agreement entered into in
May 2012. The lease provides approximately 7,800 square feet of office space for a term of 6 ½ years. After an initial
six-month rent abatement period, basic rent for the following 12 months will be $9,775 monthly.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">In June 2011
the Company obtained an installment<font style="color: black"> loan in the principal amount of $30,000 to purchase oil and gas
accounting software. Under the terms of the loan agreement, the loan bears interest at the rate of 6.5% per year and the Company
has a monthly payment obligation of $1,338 until the loan’s maturity in June 2013. As of September 30, 2012, the remaining
unpaid principal balance was $11,683.</font></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt; color: black">Management
performs an analysis of the Company’s variable interests to determine if those type interests are held in other entities.
The </font>analysis primarily is based on a qualitative review, but also includes quantitative considerations in evaluating the
variable interests in accordance with FASB ASC Topic 810-10, “Accounting for Variable Interest Entities.” Qualitative
analyses are performed based on an evaluation of the design by the entity, its organizational structure, to include decision-making
ability, and financial arrangements. When used to supplement qualitative analyses, quantitative analyses are based on forecasted
cash flows of the entity.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">GAAP requires
reporting entities to consolidate variable interest entities when they have variable interests that provide a controlling financial
interest in variable interest entities. Entities that consolidate variable interest entities are referred to as primary beneficiaries.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">Mieka, LLC
(“VIE”), an entity under common control of the Company, was evaluated as a variable interest entity of the Company.
The VIE’s only source of revenue is from the drilling of oil and gas wells contracted with the Company through certain turnkey
contracts entered into by the Company. The relationship was evaluated to determine if the arrangement gave the Company a variable
interest in a variable interest entity and to determine whether the Company was the primary beneficiary that would result in consolidating
the VIE.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The Company
was considered to be the primary beneficiary as a result of the obligation to absorb losses that could be significant to the VIE.
Additionally, since future revenue for the VIE is dependent upon the Company entering into future turnkey contracts or drilling
programs, the Company directs activities that most significantly impact economic performance of the VIE. The Company was determined
to be the primary beneficiary of the VIE for 2012 and 2011 and the VIE has been included in the consolidated financial statements
as of and for the years ended December 31, 2011 and as of and for the nine months ended September 30, 2012 and 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">The table
below reflects the amount of assets and liabilities from the VIE included in the consolidated balance sheets as of September 30,
2012 and December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">September 30, 2012</font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31, 2011</font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt">Assets:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 66%; padding-left: 9.9pt"><font style="font-size: 8pt">Cash</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 13%; text-align: right"><font style="font-size: 8pt">727,770</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 13%; text-align: right"><font style="font-size: 8pt">1,232,252</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Accounts receivable from affiliates</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,678,379</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">662,292</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Prepaid drilling cost</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">187,905</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">699,836</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Investment in joint ventures</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">614,500</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">614,500</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Other assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">145,030</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">64,971</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total Assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,353,584</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,273,851</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left"><font style="font-size: 8pt">Liabilities and Members’ Deficit:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Accounts payable and accrued liabilities</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">91,231</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">38,233</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Deferred revenue</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,649,255</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">4,192,414</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total liabilities</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,740,486</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">4,230,647</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Accumulated deficit</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(386,902</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(956,796</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total members’ deficit</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(386,902</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(956,796</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total Liabilities and Members’ Deficit</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,353,584</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,273,851</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
2008510
2993054
187905
699836
187905
699836
774719
835275
180429
75777
1678379
662292
865457
1382166
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1836957
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2130500
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252040
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104235236
104235236
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108339
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97500
72924
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614500
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><font style="font-size: 8pt; color: black">In
its role as the managing venturer of various oil and gas drilling joint ventures, the Company enters into turnkey drilling agreements
with operators whereby a profit is earned by arranging the drilling and completion of prospect wells funded by the individual
joint ventures. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 605, “Revenue Recognition,” revenue is deferred until wells are completed as producing wells
or determined to be nonproductive. The associated drilling costs of wells are deferred until revenue is recognized. During
the nine months ended September 30, 2012, the Company recognized $3,733,169 of turnkey drilling revenue and $1,891,055 of turnkey
drilling costs on three completed gas wells. As of September 30, 2012 and December 31, 2011, the Company had $5,122,806 and $6,528,474,
respectively, in deferred turnkey drilling revenue.  The Company had deferred drilling costs related to turnkey agreements
in the amount of $187,905 and $699,836, respectively, as of September 30, 2012 and December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt">No drilling
costs are incurred by the Company for its carried working interests retained in wells drilled by managed joint ventures.</font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">The Company acquired 18 oil and gas joint ventures in December 2009 and included
in the assets were claims by certain of the joint ventures against an operator relating to its business dealings with the joint
ventures in the aggregate amount of $1,832,500, which was recorded as a prepayment to operator. Effective December 30, 2011, the
Company entered into a written settlement agreement pursuant to which the operator executed a promissory note in the principal
amount of $3,000,000 to satisfy its obligations to the Company. The promissory note was recorded at the carrying value of the
outstanding claims against operator in the amount of $1,832,500 as of the effective date of the note, December 30, 2011. However,
based on the historical settlement issues involved, the Company recorded a reserve of $1,832,500 against the note as of December
31, 2011.</font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">Estimates of natural gas and oil reserves utilized in the calculation of depletion
are prepared using certain assumptions. Reserve estimates are based upon existing economic and operating conditions with no provision
for price and cost escalations except by contractual arrangements.  Natural gas and oil reserve estimates are inherently
imprecise and are subject to change as more current information becomes available. Capitalized costs are depleted and amortized
using the units of production method, based upon reserve estimates. </font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">The carrying value of oil and gas properties is assessed for possible impairment
on at least an annual basis, or as circumstances warrant, based on geological analysis or changes in proved reserve estimates. When
impairment occurs, an adjustment is recorded as a reduction of the asset carrying value.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><font style="font-size: 8pt">A provision
has been recorded for the estimated liability for the plugging and abandonment of natural gas and oil wells at the end of their
productive lives. The liability and the associated increase in the related asset are recorded in the period in which the asset
retirement obligation, or ARO, is incurred. The liability is accreted to its present value each period and the capitalized cost
is depreciated over the useful life of the related asset.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><font style="font-size: 8pt">The estimated
liability is calculated annually using the estimated remaining lives of the wells based on reserve estimates and federal and state
regulatory requirements. The liability is discounted using an assumed credit-adjusted risk-free rate. At the time of abandonment,
the Company recognizes a gain or loss on abandonment to the extent that actual costs do not equal the estimated costs.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><font style="font-size: 8pt">The Company
recognized $13,125 and $39,376 of accretion expense, respectively, during the three months and nine months ended September 30,
2012, and $0 during each of the three months and nine months ended September 30, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><font style="font-size: 8pt">At September
30, 2012 and December 31, 2011, the Company had $2,740,171 of goodwill related to the acquisition of certain oil and gas joint
ventures on December 1, 2009.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><font style="font-size: 8pt">Goodwill
represents the excess of the purchase price over the fair value of the net assets acquired.  The Company follows ASC
Topic 350, “Goodwill and Intangible Asset Impairment Testing.” The Company’s analysis consists of two steps.
Step 1 tests the company for impairment by comparing the fair value of equity to the book value of equity. If the fair value is
less than the book value, then a Step 2 analysis must be performed. If the fair value of goodwill is less than its carrying amount,
impairment is recorded based on the difference. The Company annually assesses the carrying value of goodwill for impairment. No
impairment loss was recorded for the nine months ended September 30, 2012.</font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">The SEC and FASB continually adopt new reporting requirements and makes revisions
to existing disclosures required for oil and gas companies, which are intended to provide investors with a more meaningful and
comprehensive understanding of such information. The following recently adopted changes will have the greatest impact on the Company’s
financial statements.</font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">In December 2011, the FASB issued Accounting Standards Update (“ASU”)
No. 2011-11, “Disclosures about Offsetting Assets and Liabilities.” The guidance requires additional disclosures about
the impact of offsetting, or netting, on a company’s financial position, and is effective for annual periods beginning on
or after January 1, 2013 and interim periods within those annual periods and retrospectively for all comparative periods presented.
Under GAAP, derivative assets and liabilities can be offset under certain conditions. The guidance requires disclosures showing
both gross information and net information about instruments eligible for offset in the balance sheet. The Company is currently
evaluating the provisions of ASU 2011-11 and assessing the impact, if any, it may have on its financial position or results of
operations.</font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs.” The guidance amends previously issued authoritative
guidance and requires new disclosures, clarifies existing disclosures and is effective for interim and annual periods beginning
after December 15, 2011. The amendments change requirements for measuring fair value and disclosing information about those measurements.
Additionally, the guidance clarifies the FASB’s intent regarding the application of existing fair value measurement requirements
and changes certain principles or requirements for measuring fair value or disclosing information about its measurements. For
many of the requirements, the FASB does not intend the amendments to change the application of the existing fair value measurements
guidance. The Company has evaluated the provisions of ASU 2011-04 and has determined that there is no impact on its financial
position or results of operations as of September 30, 2012.</font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">In June 2011, authoritative guidance was issued on the presentation of comprehensive
income. Specifically, the guidance allows an entity to present components of net income and other comprehensive income in one
continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. The
new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes
in equity. The Company reviewed the changes in presentation of comprehensive income during the third quarter of 2012 and determined
that the changes have no effect on the calculation of the Company’s net income, comprehensive income or earnings per share.</font></p>
<p style="margin: 0pt; text-align: left"><font style="font-size: 8pt">In September 2011, the FASB issued an update to existing guidance on testing
goodwill for impairment. This update simplifies the assessment of goodwill for impairment by allowing an entity to first assess
qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If impairment is indicated, it is necessary to perform the two-step impairment review process. It also amends the examples
of events or circumstances that would be considered in a goodwill impairment evaluation. The amendments are effective for annual
and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted the new
guidance in 2012.</font></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below reflects the
amount of assets and liabilities from the VIE included in the consolidated balance sheets as of September 30, 2012 and
December 31, 2011.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">September 30, 2012</font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31, 2011</font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt">Assets:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 66%; padding-left: 9.9pt"><font style="font-size: 8pt">Cash</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 13%; text-align: right"><font style="font-size: 8pt">727,770</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 13%; text-align: right"><font style="font-size: 8pt">1,232,252</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Accounts receivable from affiliates</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,678,379</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">662,292</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Prepaid drilling cost</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">187,905</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">699,836</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Investment in joint ventures</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">614,500</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">614,500</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Other assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">145,030</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">64,971</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total Assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,353,584</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,273,851</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left"><font style="font-size: 8pt">Liabilities and Members’ Deficit:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Accounts payable and accrued liabilities</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">91,231</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">38,233</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 9.9pt"><font style="font-size: 8pt">Deferred revenue</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,649,255</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">4,192,414</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total liabilities</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,740,486</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">4,230,647</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Accumulated deficit</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(386,902</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(956,796</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total members’ deficit</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(386,902</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(956,796</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-left: 19.8pt"><font style="font-size: 8pt">Total Liabilities and Members’ Deficit</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,353,584</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">3,273,851</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 11pt/115% Calibri, Helvetica, Sans-Serif; margin: 0 0 10pt"> </p>
60556
80444
193653
510233
60556
-80444
-193653
-510233
<p style="margin: 0pt"><font style="font-size: 8pt"> </font></p>
<p style="margin: 0pt"><font style="font-size: 8pt">The Company’s oil and gas producing activities were accounted for using
the successful efforts method of accounting. Costs to acquire leasehold rights in oil and gas properties, to drill and equip
exploratory wells that find proved reserves, to drill and equip development wells and costs of support equipment and facilities
are capitalized.  Costs to drill exploratory wells that do not find proved reserves, delay rentals and geological and
geophysical costs are expensed.</font></p>
<p style="margin: 0pt"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 8pt">The Company
earns carried working interests in wells drilled by joint ventures that it manages. Upon the successful completion of a well,
the joint ventures are assigned leasehold rights on acreage that comprises the legal spacing for the well. When a joint venture
sells ownership interests in excess of the total offering amount, such additional interests reduce the Company’s carried
working interest. The joint ventures typically pay 100% of the drilling and completion costs. The Company also intends to have
ownership in wells drilled in the Marcellus Shale on leases in which the joint ventures do not participate.</font></p>
-22208
-38890
30000
2740171
2740171
The lease provides approximately 7,800 square feet of office space for a term of 6 1/2 years. After an initial six-month rent abatement period, basic rent for the following 12 months will be $9,775 monthly.
11683
.065
2013-06-30
39376
13125