Acquisitions and Dispositions

As previously disclosed in the Company's Form 8-K filed on February 4, 2015, Victory entered into a letter of intent ("LOI") relating to a proposed business combination with Lucas Energy, Inc. ("Lucas"). The business combination was contingent on, among other things, the parties completing due diligence, including title due diligence, the mutual negotiation of definitive documents, regulatory approvals and the registration of the securities to be issued to the shareholders of the combined company resulting from the Combination (the “Combined Company”). On February 26, 2015, Victory entered into (a) the Pre-Merger Collaboration Agreement (the “Collaboration Agreement”) by and among Victory, Lucas, Navitus and AEP Assets, LLC ("AEP"), a wholly-owned subsidiary of Aurora; and (b) the Pre-Merger Loan and Funding Agreement (the “Loan Agreement”) between Victory and Lucas. Subsequently the parties entered into Amendment No. 1 to the Pre-Merger Collaboration Agreement on March 3, 2015, which amendments affected thereby are included in the discussion of the Collaboration Agreement below. On March 2, 2015, payments of $195,928 and $317,027 were made by Aurora, on behalf of Victory, to Earthstone Energy/Oak Valley Resources and Penn Virginia, respectively, pursuant to the Pre-Merger Collaboration Agreement for costs related to the two Earthstone Energy/Oak Valley Resources and the five Penn Virginia operated Eagle Ford wells, respectively. The initial draw, and any other amounts borrowed by Lucas under the Loan Agreement were evidenced by a Secured Subordinated Delayed Draw Term Note issued by Lucas in favor of Victory, which was in an initial amount of $250,000 (the “Draw Note”). Borrowings evidenced by the Draw Note accrued interest at 0.5% per annum, with accrued interest payable in one lump sum on maturity. The maturity date of the Draw Note was February 26, 2016. A total of $600,000 was paid to Lucas through May 11, 2015, under the Draw Note. On May 11, 2015, the Company terminated the LOI pursuant to its terms, which permitted either the Company or Lucas to terminate the LOI by written notification to the other party. The Company also notified Lucas pursuant to the Loan Agreement, that it would not extend any further credit to Lucas under the Loan Agreement. Merger and merger termination related direct costs total $1,326,850 and are included in general and administrative expenses for the twelve months ended December 31, 2015.

On June 24, 2015, the Company entered into (1) a Settlement Agreement and Mutual Release (the “Lucas Settlement Agreement”) with Lucas, (2) a Settlement Agreement and Mutual Release (the “Rogers Settlement Agreement”) with Louise H. Rogers, (“Rogers”), and (3) a Compromise Settlement Agreement and Mutual General Release, effective as of June 25, 2015 (the “Earthstone Settlement Agreement”, and, together with the Lucas Settlement Agreement and the Rogers Settlement Agreement, the “Settlement Agreements”) with Earthstone Operating, LLC, Earthstone Energy, Inc., Oak Valley Resources, LLC, Oak Valley Operating LLC and Sabine River Energy, LLC (collectively, “Earthstone”), Lucas, AEP, and Aurora.

Lucas Settlement Agreement

Pursuant to the Lucas Settlement Agreement, the Company and Lucas agreed to terminate any and all obligations between the parties arising under the LOI and the Collaboration Agreement. The Company and Lucas further agreed that the Company would retain ownership and control over five Penn Virginia well-bores previously assigned by Lucas to the Company (the “Penn Virginia Well-Bores”), as well as the obligations to pay the expenses associated with such Penn Virginia Well-Bores effective after August 1, 2014. Under the terms of the Lucas Settlement Agreement, Lucas agreed to assign to the Company all of Lucas’ rights in a certain oil and gas property located in the same field as the Penn Virginia Well-Bores (the “Additional Penn Virginia Property”), including the rights to all revenues from all wells on some properties. Lucas acknowledged the principal amount of $600,000 previously advanced to Lucas by the Company pursuant to the terms of the Loan Agreement and agreed that the Company has no further obligations to advance any additional funds to Lucas pursuant to the terms of the Loan Agreement. Pursuant to the terms of the Lucas Settlement Agreement, Lucas agreed to issue 1,101,729 shares (44,069 post-split declared by Lucas as of July 15, 2015) shares of its common stock (the “Settlement Shares”) to the Company in full consideration of the $600,000 owed under the Loan Agreement. The Settlement Shares and an assignment of the Additional Penn Virginia Property was held in escrow pending the payment by the Company of amounts owed to Rogers under the Rogers Settlement (as described below). The Company has charged the $600,000 to general and administrative expenses as a cost of the merger termination.

Rogers Settlement Agreement

Pursuant to the Rogers Settlement Agreement, the Company and Rogers agreed, among other things, (i) to terminate the contingent promissory note in the principal amount of $250,000 payable to Rogers that was issued by Victory in connection with the entry by Lucas and the Company into the Collaboration Agreement, (ii) that the Company would pay Rogers, on or before July 15,2015, $253,750, and (iii) that Rogers’ legal counsel will hold the assignment of the Additional Penn Virginia Property and the Settlement Shares in escrow until such time as the payment of $253,750 is made by the Company to the Rogers.

Amendment to Rogers Settlement Agreement

As of July 16, 2015, the Company entered into an Amendment (the “Rogers Amendment”). Pursuant to the Rogers Amendment, the Company and Rogers agreed that the amount to be paid by the Company to Rogers under the Rogers Settlement Agreement is $258,125, instead of $253,750. The Amendment further specified that if the Company failed to make the payment of $258,125 on or before July 15, 2015, the Company would be in default under the Rogers Settlement Agreement and default interest on the amount due would begin to accrue at a per diem rate of $129.0625. Additionally, the Company acknowledged in the Amendment its obligation to pay Rogers’ attorney’s fees in the amount of $22,500. As of the date of this Annual Report on Form 10-K, the Company has not made any payments to Rogers pursuant to the Rogers Settlement Agreement.

As described above, Rogers’ legal counsel held the assignment to the Company of Lucas Energy, Inc.’s rights additional Penn Virginia Property and the Settlement Shares in escrow pending the Company’s payment of all amounts due under the Rogers Settlement Agreement. The Company failed to make the required payment to Roger’s by August 27, 2015, and has still not made all the required payments. As a result, the additional Penn Virginia Property was returned to Lucas Energy, Inc. on or about September 3, 2015. The full amount due under the Roger’s obligation including accrued interest at December 31, 2015 totals $300,432.

Earthstone Settlement Agreement

Pursuant to the terms of the Earthstone Settlement Agreement, the Company assigned to Earthstone certain oil and gas interests in the wells which were previously transferred to the Company by Lucas in February 2015. The Company and Earthstone also agreed to release each other from any and all claims, demands and causes of action which either party had against the other prior to the effective date of the Earthstone Settlement Agreement, whether known or unknown, except in connection with the breach, enforcement or interpretation of the Earthstone Settlement Agreement. Lucas and Earthstone similarly agreed to release each other from such claims pursuant to the terms of the Earthstone Settlement Agreement. The Company has charged $195,928 related to the Earthstone Settlement Agreement to general and administrative expenses as a cost of the merger termination.

Dispositions

On June 5, 2014, Victory, through its controlling interest and as managing partner in Aurora, sold certain leasehold properties and all of Aurora’s related interests in approximately 640 gross and 128 net mineral acres located in Glascock County, Texas (the “Lightnin' Assets”) to an unrelated third party (the “Lightnin' Buyer”) for approximately $4 million in cash gross to Aurora. The sale was made pursuant to a Purchase and Sale Agreement dated as of April 30, 2014 by and among the working interest owner/sellers, including Aurora, and the Lightnin' Buyer. The effective date for the transaction was April 1, 2014. Aurora held a 20% working and 15% net revenue interest in the Lightnin' Assets which were operated by a third party. Estimated daily net production to Aurora's interest was approximately 36 BOEPD (barrels of oil equivalent per day) at the time of the sale from the 3 producing wells. The Company recognized a gain on the sale of the Lightnin' Assets of $2,160,099 in its consolidated statement of operations for the year ended December 31, 2014.

Acquisitions

On June 30, 2014, Aurora completed the First Closing of a purchase of a 10% working and 7.5% net revenue interest in the proved and unproved Permian Basin Fairway Operations from Target Energy Limited, which we refer to as TELA for an initial payment of $2,491,888 in cash, subject to customary purchase price adjustments (the "Fairway Acquisition"), pursuant to the terms and conditions of the Purchase and Sale Agreement dated June 30, 2014 between Aurora and TELA (the "Fairway PSA"). On the First Closing, TELA assigned certain assets in its Permian Basin Fairway Operation (the “First Closing Assets”) to Aurora. The second closing (the “Second Closing”) was planned to follow the completion of curative title work and was expected in August 2014. On July 31, 2014, the Company made an additional payment related to its Fairway Property acquisition. The payment of $558,246 to the seller of the Fairway properties was a purchase price adjustment made in accordance with the purchase and sale agreement related thereto. On the Second Closing, TELA was to assign the remainder of its assets in its Permian Basin Fairway Operations to Aurora. The Effective Date for the transfer of all assets was May 1, 2014. The acquisition of the First Closing Assets included seven producing wells and four wells completed and awaiting production start-up.

On September 23, 2014, the Company mutually agreed to the termination of the Fairway PSA. Pursuant to the termination of the Fairway PSA, the Second Closing did not occur as the result of certain title impairment issues that were uncovered during the due diligence process and that were not remedied to the satisfaction of the Company and TELA. No penalties or payments were due as a result of the termination of the Fairway PSA. See footnote 12 for further discussion.

In the fourth quarter of 2014, the Company made a final determination as to the purchase price resulting in a final purchase price of $3,214,872. The amount of the total purchase price allocated to undeveloped oil and gas properties was reduced by these adjustments. The adjusted purchase price was allocated as follows:



	Fairway Purchase Price Allocation
Fair Value of Assets Acquired - Tangible and Intangible Well costs	$	2,240,530
Fair Value of Assets Acquired - Proved Producing Leasehold Costs		197,654
Fair Value of Assets Acquired Unproved Leasehold Costs		776,688
Net Asset Fair Value Final	$	3,214,872

The acquisitions qualified as a business combination under ASC 805. The valuation to determine the fair values were principally based on the discounted cash flows of the producing and undeveloped properties, including projected drilling and equipment costs, recoverable reserves, production streams, future prices and operating costs, and risk-adjusted discount rates reflective of the market at the time of acquisition. These measurements of fair value are considered Level 3 measurements because of the significance of unobservable inputs.