Resaca Exploitation, Inc. : 2012 Final Results

?

for IMMEDIATE release

5 november 2012

Resaca Exploitation, Inc.

("Resaca" or "the Company")

Results for the fiscal year ended 30 June 2012

Resaca (AIM:RSOX), the oil and natural gas production, exploitation, and development company focused on the Permian Basin in the USA, is pleased to announce its results for the fiscal year ended 30 June 2012.

Highlights

Operational Highlights

·      Proved developed producing reserves of 3.3 million barrels of oil equivalents ("MMboe") as of 30 June 2012 (3% increase over prior year); PV10 value of $69.7 MM (2% increase over prior year)

·      Proved reserves of 14.4 MMboe as of 30 June 2012 (2% decrease from prior year); PV10 value of $316.5 MM (2% increase over prior year)

·      Proved and probable reserves of 30.0 MMboe as of 30 June 2012 (0.3% increase over prior year); PV10 value of $535.1 MM (8% increase over prior year)

·      Production averaged 716 boepd (net) for the twelve months ended 30 June 2012 (10% increase over production for twelve months ended 30 June 2011)

·      Sold Grand Clearfork Unit and purchased Langlie Jal Unit

Financial Highlights

·      Oil and gas revenues of $22.0 million (19% increase over revenue for thetwelve months ended 30 June 2011)before hedging settlements of $(1.1) million

·      Unrealized gain from hedging activities of $8.1 million

·      Net income of $6.5 million versus net loss of $7.3 million for thetwelve months ended 30 June 2011

·      EBITDA of $10.3 million(27% increase over EBITDA for thetwelve months ended 30 June 2011)

·      As announced on 13 September 2012, Resaca continues to be in non-compliance with financial covenants leading to a planned asset disposal.

J.P. Bryan, Resaca Chairman and CEO commented

"We are pleased with our increases in proved producing reserves, total proved reserves, 2P reserves, production, revenues, income and EBITDA, which were the result of our continued waterflood development.  We look forward to the successful completion of our asset dispositions and the reduction of our debt that will follow.  Upon the conclusion of those efforts, we believe Resaca will be well positioned to increase, including the exploitation of its remaining assets and the pursuit of other growth opportunities."

For further information please contact:

Resaca Exploitation, Inc.
J.P. Bryan, Chairman and Chief Executive Officer	[phone]
John J. ("Jay") Lendrum, III, Vice Chairman	[phone]
Dennis Hammond, President and Chief Operating Officer	[phone]
Will Gray, Executive Vice President	[phone]
Buchanan (Investor Relations)	[phone]
Tim Thompson Helen Chan Ben Romney
finnCap Limited (Nomad and Broker)	[phone]
Matt Goode, Corporate Finance Christopher Raggett, Corporate Finance Victoria Bates, Corporate Broking

About Resaca

Resaca is an independent oil and gas development and production company based in Houston, Texas. Resaca is focused on the acquisition and exploitation of long-life oil and gas properties, utilizing a variety of primary, secondary and tertiary recovery techniques. Resaca's current properties are located in the Permian Basin of West Texas and Southeast New Mexico. Additional information is available atwww.resacaexploitation.com .

Report and accounts

The report and accounts of Resaca for the year ended 30 June 2012 are being posted to shareholders and will be available on the company's websitewww.resacaexploitation.com .

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT

I am pleased to present the Report and Accounts for Resaca Exploitation for the year ended 30 June 2012.

During this period, we primarily focused on the further development of our waterfloods at our Cooper Jal, Jordan San Andres, and Edwards Grayburg properties and the restoration of the waterflood at our Langlie Jal property, which we acquired during the fiscal year.  On all of our waterflood projects, we see continued response from increased injection, including higher fluid production rates and improved bottom hole pressure levels.  The increased fluid production from the waterfloods required additional investments in production equipment and field infrastructure, which we believe is largely complete given our current level of water injection.  Additional pumping capacity is still needed at Cooper Jal and Langlie Jal due to the performance of these waterfloods.  Our efforts during the fiscal year directly resulted in increases in ourproved producing reserves, total 2P and 3P reserves, production, revenues, income and EBITDA over the last twelve months. 

Despite these accomplishments, we have been unable to comply with the financial covenants under our credit facilities and consequently there issubstantial doubt about the Company's ability to continue as a going concern if we are unsuccessful in our efforts to reduce our corporate debt.  Over the prior fiscal year, we have pursued numerous alternative opportunities for Resaca and its shareholders and concluded that a sale of the Company's Cooper Jal and Langlie Jal Units is the best course of action at this time.  The proceeds from a sale of these properties will allow Resaca to reduce its corporate debt while continuing to pursue strategies to increase shareholder value.  The marketing of these properties is well underway and we anticipate completing the divestures and debt reduction by 31 December 2012.

We remain optimistic about the opportunities we see in our business and look forward to further communications with our shareholders regarding our strategy as we move forward in 2013. 

J.P. Bryan
Chairman and Chief Executive Officer

Resaca Exploitation, Inc.

Consolidated Balance Sheets

							June 30,
							2012		2011
Assets
Current assets
	Cash and cash equivalents						$           416,458		$        1,005,863
	Accounts receivable						2,130,128		3,169,637
	Other receivable, net						100,000		1,480,986
	Due from affiliates, net						3,804		186,917
	Derivative assets						363,110		-
	Prepaids and other current assets						536,773		556,957
	Deferred tax assets						25,722		490,433
		Total current assets					3,575,995		6,890,793
Property and equipment, at cost
	Oil and gas properties - full cost method						162,172,967		146,934,137
	Fixed assets						2,071,389		1,929,998
							164,244,356		148,864,135

Resaca Exploitation, Inc.

Consolidated Statements of Operations

							Years Ended June 30,
							2012		2011		2010
Income
	Oil and gas revenues						$        20,938,368		$      16,534,071		$     15,053,740
	Unrealized gain (loss) from price risk
		management activities					6,295,534		(4,169,839)		642,254
	Unrealized gain from change in fair value
		of warrant derivative liabilities					1,839,200		580,800		-
	Interest and other income						33,394		463		7,676
		Total income					29,106,496		12,945,495		15,703,670

Resaca Exploitation, Inc.

Consolidated Statements of Stockholders' Equity

Years Ended June 30, 2012, 2011 and 2010

			Additional		Total
	Common Stock		Paid-in	Accumulated	Stockholders'
	Shares	Par value	Capital	Deficit

Resaca Exploitation, Inc.

Consolidated Statements of Cash Flows

							Years Ended June 30,
							2012		2011		2010
Cash flows from operating activities
Net income (loss)							$   6,527,770		$ (7,254,143)		$ (8,186,110)

Note A - Organization and Nature of Business

Resaca Exploitation, L.P. (the "Partnership") was formed on March 1, 2006 for the purpose of acquiring and exploiting interests in oil and gas properties located primarily in New Mexico and Texas.  The Partnership was funded and began operations on May 1, 2006.  Resaca Exploitation, G.P. served as the sole general partner (.667%) and various limited partners owned the remaining 99.333%.  Under the terms of the Limited Partnership Agreement, profits and losses were allocated to the general partner and limited partners based upon their ownership percentages.

On July 10, 2008, the Partnership converted from a Delaware partnership to a Texas corporation and became Resaca Exploitation, Inc. ("Resaca").  Following conversion, Resaca became subject to federal and certain state income taxes and adopted a June 30 year end for federal income tax and financial reporting purposes.  On July 17, 2008, Resaca completed an initial public offering (the "Offering") on the AIM Market of the London Stock Exchange.  In the initial public offering, Resaca raised $83.4 million before expenses.

Resaca Operating Company ("ROC"), a wholly-owned subsidiary, was formed on October 16, 2008 for the purpose of operating Resaca's oil and gas properties.  Resaca and ROC are referred to collectively as the "Company".  Activities for ROC are consolidated in the Company's financial statements. 

Note B - Going Concern

These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. These principles assume that the Company will be able to realize its assets and discharge its obligations in the normal course of operations for the foreseeable future.

As of June 30, 2012, the Company had an accumulated deficit of approximately $18.5 million and a working capital deficit of approximately $55 million due to the classification of the Chambers Facility and Regions Facility balances as current liabilities due to the Company being in default of such credit agreements (see Note F).  These conditions raise substantial doubt about the Company's ability to continue as a going concern.  The Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain sustained profitability.

Management is enacting cost cutting measures and is selectively pursuing the sale of equipment that is not critical to the Company's operations. Management expects that, with the success of these initiatives, cash on hand and anticipated cash flows from operations will be sufficient to satisfy its currently expected working capital requirements (other than the Chambers Facility and the Regions Facility) and limited capital expenditure requirements through June 30, 2013.  The Company is additionally pursuing the sale of a significant portion of its properties to partially or completely satisfy its obligations under the Chambers Facility and the Regions Facility to either bring these facilities into compliance with their respective financial covenants or extinguish the facilities completely.  There can be no assurance that the Company will be able to raise sufficient funds through asset sales to meet these objectives.

Management believes the going concern assumption to be appropriate for these financial statements. If the going concern assumption were not appropriate, adjustments would be necessary to the carrying values of assets and liabilities, reported revenues and expenses and in the balance sheet classifications used in these consolidated financial statements.

Note C - Summary of Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include the accounts of Resaca and ROC.  All significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents:  Cash in excess of the Company's daily requirements is generally invested in short-term, highly liquid investments with original maturities of three months or less.  Such investments are carried at cost, which approximates fair value and, for the purposes of reporting cash flows, are considered to be cash equivalents.  The Company maintains its cash in bank deposits with various major financial institutions.  These accounts, at times, exceed federally insured limits.  The Company monitors the financial condition of the financial institutions and has not experienced any losses on such accounts.

Accounts Receivable:  Accounts receivable primarily consists of accrued revenues for oil and gas sales.  The Company routinely assesses the recoverability of all material receivables to determine their collectability.

Allowance for Doubtful Accounts:  The Company records a reserve on a receivable when, based on the judgment of management, it is likely that a receivable will not be collected and the amount of any reserve may be reasonably estimated.  As of June 30, 2012 and 2011, the Company had an allowance for doubtful accounts of $1,930,986 and $650,000, respectively.

Note C - Summary of Significant Accounting Policies (Continued)

Inventory: Inventory totaling $477,166 and $485,807 at June 30, 2012 and 2011, respectively, consists of piping and tubulars valued at the lower of cost or market and is included within prepaids and other current assets in the accompanying balance sheets.

Oil and Gas Properties:  Oil and gas properties are accounted for using the full-cost method of accounting.  Under this method, all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized.  This includes any internal costs that are directly related to acquisition, exploration and development activities, including salaries and benefits, but does not include any costs related to production, general corporate overhead or similar activities.  During the years ended June 30, 2012, 2011 and 2010, the Company capitalized $623,972, $306,111 and $373,360, respectively, in overhead relating to these internal costs.

No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves.

Under the full cost method, the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the "Ceiling Limitation").  In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain production-related and ad valorem taxes are deducted.  In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant indefinitely, except for changes that are fixed and determinable by existing contracts.  The excess, if any, of the net book value above the Ceiling Limitation is charged to expense in the period in which it occurs and is not subsequently reinstated.  The Company prepared its ceiling test at June 30, 2012 and 2011, and no impairment was deemed necessary.  Reserve estimates used in determining estimated future net revenues have been prepared by an independent petroleum engineer at year end.

The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired.  The Company currently has no material capitalized costs related to unevaluated properties.  All capitalized costs are included in the amortization base as of June 30, 2012 and 2011.

Depreciation and Amortization:  All capitalized costs of oil and natural gas properties and equipment, including the estimated future costs to develop proved reserves, are amortized using the unit-of-production method based on total proved reserves.  Depreciation of fixed assets is computed on the straight-line method over the estimated useful lives of the assets, typically three to five years.

General and Administrative Expenses:  General and administrative expenses are reported net of recoveries from owners in properties operated by the Company.

Revenue Recognition:  The Company recognizes oil and gas revenues from its interests in oil and natural gas producing activities as the hydrocarbons are produced and sold.

Accounting for Price Risk Management Activities and Other Derivative Instruments:  The Company periodically enters into certain financial derivative contracts utilized for non-trading purposes to hedge the impact of market price fluctuations on its forecasted oil and gas sales.  The Company follows the provisions of Accounting Standards Codification ("ASC") 815, Accounting for Derivative Instruments and Hedging Activities ("ASC 815"), for the accounting of its hedge transactions.  ASC 815 establishes accounting and reporting standards requiring that all derivative instruments be recorded in the consolidated balance sheet as either an asset or liability measured at fair value and requires that the changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met.  The Company has certain over-the-counter collar contracts to hedge the cash flow of the forecasted sale of oil and gas sales.  The Company did not elect to document and designate these contracts as hedges.  Thus, the changes in the fair value of these over-the-counter collars are reflected in earnings for the years ended June30, 2012, 2011 and 2010.

The Company has common stock warrants outstanding in connection with the unsecured credit facility agreement (the "Chambers Facility") (see Note F), which contains price protection provisions (or down-round provisions) which reduces the strike price of the warrants in the event the Company issues additional shares at a more favorable price than the strike price.  The warrants are measured and carried at fair value as a derivative liability on the Company's consolidated balance sheet.  The fair value of the warrants on the date of issuance of $2,662,000 was recognized as a discount to the unsecured credit facility at the time the Company received the proceeds from the credit facility.  The discount will be accreted to the credit facility, over the period from the funding date through the maturity date, using the effective interest rate method.

Income Taxes:  The Company is subject to federal income tax, Texas state margin tax, and New Mexico state income tax.  The Company follows the guidance in ASC 740, Accounting for Income Taxes, which requires the use of the asset and liability method of accounting for deferred income taxes and provides deferred income taxes for all significant temporary differences.

Note C- Summary of Significant Accounting Policies (Continued)

The Company follows ASC 740-10, Accounting for Uncertainty in Income Taxes.The Interpretation prescribes guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  To recognize a tax position, the enterprise determines whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based solely on the technical merits of the position.  A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the financial statements.  The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

Deferred Finance Costs:  The Company capitalizes all costs directly related to obtaining financing and such costs are amortized to interest expense over the life of the related facility.  During the years ended June 30, 2012 and 2011, the Company incurred and capitalized finance costs of $0 and $992,615, respectively.  At June 30, 2012 and 2011, the deferred finance costs balance is presented net of accumulated amortization of $519,339 and $173,113, respectively. 

Use of Estimates:  Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles.  Actual results could differ from those estimates.

Independent petroleum and geological engineers have prepared estimates of the Company's oil and natural gas reserves at June 30, 2012 and 2011.  Proved reserves, estimated future net revenues and the present value of our reserves are estimated based upon a combination of historical data and estimates of future activity.  In accordance with the current authoritative guidance, effective December 31, 2009, the Company calculated its estimate of proved reserves using a twelve-month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each period within the twelve-month period prior to the end of the reporting period.  The reserve estimates are used in calculating depreciation, depletion and amortization and in the assessment of the Company's ceiling limitation.  Significant assumptions are required in the valuation of proved oil and natural gas reserves which, as described herein, may affect the amount at which oil and natural gas properties are recorded.  Actual results could differ materially from these estimates.

Asset Retirement Obligations:  The Company follows ASC 410 ("ASC 410"), Asset Retirement and Environmental Obligations.  ASC 410 requires that an asset retirement obligation ("ARO") associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which a legal obligation is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset.  The cost of the tangible asset, including the initially recognized ARO, is depreciated such that the cost of the ARO is recognized over the useful life of the asset.  The ARO is recorded at fair value, and accretion expense will be recognized over time as the discounted liability is accreted to its expected settlement value.  The fair value of the ARO is measured using expected future cash outflows discounted at the company's credit-adjusted risk-free interest rate.

Inherent in the fair value calculation of ARO are numerous assumptions and judgments, including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments.  To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance.

The following table is a reconciliation of the asset retirement obligation:

					Years Ended June 30,
					2012		2011
Asset retirement obligation, beginning of the year

Share-Based Compensation:  The Company follows ASC 718 ("ASC 718"), Compensation-Stock Compensation, for all equity awards granted to employees.  ASC 718 requires all companies to expense the fair value of employee stock options and other forms of share-based compensation over the requisite service period.  The Company's share-based awards consist of stock options and restricted stock.

Common Stock:  On June 23, 2010, the Board of Directors approved a one for five reverse stock split effective June24, 2010.  Accordingly, all common shares, incentive plans and related amounts for all periods presented reflect the reverse stock split.

Note C - Summary of Significant Accounting Policies (Continued)

Earnings per Share:  Basic earnings per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period.  Except when the effect would be anti-dilutive, the diluted earnings per share include the dilutive effect of restricted stock awards and the assumed exercise of stock options using the treasury stock method.  The following table sets forth the calculation of basic and diluted earnings per share ("EPS"):

Subsequent Events: The Company evaluates events and transactions that occur after the balance sheet date but before the financial statements are available for issuance.  The Company evaluated such events and transactions through October 30, 2012, the date the financial statements were available to be issued (see Note P).

Recently Adopted Accounting Principles:

ASU 2010-06:  In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820).  ASU 2010-06 Subtopic 820-10 provides new guidance on improving disclosures about fair value measurements.  The new standard requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement.  Specifically, the new standard will now require: (a) a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for transfers, and (b) in the reconciliation for fair value measurements using significant unoberservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements.  In addition, the new standard clarifies the requirements of the following existing disclosures: (a) for purposes of reporting fair value measurements for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities, and (b) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.  The new standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  Early application is permitted.  We adopted the provisions of this standard required for interim and annual reporting periods beginning after December 15, 2009, for the quarter ended March 31, 2010 and we adopted the provisions of this standard for fiscal years beginning after December 15, 2010, the year ended June 30, 2011.  The adoption of this statement did not have a material impact on our financial position, results of operations or cash flows.

Note D - Other Receivable

In September 2009, the Company entered into a merger agreement with Cano Petroleum, Inc. (the "Cano merger agreement"), subsequently terminated in July 2010.  The Cano merger agreement provided for Resaca and Cano to, among other things, share equally certain expenses related to the printing, filing and mailing of the registration statement, the proxies/prospectuses, and the solicitation of stockholder approvals.  Following the termination of the Cano merger agreement, Resaca requested that Cano reimburse Resaca for Cano's share of such expenses in the amount of $2.1 million.  On September 2, 2010, Cano filed an action against Resaca in the Tarrant County District Court seeking a declaratory judgment to clarify the scope and determine the amount of any expenses that are reimbursable by Cano under the Cano merger agreement. In March 2012, Cano Petroleum, Inc. and various of its affiliates filed a chapter 11 case in the bankruptcy court for the northern district of Texas.  In August 2012, Cano sold all of its oil and gas properties and used the proceeds in bankruptcy primarily to satisfy its secured lenders, leaving a modest amount of residual proceeds for expenses and the unsecured creditors.  The receivable from Cano has been written down to $100,000 at June 30, 2012.

Note E - Related Party Transactions

The Company receives support services from Torch Energy Advisors Incorporated ("TEAI") and its subsidiaries, which includes office administration, risk management, corporate secretary, legal and litigation services, tax department services, financial planning

Note E - Related Party Transactions (Continued)

and analysis, information technology management, financial reporting and accounting services, and engineering and technical services.  The Company was charged by TEAI and a subsidiary of TEAI $980,560, $960,904 and $1,440,241 during the years ended June 30, 2012, 2011 and 2010, respectively, for such services.  The majority of such fees are included in general and administrative expenses.

In the ordinary course of business, the Company incurs payable balances with TEAI resulting from the payment of costs and expenses of the Company and from the payment of support services fees.  Such amounts had been settled on a regular basis, generally monthly.  However, a Subordinated Unsecured Note was issued on June 30, 2010 for the outstanding balance payable to TEAI of $1,854,722 as of June 30, 2010.  The principal balance payable to TEAI was amended on December 15, 2010 to be $1,915,800 (see Note F). Subsequent to the issuance of this note, the Company resumed settling on a monthly basis with TEAI. 

Note F - Notes Payable

On June 26, 2009, the Company entered into a $50 million, three-year Senior Secured Revolving Credit Facility ("CIT Facility") with CIT Capital USA Inc. ("CIT") with a maturity date of July 1, 2012, which replaced a credit facility entered into in 2006.  The initial borrowing base of the CIT Facility was $35 million and CIT served as administrative agent.  Interest on the CIT Facility was set at LIBOR plus 5.5% subject to a 2.5% LIBOR floor.  Recourse for the CIT Facility was limited to the Company, as borrower, and the note was secured by all of the Company's oil and gas properties.  Throughout the term of the CIT Facility, the interest rate was 8.0%.  As a condition of closing the CIT Facility, the Company entered into additional natural gas hedges for January 2011 through June 2012 and additional oil hedges for June 2011 through June 2012.  Additionally, upon closing of the CIT facility, the Company wrote off $536,579 in deferred financing costs associated with a previous facility with third parties and paid debt extinguishment fee of $250,000.  The CIT Facility contained, among other terms, provisions for the maintenance of certain financial ratios and restrictions on additional debt.  On December 22, 2009, the Company executed an amendment to the CIT Facility which amended some of the financial ratio requirements.  On January 6, 2011, the CIT Facility was paid in full from proceeds received from the debt issuances described below.

On May 18, 2010, the Company, TEAI, and CIT entered into an agreement, which provided that, if the CIT Facility was not repaid in full by June 30, 2010, the outstanding payable by the Company to TEAI as of June 30, 2010 would be contractually subordinated to amounts payable under the CIT Facility.  On June 30, 2010, the Company entered into a Subordinated Unsecured Note ("Torch Note") with TEAI for $1,854,722. The Torch Note had a maturity date of October 1, 2012 and bore interest at Amegy Bank N. A.'s prime rate plus two percent.At June 30, 2010, the interest rate was 7.0%.  On December 15, 2010, the Torch Note was amended to increase the outstanding balance to $1,915,800, modify the interest provisions, provide for subordination to the Chambers Facility in addition to the Company's secured credit facility and extend the maturity date to January 31, 2014.  At June 30, 2012, the interest rate was 12.0%.  The maturity date shall be accelerated in the event the senior debt issuance described below is repaid in full.  Interest shall only be payable in kind.

On January 7, 2011, the Company entered into a $20 million, four-year unsecured credit facility (the "Chambers Facility") which bears interest at 9.5% per year.  Resaca also has the option to pay interest under the Chambers Facility in kind for the first two years at an interest rate of 12% per year.  The Chambers Facility contains certain financial ratio restrictions and other customary covenants.  This credit facility matures December 31, 2014. Proceeds from the Chambers Facility were used to repay a portion of the CIT Facility, to fund the Company's development program and for general corporate purposes.  In conjunction with the funding, Resaca issued warrants to the lenders under the Chambers Facility to purchase approximately 4.8 million shares of Resaca common stock at $1.93 per share.The purchase price for the Resaca common shares under the warrants is subject to customary weighted average dilution protections if Resaca issues stock at a price below the purchase price under the warrants.  In addition, the exercise price and the number of shares the lenders are able to purchase under the warrants will be adjusted in the case of certain Company distributions, dilutive equity issuances, share subdivisions, or share combinations.  The warrants were recorded and are adjusted every reporting period to fair value (see Note J).  As a result of the issuance of stock as part of the purchase price for a property acquisition, the warrant price was adjusted to $1.92 per share in August 2011.  The Company has elected to pay interest in kind through December 1, 2012.  With accrued paid-in kind interest, the balance payable on the Chambers Facility as of June 30, 2012 was $24.1 million.  The Chambers Facility includes a make-whole provision in the event that the total interest, principal and value of the warrants granted under the Chambers Facility do not generate a targeted return to the lenders upon repayment of the facility.  The amount of the make whole obligation is fixed through January 7, 2013, after which time the make whole obligation increases.  If the Chambers Facility had been repaid at June 30, 2012, the make whole obligation would have been approximately $7.2 million.  As of June 30, 2012 the Company was not compliant with all of the covenants under the Chambers Facility, which resulted in an event of default.  On March 6, 2012, the Company received notice that default interest (an additional 2% over the applicable cash or paid in kind interest rate) would be charged under the Chambers Facility until the Company is no longer in default. Under the terms of the agreement, if a condition of default occurs and is continuing, the lenders may demand that the default interest be payable in cash rather than in kind. The lenders under the Chambers Facility demanded that the interest accrued for the period from June 1, 2012 through June 30, 2012 be paid in cash.  The Company has not paid this amount and the

Note F - Notes Payable (Continued)

unpaid amount continues to accrue interest at the default interest rate. The lenders under the Chambers Facility have not demanded any other cash interest payments. The Company is pursuing property sales to provide funds to either repay its obligations under the Chambers Facility in full or to reduce its overall debt to bring its credit facilities into compliance with their financial covenants.   The Company has classified the balance of the Chambers Facility at June 30, 2012 to current due to the default status of the loan. 

On January 7, 2011, the Company entered into a $75 million senior secured revolving credit facility (the "Regions Facility") with Regions Bank ("Regions").  The Regions Facility contains certain financial ratio restrictions and other customary covenants, including a requirement to hedge at least 75% of proved developed producing reserves through December 31, 2014.  This credit facility matures January 7, 2014.  Proceeds from the Regions Facility were used to repay a portion of the CIT Facility, to fund the Company's development program, future acquisitions and for general corporate purposes.  The Regions Facility is governed by semi-annual borrowing base redeterminations assigned to the Company's proved crude oil and natural gas reserves.  An initial borrowing base of $33 million was established based on the Company's reserves and the borrowing base has not been redetermined.  Under the Regions Facility, $33 million was outstanding at June 30, 2012.  The interest rate on outstanding borrowings was 4% at June 30, 2012.  At June 30, 2012, due to the noncompliance with the covenants under the Chambers Facility, the Company was not in compliance with the covenants related to this facility. In addition, the Company was not in compliance with the current asset to current liability ration under the Regions Facility.  Accordingly, the Company has classified the balance of the Regions Facility at June 30, 2012 to current due to the default status of the loan. As a result of the covenant failure and effective on July 9, 2012, Regions exercised its rights under the Regions Facility to disallow LIBOR-based borrowings, effectively increasing the Company's cash interest rate from 4.00% to 5.50%. Further, beginning August 7, 2012, Regions began charging default interest at a rate of 2.00%, effectively increasing the Company's borrowing rate to 7.50%. Both conditions are in effect until the Company is again in compliance with the covenants related to this facility.

Scheduled maturities as of June 30, 2012 are as follows:

Year Ending June 30,
					2013			54,315,766
					2014			2,304,980
								$ 56,620,746

Note G - Price Risk Management and Other Derivative Financial Instruments

The Company enters into hedging transactions with a major counterparty to reduce exposure to fluctuations in the price of crude oil and natural gas.  We use financially settled crude oil and natural gas zero-cost collars and swaps. Any gains or losses resulting from the change in fair value are recorded to unrealized gain (loss) from price risk management activities, whereas gains and losses from the settlement of hedging contracts are recorded in oil and gas revenues. 

With a zero-cost collar, the counterparty is required to make a payment to us if the settlement price for any settlement period is below the floor price of the collar, and we are required to make a payment to the counterparty if the settlement price for any settlement period is above the cap price for the collar. 

Cash settlements for the years ended June 30, 2012, 2011 and 2010 resulted in a decrease in crude oil and natural gas sales in the amount of $1,602,155, $1,970,796 and $383,995, respectively.

Note G - Price Risk Management and Other Derivative Financial Instruments (Continued)

As of June 30, 2012, we had the following contracts outstanding:

			Crude Oil
							Total
			Volume		Contract		Asset
Period			(Bbls)		Price (1)		(Liability)
	Swaps
	7/12-12/12		10,000		84.05		(60,907)
	7/12-12/12		1,800		108.95		242,422
	7/12 - 3/13		1,100		100.00		131,137
	1/13-12/13		9,200		84.95		(346,025)
	1/13-12/13		2,000		105.20		380,671
	4/13 - 12/13		500		98.50		42,014
	1/14 - 12/14		8,600		85.80		(194,650)
	1/14 - 12/14		2,300

(1) The contract price is weighted-averaged by contract volume.

The following table quantifies the fair values, on a gross basis, of all our derivative contracts and identifies its balance sheet location as of June 30, 2012:

		Asset Derivatives				(Liability) Derivatives				Total Asset
		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value		(Liability)
Derivatives not designated as
hedging instruments under
ASC 815
	Commodity Contracts	Derivative financial instruments				Derivative financial instruments
		Current Asset		$       363,110		Current Liability		$                   -		$     363,110
		Non-current Asset		118,570		Non-current Liability		-		118,570
	Warrants	Non-current Liability		-		Non-current Liability

While notional amounts are used to express the volume of puts and over-the-counter options, the amounts potentially subject to credit risk, in the event of nonperformance by the third parties, are substantially smaller.  The Company does not anticipate any material impact to its financial position or results of operations as a result of nonperformance by third parties on financial instruments related to its option contracts.

Note H - Commitments and Contingencies

The Company, from time to time, is involved in certain litigation arising out of the normal course of business, none currently outstanding of which, in the opinion of management, will have any material adverse effect on the financial position, results of operations or cash flows of the Company as a whole.

On September 2, 2010, Cano filed an action against Resaca in the Tarrant County District Court seeking a declaratory judgment to clarify the scope and determine the amount of any expenses that are reimbursable by Cano under the Cano merger agreement.  Resaca disputes the allegations by Cano.  On March 8, 2012, Cano Petroleum, Inc. and various of its affiliates filed a chapter 11 case in the bankruptcy court for the northern district of Texas.

Note I - Share-Based Compensation

The Company has adopted a Share Incentive Plan ("The Plan") to foster and promote the long-term financial success of the Company and to increase shareholder value by attracting, motivating and retaining key personnel.  The Plan is considered an important component of total compensation offered to key employees and to directors.  The Plan consists of stock option and restricted stock awards. The restricted stock vests over a three-year period while the stock options vest over a three or one-year period. The Company expenses the fair-value of the share-based payments over the requisite service period of the awards.  At June 30, 2012, there was $401,641 in unrecognized compensation expense related to non-vested restricted stock grants and non-vested stock option grants.  We expect approximately $197,123, $182,756 and $21,762 to be recognized during the fiscal years 2013, 2014 and 2015, respectively.

In conjunction with the initial public offering in 2008 (the "IPO"), certain officers and directors were granted restricted stock awards for an aggregate 821,103 shares of the Company's stock.  790,350 such shares vested over a three year period ended July 17, 2011; 30,753 of such shares were forfeited and returned to the Plan when an employee recipient resigned prior to the end of the vesting period. The Company also awarded 341,357 stock options at the time of the IPO, each option to purchase one share of our common stock at an exercise price of 6.70 British pounds per share.  The options were cancelled and new options for 341,357 shares were issued on January 18, 2011 with an exercise price of $1.61, a vesting period of one year and an expiration date on January 8, 2019.  On August 1, 2011, 40,000 stock options were issued to an officer with an exercise price of $1.52 per share, vesting period of three years and an expiration date of August 1, 2019.  On August 8, 2011, certain officers and directors were granted 175,000 shares of restricted stock and 360,000 stock options.  These shares vest over a three year period.  The stock options have an exercise price of $1.45 per share and expire on August 8, 2019.

At June 30, 2012, there were 820,347 stock options and 175,000 shares of restricted stock outstanding.  On April 28, 2012, the Plan was amended to allow the issuance of an additional 1,019,916 shares.  As of June 30, 2012, the Board of Directors and the CEO had the ability to authorize the issuance of another 1,079,394 stock options and restricted stock. 

The following summary represents restricted stock awards outstanding at June 30, 2012, 2011 and 2010:

							Grant Date
					Shares		Fair Value
Awards outstanding at June 30, 2010					547,402		$   7,345,456
Restricted Shares vested					(273,701)		(3,672,728)
Restricted Shares forfeited					(30,753)		(412,666)
Awards outstanding at June 30, 2011					242,948

For stock options, the Company determines the fair value of each stock option at the grant date using a Black-Scholes pricing model, with the following assumptions used for the grants made on the date indicated:

		7/17/2008		1/21/2009		9/25/2009		11/16/2009		1/18/2011		8/1/2011		8/8/2011
Risk-free interest rate		3.35%		3.35%		2.37%		2.18%		1.97%		1.32%		1.11%
Volatility factor		50%

Note I - Share-Based Compensation (Continued)

Stock option awards have a three year or one year vesting period and expire five years or seven years after the vesting date.  A summary of stock options awarded during the 12 months ended June 30, 2012, 2011 and 2010 is as follows:

							Average		Grant Date
					Shares		Exercise Price		Fair Value
Options outstanding at June 30, 2010					460,357		$            8.66

A summary of stock options outstanding at June 30, 2012 is as follows:

				Converted		Option Awards		Remaining		Option Awards
Grant Date		Exercise Price		Exercise Price		Outstanding		Option Life		Exercisable
09/25/09		£ 2.50		$          4.00	*	79,000		5.24		52,667
01/18/11		$ 1.61		1.61		341,347		6.55		341,347
08/01/11		$1.52		1.52		40,000		7.08		-
08/08/11		$1.45		1.45		360,000		7.10		-
				$          1.77		820,347		6.38		394,014

*Exercise price is denominated in British pounds and has been converted at a rate of $1.5453 USD/GBP.

On July 3, 2012, the Company issued 100,000 stock options at an exercise price of £0.395 to a Resaca executive.

Note J - Fair Value Measurements

ASC 820 requires enhanced disclosures regarding the assets and liabilities carried at fair value.  The pronouncement establishes a fair value hierarchy such that "Level 1" measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, "Level 2" measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but observable through corroboration with observable market data, including quoted market prices for similar assets, and "Level 3" measurements include those that are unobservable and of a highly subjective measure.

The fair value of the warrants was determined using a Monte Carlo valuation model.  At June 30, 2012, the assumptions used in the model to determine the fair value of the outstanding warrants included the warrant exercise price of $1.93 per share, the Company's stock price at June 30, 2012 of $.62 per share, volatility of 60% and a risk free discount rate of 0.4%.

Note J - Fair Value Measurements (Continued)

The Company utilizes the market approach for recurring fair value measurements of its oil and gas hedges.  The following table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities that are accounted for at fair value on a recurring basis as of June 30, 2012.  As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

			Market Prices		Significant Other		Significant
			for Identical		Observable		Unobservable
			Items (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets:
	Oil and Gas Hedges		$                 -		$        481,680		$                  -		$      481,680
Total Assets			$                 -		$         481,680		$                  -		$       481,680
Liabilities:
	Derivative Warrants		-		-		242,000		242,000
Total Liabilities			$                 -		$                    -		$      242,000		$       242,000
Total Net Assets			$                 -		$         481,680		$    (242,000)		$       239,680

The carrying amounts of the Company's cash and cash equivalents, receivables and payables approximate the fair value at June 30, 2012 and 2011 due to their short-term nature.  The carrying amounts of the Company's debt instruments at June 30, 2012 and 2011 approximate their fair values due to either the interest rates being at market or minimal change during the period for the interest rates related to debt with fixed interest rates.

Note K - Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax provisions.  The Company's income tax expense is composed of the following:

				Years Ended June 30,
				2012		2011		2010
Current income tax expense
	Federal			$              -		$               -		$              -
	State			1,606		375		2,458
		Total current tax expense		1,606		375		2,458
Deferred income tax expense
	Federal			-		-		-
	State			-		-		-
		Total deferred tax expense		-		-		-
Total income tax expense				$       1,606		$           375		$       2,458

Note K - Income Taxes (Continued)

The significant components of the Company's deferred tax assets and liabilities are as follows:

					Years Ended June 30,
					2012		2011
Current
Deferred tax assets:
	Unrealized loss on commodity derivatives

The following reconciles our income tax expense to the amount calculated at the statutory federal income tax rate:

					Years Ended June 30,
					2012		2011		2010
Income tax expense (benefit) at statutory rate					$   2,284,720		$ (2,538,819)		$ (2,864,279)
State taxes, less federal benefit

At June 30, 2012, 2011 and 2010, the Company had net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $35.5 million, $24.1 million and $18.3 million, respectively.  The NOLs will expire between 2029 and 2032.  A valuation allowance has been established with respect to the excess of the Company's deferred tax assets over its deferred tax liabilities at June 30, 2012 and June 30, 2011 because such net deferred tax assets do not meet the deferred tax asset realization criteria set forth in ASC 740 that it is more likely than not that the Company will realize a benefit of these net deferred tax assets in future periods.

There were no changes in unrecognized tax benefits during the 12 months ended June 30, 2012 or June 30, 2011.  All tax benefits recognized relate to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductions.

Note K - Income Taxes (Continued)

The Company files income tax returns in the U.S. (federal and state jurisdictions).  Tax years 2009 to 2011 remain open for all jurisdictions.  However, for the 2007 tax year, and the tax period from January 1, 2008 to July 10, 2008, the Company was a partnership for federal and New Mexico income tax purposes.  Therefore, for those tax periods, any adjustments to the Company's taxable income would flow through to Resaca's partners in those jurisdictions.  The Company's accounting policy is to recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense.  The Company does not have an accrued liability for interest and penalties at June 30, 2012.

Note L - Stockholders' Equity

As described in Note A, the Company converted from a partnership to a corporation on July 10, 2008.  As such, partners' capital was converted to stockholders' equity.  On June 23, 2010, the Board of Directors approved a one for five reverse stock split effective June 24, 2010.  At June 30, 2012, the Company had 230,000,000 common shares authorized and 20,747,410 shares issued and outstanding.

Note M - Employee Benefit Plans

Under the Resaca Exploitation, Inc 401(k) Plan (the "Plan") established in fiscal year 2009, contributions are made to the Plan by qualified employees at their election and our matching contributions to the Plan are made at specified rates.  Our contribution to the Plan for the years ended June 30, 2012, 2011 and 2010 was $21,645, $30,078 and $34,094, respectively.

Note N - Acquisitions and Dispositions of Assets

On July 15, 2011 the Company sold the Grand Clearfork Field located in Pecos County, Texas for $4.1 million.  On August 3, 2011 the Company purchased the Langlie Jal Unit located in Lea County, New Mexico for $8.3 million, comprised of $6.9 million in cash and the issuance of 845,254 shares of its common stock.  The following table presents the preliminary purchase price allocation to the assets acquired and liabilities assumed, based on their fair values on August 3, 2011:

Oil and gas properties			8,487,298
Asset retirement obligations			(234,548)
			8,252,750

Note O - Director Compensation

During the year ended June 30, 2012, Resaca directors J.P. Bryan, Judy Ley Allen, Richard Kelly Plato, John William Sharp Bentley, and John J. Lendrum, III each received director's fees in the amount of $50,000.  Stock option awards of 100,000were made to J. P. Bryan and stock option awards of 30,000 were made to each of the remaining directors during the six months ended June 30, 2012.  No salaries, bonuses or pension contributions were paid to or for the benefit of any Resaca directors during the year ended June 30, 2012.  During the year ended June 30, 2011, Resaca directors J.P. Bryan, Judy Ley Allen, Richard Kelly Plato, and John William Sharp Bentley each received director's fees in the amount of $50,000 and director John J. Lendrum, III received $44,780.  No equity grants were made and no salaries, bonuses or pension contributions were paid to or for the benefit of any Resaca directors during the year ended June 30, 2011. 

Note P - Subsequent Events

Beginning August 7, 2012, Regions began charging default interest at a rate of 2.00%, effectively increasing the Company's borrowing rate to 7.50%. This is in effect until the Company is again in compliance with the covenants related to this facility.  The Company is seeking relief from cash payment of the default interest rate under the Regions Facility.

On October 18, 2012, Resaca filed an action against Wind River Petroleum, LP ("Wind River") and Richard A. Counts ("Counts") for breach of the terms of the August 3, 2011 Purchase and Sale Agreement ("PSA") relating to the purchase of the Langlie Jal Unit seeking to enforce the obligations of Wind River and Counts under the PSA.  On October 19, 2012 Wind River filed an action against Resaca alleging a breach of the same PSA relating to the post-closing purchase price adjustment.

Note Q - Supplementary Financial Information for Oil and Gas Producing Activities (unaudited)

The Company has interests in oil and natural gas properties that are principally located in Texas and New Mexico.  The Company does not own or lease any oil and natural gas properties outside the United States. 

The Company retains independent engineering firms to provide year-end estimates of the Company's future net recoverable oil and natural gas reserves.  Estimated proved net recoverable reserves as shown below include only those quantities that can be expected to be commercially recoverable.  Estimated reserves for the years ended June 30, 2012, 2011 and 2010 were computed using benchmark prices based on the unweighted arithmetic average of the first-day-of-the-month prices for oil and natural gas during each month of the fiscal years ended June 30, 2012, 2011 and 2010, as required by SEC Release No. 33-8995, Modernization of Oil and Gas Reporting,effective for fiscal years ending on or after December 31, 2009.  Costs were estimated using costs in effect at the balance sheet dates under existing regulatory practices and with conventional equipment and operating methods.

Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible - from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations - prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.  The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

Proved developed reserves represent only those reserves expected to be recovered through existing wells.  Proved undeveloped reserves include those reserves expected to be recovered from new wells on undrilled acreage or from existing wells on which a relatively major expenditure is required for re-completion.

Costs Incurred in oil and natural gas producing activities are as follows:

		Years ended June 30,
		2012			2011			2010
Acquisition of proved properties		$	5,706,113		$	-		$	-
Acquisition of unproved properties			-			-			-
Development costs			12,897,127			15,474,077			4,381,933
Exploration costs			-			-			-
Total costs incurred		$	18,603,240		$	15,474,077		$	4,381,933

Note Q - Supplementary Financial Information for Oil and Gas Producing Activities (unaudited) (Continued)

The following reserves data only represent estimates and should not be construed as being exact.

					Natural		Total Reserves
Proved Reserves			Oil (bbl)		Gas (mcf)		BOE
June 30, 2009			11,967,830		13,298,851		14,184,305
Revision of prior estimates			556,830		(360,093)		496,815
Extensions, discoveries and other additions			-		-		-
Improved recovery			-		-		-
Production			(194,070)		(243,168)		(234,598)
Purchases			-		-		-
Sales			-		-		-
June 30, 2010			12,330,590		12,695,590		14,446,522
Revision of prior estimates			453,724		(78,371)		440,662
Extensions, discoveries and other additions			-		-		-
Improved recovery			-		-		-
Production

Resaca Reserve Explanation:

For the reserves at June 30, 2010, revisions of prior estimates provided an increase of 496 MBOE to total proved reserves.  Forecast changes provided an overall increase of 383 MBOE, while extended economic limits provided an increase of 113 MBOE.

The specific field forecast changes are as follows:

?      At the Cooper Jal Complex, total proved reserves increased by 196 MBOE.  This was comprised of a PDP increase of 534 MBOE due to commodity related price effects and production performance.  This was offset by a decrease of 416 MBOE in the PDNP category due to forecast revisions and well activity, while PUD reserves increased 78 MBOE due to forecast revisions.

?      At the Penwell Complex, total proved reserves increased 117 MBOE due to forecast revisions.  PDP reserves decreased 82 MBOE, PDNP reserves increased 177 MBOE due to the addition of six wells, and PUD reserves increased 22 MBOE due to forecast revisions.

?       At the McElroy Field, PDP reserves increased 59 MBOE based on forecast revisions.

?      At the Kermit Field, proved reserves decreased by 26 MBOE. PDP reserves decreased 42 MBOE based on forecast revisions, while PDNP reserves increase by 16 MBOE due to wells requiring workovers.

?      At Resaca's remaining minor fields, proved reserves increased by 37 MBOE based on forecast revisions.

Note Q - Supplementary Financial Information for Oil and Gas Producing Activities (unaudited) (Continued)

For the reserves at June 30, 2011, revisions of prior estimates provided an increase of 441 MBOE to total proved reserves.  Forecast changes provided an overall increase of 263 MBOE, while extended economic limits provided an increase of 178 MBOE.

The specific field forecast changes are as follows:

?      At the Cooper Jal Complex, total proved reserves decreased by 12 MBOE.  This was comprised of a PDP increase of 347 MBOE due to performance revisions, offset by a decrease of 320 MBOE in the PDNP category as a result of project work performed, while PUD reserves decreased 39 MBOE due to forecast revisions

?      At the Edwards Grayburg Field, total proved reserves increased 135 MBOE in the PDP category due to a shift of reserves from the possible reserve category due to the reactivation of a waterflood in the field.

?      At the Jordan San Andres Field, total proved reserves increased 143 MBOE due to performance related to the expansion of the waterflood in the field and some contribution from the deeper San Andres formation.

?      At the McElroy Field, PDP reserves increased 76 MBOE based on forecast revisions.

?      At the Kermit Field, total proved reserves increased by 69 MBOE.  The increase was in PDP reserves due to forecast revisions and reactivation of additional wells.

?      At Resaca's remaining minor fields, proved reserves increased by 30 MBOE based on forecast revisions.

For the reserves at June 30, 2012, revisions of prior estimates resulted in a decrease of 670 MBOE to total proved reserves.  Acquisitions provided an increase of 1,180 MBOE, while divestitures resulted in a decrease of 506 MBOE.

The specific field forecast changes are as follows:

?      At the Cooper Jal Complex, total proved reserves decreased by 538 MBOE primarily due to the continued reduction of the producing gas-oil ratio ("GOR").  The declining GOR is indicative of successful repressurization of the reservoir which is a key objective of revitalizing the waterflood and preparing the field ultimately for CO2 tertiary recovery operations.

?      At the Jordan San Andres Field, total proved reserves decreased 75 MBOE due to forecast changes

?      The Grand Clearfork Field was divested in July 2012 resulting in a decrease of total proved reserves of 506 MBOE.

?      The Langlie Jal Complex was acquired in August 2012 resulting in an increase of total proved reserves of 1,202 MBOE.

Standardized Measure of Discounted Future Net Cash Flows:

The following table sets forth unaudited information concerning future net cash flows for oil and gas reserves, net of income tax expense.  Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities.

					June 30,
		2012			2011			2010
Future cash inflows

Note Q - Supplementary Financial Information for Oil and Gas Producing Activities (unaudited) (Continued)

Changes in Standardized Measure of Discounted Future Net Cash Flows:

		Years ended June 30,
		2012			2011			2010
Balance, beginning of year		$	210,757,124		$	167,311,075		$	136,162,302
Net changes in prices and production
costs			5,298,557			68,839,214			31,397,849
Net changes in future development
costs			(20,417,407)			(18,353,529)			(4,669,565)
Sales of oil and gas produced, net			(13,231,333)			(11,211,013)			(8,948,939)
Purchases of reserves			5,784,950			-			-
Sales of reserves			(9,425,330)			-			-
Extensions and discoveries			-			-			-
Revisions of previous quantity