Brushy Resources 10K 2014 Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

For the Fiscal Year Ended December 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

Commission file number 333-191139

STARBOARD RESOURCES, INC. (Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of Incorporation or organization)	45-5634053 (IRS Employer Identification No.)

300 E. Sonterra Blvd., Suite 1220 San Antonio, Texas 78258 (Address of principal executive offices)	(210) 999-5400 (Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class

Common Stock, $0.001 par value

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Yes o No þ

Indicate by checkmark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12-b2 of the Exchange Act.

Large accelerated filer £	Accelerated filer £
Non-accelerated filer (do not check if a smaller reporting company) £	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

The Company’s stock has not traded, consequently it has no aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which Registrant’s common stock shares was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter.

As of April 14, 2015, 12,711,986 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-K

		PAGE
	PART I
		1
Item 1.	Description of Business	17
Item 1A.	Risk Factors	34
Item 2.	Properties	43
Item 3.	Legal Proceedings

	PART II

Item 4	Mine Safety Disclosures	43
Item 5.	Market for Common Equity and Related Stockholder Matters	43
Item 6.	Selected Financial Data	45
Item 7.	Management’s Discussion and Analysis or Plan of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 8.	Financial Statements	59

	PART III

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 9A	Control and Procedures	59
Item 9B	Other Information
Item 10.	Directors, Executive Officers and Corporate Governance	62
Item 11.	Executive Compensation	66
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	80
Item 13.	Certain Relationships and Related Transactions	81
Item 14.	Principal Accountant Fees and Services	83

	PART IV

Item 15.	Exhibits and Reports on Form 8-K	84

	Signatures	89

	Financial Statements	F-1

	List of Subsidiaries	Exhibit 21

	Consent of Petroleum Engineer	Exhibit 23.2

	Certifications	Exhibits 31.1, 31.2 and 32.1

	Reserve Report Summary as of December 31, 2014	Exhibit 99.2

PART I

Item 1. Description of Business.

Forward-Looking Statements

This annual report includes forward-looking statements in numerous places, including Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to, any statements regarding business strategy, estimated current and future net reserves and present values of such reserves, drilling and completion of wells including our identified locations, financial strategy, budget projections, operating results, marketing and realized prices for oil, natural gas and natural gas liquids, timing and amount of future production of oil and natural gas, availability and cost of drilling and production equipment, availability and cost of oilfield labor, the amount, nature and timing of capital expenditures, including future development costs, our ability to fund our 2015 capital expenditure budget, availability and terms of capital, development results from our identified drilling locations, property acquisitions, property development and operating costs, general economic conditions, the commodity price environment, the effectiveness and extent of our risk management activities, our insurance coverage, estimates of future potential impairments, environmental liabilities, technology, counterparty credit risk, government regulation of and tax treatment for the oil and gas industry, non-historical plans, objectives, expectations and intentions contained in this report, future revenues, future costs and expenses, earnings, earnings per share, margins, cash flows, liquidity and dividends. Important factors which may affect the actual results include, but are not limited to, the resolution of the litigation involving Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP, political developments, market and economic conditions, changes in raw material, transportation and energy costs, inflation, industry competition, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, cost of services, service and equipment providers and the ability to execute and realize the expected benefits from strategic initiatives, including revenue and reserve growth plans, mergers and acquisitions and their integration, changes in financial markets and changing legislation and regulations, including changes in tax law or tax regulations and other risks described in our “Risk Factors�� section commencing on page 14 of this Report.

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

Should one or more of the risks or uncertainties described in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All forward-looking statements in this report are expressly qualified by the statements in this section to reflect events or circumstances after the date of this report. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Our Company

We are an independent exploration and production company focused on the operation, acquisition, development and production of both conventional and unconventional onshore oil and natural gas resources. We operate and target oil production and reserves that offer low-risk development opportunities within multiple formations utilizing horizontal drilling and multi-fracture completion technology. Starboard was formed in Delaware in June, 2011 as a limited liability company through the contribution and restructuring of ImPetro Resources LLC, and oil and gas assets owned by Hunton Oil Partners LP, Giddings Oil and Gas LP and ASYM Energy Fund III LP. It converted to a Delaware corporation on June 28, 2012.

We produce from operated oil and natural gas wells in the liquids rich, oil bearing window of the Eagle Ford trend of South Texas and the nearby oil-prone Giddings field where in combination we control approximately 15,880 net acres (approximately 16,189 gross acres). We also have material non-operated working interests in producing properties and conventional prospects located throughout Logan and McClain counties in Oklahoma which account for 1,229 net acres (5,055 gross acres). The combined estimated reserve base and net production are each over 70% oil-weighted.

As of March 26, 2015, the Company has 115 (103.5 net) company operated wells and participates in 25 (5.17 net) non-operated wells. 134 of these wells are oil wells and 6 are gas wells.

At January 1, 2015, based on the reserves estimate by our independent reservoir engineers, we had 6,264 MBOE of estimated proved reserves with a PV-10 of $144.0 million. At January 1, 2015, 22% of our estimated proved reserves were proved developed reserves and 71% of our estimated proved reserves were oil and condensate. We grew our average daily production 71% from 579 BOE per day at year-end 2013 to 990 BOE per day at year-end 2014.

PV-10 estimated proved reserves is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K and is defined on page 32 of this report. Reconciliation to the most directly comparable GAAP financial measure (standardized measure of discounted future net cash flows) is found in the table on page 33 of this report. We believe that PV-10 value provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies.

Starboard Resources LLC was formed in Delaware on June 2, 2011 as a limited liability company to acquire, own, operate, produce, and develop oil and natural gas properties primarily in Texas and Oklahoma. On June 28, 2012, Starboard converted from a Delaware limited liability company to a Delaware C-Corporation and is now known as Starboard Resources, Inc. (“Starboard”). The membership units of Starboard Resources LLC were exchanged on a 1:1 basis for common shares of Starboard.

Starboard was capitalized on June 13, 2011 (the “Roll-up Date”) through the execution of a Securities Purchase and Exchange Agreement (the “Exchange Agreement”) between Longview Marquis Master Fund, L.P. (“Longview”), Summerview Marquis Fund, L.P. (“Summerview”), LMIF Investments, LLC (“LMIF”), SMF Investments, LLC (“SMF”), Summerline Capital Partners, LLC (“Summerline”), Giddings Oil and Gas LP (“Giddings”) and Giddings Investments LLC (“Giddings Investments”), which combined Giddings, Hunton Oil Partners LP (“Hunton”), ASYM Energy Fund III LP (“ASYM III”) and ImPetro Resources, LLC (“ImPetro”), including its wholly owned subsidiary, ImPetro Operating, LLC (“Operating”) (collectively the “Company”), in a roll-up transaction.

The Exchange Agreement required Giddings, Hunton and ASYM III to exchange substantially all of their assets and liabilities for 7,550,000 common shares of Starboard and required Starboard to perform a private placement of common shares at a price of at least $10.00 per share and receive net proceeds of at least $5,350,000 before placement costs. Through the private placement, Starboard issued 535,000 common shares at $10 per share, or $4,900,000 net of capital placement costs of $450,000, in June 2011. Additionally, as of the Roll-up Date, Giddings, Hunton and ASYM III (collectively the “Common Controlled Entities”) were deemed to be under common control through ASYM Energy Investments, LLC, which served as the management company for the Common Controlled Entities.

The Exchange Agreement also required ImPetro and Operating to exchange all of its member units for 3,570,000 common shares of Starboard and $1,150,000 of cash, which was distributed directly to the members of ImPetro. Additionally, Longview, Summerview and Giddings agreed to the cancellation of working interest participation rights and $11,000,000 in principal notes, of which $4,500,000 was held by Giddings as of the Roll-up Date. We converted to a Delaware corporation on June 28, 2012.

The Securities Purchase and Exchange Agreement dated June 10, 2011 (Exhibit 4.1) says that the Company shall use its reasonable best efforts to reverse-merge with a public shell company or obtain an effective registration statement under the Securities Exchange Act of 1934 within 90 days of the date of that agreement (September 8, 2011). We did not successfully complete the reverse-merger or effective registration statement. Moreover, the Securities Purchase and Exchange Agreement also provided the Summerline parties with a put option if we failed “to use . . . . commercially reasonable efforts” to consummate the reverse merger or effective registration statement by December 10, 2011. Under the put option, shareholders affiliated with Summerline Asset Management, LLC could have elected to sell the company all of its shareholder interest in exchange for cash of approximately $12.52 per share. In our 2011 financial statements included with our Form 10-12G/A registration statement filed with the SEC on November 1, 2013 showed a current liability of approximately $18,400,000 relating to this put option.

On July 20, 2012, we obtained a waiver of our put option liability under the Securities Purchase and Exchange Agreement dated June 10, 2011 from Longview Marquis Master Fund, L.P., Summerview Marquis Master Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC and Summerline Capital Partners, LLC in exchange for the issuance of a total of 707,336 in shares of the Company’s common stock and a cash payment of accrued going public delay fees of $166,668.49. The waiver agreement also provides certain of these contractual parties with veto rights over certain material Company actions. These material transactions include:

Selling equity securities in the Company to the extent that the valuation of all equity securities of the Company at the time of such sale is more than thirty percent below the then present value of the Company’s estimated proved future oil and gas net revenue calculated at an annual discount rate of ten percent;

2)	Issuing, or authorize the issuance of any class of security that is not identical to our common stock held by the parties to the put option waiver agreement;

3)	Issuing any equity securities (other than employment compensation shares, as defined) without granting pre-emptive rights to the parties to the put option waiver agreement;

4)	Amending, modifying or waiving the certificate of incorporation or bylaws; and

5)	Selling all or substantially all of the Company’s assets or its subsidiaries’ assets.

The veto rights expire upon our obtaining an effective exchange listing. The put option waiver agreement is attached as Exhibit 4.3.

On August 6, 2013 we became a reporting company upon effectiveness of our Form 10 registration statement. We obtained a declaration of effectiveness from the U.S. Securities and Exchange Commission of Form S-1 Registration Statement relating to our outstanding common stock shares on November 12, 2013. We filed a post-effective amendment to said registration statement on March 20, 2014.

General Corporate Information

Our principal executive offices are located at 300 E. Sonterra Blvd, Suite 1220, San Antonio, TX 78258, and our telephone number at that address is (210) 999-5400. Additional information can be found on our website: www.starboardresources.com. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this report.

Employees

As of December 31, 2014, we had 15 full time employees. We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. We believe our relationships with our employees are good. From time to time, we utilize the services of independent contractors to perform various field and other services.

Our Business Strategy

Our goal is to increase stockholder value by building reserves, production and cash flows at an attractive return on invested capital, while continuing to drill out our existing reserve base. We seek to achieve our goals through the following strategies:

●

Develop non-producing properties (“PDNPs”) and proven undeveloped reserves (“PUDs”) in core areas located in Texas and Oklahoma. We have established core acreage positions in Texas where we have built up a drilling inventory of 55 PUD locations and PDNP opportunities throughout oil-rich plays. Since the majority of our acreage is held by production, we have the flexibility to develop our acreage in a disciplined manner in order to maximize the resource recovery from the assets. We believe the economics for development and production of our acreage is attractive at current commodity prices. As of December 31, 2014, we have identified 22 potential vertical drilling locations and 33 potential horizontal drilling locations on our existing acreage.

●

Optimize our vertical drilling program and capture potential horizontal development opportunities. We believe opportunities for increased well density exist across our acreage base for both our horizontal and vertical drilling programs and that horizontal drilling may be economical in areas where vertical drilling is currently not economical or logistically viable. We intend to target multiple benches within the Delaware Basin with horizontal wells and believe our horizontal drilling program may significantly increase our recoveries per section as compared to drilling vertical wells alone.

●

Maintain our financial discipline and flexibility. As an operator, we leverage advanced technologies and integrate the experience of our management and technical teams. We believe our team demonstrates financial discipline that is achieved by our approach to evaluating and analyzing prospects, along with prior drilling and completion results, before allocating capital. This discipline is reflected in the improvements our team has attained on reducing overall unit costs. When we are not the operator, we proactively engage with the operators in an effort to ensure similar financial discipline. Additionally, we conduct our own internal geological and engineering studies on these prospects and provide input on the drilling, completion and operation of many of these non-operated wells pursuant to our agreements and relationships with the operators. Our management focuses on maintaining a conservative balance sheet while trying to best optimize the overall capital structure to provide the best balance of risk and return potential. We also have a hedge program in place to mitigate risks.

●

Pursue additional leasing and strategic acquisitions. Our management team’s familiarity with our key operating areas, experience with unique and distressed transactions, and a broad contact base across both operators and financial sponsors enable us to identify high-return acquisition opportunities at attractive prices.

Material Contracts

We have material contracts, including participation agreements and contracts relating to the formation of the Company. These contracts are included as Exhibits 4.1 through 4.3 and 10.1 through 10.7.2.

Securities Purchase and Exchange Agreement and Going Public Delay Fee – Put Option and Going Public Delay Fee

We entered a “Securities Purchase and Exchange Agreement” dated June 10, 2011, with Longview Marquis Master Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC (collectively “Summerline”) attached as Exhibit 4.1. The Agreement says that the Company shall use its reasonable best efforts to reverse-merge with a public shell company or obtain an effective registration statement under the Securities Exchange Act of 1934 within 90 days of the date of that agreement (September 8, 2011). We did not successfully complete the reverse-merger or effective registration statement. Moreover, the Securities Purchase and Exchange Agreement also provided the Summerline parties with a put option if we failed “to use . . . . commercially reasonable efforts” to consummate the reverse merger or effective registration statement by December 10, 2011. Under the put option, shareholders affiliated with Summerline Asset Management, LLC could have elected to sell the company all of its shareholder interest in exchange for cash of approximately $12.52 per share. In our 2011 financial statements included with our Form 10-12G/A registration statement filed with the SEC on November 1, 2013 showed a current liability of approximately $18,400,000 relating to this put option.

On July 20, 2012, the Company and Longview Marquis Master Fund, L.P., Summerview Marquis Master Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC and Summerline Capital Partners, LLC agreed to waive the Company’s put option liability from the Securities Purchase and Exchange Agreement in exchange for the issuance of a total of 707,336 in shares of the Company’s common stock and a cash payment of accrued going public delay fees of $166,668.49. The going public delay fee was not waived on a going forward basis. After the issuance of these referenced shares, Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC and Summerline Capital Partners, LLC collectively own 17.1081% of the Company’s common stock shares. The waiver agreement is attached as Exhibit 4.3.

The agreement further provided that until the Company either engaged in the reverse merger or obtained an effective Form 10 registration statement, the Company was subject to a going public delay fee. Under Section 8(d) of the Securities Purchase and Exchange Agreement the Company shall pay or accrue a “going public delay fee” of $60,715 per month if it did not effect a public company reverse merger or effective registration statement under the Securities Exchange Act of 1934 by December 10, 2011.

This Going Public Delay Fee ceased accruing on August 6, 2013 thus saving the Company $728,580 on an annual basis. The Company has recognized the “Going Public Delay Fee” as a liability on its audited Consolidated Statement of Operations for the year ending December 31, 2013 in the amount of $425,005 and on the Balance Sheet dated December 31, 2013 as part of the “accounts payable and accrued liabilities” in the amount of $738,104.

Distribution of Common Stock Shares Owned by Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP to Limited Partners in the Partnerships.

Before February 25, 2014 Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP collectively were the record owners of 9,635,000 of common stock shares or 77.94% of our common stock. This portion of our equity was subject to an agreement dated January 20, 2012, attached as Exhibit 4.2, between Asym Capital III LLC, Giddings Genpar LLC, Hunton Oil Genpar LLC and SOSventures, LLC. If the 550,000 common stock shares then-interpleaded by the Company are included, that agreement covered 10,185,000 of our common stock shares or 82.39% of our common stock at that time. The Agreement provides that upon “monetization” of the Starboard Resources equity, that Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP shall be “dissolved” and their “affairs wound up.” According to the agreement:

“Monetization” means the receipt of a liquidating distribution in cash from Starboard or its successors, including a corporate successor formed for the purposes of effecting a public offering, or the receipt of unrestricted and freely transferable securities registered under the Securities Act of 1933, as amended in connection with a going public transaction at Starboard Resources, LLC, however affected.

On February 21, 2014, the Company delivered common stock share stock certificates relating to 9,635,000 of our common stock shares held by the Partnerships to the Partnerships in accord with the terms of the “Monetization Agreement.”

Pursuant to letter instructions from Charles S. Henry, III, the general partner of Giddings Oil & Gas LP, Asym Energy Fund III, LP and Hunton Oil Partners, LP, the Company’s transfer agent cancelled the 9,635,000 shares on February 24, 2014 and made a distribution of these common stock shares to the beneficial owners of the Partnerships in the amounts stated in the letter instructions from Mr. Henry. The Company then timely filed a Form 8-K on February 27, 2014 relating to the change of control from such distribution.

After said distribution, the transfer agent reissued 927,933 common stock shares to Giddings Oil & Gas LP, 540,860 common stock shares to Asym Energy Fund III LP and 172,098 common stock shares to Hunton Oil Partners LP. On March 17, 2014 the Company received instructions instructions from Charles S. Henry, III, the general partner of Giddings Oil & Gas LP, Asym Energy Fund III, LP and Hunton Oil Partners, LP to hold these certificates in its own name. On March 18, 2014, the Company interpleaded these common stock shares into the same Connecticut lawsuit in which it had previously interpleaded 550,000 common stock shares through an amended interpleader action. This increased the number of interpleaded common stock shares from 550,000 to 2,190,891. As part of the interpleader the Company disclaimed a beneficial interest in these common stock shares. The interpleaded common stock shares now amount to 17.2348% of the Company’s outstanding common stock.

Senior Secured Credit Facility with Independent Bank

On June 27, 2013 we entered into a senior secured credit facility from Independent Bank, providing for a $100.0 million revolving credit facility, subject to scheduled or elective collateral borrowing base redeterminations based on our oil and natural gas reserves. The credit facility matures on June 1, 2016. As of September 30, 2014, our borrowing base was $23.5 million. The outstanding borrowings bear interest at a rate that is currently based on the prime with a 4.00% floor. We also must pay an unused commitment fee of 0.5% per year on the undrawn amount of the borrowing base. As of December 31, 2014 we have borrowed approximately $22 million on the credit facility.

On March 26, 2014, we entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% annum. The agreement was obtained to fund our development and acquisition of oil and natural gas properties. The loan requires 18 equal monthly payments of approximately $194,000 starting on October 1, 2014 and maturing on March 1, 2016 and is subject to the same covenants as the credit facility with Independent Bank. The term loan agreement is Exhibit 10.9 to this annual report.

The loan under the term agreement bears interest at the greater of: (1) the prime rate, the annual rate of interest announced by the Wall Street Journal as its “prime rate,” plus the applicable margin of 3.00% or (2) the floor rate of 6.75%.

On December 19, 2014, counsel for Independent Bank, provider of our bank credit facility, transmitted a letter stating that:

Based on information which the Borrower has provided the Lender, the Lender believes that the Borrower has made payments in violation of Section 7.6.4 of the Credit Agreement. Additionally, based on such information, the Lender believes the Borrower has violated Section 7.2.3 of the Credit Agreement. As a consequence of the foregoing, one of more Events of Default exist under the Credit Agreement. The Lender hereby demands that the Borrower cease making payments in violation of Section 7.6.4 and obtain a return of funds wrongfully paid.

The letter references interest payments made to SOSventures, LLC under out subordinated credit facility. As of the date of the notice from Independent Bank we had made interest payments of $1,239,722 to SOSventures, LLC.

The letter also requested that counsel for Independent Bank be provided the name and address of counsel for Starboard Resources, Inc. that will be representing it in the matter. The Independent Bank Credit Agreement is Exhibit 10.5.01 to this annual report. Section 7.6.4 of the Credit Agreement relates to payments of principal and interest on a subordinated credit facility to SOSventures, LLC and Section 7.2.3 contains notice provisions. We reported this notice in our Form 8-K filed December 23, 2014.

On April 15, 2015 we entered into the Fourth Amendment to the Credit Agreement with Independent Bank (“Amendment”), a copy of which is Exhibit 10.5.15. The agreement provides that the borrowing base is $21,750,000 as of the date of the Amendment that will be reduced by $250,000 per month before September 1, 2015 and $350,000 per month thereafter, unless re-determined after 150 days from the date of the Amendment. The Company is obligated to provide Independent Bank an engineering report acceptable to the Bank before September 1, 2015 showing proven and producing and proven undeveloped oil and gas reserves, discounted present value of future net income for the Company’s oil and gas properties as of September 1, 2015, projections of annual rate of production, gross income and net income relating to these reserves and take-or-pay, prepayment and gas balancing obligations. Forrest Garb & Associates is deemed to be acceptable to the Bank for an engineering report.

The Amendment resolves the matters addressed in the December 19, 2014 letter from Independent Bank’s counsel referenced above.

The Amendment also allows the assignment of an overriding royalty interest as stated in the related amendment to the Intercreditors’ Agreement between Independent Bank, the Company and SOSventures, LLC.

The Company is obligated to commence drilling a well in the Crittendon Field within 45 days of the date of the Amendment and a second well in the Crittendon Field within 90 days of the date of the Amendment.

The Amendment includes a suspension of Independent Bank’s rights to exercise its remedies prior to 150 days after the Amendment caused solely by the occurrence of a borrowing base deficiency. It also includes a suspension of Independent Bank’s obligation to extend loans, letters of credit or renewals or extensions of letters of credit agreement under the Credit Agreement for 150 days after the date of the Amendment.

The Amendment further provides that the Company will be required execute and maintain crude oil hedges on a minimum of 80.0% of Projected Production on a rolling 20 months basis. The table below details the Borrower’s existing and required crude hedges through 2016.

The Company is also obligated to repay its term loan at closing with both principal and interest, repay the note principal to reduce the note to no more than the borrowing base, including the repayment of interest, pay certain fees, deposit $5,000,000 into a special account and deliver a commitment letter from SOSventures to provide an additional $2,000,000 of availability under the Subordinated credit facility with SOSventures, LLC for drilling capital.

Subordinated Credit Facility with SOSventures, LLC

The SOSventures, LLC credit agreement requires us to maintain certain financial ratios. First, we must maintain an interest coverage ratio of 3:1 at the end of each quarter so that our consolidated net income less our fees under the credit facility, lender expenses, non-cash charges relating to the hedge agreements, interest, income taxes, depreciation, depletion, amortization, exploration expenditures and costs and other non-cash charges (netted for noncash income) (“EBITDAX”) is greater than 3 times our interest expense under the credit facility. Second, we must maintain a debt to EBITDAX ratio of less than 3.5:1 at the end of each quarter. Third, we must maintain a current ratio of at greater than 1:1 at the end of each quarter, meaning that our consolidated current assets (including the unused amount of the credit facility by excluding non-cash assets under ASC 410 and 815) must be greater than our consolidated current liabilities (excluding non-cash obligations under ASC 410 and 815 and current maturities under the credit facility.)

The credit agreement prevents us from incurring indebtedness to banks or lenders, other than Independent Bank, without the consent of SOSventures, LLC. It also prevents us from incurring most contingent obligations or liens (other than to Independent Bank). It restricts our ability to pay dividends, issue options and warrants and repurchase our common stock shares. The options and warrants limitations do not apply to equity compensation plans.

As of December 31, 2014, we have $10 million drawn against the SOSventures, LLC credit facility. In light of the December 19, 2014 notice from Independent Bank relating to the payment of interest to SOSventures, LLC, pursuant to the Intercreditors Agreement (Exhibit 10.6.2), we are accruing interest payments to SOSventures, LLC since the date of that notice.

On April 15, 2015 we entered the Second Amendment to the First Amendment and Restated Credit Agreement (Exhibit 10.6.4) and several other agreements which provided that SOSventures, LLC will provide an additional $3 million on its credit facility to be used to pay the outstanding balance of the Independent Bank term loan, pay on the Independent Bank credit facility and for operations. Additionally, SOSventures deposit $5 million into a controlled account at Independent Bank to be used to drill two wells in the Crittendon Field referenced in the Independent Bank Amendment. Further, SOSventures, LLC will receive interest on its credit facility and a 1% overriding royalty interest on the Company’s Crittendon Field properties effective upon the drilling of these two oil and gas wells until such time as the credit facility is repaid. Finally, SOSventures, LLC shall receive warrants to purchase 2,542,397 of our common shares for $1.00 per share with a two-year term. If fully purchased 2,542,397 would equal 20% of our currently outstanding common stock.

Hedging Activities

Our current hedge position consists of put options. These contracts and any future hedging arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase. In addition, these arrangements may limit the benefit to us of increases in the price of oil. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instrument, which we use entirely to hedge our production and do not enter into for speculative purposes.

At January 1, 2015, we had the following open crude oil derivative contracts:

January 1, 2015

Instrument

Commodity

Volume

(bbl / month)

Floor

Price

Ceilings

Price

Purchased Put Option

Price

January 2015 – October 2015

Put

Crude Oil

5,000

77.00 – 80.00

November 2015 – December 2015

Put

Crude Oil

2,800

80.00

January 2015 – December 2015

Put

Crude Oil

4,000

70.00

January 2016 – March 2016

Put

Crude Oil

1,500

75.00

Emerging Growth Company

We are an “Emerging Growth Company” under the Jumpstart our Business Startups Act (JOBS Act) which was signed into law by President Obama in April 2012. This means that we have lesser SEC-reporting company requirements than we would otherwise have. Specifically, Emerging Growth Companies are subject to the following lower reporting requirements:

●	No requirement for an independent auditor attestation as to the effectiveness of our internal controls;

●	No requirement to discuss our financial performance or to present supplemental financial information for periods more than two years previous;

●	Any future possible periodic auditor rotation requirements will not apply to us;

●	Our executive compensation disclosure will comply with the provisions applicable to smaller reporting companies, that is companies with less than $75 million in market capital, rather than other companies of comparable size to us;

●	No requirement that we seek an advisory vote from shareholders as to the approval of our executive compensation (say-on-pay);

●	No requirement that we seek a shareholder vote determining the frequency of shareholder advisory votes on executive compensation (say-on-pay vote frequency);

●	No requirement for shareholder approval of golden parachutes for our officers and directors in mergers or change-of-control transactions;

●	Research reports about us by a broker or dealer will not be part of our registration statement, even if the broker or dealer is participating in underwriting or selling our securities;

●

Our management or agents may communicate orally and in writing with qualified institutional buyers or institutional accredited investors who are prospective investors in our initial public offering (IPO) before or after our registration statement becomes effective (provided such communications are supplemented with the delivery of our annual report); and

●	Brokers and dealers involved with offering and selling our securities may publish research reports relating to our company at any time after our IPO and within any restrictive period on the sale of securities by our holders after the IPO.

We will lose the above-described exemptions from our reporting and shareholder approval obligations when we cease to be an Emerging Growth Company. We will cease to be an Emerging Growth Company on the last day of the fiscal year following the date of the fifth anniversary of our first sale of common equity securities under an effective registration statement or a fiscal year in which we have $1 billion in gross revenues. We will also immediately cease to be an Emerging Growth Company if the market value of our common stock held by non-affiliates exceeds $700 million or upon our issuing $1 billion or more in non-convertible debt in a three year period. Finally, we may choose to opt-out of the emerging growth company status at any time. If we opt out of emerging growth company status we may not opt back in.

No Delayed Adoption of New or Revised Accounting Standards under the Jumpstart our Business Startups Act (JOBS ACT)

The JOBS Act provides that we have the option of deferring compliance with new or revised accounting standard until such date as companies that do not file periodic reports with the SEC are required to comply with the new or revised accounting standard. We have elected not to use this provision and intend to implement new or revised accounting standards applicable to reporting issuers when such implementation is required of other reporting issuers. This election is irrevocable.

Recent Developments

Recent Oil and Gas Activities

Since December 31, 2014, we have completed and began producing 1 well (0.4 net wells) in McClain County, Oklahoma.

Lawsuit and Arbitration Relating to 17.23% of Our Common Stock Shares

We interpleaded 2,190,891 of our common stock shares into the jurisdiction of the Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford. These common stock shares belonged to Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund LP, all of whom are Delaware limited partnerships. The limited partners and the former general partners in those partnerships dispute how those common stock shares should be allocated as part of the winding up of the partnerships. The 2,190,891 common stock shares constitute approximately 17.2348% of our common stock shares before the offering.

Many of the parties to the interpleader action are also involved in a lawsuit and arbitration action against each other. The litigation is stayed. The arbitration generally covering the same matters is set for hearing commencing April 20, 2015.

In Cause Nos. FST-CV-12-5013927-S and FST-CV-12-6014987-S, filed in Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford, Charles Henry III, Ahmed Ammar, John P. Vaile as Trustee of John P. Vaile Living Trust, John Paul Otieno, SOSventures, LLC, Bradford Higgins, William Mahoney, Robert J. Conrads and Edward M. Conrads individually and derivatively on behalf of Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund LP (“Plaintiffs”) make claims against Gregory Imbruce, Giddings Investments LLC, Giddings Genpar LLC, Hunton Oil Genpar LLC, Asym Capital III LLC, Glenrose Holdings LLC and Asym Energy Investments LLC (“Defendants”). The Plaintiffs allege fiduciary duty breaches, conversion, civil theft, violations of Connecticut Unfair Trade Practices Act, unjust enrichment, common law fraud, negligence, fraudulent conveyance and civil conspiracy and seek damages, injunctive relief, a constructive trust and an accounting. These allegations focus on the issuance of 550,000 Starboard Resources LLC Units to “Giddings Investments, LLC.” The allegations claim that this issuance was derived from the conversion of participation rights in Company wells that belong to Giddings Oil & Gas LP. The lawsuit makes several other claims of breaches of duties by Defendants in connection with Defendants or their affiliates serving as general partners of Giddings Oil & Gas LP, Asym Energy Fund III LP, and Hunton Oil Partners LP. Defendants deny the allegations. This lawsuit was originally filed on July 18, 2012. We are not a party to this action.

The Plaintiffs are limited partners of Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund LP. Two Plaintiffs, Charles Henry III and William Mahoney have been non-executive directors for us. Mr. Henry remains a director. Mr. Mahoney resigned as our director in April 2013 and passed away shortly thereafter. Another Plaintiff, SOSventures, LLC, employs our chairman, Bill Liao. Defendant Gregory Imbruce was one of our directors until April 2012 and is our “Promoter” as defined by Securities Act Rule 405 as stated on pages 58-60 of this annual report. Defendants Giddings Genpar LLC, Hunton Oil Genpar LLC and Asym Capital III LLC were the general partners of Giddings Oil & Gas LP, Hunton Oil Partner LP and Asym Energy Fund III LP. Defendant Glenrose Holdings is alleged to be the manager of manager of Defendants Giddings Genpar LLC and Hunton Genpar LLC. Defendant Asym Energy Investments LLC is alleged to be the manager of Defendant Asym Capital III LLC. The lawsuit alleges that defendants Giddings Investments LLC, Glenrose Holdings LLC and Asym Energy Investments LLC are ultimately controlled by Defendant Imbruce.

In a related proceeding, on March 18, 2014, Gregory Imbruce, Giddings Investments, LLC, Giddings Genpar LLC, Hunton Oil Genpar, LLC, Asym Capital III LLC, Glenrose Holdings, LLC and Asym Energy Investment LLC filed a claim through the American Arbitration Association against Charles S. Henry, III, John P. Vaile, as Trustee of John P. Vaile Living Trust, John Paul Otierno, SOSventures LLC, Bradford Higgins, William Mahoney, Edwards M. Conrads, Robert J. Conrads, Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP and named other limited partners in the partnerships as relief defendants. Claimants seek remedies for (i) breach of limited partnership agreements; (ii) breach of implied covenant of good faith and fair dealing; (iii) violations of the Connecticut Unfair Trade Practices Act (SOSventures, LLC only); (iv) conversion of stock certificates; (v) theft of stock certificates; (vi) unjust enrichment; (vii) violations of the Delaware Uniform Limited Partnership Act (Charles S. Henry III only); (viii) breach of fiduciary duty (Charles S. Henry III only); and (ix) defamation and violation of confidentiality duty (SOSventures, LLC only). The claimants seek declaratory and injunctive relief as to who has authority to act as general partner of the partnerships, constructive trust on our common stock shares previously distributed to limited partners in the partnerships and damages. The arbitration respondents have counterclaimed with the same claims they made as Plaintiffs in the above-described Court litigation. The hearing is set for April 20, 2015.

The above-described litigation may lead to a material reallocation or change of control of up to 17.2348% of our common stock shares. Such new shareholders may vote for a new slate of directors and may lead to a significant change of our common stock ownership structure. Finally, tying up 17.2348% of our common stock shares in litigation will likely have a materially negative effect on our trading liquidity should we obtain an exchange listing or an over-the-counter quotation.

Current status of litigation and distributions of our common stock held by Giddings Oil & Gas LP, Asym Energy Fund III, LP and Hunton Oil Partners, LP

In 2013 the limited partners of Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP voted to remove business entities controlled by Gregory Imbruce as general partner of the partnerships and appoint Charles S. Henry, III the new general partner by a vote of more than 87.5% of each partnership’s interest. Subsequently, certificates of amendment of limited partnership were filed with the Delaware Secretary of State for each partnership noting the removal of the Imbruce business entities and the designation of Mr. Henry as general partner. On February 21, 2014 Mr. Henry ordered a liquidating distribution of the Partnerships’ sole material assets – our common stock shares. The partnerships’ remaining 2,190,891 common stock shares that were not distributed are interpleaded into a Connecticut Superior Court. The three partnerships currently are the record owner of none of our common stock shares.

Gregory Imbruce and business entities controlled by Mr. Imbruce filed an arbitration claim on March 18, 2014 with the American Arbitration Association against certain limited partners in the partnerships and Charles S. Henry, III (also naming the remaining limited partners as relief defendants) seeking various remedies and damages. The hearing in the matter is set for April 20, 2015. The remedies include seeking a constructive trust that includes our common stock shares distributed in the liquidating distribution. The Imbruce parties also object to the effectiveness of the notices to them and their removal as general partner. These parties have not sought any relief under the American Arbitration Association’s Emergency Measures of Protection in the Commercial Arbitration Rules. Counsel for the limited partners has argued in Connecticut Superior Court that the Imbruce parties cannot seek equitable relief through an arbitration panel because a January 2012 agreement between SOSventures and the Imbruce parties includes an exclusive forum selection clause requiring that all equitable relief relating to the disputed matters be sought in Connecticut Superior Court.

As described on page 7 of this annual report, certain of the limited partners of Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP have been seeking damages, injunctive relief, a constructive trust and an accounting in Connecticut Superior Court against Mr. Imbruce and his business entities for fiduciary duty breaches, conversion, civil theft, violations of Connecticut Unfair Trade Practices Act, unjust enrichment, common law fraud, negligence, fraudulent conveyance and civil conspiracy since 2012.

The partnerships are Delaware partnerships and carry a Delaware choice of law provision in their partnership agreements. Under Delaware law, a constructive trust “effectuates the principle of equity that one who would be unjustly enriched, if permitted to retain property, is under an equitable duty to convey it the rightful owner. . . . When one party, by virtue of fraudulent, unfair or unconscionable conduct, is enriched at the expense of another to whom he or she owes some duty, a constructive trust will be imposed.” Hogg v. Walker, 622 A.2d 648, 652 (Del. 1993). The constructive trust can be imposed on “specific property or identifiable proceeds of specific property.” Hogg at 652. Thus, if the Imbruce claimants successfully prosecute their claim, a constructive trust can be imposed under Delaware law on our common stock shares held by the former limited partners in the partnerships and the identifiable proceeds from the sale of our common stock by those parties. If the sales proceeds from the sale of our stock are not readily identifiable, under Delaware law the court or arbitration panel can also order the constructive trustee to account for the trust property and to pay a surcharge and compensatory damages. Hogg at 654.

If the Imbruce claimants obtain a constructive trust remedy that covers our common stock distributed to the limited partners before the sale of that common stock by the former limited partners, our common stock could have materially less trading liquidity or purchase demand and we may have a significant change in our voting control.

If the Imbruce claimants obtain a constructive trust remedy that covers our common stock distributed to the limited partners after the sale of that common stock by the former limited partners, such the constructive trust may apply to the proceeds from the sale of our common stock. If the proceeds are not readily identifiable, the former limited partners could be liable under Delaware law for breach of the constructive trust and ordered to provide an accounting or pay a surcharge or compensatory damages.

The likelihood or risk of the Imbruce claimants obtaining a constructive trust remedy that covers our common stock shares received by the limited partners in the liquidating distribution will be impacted by the 2,190,891 common stock shares we interpleaded into Connecticut Superior Court with notice to the Imbruce claimants. These common stock shares amount to approximately 17.73% of our outstanding common stock and are available to satisfy the Imbruce claimants constructive trust claims (with Court approval) should the Imbruce claimants successfully prosecute those claims. Consequently, we do not anticipate that the Imbruce claimants’ constructive trust claims will affect our common stock shares distributed to the limited partners in the liquidating distribution unless the arbitration panel or court orders a constructive trust over more than: 1) 1,477,933 of our common stock shares in connection with claims relating to Giddings Oil & Gas LP; 2) 540,860 of our common stock shares in connection with claims relating to Asym Energy Fund III LP; or 3) 172,098 of our common stock shares in connection with claims relating to Hunton Oil Partners LP.

Management’s Experience with Horizontal Drilling

The Company intends to engage in directional drilling, which includes horizontal drilling, to develop our proven undeveloped reserves, particularly in our Eagle Ford Shale play acreage. Both our CEO, Michael Pawelek, and our Chief Operating Officer, Edward Shaw, have been engaged in in directional drilling and operating wells in our target areas since 1999. Further, the Company’s Vice-President of Operations, Thomas Saunders, has extensive directional drilling experience. Mr. Saunders has 36 years of domestic and international production and drilling experience, including 31 years of direct supervisory drilling, workover, construction, and production operations experience. Mr. Saunders’ past experience has been with Tenneco, Arco, Anadarko, and BP. He received a BS degree in Petroleum Engineering from Texas A&M University. Combined Mr. Pawelek, Mr. Shaw and Mr. Saunders have been involved in drilling over 200 directional/horizontal wells.

Present Activities

Since December 31, 2014, we have completed and began producing 1 well (0.4 net wells) in McClain County, Oklahoma.

Delivery Commitments

The Company is not currently committed to providing a fixed and determinable quantity of oil or gas under any existing contract.

Major Customers

The Company sold oil and natural gas production representing more than 10% of its oil and natural gas revenues as follows:

2014:
Oil:	Sunoco	83	%
	Texas Gas Gathering	12	%
	Shell	5	%
Gas:
	Regency	57	%
	DCP	28	%
	ETC	15	%
2013:
Oil	Shell	3	%
	Sunoco	62	%
	EDF Trading	35	%

Gas	DCP Midstream, LP	22	%
	Superior	73	%
	ETC	5	%

Because alternate purchasers of oil are readily available, we believe that the loss of any of our purchasers would not have a material adverse effect on our financial results. Our agreement with Sunoco, Inc. provides that our oil will be sold at the posted prices for West Texas intermediate crude oil for the calendar month, deemed 40.0 API gravity, plus the average of Argus’s P-Plus for the trading month, less a downward adjustment depending on property of $2.51 – $4.80 per barrel with one property in Bastrop County having a $7.00 adjustment.

The DCP Midstream, LP gas purchase contract for our Texas properties states that the residue gas value will be the price per MMBtu published by Inside F.E.R.C.’s Gas Market Report on its first publication of the delivery month for “Prices of Spot Gas Delivered to Pipelines” for the Houston Ship Chanel less than $0.15 per MMBTU. NGL net value is determined by an average of the daily high/low spot price for (i) ethane in E-P mix, (ii) non-TET propane, (iii) non-TET isobutene, (iv) non-TET normal butane, and (v) non-TET natural gasoline (pentanes and heaver) during the month as reported for Mont Belvieu, Texas by the Oil Price Information Service less a transportation, fractionation and storage fee of $0.06 per gallon, with the fee subject to inflation adjustments based on seasonally adjusted inflation statistics. Further, the contract provides for the payment of the following percentages of the net value of the residue gas:

Month’s Average MCF/Day for all gas delivered under Contract		Applicable Percentage of Residue Gas and NGLs
Greater than 1,500		92%
1,000 – 1,500		90%
751 – 1,000		88%
400 - 750		86%
Less than 400		84%

If the Company delivers less than 300 Mcf per month at any delivery point, it will be charged a low volume fee of $200.00 per month.

Superior Pipeline is the purchaser of the natural gas from our non-operated properties in Oklahoma. We are not directly contracted with Superior Pipeline and production purchase decisions are determined by the Operator.

Texas Gathering is the oil purchaser from our Crittendon properties. The contract provides that our oil will be sold at the average posting price of Phillips 66 West Texas Intermediate crude oil, at a deemed gravity of 40.0 degrees API, plus the arithmetic average of the mid-points of Argus reported prices for WTI P-Plus crude oil, plus the Argus LLS differential to WTI weighted average per barrel, less a downward adjustment of $3.00 per barrel.

Regency is the purchaser of the natural gas from our Crittendon properties, which the gas purchase contract states a price per MMBTU equal to 100% of the average of the daily midpoint for Waha and El Paso Permian (Index), less a downward adjustment of $0.49 per MMBTU.

Competition

We encounter competition from other oil and natural gas companies in all areas of our operations, including the acquisition of exploratory prospects and proven properties. Many of our competitors are large, well-established companies that have been engaged in the oil and natural gas business for much longer than we have and possess substantially larger operating staffs and greater capital resources than we do. Our ability to explore for oil and natural gas reserves and to acquire additional properties in the future will be dependent upon our ability to conduct our operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment. We believe that our technological expertise, our exploration, land, drilling and production capabilities and the experience of our management generally enable us to compete effectively.

Marketing

Our production is marketed to third parties consistent with industry practices. Typically, oil is sold at the wellhead at field-posted prices plus a bonus and natural gas is sold under contract at a negotiated price based upon factors normally considered in the industry, such as distance from the well to the pipeline, well pressure, estimated reserves, quality of natural gas and prevailing supply and demand conditions.

Our marketing objective is to receive the highest possible wellhead price for our product. We are aided by the presence of multiple outlets near our production in Texas and Oklahoma. We take an active role in determining the available pipeline alternatives for each property based on historical pricing, capacity, pressure, market relationships, seasonal variances and long-term viability.

Regulation of the Oil and Natural Gas Industry

Regulation of Transportation and Sale of Oil

Sales of crude oil, condensate and natural gas liquids are not currently regulated and are made at negotiated prices. Nevertheless, Congress could reenact price controls in the future.

Our sales of crude oil are affected by the availability, terms and cost of transportation. The transportation of oil in common carrier pipelines is also subject to rate regulation. The Federal Energy Regulatory Commission (“FERC”) regulates interstate oil pipeline transportation rates under the Interstate Commerce Act. Interstate oil pipeline rates are typically set based on a cost of service methodology (“Cost-Based Rates”); however, they may also be set based on the competitive market (“Market-Based Rates”) or by agreement between the pipeline and its shippers (“Settlement Rates”). Some oil pipeline rates may be increased pursuant to an index methodology, whereby the pipeline may increase its rates up to a ceiling set by reference to the Producer Price Index for Finished Goods (unless the rate increase is shown to be substantially in excess of the actual cost increases incurred by the pipeline). Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state. Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect our operations in any way that is of material difference from those of our competitors.

Further, interstate and intrastate common carrier oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service to all similarly situated shippers requesting service on the same terms and under the same rates. When oil pipelines operate at full capacity, access is governed by prorationing provisions set forth in the pipelines’ published tariffs. Accordingly, we believe that access to oil pipeline transportation services generally will be available to us to the same extent as to our competitors.

Regulation of Transportation and Sale of Natural Gas

Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978 and regulations issued under those Acts by the FERC. In the past, the federal government has regulated the prices at which natural gas could be sold. While sales by producers of natural gas can currently be made at uncontrolled market prices, Congress could reenact price controls in the future.

FERC regulates interstate natural gas transportation rates and service conditions, which affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas. Since 1985, the FERC has endeavored to make natural gas transportation more accessible to natural gas buyers and sellers. The interstate pipelines’ traditional role as wholesalers of natural gas has been eliminated and replaced by a structure under which pipelines provide transportation and storage service on an open access basis to others who buy and sell natural gas. Although the FERC’s orders do not directly regulate natural gas producers, they are intended to foster increased competition within all phases of the natural gas industry.

We cannot accurately predict whether the FERC’s actions will achieve the goal of increasing competition in markets in which our natural gas is sold. Additional proposals and proceedings that might affect the natural gas industry are pending before the FERC and the courts. The natural gas industry historically has been very heavily regulated. Therefore, we cannot provide any assurance that the less stringent regulatory approach recently established by the FERC will continue. However, we do not believe that any action taken will affect us in a way that materially differs from the way it affects other natural gas producers.

Gathering service, which occurs upstream of jurisdictional transmission services, is regulated by the states on shore and in state waters. Although its policy is still in flux, FERC has reclassified certain jurisdictional transmission facilities as non-jurisdictional gathering facilities, which has the tendency to increase our costs of getting natural gas to point of sale locations.

Intrastate natural gas transportation is also subject to regulation by state regulatory agencies. The basis for intrastate regulation of natural gas transportation and the degree of regulatory oversight and scrutiny given to intrastate natural gas pipeline rates and services varies from state to state. Insofar as such regulation within a particular state will generally affect all intrastate natural gas shippers within the state on a comparable basis, we believe that the regulation of similarly situated intrastate natural gas transportation in any states in which we operate and ship natural gas on an intrastate basis will not affect our operations in any way that is of material difference from those of our competitors. Like the regulation of interstate transportation rates, the regulation of intrastate transportation rates affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas.

Regulation of Production

The production of oil and natural gas is subject to regulation under a wide range of local, state and federal statutes, rules, orders and regulations. Federal, state and local statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. All of the states in which we own and operate properties have regulations governing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum allowable rates of production from oil and natural gas wells, the regulation of well spacing, and plugging and abandonment of wells. The effect of these regulations is to limit the amount of oil and natural gas that we can produce from our wells and to limit the number of wells or the locations at which we can drill, although we can apply for exceptions to such regulations or to have reductions in well spacing. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within its jurisdiction. The failure to comply with these rules and regulations can result in substantial penalties. Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations.

Environmental Matters and Other Regulation

General

Our operations are subject to stringent and complex federal, state and local laws and regulations governing environmental protection as well as the discharge of materials into the environment. These laws and regulations may, among other things:

●	require the acquisition of various permits before drilling commences;

●	restrict the types, quantities and concentration of various substances that can be released into the environment in connection with oil and natural gas drilling and production activities;

●	limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and

●	require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells.

These laws and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability. Additionally, Congress and federal and state agencies frequently revise environmental laws and regulations, and any changes that result in more stringent and costly waste handling, disposal and cleanup requirements for the oil and gas industry could have a significant impact on our operating costs. The following is a summary of some of the existing laws, rules and regulations to which our business operations are subject.

Waste Handling

The Resource Conservation and Recovery Act, or RCRA, and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the federal Environmental Protection Agency, or EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters and most of the other wastes associated with the exploration, development and production of crude oil or natural gas are not currently regulated under RCRA or state hazardous waste provisions though our operations may produce waste that do not fall within this exemption. However, these oil and gas production wastes may be regulated as solid waste under state law or RCRA. It is possible that certain oil and natural gas exploration and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change could result in an increase in our costs to manage and dispose of wastes, which could have a material adverse effect on our results of operations and financial position.

Comprehensive Environmental Response, Compensation, and Liability Act

The Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, also known as the Superfund Law, imposes joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current or former owner or operator of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.

In the course of our operations, we generate wastes that may fall within CERCLA’s definition of hazardous substances. Further, we currently own, lease or operate properties that have been used for oil and natural gas exploration and production for many years. Hazardous substances or petroleum may have been released on, at or under the properties owned, leased or operated by us, or on, at or under other locations, including off-site locations, where such hazardous substances or other wastes have been taken for disposal. In addition, some of our properties have been operated by third parties or by previous owners or operators whose handling, treatment and disposal of hazardous substances, petroleum, or other materials or wastes were not under our control. These properties and the substances or materials disposed or released on, at or under them may be subject to CERCLA, RCRA or analogous or other state laws. Under such laws, we could be required to remove previously disposed substances and wastes or released petroleum, remediate contaminated property or perform remedial plugging or pit closure operations to prevent future contamination.

Water Discharges

The Federal Water Pollution Control Act, or the Clean Water Act, and analogous state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances into waters of the United States or state waters. Under these laws, the discharge of pollutants into regulated waters is prohibited except in accordance with the terms of a permit issued by EPA or an analogous state agency. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations.

The Oil Pollution Act of 1990, or OPA, which amends and augments the Clean Water Act, establishes strict liability for owners and operators of facilities that are the site of a release of oil into waters of the United States. In addition, OPA and regulations promulgated pursuant thereto impose a variety of regulations on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills. OPA also requires certain oil and natural gas operators to develop, implement and maintain facility response plans, conduct annual spill training for certain employees and provide varying degrees of financial assurance.

Air Emissions

The Federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs and the imposition of other requirements. In addition, EPA has developed and continues to develop stringent regulations governing emissions of toxic air pollutants at specified sources. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the Federal Clean Air Act and associated state laws and regulations. Oil and gas operations may in certain circumstances and locations be subject to permits and restrictions under these statutes for emissions of air pollutants, including volatile organic compounds, nitrous oxides, and hydrogen sulfide.

Climate Change

In response to findings that emissions of carbon dioxide, methane and other greenhouse gases present an endangerment to public health and the environment because emissions of such gases are contributing to warming of the earth’s atmosphere and other climatic changes, the EPA had adopted regulations under existing provisions of the federal Clean Air Act that would require a reduction in emissions of greenhouse gases, from motor vehicles and, also, could trigger permit review for greenhouse gas emissions from certain stationary sources. The EPA has asserted that the motor vehicle greenhouse gas emission standards triggered Clean Air Act construction and operating permit requirements for stationary sources, commencing when the motor vehicle standards took effect on January 2, 2011. The EPA published its final rule to address the permitting of greenhouse gas emissions from stationary sources under the PSD and Title V permitting programs. This rule “tailors” these permitting programs to apply to certain stationary sources of GHG emissions in a multi-step process, with the largest sources first subject to permitting. It is widely expected that facilities required to obtain PSD permits for their greenhouse gas emissions also will be required to reduce those emissions according to “best available control technology” standards for greenhouse gases that have yet to be developed. With regards to the monitoring and reporting of greenhouse gases, on November 30, 2010, the EPA published a final rule expanding its existing greenhouse gas emissions reporting rule published in October 2009 to include onshore oil and natural gas production activities, which may include certain of our operations. In addition, both houses of Congress have actively considered legislation to reduce emissions of greenhouse gases, and almost one-half of the states have already taken legal measures to reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. The adoption and implementation of any legislation or regulations imposing reporting obligations on, or limiting emissions of greenhouse gases from, our equipment and operations could require us to incur costs to reduce emissions of greenhouse gases associated with our operations or could adversely affect demand for the oil and natural gas we produce. Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic event; if any such effects were to occur, they could have an adverse effect on our exploration and production operations.

National Environmental Policy Act

Oil and natural gas exploration and production activities on federal lands are subject to the National Environmental Policy Act, or NEPA. NEPA requires federal agencies, including the Department of Interior, to evaluate major agency actions that have the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. All of our current exploration and production activities, as well as proposed exploration and development plans, on federal lands require governmental permits that are subject to the requirements of NEPA. This process has the potential to delay the development of oil and natural gas projects.

Endangered Species, Wetlands and Damages to Natural Resources

Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands, and natural resources. These statutes include the Endangered Species Act, the Migratory Bird Treaty Act, the Clean Water Act and CERCLA. Where takings of or harm to species or damages to wetlands, habitat, or natural resources occur or may occur, government entities or at times private parties may act to prevent oil and gas exploration or production or seek damages to species, habitat, or natural resources resulting from filling or construction or releases of oil, wastes, hazardous substances or other regulated materials.

OSHA and Other Laws and Regulations

We are subject to the requirements of the federal Occupational Safety and Health Act (OSHA) and comparable state statutes. The OSHA hazard communication standard, the Emergency Planning and Community Right to Know Act and similar state statutes require that we organize and/or disclose information about hazardous materials stored, used or produced in our operations.

Private Lawsuits

In addition to claims arising under state and federal statutes, where a release or spill of hazardous substances, oil and gas or oil and gas wastes have occurred, private parties or landowners may bring lawsuits against oil and gas companies under state law. The plaintiffs may seek property damages, personal injury damages, remediation costs or injunctions to require remediation or restoration of contaminated property, soil, groundwater or surface water. In some cases, oil and gas operations are located near populated areas and emissions or accidental releases could affect the surrounding properties and population.

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

Market for Our Common Stock

Our common stock is not currently traded. We have no market price. Further, we have paid no dividends and do not anticipate paying dividends in the near future. We are not currently listed or quoted on an over-the-counter market. We provide no assurance that a listing or quotation will be obtained.

We have not paid any cash dividends to date, and have no intention of paying any cash dividends on our common stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of our Board of Directors, certain limitations imposed under Delaware corporation law and the consent of our lenders pursuant to the terms of our credit facilities. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Item 1A. RISK FACTORS

An investment in our common stock is subject to numerous risks, including those listed below and described elsewhere in this report. You should carefully consider these risks, along with the information provided elsewhere in this report before investing in the common stock. You could lose all or part of your investment in the common stock.

We have an operating loss.

We reported a net operating loss of $3,696,643 in the year ending December 31, 2014, including an impairment charge. If we incur substantial operating expenses for our oil and natural gas exploration and development activities, we may continue to not be profitable.

We have substantial capital requirements that, if not met, may hinder operations.

We have and expect to continue to have substantial capital needs as a result of our active exploration, development, and acquisition programs. We expect that additional external financing will be required in the future to fund our growth. We may not be able to obtain additional financing, and financing under our credit facilities may not be available in the future. Without additional capital resources, we may be forced to limit or defer our planned oil and natural gas exploration and development program and this will adversely affect the recoverability and ultimate value of our oil and natural gas properties, in turn negatively affecting our business, financial condition, and results of operations.

Our shareholder base is currently not stable because we have interpleaded 17.23% of our common stock into a Connecticut Court.

Approximately 17.2348% of our common stock shares were interpleaded into Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford, Cause No. FST-CV12-6015112-S. These are the residual common stock shares that belonged to Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Energy Partners LP. after the distribution of the partnerships shares.

Additionally, in a related case in Connecticut Superior Court there is ongoing litigation and an arbitration. The lawsuit is styled Charles Henry III, Ahmed Ammar, John P. Vaile as Trustee of John P. Vaile Living Trust, John Paul Otieno, SOSventures, LLC, Bradford Higgins, William Mahoney, Robert J. Conrads, Edward M. Conrads, William F. Pettinati, Jr. individually and derivatively on behalf of Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund LP v. Gregory Imbruce, Giddings Investments LLC, Giddings Genpar LLC, Hunton Oil Genpar LLC, Asym Capital III LLC, Starboard Resources, Inc., Glenrose Holdings LLC and Asym Energy Investments LLC. This lawsuit was originally filed on July 18, 2012. The Plaintiffs allege fiduciary duty breaches, conversion, civil theft, violations of Connecticut Unfair Trade Practices Act, unjust enrichment, common law fraud, negligence, fraudulent conveyance and civil conspiracy and seek damages, injunctive relief, a constructive trust and an accounting. These allegations focus on the issuance of 550,000 Starboard Resources LLC Units to “Giddings Investments, LLC.” The allegations claim that this issuance was derived from the conversion of participation rights in Company wells that belong to Giddings Oil & Gas LP. The lawsuit makes several other claims of breaches of duties by Defendants in connection with Defendants or their affiliates serving as general partners of Giddings Oil & Gas LP, Asym Energy Fund III LP, and Hunton Oil Partners LP. Defendants deny the allegations.

Finally, On March 18, 2014, Gregory Imbruce, Giddings Investments, LLC, Giddings Genpar LLC, Hunton Oil Genpar, LLC, Asym Capital III LLC, Glenrose Holdings, LLC and Asym Energy Investment LLC filed a claim through the American Arbitration Association against Charles S. Henry, III, John P. Vaile, as Trustee of John P. Vaile Living Trust, John Paul Otierno, SOSventures LLC, Bradford Higgins, William Mahoney, Edwards M. Conrads, Robert J. Conrads, Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP and named other limited partners in the partnerships as relief defendants. Claimants seek remedies for (i) breach of limited partnership agreements; (ii) breach of implied covenant of good faith and fair dealing; (iii) violations of the Connecticut Unfair Trade Practices Act (SOSventures, LLC only); (iv) conversion of stock certificates subject to Company’s Amended Interpleader action includes as Exhibit 99.1.5; (v) theft of stock certificates subject to Company’s Amended Interpleader action includes as Exhibit 99.1.5; (vi) unjust enrichment; (vii) violations of the Delaware Uniform Limited Partnership Act (Charles S. Henry III only); (viii) breach of fiduciary duty (Charles S. Henry III only); and (ix) defamation and violation of confidentiality duty (SOSventures, LLC only). The claimants seek declaratory and injunctive relief as to who has authority to act as general partner of the partnerships, constructive trust on our common stock shares previously distributed to limited partners in the partnerships and damages. The arbitration hearing is set for April 20, 2015.

Our success is dependent on the prices of oil and natural gas. Low oil or natural gas prices and the substantial volatility in these prices may adversely affect our financial condition and our ability to meet our capital expenditure requirements and financial obligations.

The prices we receive for our oil and natural gas heavily influence our revenue, profitability, cash flow available for capital expenditures, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. The prices we receive for our production, and the levels of our production, depend on numerous factors. These factors include the following:

●	worldwide and regional economic conditions impacting the global supply and demand for oil and natural gas;

●	the prices and availability of competitors’ supplies of oil and natural gas;

●	the actions of the Organization of Petroleum Exporting Countries, or OPEC, and state-controlled oil companies relating to oil price and production controls;

●	the price and quantity of foreign imports;

●	the impact of U.S. dollar exchange rates on oil and natural gas prices;

●	domestic and foreign governmental regulations and taxes;

●	speculative trading of oil and natural gas futures contracts;

●	the availability, proximity and capacity of gathering and transportation systems for natural gas;

●	the availability of refining capacity;

●	the prices and availability of alternative fuel sources;

●	weather conditions and natural disasters;

●	political conditions in or affecting oil and natural gas producing regions, including the Middle East and South America;

●	the continued threat of terrorism and the impact of military action and civil unrest;

●	public pressure on, and legislative and regulatory interest within, federal, state and local governments to stop, significantly limit or regulate hydraulic fracturing activities;

●	the level of global oil and natural gas inventories and exploration and production activity;

●	the impact of energy conservation efforts;

●	technological advances affecting energy consumption; and

●	overall worldwide economic conditions.

Lower oil and natural gas prices will reduce our cash flows, borrowing ability and the present value of our estimated reserves. Our exploration, development and exploitation projects require substantial capital expenditures. We may be unable to obtain needed capital or financing on satisfactory terms, which could lead to expiration of our leases or a decline in our oil and natural gas reserves. Lower oil and natural gas prices may also reduce the amount of oil and natural gas that we can produce economically and may affect our estimated proved reserves. The present value of future net revenues from our estimated proved reserves will not necessarily be the same as the current market value of our estimated oil and natural gas reserves.

Drilling for oil and natural gas is a speculative activity and involves numerous risks and substantial and uncertain costs that could adversely affect us.

Our success will depend on the success of our drilling program. Most of our prospects have completed evaluations. Other prospects are in various stages of evaluation, ranging from prospects that are ready to drill to prospects that will require substantial additional seismic data processing and interpretation and other types of technical geological evaluation. There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities. We cannot assure you that the analogies we draw from available data from other wells, more fully explored prospects or producing fields will be applicable to our drilling prospects.

The budgeted costs of planning, drilling, completing and operating wells are often exceeded and such costs can increase significantly due to various complications that may arise during the drilling and operating processes. Before a well is spud, we may incur significant geological and geophysical (seismic) costs, which are incurred whether a well eventually produces commercial quantities of hydrocarbons, or is drilled at all. Exploration wells endure a much greater risk of loss than development wells. The analogies we draw from available data from other wells, more fully explored locations or producing fields may not be applicable to our drilling locations. If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our operations as proposed and could be forced to modify our drilling plans accordingly. Drilling for oil and natural gas involves numerous risks, including the risk that no commercially productive natural gas or oil reservoirs will be discovered. The cost of drilling, completing, and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed, or canceled as a result of a variety of factors beyond our control, including:

●	unexpected or adverse drilling conditions;

●	elevated pressure or irregularities in geologic formations;

●	equipment failures or accidents;

●	adverse weather conditions;

●	compliance with governmental requirements; and

●	shortages or delays in the availability of drilling rigs, crews, and equipment.

If we decide to drill a certain location, there is a risk that no commercially productive oil or natural gas reservoirs will be found or produced. We may drill or participate in new wells that are not productive. We may drill wells that are productive, but that do not produce sufficient net revenues to return a profit after drilling, operating and other costs. A productive well may become uneconomic if water or other deleterious substances are encountered which impair or prevent the production of oil and/or natural gas from the well. Our overall drilling success rate or our drilling success rate for activity within a particular project area may decline. Unsuccessful drilling activities could result in a significant decline in our production and revenues and materially harm our operations and financial condition by reducing our available cash and resources. There is no way to predict in advance of drilling and testing whether any particular location will yield oil or natural gas in sufficient quantities to recover exploration, drilling or completion costs or to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production and reserves from the well or abandonment of the well.

Because of the risks and uncertainties of our business, our future performance in exploration and drilling may not be comparable to our historical performance.

We are subject to contingencies arising from interpretations of federal and state laws and regulations affecting the oil and gas industry.

The Company is subject to various possible contingencies that arise primarily from interpretation of federal and state laws and regulations affecting the oil and natural gas industry. Such contingencies include differing interpretations as to the prices at which oil and natural gas sales may be made, the prices at which royalty owners may be paid for production from their leases, environmental issues and other matters. Although management believes that it has complied with the various laws and regulations, administrative rulings and interpretations thereof, adjustments could be required as new interpretations and regulations are issued. In addition, environmental matters are subject to regulation by various federal and state agencies.

We depend on successful exploration, development and acquisitions to maintain reserves and revenue in the future.

In general, the volume of production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Except to the extent that we conduct successful exploration and development activities or acquire properties containing proved reserves, or both, our proved reserves will decline as reserves are produced. Our future oil and natural gas production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. Additionally, the business of exploring for, developing, or acquiring reserves is capital intensive. Recovery in our reserves, particularly undeveloped reserves, will require significant additional capital expenditures and successful drilling operations. To the extent cash flow from operations is reduced and external sources of capital become limited or unavailable, our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves would be impaired. In addition, we are dependent on finding partners for our exploratory activity. To the extent that others in the industry do not have the financial resources or choose not to participate in our exploration activities, we will be adversely affected.

Our development and exploration operations require substantial capital and we may be unable to obtain needed capital or financing on satisfactory terms or at all, which could lead to a loss of properties and a decline in our oil and natural gas reserves.

The oil and natural gas industry is capital intensive. We make and expect to continue to make substantial capital expenditures in our business and operations for the exploration for and development, production and acquisition of oil and natural gas reserves. To date, we have financed capital expenditures with the sale of our equity in 2011, a 2012 credit facility from Mutual of Omaha Bank (now replaced), a 2012 loan and 2013 credit agreement from SOSventures LLC and a 2013 credit agreement from Independent Bank. Our credit facility with Independent Bank has a current borrowing base of $21.75 million. Currently we have borrowed approximately $21.75 million under the Independent Bank credit facility.

In the near term, we intend to finance our capital expenditures with cash flow from operations and borrowings under our credit agreements or subordinated loans. Our cash flow from operations and access to capital are subject to a number of variables, including:

●	our estimated proved oil and natural gas reserves;

●	the amount of oil and natural gas we produce from existing wells;

●	the prices at which we sell our production;

●	the costs of developing and producing our oil and natural gas reserves;

●	our ability to acquire, locate and produce new reserves;

●	the ability and willingness of banks to lend to us; and

●	our ability to access the equity and debt capital markets.

We cannot assure you that our operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures. Further, our actual capital expenditures in 2015 could exceed our capital expenditure budget. In the event our capital expenditure requirements at any time are greater than the amount of capital we have available, we could be required to seek additional sources of capital, which may include traditional reserve base borrowings, debt financing, joint venture partnerships, production payment financings, sales of assets, offerings of debt or equity securities or other means. We cannot assure you that we will be able to obtain debt or equity financing on terms favorable to us, or at all.

If we are unable to fund our capital requirements, we may be required to curtail our operations relating to the exploration and development of our prospects, which in turn could lead to a possible loss of properties and a decline in our oil and natural gas reserves, or may be otherwise unable to implement our development plan, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our production, revenues and results of operations. In addition, a delay in or the failure to complete proposed or future infrastructure projects could delay or eliminate potential efficiencies and related cost savings.

Our level of indebtedness may increase and reduce our financial flexibility.

In the future, we may incur significant indebtedness in order to make future acquisitions or to develop our properties. Our level of indebtedness could affect our operations in several ways, including the following:

●	a significant portion of our cash flows could be used to service our indebtedness;

●	a high level of debt would increase our vulnerability to general adverse economic and industry conditions;

●	the covenants contained in the agreements governing our outstanding indebtedness will limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments;

●	a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and therefore, may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing;

●	our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;

●	a high level of debt may make it more likely that a reduction in our borrowing base following a periodic redetermination could require us to repay a portion of our then-outstanding bank borrowings; and

●	a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes.

A high level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on our future performance. General economic conditions, oil and natural gas prices and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.

Our credit facilities contain restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities.

Our credit facilities contain restrictive covenants that limit our ability to, among other things:

●	incur additional indebtedness;

●	create additional liens;

●	sell assets;

●	merge or consolidate with another entity;

●	pay dividends or make other distributions;

●	engage in transactions with affiliates; and

●	enter into certain swap agreements.

In addition, our credit facilities require us to maintain certain financial ratios and tests. The requirement that we comply with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures or withstand a continuing or future downturn in our business.

If we are unable to comply with the restrictions and covenants in our credit facilities, there could be an event of default under the terms of our credit facilities, which could result in an acceleration of repayment.

Our credit facilities with Independent Bank and SOSventures, LLC includes covenants and restrictions that, among other things, require us to maintain title to and not encumber the collateral assets, maintain certain financial ratios and not borrow further funds or pay dividends without lenders’ consents. If we are unable to comply with the restrictions and covenants in our revolving credit facilities with Independent Bank and SOSventures, LLC, there could be an event of default under the terms of our credit facilities. Our ability to comply with these restrictions and covenants, including meeting the financial ratios and tests under our revolving credit facilities, may be affected by events beyond our control. As a result, we cannot assure that we will be able to comply with these restrictions and covenants or meet such financial ratios and tests. In the event of a default under our revolving credit facilities, the lenders could terminate their commitments to lend or accelerate the loans and declare all amounts borrowed due and payable. If any of these events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Additionally, we may not be able to amend our revolving credit facilities or obtain needed waivers on satisfactory terms.

Our borrowings under our Independent Bank revolving credit facility expose us to interest rate risk.

Our earnings are exposed to interest rate risk associated with borrowings under our Independent Bank revolving credit facility, which bear interest at a rate elected by us that is based on the prime rate with a minimum floor of 4.00% depending on the base rate used and the amount of the loan outstanding in relation to the borrowing base. As of March 24, 2014, the weighted average interest rate on outstanding borrowings under our revolving credit facility was 4.00%. If interest rates increase, so will our interest costs, which may have a material adverse effect on our results of operations and financial condition.

Any significant reduction in our borrowing base under our credit facility as a result of the periodic borrowing base redeterminations or otherwise may negatively impact our ability to fund our operations.

Under our Independent Bank credit facility, which currently provides for a $21,750,000 borrowing base with monthly reductions going forward as stated above, we are subject to semi-annual and other elective collateral borrowing base redeterminations based on our estimated oil and natural gas reserves. Any significant reduction in our borrowing base as a result of such borrowing base redeterminations or otherwise may negatively impact our liquidity and our ability to fund our operations and, as a result, may have a material adverse effect on our financial position, results of operation and cash flow.

Proposed tax and other legislation may materially impact our financial performance.

On February 2, 2015, the Obama Administration released its 2016 Budget Proposal. Targeted tax changes include: (i) the repeal of the expensing of intangible drilling and completion costs; (ii) the repeal of percentage depletion for oil and gas wells; (iii) the increase in the amortization period for geological and geophysical costs paid or incurred in connection with the exploration for, or development of, oil or natural gas within the United States for independent producers to seven years; (iv) the repeal of the domestic manufacturing tax deduction for oil and gas companies; (v) the repeal of the deduction for tertiary injectants; (vi) the repeal of the enhanced oil recovery credit; and (vii) the repeal of the exception to the passive loss limitations for working interests in oil and gas wells. Similar provisions may be considered by Congress. Any of these tax changes could have a material impact on our financial performance.

The Obama Administration also has urged Congress to consider an energy bill with a cap-and-trade program to restrict carbon pollution and a requirement that utilities buy more electricity from renewable sources. Such proposed legislation may also include environmental and tax proposals that may negatively affect our financial performance.

We may have accidents, equipment failures or mechanical problems while drilling or completing wells or in production activities, which could adversely affect our business.

While we are drilling and completing wells or involved in production activities, we may have accidents or experience equipment failures or mechanical problems in a well that cause us to be unable to drill and complete the well or to continue to produce the well according to our plans. We may also damage a potentially hydrocarbon-bearing formation during drilling and completion operations. Such incidents may result in a reduction of our production and reserves from the well or in abandonment of the well.

Our estimated reserves are based on many assumptions that may prove inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

No one can measure underground accumulations of oil and natural gas in an exact way. Oil and natural gas reserve engineering requires subjective estimates of underground accumulations of oil and natural gas and assumptions concerning future oil and natural gas prices, production levels, and operating and development costs. As a result, estimated quantities of proved reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves which could adversely affect our business, results of operations, financial condition and our ability to make cash distributions to our shareholders.

In order to prepare our estimates, we must project production rates and the timing of development expenditures. We must also analyze available geological, geophysical, production and engineering data. The extent, quality and reliability of this data can vary. The process also requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. Although the reserve information contained herein is reviewed by independent reserve engineers, estimates of oil and natural gas reserves are inherently imprecise.

Further, the present value of future net cash flows from our proved reserves may not be the current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on the 12-month average oil and gas index prices, calculated as the un-weighted arithmetic average for the first-day-of-the-month price for each month and costs in effect on the date of the estimate, holding the prices and costs constant throughout the life of the properties.

Actual future prices and costs may differ materially from those used in the net present value estimate, and future net present value estimates using then current prices and costs may be significantly less than the current estimate. In addition, the 10% discount factor we use when calculating discounted future net cash flows for reporting requirements in compliance with the FASB in Accounting Standards Codification (“ASC“) 932 may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general.

A substantial percentage of our proved reserves consist of undeveloped reserves.

As of January 1, 2014, approximately 78% of our proved reserves were classified as estimated proved undeveloped reserves. These reserves may not ultimately be developed or produced. As a result, we may not find commercially viable quantities of oil and natural gas, which in turn may have a material adverse effect on our results of operations.

Our operational risk is concentrated due to our reliance on a small number of wells, operators and oil and gas purchasers.

We have concentrated operational risks both in terms of our producing oil and gas properties, the operators we use and in the purchasers of our oil and gas production. An operational failure by an operator, the decline of production from a property and the termination of a contractual agreement with an operator or purchaser would have a material negative impact on the Company. For the year ended December 31, 2014, revenues from the Company’s 139 producing wells ranged from approximately 0.003% to 12.6% of total revenues and for the year ended year ended December 31, 2013, revenues from the Company’s 101 producing wells ranged from approximately 0.01% to 8.21% of total revenues. These wells are all located in the southern region of Texas, West Texas and central Oklahoma, with the Texas wells operated by the Company and the Oklahoma wells operated by one outside operator.

For the year ended December 31, 2014, the oil, natural gas, and natural gas liquids produced by the Company are sold and marketed to 6 purchasers. Oil sales to 2 purchasers accounted for 95% of the oil sales, 1 purchaser accounted for approximately 83% and the other purchaser accounted for approximately 12%. Natural gas and natural gas liquids sales to one purchaser accounted for 57% of the natural gas and natural gas liquids sales, while the other two purchasers accounted for approximately 28% and 15%, respectively.

Low oil and natural gas prices may diminish the quantity and value of our estimated proven undeveloped reserves.

Under SEC requirements estimated proved reserves need to be economically producible. If the price of oil or natural gas falls to a point where certain properties cost more to develop and operate than the revenue they generate, such properties might no longer be deemed to be economically producible. SEC rules would require that such properties be removed from the estimated proved reserves in the Company’s financial statements. Such reclassifications would negatively impact on the Company’s balance sheet. Any write-down would constitute a non-cash charge to earnings and could have a material adverse effect on our results of operations for the periods in which such charges are taken. Once incurred, a write-down of our oil and natural gas properties is not reversible at a later date. Further, this removal of estimated proved reserves may have cascading effects on the Company’s current ratio calculations in its credit facilities. The Company may be required to obtain and pledge different collateral or bring in more assets to cure prospective defaults under its credit facilities.

Seismic studies do not guarantee that hydrocarbons are present or, if present, will produce in economic quantities.

We may use seismic studies to assist us with assessing prospective drilling opportunities on our properties, as well as on properties that we may acquire. Such seismic studies are merely an interpretive tool and do not necessarily guarantee that hydrocarbons are present or if present will produce in economic quantities.

Our business is difficult to evaluate because we have a limited operating history.

Starboard Resources LLC was formed in June 2011, and was converted into a C corporation in June 2012. Consequently, we do not have a lengthy operating history. Our business systems have not been tested by adversity. While our management has experience with other oil and gas companies as stated below, we have little experience with our current business infrastructure. As a result, we may have a higher operational risk than an oil and gas company that has operated for many years.

In considering whether to invest in our common stock, you should consider that there is only limited historical financial and operating information available on which to base your evaluation of our performance. We were formed in June 2011 and, as a result, we have limited financial and operating information available. We face challenges and uncertainties in financial planning as a result of the unavailability of historical data and uncertainties regarding the nature, scope and results of our future activities. We may not be successful in implementing our business strategies or in completing the development of the infrastructure necessary to conduct our business as planned. In the event that our development plan is not completed or is delayed, our operating results will be adversely affected and our operations will differ materially from the activities described in this report. As a result of industry factors or factors relating specifically to us, we may have to change our methods of conducting business, which may cause a material adverse effect on our results of operations and financial condition.

We may experience difficulty in achieving and managing future growth.

Future growth may place strains on our resources and cause us to rely more on project partners and independent contractors, possibly negatively affecting our financial condition and results of operations. Our ability to grow will depend on a number of factors, including, but not limited to:

●	our ability to evaluate properties;

●	our ability to obtain leases or options on properties which we have evaluated;

●	our ability to acquire additional data on other prospects;

●	our ability to identify and acquire new exploratory prospects;

●	our ability to develop existing prospects;

●	our ability to continue to retain and attract skilled personnel;

●	our ability to maintain or enter into new relationships with project partners and independent contractors;

●	the results of our drilling program;

●	hydrocarbon prices; and

●	our access to capital.

We may not be successful in upgrading our technical, operations, and administrative resources or in increasing our ability to internally provide certain of the services currently provided by outside sources, and we may not be able to maintain or enter into new relationships with project partners and independent contractors. Our inability to achieve or manage growth may adversely affect our financial condition and results of operations.

We will not be the operator on all of our drilling locations, and, therefore, we will not be able to control the timing of exploration or development efforts, associated costs, or the rate of production of any non-operated assets.

We expect that we will not be the operator on 6% of our net acreage as of December 31, 2014. As we carry out our exploration and development programs, we may enter into arrangements with respect to existing or future drilling locations that result in a greater proportion of our locations being operated by others. As a result, we may have limited ability to exercise influence over the operations of the drilling locations operated by our partners. Dependence on the operator could prevent us from realizing our target returns for those locations. The success and timing of exploration and development activities operated by our partners will depend on a number of factors that will be largely outside of our control, including:

●	the timing and amount of capital expenditures;

●	the operator’s expertise and financial resources;

●	approval of other participants in drilling wells;

●	selection of technology; and

●	the rate of production of reserves, if any

This limited ability to exercise control over the operations of some of our drilling locations may cause a material adverse effect on our results of operations and financial condition.

A component of our growth may come through acquisitions, and our failure to identify or complete future acquisitions successfully could reduce our earnings and hamper our growth.

We may be unable to identify properties for acquisition or to make acquisitions on terms that we consider economically acceptable. There is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. The completion and pursuit of acquisitions may be dependent upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals. Our ability to grow through acquisitions will require us to continue to invest in operations, financial and management information systems and to attract, retain, motivate and effectively manage our employees. The inability to manage the integration of acquisitions effectively could reduce our focus on subsequent acquisitions and current operations, and could negatively impact our results of operations and growth potential. Our financial position, results of operations and cash flows may fluctuate significantly from period to period, as a result of the completion of significant acquisitions during particular periods. If we are not successful in identifying or acquiring any material property interests, our earnings could be reduced and our growth could be restricted.

We may engage in bidding and negotiating to complete successful acquisitions. We may be required to alter or increase substantially our capitalization to finance these acquisitions through the use of cash on hand, the issuance of debt or equity securities, the sale of production payments, the sale of nonstrategic assets, the borrowing of funds or otherwise. If we were to proceed with one or more acquisitions involving the issuance of our common stock, our shareholders would suffer dilution of their interests. Furthermore, our decision to acquire properties that are substantially different in operating or geologic characteristics or geographic locations from areas with which our staff is familiar may impact our productivity in such areas.

We may purchase oil and natural gas properties with liabilities or risks that we did not know about or that we did not assess correctly, and, as a result, we could be subject to liabilities that could adversely affect our results of operations.

Before acquiring oil and natural gas properties, we estimate the reserves, future oil and natural gas prices, operating costs, potential environmental liabilities and other factors relating to the properties. However, our review involves many assumptions and estimates, and their accuracy is inherently uncertain. As a result, we may not discover all existing or potential problems associated with the properties we buy. We may not become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. We do not generally perform inspections on every well or property, and we may not be able to observe mechanical and environmental problems even when we conduct an inspection. The seller may not be willing or financially able to give us contractual protection against any identified problems, and we may decide to assume environmental and other liabilities in connection with properties we acquire. If we acquire properties with risks or liabilities we did not know about or that we did not assess correctly, our financial condition, results of operations and cash flows could be adversely affected as we settle claims and incur cleanup costs related to these liabilities.

The marketability of our production is dependent upon oil and natural gas gathering and transportation facilities owned and operated by third parties, and the unavailability of satisfactory oil and natural gas transportation arrangements would have a material adverse effect on our revenue.

The unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay production from our wells. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for, and supply of, oil and natural gas and the proximity of estimated reserves to pipelines and terminal facilities. Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties. Our failure to obtain these services on acceptable terms could materially harm our business. We may be required to shut-in wells for lack of a market or because of inadequacy or unavailability of pipeline or gathering system capacity. If that were to occur, we would be unable to realize revenue from those wells until production arrangements were made to deliver our production to market. Furthermore, if we were required to shut-in wells we might also be obligated to pay shut-in royalties to certain mineral interest owners in order to maintain our leases. The disruption of third party facilities due to maintenance and/or weather could negatively impact our ability to market and deliver our products. These third parties control when or if such facilities are restored and what prices will be charged. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to or destruction of pipelines and general economic conditions could adversely affect our ability to produce, gather and transport oil and natural gas.

Hedging transactions or the lack thereof, may limit our potential gains and could result in financial losses.

To manage our exposure to price risk, from time to time, we may enter into hedging arrangements, using including “costless collars,” with respect to a portion of our future production. A costless collar provides us with downside price protection through the purchase of a put option which is financed through the sale of a call option. Because the call option proceeds are used to offset the cost of the put option, this arrangement is initially “costless” to us. The goal of these and other hedges is to lock in a range of prices so as to mitigate price volatility and increase the predictability of cash flows. These transactions limit our potential gains if oil or natural gas prices rise above the maximum price established by the call option and may offer protection if prices fall below the minimum price established by the put option only to the extent of the volumes then hedged.

In addition, hedging transactions may expose us to the risk of financial loss in certain other circumstances, including instances in which our production is less than expected or the counterparties to our put and call option contracts fail to perform under the contracts.

Disruptions in the financial markets could lead to sudden changes in a counterparty’s liquidity, which could impair its ability to perform under the terms of the contracts. We are unable to predict sudden changes in a counterparty’s creditworthiness or ability to perform under contracts with us. Even if we do accurately predict sudden changes, our ability to mitigate that risk may be limited depending upon market conditions.

Furthermore, there may be times when we have not hedged our production when, in retrospect, it would have been advisable to do so. Decisions as to whether and what production volumes to hedge are difficult and depend on market conditions and our forecast of future production and oil and gas prices, and we may not always employ the optimal hedging strategy. We may employ hedging strategies in the future that differ from those that we have used in the past, and neither the continued application of our current strategies nor our use of different hedging strategies may be successful.

On April 27, 2012, the SEC and the CFTC issued final rules defining “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant.” These definitions have end-user exceptions. To the extent that the Company uses swaps to hedge its risks, it will attempt to comply with the end-user and size exceptions from these definitions. If the Company is unsuccessful in qualifying for such exceptions in any swap transaction, it may be required to maintain substantial financial reserves relating to its swap transactions and may be required to register with the SEC or CFTC as a swap dealer or participant.

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

Unless we conduct successful development, exploitation and exploration activities or acquire properties containing estimated proved reserves, our estimated proved reserves will decline as those reserves are produced. Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Our estimated future oil and natural gas reserves and production, and therefore our cash flows and income, are highly dependent on our success in efficiently developing and exploiting our current estimated reserves and economically finding or acquiring additional estimated recoverable reserves. We may not be able to develop, exploit, find or acquire additional reserves to replace our current and future production at acceptable costs. If we are unable to replace our current and future production, the value of our estimated reserves will decrease, and our business, financial condition and results of operations would be adversely affected.

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

Shortages or the high cost of drilling rigs, equipment, supplies, personnel or oilfield services could delay or adversely affect our development and exploration operations or cause us to incur significant expenditures that are not provided for in our capital budget, which could have a material adverse effect on our business, financial condition or results of operations.

Market conditions or operational impediments may hinder our access to oil and natural gas markets or delay our production.

Market conditions or the unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay our production. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of estimated reserves to pipelines and terminal facilities. Our ability to market our production depends, in substantial part, on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third-parties. Our failure to obtain such services on acceptable terms could materially harm our business. We may be required to shut in wells due to lack of a market or inadequacy or unavailability of crude oil or natural gas pipelines or gathering system capacity. If our production becomes shut-in for any of these or other reasons, we would be unable to realize revenue from those wells until other arrangements were made to deliver the products to market.

We may incur substantial losses and be subject to substantial liability claims as a result of our oil and natural gas operations. Additionally, we may not be insured for, or our insurance may be inadequate to protect us against, these risks.

We are not insured against all risks. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our business, financial condition or results of operations. Our oil and natural gas exploration and production activities are subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:

●	environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination;

●	abnormally pressured formations;

●	mechanical difficulties, such as stuck oilfield drilling and service tools and casing collapse;

●	personal injuries and death; and

●	natural disasters.

Any of these risks could adversely affect our ability to conduct operations or result in substantial losses to us as a result of:

●	injury or loss of life;

●	damage to and destruction of property, natural resources and equipment;

●	pollution and other environmental damage;

●	regulatory investigations and penalties;

●	suspension of our operations; and

●	repair and remediation costs.

We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on our business, financial condition and results of operations.

Drilling locations that we decide to drill may not yield oil or natural gas in commercially viable quantities.

We describe some of our drilling locations and our plans to explore those drilling locations in this report. Our drilling locations are in various stages of evaluation, ranging from a location which is ready to drill to a location that will require substantial additional interpretation. There is no way to predict in advance of drilling and testing whether any particular location will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in sufficient quantities to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially productive hydrocarbon bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production from the well or abandonment of the well. If we drill additional wells that we identify as dry holes in our current and future drilling locations, our drilling success rate may decline and materially harm our business. We cannot assure you that the analogies we draw from available data from other wells, more fully explored locations or producing fields will be applicable to our drilling locations. In sum, the cost of drilling, completing and operating any well is often uncertain, and new wells may not be productive.

We are subject to government regulation and liability, including complex environmental laws, which could require significant expenditures.

The exploration, development, production and sale of oil and natural gas in the United States are subject to many federal, state and local laws, rules and regulations, including complex environmental laws and regulations. Matters subject to regulation include discharge permits, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties, taxation or environmental matters and health and safety criteria addressing worker protection. Under these laws and regulations, we may be required to make large expenditures that could materially adversely affect our financial condition, results of operations and cash flows. These expenditures could include payments for:

●	personal injuries;

●	property damage;

●	containment and cleanup of oil and other spills;

●	the management and disposal of hazardous materials;

●	remediation and cleanup costs; and

●	other environmental damages.

We do not believe that full insurance coverage for all potential damages is available at a reasonable cost. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties, injunctive relief and/or the imposition of investigatory or other remedial obligations. Laws, rules and regulations protecting the environment have changed frequently and the changes often include increasingly stringent requirements. These laws, rules and regulations may impose liability on us for environmental damage and disposal of hazardous materials even if we were not negligent or at fault. We may also be found to be liable for the conduct of others or for acts that complied with applicable laws, rules or regulations at the time we performed those acts. These laws, rules and regulations are interpreted and enforced by numerous federal and state agencies. In addition, private parties, including the owners of properties upon which our wells are drilled or the owners of properties adjacent to or in close proximity to those properties may also pursue legal actions against us based on alleged non-compliance with certain of these laws, rules and regulations.

Governmental regulation and liability for environmental matters may adversely affect our business, financial condition and results of operations.

All our operations and participations are onshore in the United States. Oil and natural gas operations are subject to various federal, state, and local government regulations that may change from time to time. Matters subject to regulation include:

●	well locations;

●	drilling and completion operations and methods;

●	production amounts limited to below capacity;

●	price controls;

●	surface use and restoration;

●	fluid and waste discharge from drilling operations;

●	plugging and abandonment of wells (including the posting of bonds);

●	well spacing;

●	unitization and pooling of properties;

●

taxation,

●	marketing, transporting and reporting production;

●	valuation and payment of royalties’

●	air emissions;

●	groundwater use and protection;

●	the construction and operation of underground injection wells to dispose of produced saltwater and other non-hazardous oilfield wastes; and

●	the construction and operation of surface pits to contain drilling muds and other non-hazardous fluids associated with drilling operations.

Federal, state and local laws may require us to remove or remediate previously disposed wastes, including wastes disposed of or released by us or prior owners or operators in accordance with current laws or otherwise, to suspend or cease operations at contaminated areas, or to perform remedial well plugging operations or response actions to reduce the risk of future contamination. Federal laws, including the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, and analogous state laws impose joint and several liability, without regard to fault or legality of the original conduct, on classes of persons who are considered responsible for releases of a hazardous substance into the environment. These persons include the owner or operator of the site where the release occurred, and persons that disposed of or arranged for the disposal of hazardous substances at the site. CERCLA and analogous state laws also authorize the U.S. Environmental Protection Agency (EPA), state environmental agencies and, in some cases, third parties to take action to prevent or respond to threats to human health or the environment and to seek to recover from responsible classes of persons the costs of such actions. Other environmental laws provide for joint and several strict liabilities for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances such as oil and natural gas related products. As a result, we may incur substantial liabilities to third parties or governmental entities and may be required to incur substantial remediation costs.

Federal, state, and local laws and regulations relating primarily to the protection of human health and the environment apply to the development, production, handling, storage, transportation, and disposal of oil and natural gas, by-products thereof, and other substances and materials produced or used in connection with oil and natural gas operations. In addition, we may be liable for environmental damages caused by previous owners of property we purchase or lease. We also are subject to changing and extensive tax laws, the effects of which cannot be predicted. Compliance with existing, new, or modified laws and regulations could have a material adverse effect on our business, financial condition, and results of operations.

Various state governments and regional organizations comprising state governments are considering enacting new legislation and promulgating new regulations governing or restricting the emission of greenhouse gases from stationary sources such as our equipment and operations. Legislative and regulatory proposals for restricting greenhouse gas emissions or otherwise addressing climate change could require us to incur additional operating costs and could adversely affect demand for the natural gas and oil that we sell. The potential increase in our operating costs could include new or increased costs to obtain permits, operate and maintain our equipment and facilities, install new emission controls on our equipment and facilities, acquire allowances to authorize our greenhouse gas emissions, pay taxes related to our greenhouse gas emissions and administer and manage a greenhouse gas emissions program. Moreover, incentives to conserve energy or use alternative energy sources could reduce demand for natural gas and oil.

We may incur losses or costs as a result of title deficiencies in the properties in which we invest.

If an examination of the title history of a property that we have purchased reveals an oil and natural gas lease has been purchased in error from a person who is not the owner of the mineral interest desired, our interest would be worthless. In such an instance, the amount paid for such oil and natural gas lease as well as any royalties paid pursuant to the terms of the lease prior to the discovery of the title defect would be lost.

Prior to the drilling of an oil and natural gas well, however, it is the normal practice in the oil and natural gas industry the operator of the well to obtain a preliminary title review of the spacing unit within which the proposed oil and natural gas well is to be drilled to ensure there are no obvious deficiencies in title to the well. Frequently, as a result of such examinations, certain curative work must be done to correct deficiencies in the marketability of the title, and such curative work entails expense. Our failure to cure any title defects may adversely impact our ability in the future to increase production and reserves. In the future, we may suffer a monetary loss from title defects or title failure. Additionally, unproved and unevaluated acreage has greater risk of title defects than developed acreage. If there are any title defects or defects in assignment of leasehold rights in properties in which we hold an interest, we will suffer a financial loss which could adversely affect our financial condition, results of operations and cash flows.

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

Hydraulic fracturing involves the injection of water, sand or other propping agents and chemicals under pressure into rock formations to stimulate natural gas production. We routinely use hydraulic fracturing to produce commercial quantities of oil, liquids and natural gas. Sponsors of bills before the Senate and House of Representatives have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies. Such legislation, if adopted, could increase the possibility of litigation and establish an additional level of regulation at the federal level that could lead to operational delays or increased operating costs and could, and in all likelihood would, result in additional regulatory burdens, making it more difficult to perform hydraulic fracturing operations and increasing our costs of compliance. Moreover, the U.S. Environmental Protection Agency, or EPA, is conducting a comprehensive research study on the potential adverse impacts that hydraulic fracturing may have on drinking water and groundwater. Consequently, even if federal legislation is not adopted soon or at all, the performance of the hydraulic fracturing study by the EPA could spur further action at a later date towards federal legislation and regulation of hydraulic fracturing or similar production operations.

In addition, a number of states are considering or have implemented more stringent regulatory requirements applicable to fracturing, which could include a moratorium on drilling and effectively prohibit further production of natural gas through the use of hydraulic fracturing or similar operations.

The adoption of new laws or regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make it more difficult to complete oil and natural gas wells. In addition, if hydraulic fracturing becomes regulated at the federal level as a result of federal legislation or regulatory initiatives by the EPA, fracturing activities could become subject to additional permitting requirements, and also to attendant permitting delays and potential increases in cost, which could adversely affect our business and results of operations.

Current water regulation relating to hydraulic fracturing, particularly water source and groundwater regulation, could result in increased operational costs, operating restrictions and delays.

Hydraulic fracturing uses large amounts of water. It can require between three to five million gallons of water per horizontal well. We may face regulatory concerns in both the sourcing and the discharge of water used in hydraulic fracturing. In addition, hydraulic fracturing produces water discharges that must be treated and disposed of in accordance with applicable regulatory requirements.

First, as to sourcing water for hydraulic fracturing, we will need to secure water from the local water supply or make alternative arrangements. In order to source water from the local water supply for hydraulic fracturing we may need to pay premium rates and be subject to a lower priority if the local area becomes subject to water restrictions. We may also seek water from alternative providers supporting the hydraulic fracturing industry. If we have an insufficient water supply we will be unable to engage in hydraulic fracturing until such supply is located.

Second, hydraulic fracturing results in water discharges that must be treated and disposed of in accordance with applicable regulatory requirements. Environmental regulations governing the withdrawal, storage and use of surface water or groundwater necessary for hydraulic fracturing may increase operating costs and cause delays, interruptions or termination of operations, the extent of which cannot be predicted, all of which could have an adverse effect on our operations and financial performance. Our ability to remove and dispose of water will affect production, and the cost of water treatment and disposal may affect profitability. The imposition of new environmental initiatives and regulations could also include restrictions on our ability to conduct hydraulic fracturing or disposal of produced water, drilling fluids and other substances associated with the exploration, development and production of gas and oil.

Our business may suffer if we lose key personnel.

We depend to a large extent on the services of certain key management personnel, including Michael Pawelek, our President and Chief Executive Officer, Edward Shaw, our Chief Operating Officer and our other executive officers and key employees. These individuals have extensive experience and expertise in evaluating and analyzing producing oil and natural gas properties and drilling prospects, maximizing production from oil and natural gas properties, marketing oil and natural gas production and developing and executing financing and hedging strategies. The loss of any of these individuals could have a material adverse effect on our operations. We do not maintain key-man life insurance with respect to any of our employees. Our success will be dependent on our ability to continue to employ and retain skilled technical personnel.

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

Competition in the oil and natural gas industry is intense making it more difficult for us to acquire properties, market natural gas and secure trained personnel.

Our ability to acquire additional prospects and to find and develop reserves in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment for acquiring properties, marketing oil and natural gas and securing trained personnel. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Many of our competitors possess and employ financial, technical and personnel resources substantially greater than ours. Those companies may be able to pay more for productive oil and natural gas properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit. In addition, other companies may be able to offer better compensation packages to attract and retain qualified personnel than we are able to offer. The cost to attract and retain qualified personnel has increased in recent years due to competition and may increase substantially in the future. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital, which could have a material adverse effect on our business.

We may not be able to keep pace with technological developments in our industry.

The oil and natural gas industry is characterized by rapid and significant technological advancements and introductions of new products and services using new technologies. As others use or develop new technologies, we may be placed at a competitive disadvantage or competitive pressures may force us to implement those new technologies at substantial costs. In addition, other oil and natural gas companies may have greater financial, technical, and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We may not be able to respond to these competitive pressures and implement new technologies on a timely basis or at an acceptable cost. If one or more of the technologies we use now or in the future were to become obsolete or if we are unable to use the most advanced commercially available technology, our business, financial condition, and results of operations could be materially adversely affected.

Financial difficulties encountered by our oil and natural gas purchasers, third party operators or other third parties could decrease our cash flow from operations and adversely affect our exploration and development activities.

We derive essentially all of our revenues from the sale of our oil and natural gas to unaffiliated third party purchasers, independent marketing companies and mid-stream companies. Any delays in payments from our purchasers caused by financial problems encountered by them will have an immediate negative effect on our results of operations and cash flows.

Liquidity and cash flow problems encountered by our working interest co-owners or the third party operators of our non-operated properties may prevent or delay the drilling of a well or the development of a project. Our working interest co-owners may be unwilling or unable to pay their share of the costs of projects as they become due. In the case of a working interest owner, we could be required to pay the working interest owner’s share of the project costs. We cannot assure you that we would be able to obtain the capital necessary to fund these contingencies.

We may not have enough insurance to cover all of the risks we face and operators of prospects in which we participate may not maintain or may fail to obtain adequate insurance.

In accordance with customary industry practices, we maintain insurance coverage against some, but not all, potential losses in order to protect against the risks we face. We do not carry business interruption insurance. We may elect not to carry insurance if our management believes that the cost of available insurance is excessive relative to the risks presented. In addition, we cannot insure fully against pollution and environmental risks. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations. The impact of hurricanes in the areas where we operate has resulted in escalating insurance costs and less favorable coverage terms.

Oil and natural gas operations are subject to particular hazards incident to the drilling and production of oil and natural gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation. We do not operate all of the properties in which we have an interest. In the projects in which we own a non-operating interest directly, the operator for the prospect maintains insurance of various types to cover our operations with policy limits and retention liability customary in the industry. We believe the coverage and types of insurance are adequate. The occurrence of a significant adverse event that is not fully covered by insurance could result in the loss of our total investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations.

Our producing properties are located in regions which make us vulnerable to risks associated with operating in one major contiguous geographic area, including the risk of damage or business interruptions from hurricanes.

Our properties are located onshore in Texas, Oklahoma and New Mexico. As a result of this geographic concentration, we are disproportionately affected by any delays or interruptions in production or transportation in these areas caused by governmental regulation, transportation capacity constraints, natural disasters, regional price fluctuations or other factors. Such disturbances have in the past and will in the future have any or all of the following adverse effects on our business:

●	interruptions to our operations as we suspend production in advance of an approaching storm;

●	damage to our facilities and equipment, including damage that disrupts or delays our production;

●	disruption to the transportation systems we rely upon to deliver our products to our customers; and

●	damage to or disruption of our customers’ facilities that prevents us from taking delivery of our products.

Our identified drilling locations are scheduled out over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

Our management has specifically identified and scheduled drilling locations as an estimation of our future multi-year drilling activities on our existing acreage. These scheduled drilling locations represent a significant component of our growth strategy. Our ability to drill and develop these locations depends on a number of uncertainties, including oil and natural gas prices, the availability of capital, costs, drilling results, regulatory approvals and other factors. Because of these uncertainties, we do not know if the potential drilling locations we have identified will ever be drilled or if we will be able to produce oil or natural gas from these or any other potential drilling locations. As such, our actual drilling activities may materially differ from those presently identified, which could adversely affect our business.

Market conditions or operational impediments may hinder our access to oil and natural gas markets or delay our production.

Market conditions or the unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay our production. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of our reserves to pipelines and terminal facilities. Our ability to market our production depends in substantial part on the availability and capacity of transport vessels, gathering systems, pipelines and processing facilities owned and operated by third parties under interruptible or short-term transportation agreements. Under the interruptible transportation agreements, the transportation of our natural gas may be interrupted due to capacity constraints on the applicable system, for maintenance or repair of the system, or for other reasons as dictated by the particular agreements. Our failure to obtain such services on acceptable terms could materially harm our business. We may be required to shut in wells due to lack of a market or the inadequacy or unavailability of natural gas pipeline or gathering system capacity. If that were to occur, we would be unable to realize revenue from those wells unless and until we made arrangements for delivery of their production to market.

Terrorist attacks aimed at our energy operations could adversely affect our business.

The continued threat of terrorism and the impact of military and other government action have led and may lead to further increased volatility in prices for oil and natural gas and could affect these commodity markets or the financial markets used by us. In addition, the U.S. government has issued warnings that energy assets may be a future target of terrorist organizations. These developments have subjected our oil and natural gas operations to increased risks. Any future terrorist attack on our facilities, those of our customers, the infrastructure we depend on for transportation of our products, and, in some cases, those of other energy companies, could have a material adverse effect on our business.

We do not anticipate an immediate market for our shares.

We have not yet obtained an exchange listing or an over-the-counter quotation which are pre-requisites to liquidity for our common stock shares. Further, 17.2348% of our common stock shares are subject to a lawsuit described above in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford. Consequently, even if we obtain an exchange listing or over-the-counter quotation, our common stock shares’ liquidity will be materially limited by the unavailability of these shares. Moreover, we currently have only twenty-eight stockholders (plus 2,190,891 common stock shares interplead into the Court in Henry et al. v. Imbruce et al.). Stock purchase and sale decisions by these stockholders will have a material impact on our common stock shares’ liquidity.

The market price of our common stock may be volatile.

Should the Board of Directors approve the Company seeking an exchange listing or a price quotation for our stock, the trading price of our stock and the price at which we may sell stock in the future are subject to large fluctuations in response to any of the following:

●	limited trading volume in our common stock;

●	quarterly variations in operating results;

●	our involvement in litigation;

●	general financial market conditions;

●	the prices of oil and natural gas;

●	announcements by us and our competitors;

●	our liquidity;

●	our ability to raise additional funds;

●	changes in government regulations; and

●	other events

We do not intend to pay dividends on our stock.

We have not historically paid dividends on our stock, cash or otherwise, and do not intend to in the foreseeable future. Further, our credit facilities limit our ability to pay dividends on our stock without lender approval.

Provisions of Delaware law may delay or prevent transactions that would benefit stockholders.

Delaware General Corporation Law contain provisions that may have the effect of delaying, deferring or preventing a change of control of the company.

Because of these provisions, persons considering unsolicited tender offers or other unilateral takeover proposals may be more likely to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. As a result, these provisions may make it more difficult for our stockholders to benefit from transactions that are opposed by an incumbent board of directors.

We may issue shares of preferred stock that could adversely affect holders of shares of our common stock.

Our board of directors may receive the power, without shareholder approval and subject to the terms of our certificate of incorporation, to set the terms of any such classes or series of shares of stock that may be issued, including voting rights, dividend rights, conversion features, preferences over shares of our common stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue shares of preferred stock in the future that have a preference over shares of our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue shares of preferred stock with voting rights that dilute the voting power of shares of our common stock, the rights of holders of shares of our common stock or the trading price of shares of our common stock could be adversely affected.

We are an “Emerging Growth Company,” and we cannot be certain if the reduced reporting requirements applicable to Emerging Growth Companies will make our common stock less attractive to investors.

We are an “Emerging Growth Company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an Emerging Growth Company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an Emerging Growth Company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million, if we issue $1 billion or more in non-convertible debt during the previous three-year period, or if our annual gross revenues exceed $1 billion. We would cease to be an Emerging Growth Company on the last day of the fiscal year following the date of the fifth anniversary of our first sale of common equity securities under an effective registration statement or a fiscal year in which we have $1 billion in gross revenues. We also would immediately cease to be an Emerging Growth Company if the market value of the common stock held by non-affiliates exceeds $700 million or upon our issuing $1 billion or more in non-convertible debt in a three year period. Finally, at any time we may choose to opt-out of the Emerging Growth Company reporting requirements. If we chose to opt out, we will be unable to opt back in to being an Emerging Growth Company. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Further, we will be required to report any changes in our internal controls on a quarterly basis. In addition, beginning with our 2013 annual report on Form 10-K to be filed in 2014, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation, which process is time consuming, costly, and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are no longer an “Emerging Growth Company,” which may be up to five full years following the effective date of this registration statement or a registration statement filed by the Company under the Securities Exchange Act of 1934. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission, or the SEC, or other regulatory authorities, which could require additional financial and management resources.

As an Emerging Growth Company, our auditor is not required to attest to the effectiveness of our internal controls.

Our independent auditor is not required to attest to the effectiveness of our internal control over financial reporting while we are an Emerging Growth Company. This means that the effectiveness of our financial operations may differ from our peer companies in that they may be required to obtain independent auditor attestations as to the effectiveness of their internal controls over financial reporting and we are not. While our management will be required to attest to internal control over financial reporting and we will be required to detail changes to our internal controls on a quarterly basis, we cannot provide assurance that the independent auditor’s review process in assessing the effectiveness of our internal controls over financial reporting will not find one or more material deficiencies. Further, once we cease to be an Emerging Growth Company we will be subject to independent auditor attestation regarding the effectiveness of our internal controls over financial reporting. Even if management finds such controls to be effective, our independent auditor may decline to attest to the effectiveness of such internal controls and issue a qualified report.

As an Smaller Reporting COmpany we are presenting our audited financial statements and selected financial data for only a two-year period, which may not be comparable to those companies that provide audited financial statements and selected financial data for longer periods of time.

Smaller Reporting Companies need not present more than two years of audited financial statements and that they need not present selected financial data as required by SEC Regulation S-K Item 301 for periods that pre-date its audited financial statements. This selected financial data includes a table showing net sales, operating revenue, income or loss from continuing operations per common share, total assets, long-term obligations (including long-term debt, capital leases and redeemable preferred stock) and cash dividends per common share. We are providing only two years of audited financial statements and selected data.

The Company is considered a smaller reporting company and is exempt from certain disclosure requirements, which could make our stock less attractive to potential investors.

Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer), or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

●

Had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or

●

In the case of an initial registration statement under the Securities Act or Exchange Act for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or

●	In the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.

As a “smaller reporting company” (in addition to and without regard to our status as an “emerging growth company”) we are not required and may not include a Compensation Discussion and Analysis (“CD&A”) section in our proxy statements; we provide only 2 years of financial statements; provide fewer years of selected financial data; and have other “scaled” disclosure requirements that are less comprehensive than issuers that are not “smaller reporting companies” which could make our stock less attractive to potential investors, which could make it more difficult for you to sell your shares.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, are subject to the reporting requirements of the Exchange Act and other applicable securities rules and regulations. Compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “Emerging Growth Company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.

As a result of disclosure of information in this report and in other filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

Our stock is likely to be a penny stock. Trading of our stock may be restricted by the Securities and Exchange Commission's penny stock regulations which may limit a stockholder's ability to buy and sell our stock.

Our offering price in our post-effecting amendment to our Form S-1/A filed March 20, 2014 is less than $5.00 per common stock share and our stock may trade for less than $5.00 per share if we obtain an exchange listing or over-the-counter quotation. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder's ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Item 2. Properties.

Starboard Resources, a Delaware corporation, is an independent energy company based in San Antonio, Texas. We were formed in 2011 and we have been engaged in the exploration, development, acquisition and exploitation of crude oil and natural gas properties, with interests throughout Texas and Oklahoma. Our properties cover 26,404 gross acres, or 19,868 net acres, with a majority within the Eagle Ford trend of South Texas.

Our total proved reserves, based on our January 1, 2015 independent reserve estimate report, were 5,788 MBOE, consisting of 10,771MMcf of natural gas and 3,993 Mbbl of oil. The PV-10 of our proved reserves at January 1, 2015 was $128,415,900 based on the average of the beginning of each month prices for 2014 of $95.28 per Bbl and $4.36 per MMBtu and adjusted for location and quality differentials. At January 1, 2015, 23% of our estimated proved reserves were proved developed reserves and 69% of our estimated proved reserves were oil and condensate. Our average daily production at year end December 31, 2014 was 990 BOE per day.

Core Areas of Operation and Certain Key Properties

As of December 31, 2014, our proved oil and gas reserves were concentrated primarily in the Giddings and Crittendon fields in Texas, and the CimarronField in Oklahoma. The fields tend to have stacked multiple producing horizons. Some of the fields have numerous available wellbores capable of providing workover and recompletion opportunities. Additionally, new 3-D seismic data allows definition of numerous updip proved undeveloped locations throughout the fields. The characteristics of these fields allow the Company to record significant estimated proved behind pipe and estimated proved undeveloped reserves in the annual year-end reserve report. At January 1, 2015, based on the reserves estimate by our independent reservoir engineers, we had 5,788 MBOE of estimated proved reserves. At January 1, 2015, our proved developed (PDP) reserves of 1,335 MBOE were 23% of our total proved reserves, and 69% of our estimated proved reserves were oil and condensate. At January 1, 2014, our proved developed producing (PDP) reserves of 656 MBOE were 13% of our total proved reserves, 72% of our estimated proved reserves were oil and condensate.

Bigfoot – Texas

We control 2,930 net acres across Frio and Atascosa counties in southern Texas, comprising 15% of our total net acreage position. We own and operate 54 gross (54 net) wells in the Bigfoot-Texas acreage position.

Crittendon - Texas

In West Texas, the Crittendon field contains 2,759 net acres. The contiguous block is all within the Delaware Basin and is located in Winkler County. Crittendon contains 14% of our total net acres. We operate our Crittendon Field wells. We currently have 16 gross (10.4 net) oil and gas wells.

Giddings – Bastrop – Texas

Giddings is our largest acreage position with 12,950 net acres located within the Eagle Ford trend. Our acreage is spread across Bastrop, Burleson, Brazos, Fayette, Lee, and Gonzales counties. From an acreage position, Giddings comprises the largest portion of net acres at 65%. Our Giddings oil and gas wells are 45 gross (39.1 net) wells, including 3 gross (1 net) non-operated wells.

Logan County – Oklahoma

Our non-operated working interests are located in Oklahoma, spread across Logan and Kingfisher counties. Our position consists of 1,229 net acres or 6% of our total net acreage position. Our Logan County, Oklahoma wells are non-operated wells. We have participations in 21 gross and 3.8 net oil and gas wells in Logan County, Oklahoma.

Oil and Natural Gas Reserves

Due to the inherent uncertainties and the limited nature of reservoir data, proved reserves are subject to change as additional information becomes available. The estimates of reserves, future cash flows and present value are based on various assumptions, including those prescribed by the Securities and Exchange Commission (“SEC”), and are inherently imprecise. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates. Also, the use of a 10% discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which our business or the oil and natural gas industry in general are subject.

These calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with SEC financial accounting and reporting standards. The estimated present value of proved reserves does not include indirect expenses such as general and administrative expenses, debt service, future income tax expense or depletion, depreciation, and amortization. In accordance with applicable financial accounting and reporting standards of the SEC, the estimates of our proved reserves and the present value of proved reserves set forth herein are made using the average of oil and natural gas spot prices for the West Texas Intermediate oil and Henry Hub gas on the first day of each of the twelve months during 2014. Estimated quantities of proved reserves and their present value are affected by changes in oil and natural gas prices. The arithmetic average reference prices utilized for the purpose of estimating our proved reserves and the present value of proved reserves as of January 1, 2015 were $95.28 per barrel of oil and $4.36 per MMBtu of natural gas.

The following table sets forth our estimated net total oil and natural gas reserves and the PV-10 value of such reserves as of the January 1, 2015 reserve report. The estimated reserve data and the present value as of January 1, 2015 were prepared by Forrest A. Garb & Associates, independent petroleum engineers. For further information concerning our independent engineer’s estimates of our proved reserves as of January 1, 2015, see the reserve report filed as Exhibit 99.3. These reserves estimates were prepared in accordance with the Securities and Exchange Commission’s rules regarding oil and natural gas reserves reporting that were in effect at the time of the preparation of the reserves report. Our total estimated proved reserves are estimated using a conversion ratio of one Bbl per six Mcf. The PV-10 value is not intended to represent the current market value of the estimated oil and natural gas reserves owned by us. For further information concerning the present value of future net revenues from these reserves, see Supplemental Oil and Natural Gas Disclosure in our Financial Statements included elsewhere in this report. All reserves are located in the United States.

	Estimated Net Reserves				Estimated Future Net Revenue ($ thousands)
As of January 1, 2015	Oil and Condensate (MBbl)		Gas (MMcf)		Undiscounted		Discounted at 10% Per Year (1)
Proved:
Developed Producing		692		3,854	$	49,941	$	35,507
Developed Nonproducing		161		470		13,072		8,229
Proved Undeveloped		3,139		6,447		175,637		84,680
Total Proved		3,993		10,771		238,650		128,416

_______________________

(1)

Management believes that the presentation of PV-10 may be considered a non-GAAP financial measure as defined in Item 10(e) of Regulation S-K. Therefore we have included a reconciliation of the measure to the most directly comparable GAAP financial measure (standardized measure of discounted future net cash flows in the table immediately below). Management believes that the presentation of PV-10 value provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies. Because many factors that are unique to each individual company may impact the amount of future income taxes to be paid, the use of the pre-tax measure provides greater comparability when evaluating companies. It is relevant and useful to investors for evaluating the relative monetary significance of our oil and natural gas properties. Further, investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies. Management also uses this pre-tax measure when assessing the potential return on investment related to its oil and gas properties and in evaluating acquisition candidates. The PV-10 value is not a measure of financial or operating performance under GAAP, nor is it intended to represent the current market value of the estimated oil and natural gas reserves owned by us. PV-10 should not be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under GAAP.

We have not reported our reserves to other federal authorities or agencies.

Our reserve report dated January 1, 2015 showed estimated net proven undeveloped reserves of 3,139 MBbl for oil and condensate and 6,447 MMcf for natural gas. This was an decrease of 27 MBbl for oil and condensate and a decrease of 93 MMcf for natural gas. The decrease in oil and condensate proven undeveloped reserves was due to the loss of PUD locations due to the requirement that a development plan for the undeveloped oil and gas reserves must be adopted indicating that such reserves are scheduled to be drilled within five years under SEC Regulation S-X Rule 4-10(a)(31)(ii).. The decrease in natural gas proven undeveloped reserves derives from an increased focus on oil and condensate drilling. Our Consolidated Statement of Cashflows on page F-6 shows that we spent $33,296,074 on development of oil and gas properties in the year ending December 31, 2014. These payments resulted in converting 903 net acres from proven undeveloped reserves to proven developed reserves and increased our proven developed reserves for oil and condensate by 306 MBbl (79%) to 692 MMbl. Our proven developed producing natural gas reserves increased by 2,238 MMcf (138%) to 3,854 MMcf, The 103% increase in proven developed BOE reserves is a result of increased drilling activity, as well as the acquisition of the Crittendon field.

We believe that PV-10, a non-GAAP measure of estimated proved reserves is widely used by analysts and investors in evaluating oil and gas companies. Our reconciliation to the most directly comparable GAAP financial measure (standardized measure of discounted future net cash flows) is found in the table below. The table below provides a reconciliation of PV-10 as of January 1, 2015 and January 1, 2014 to the standardized measure of discounted future net cash flows as of December 31, 2014 and December 31, 2013:

	As of January 1, 2015			As of January 1, 2014
	(dollars in thousands)			(dollars in thousands)
PV-10	$	128,416		$	131,586
Present value of future income taxes discounted at 10%		(38,300	)		(40,513	)
Standardized income of discounted future net cash flows		90,116			91,073

Present value, or PV-10, when used in connection with oil and gas reserves, means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development costs, using prices calculated as the average natural gas and oil price during the preceding 12-month period prior to the end of the current reporting period, (determined as the unweighted arithmetical average of prices on the first day of each month within the 12-month period) and costs in effect at the determination date, without giving effect to non-property related expenses such as general and administrative expenses, debt service and future income tax expense or to depreciation, depletion and amortization, discounted using an annual discount rate of 10%.

Estimates of reserves as of January 1, 2015 and January 1, 2014 were prepared using an average price equal to the unweighted arithmetic average of hydrocarbon prices received on a field-by-field basis on the first day of each month within the 12-month periods ended January 1, 2015 and January 1, 2014, in accordance with revised SEC guidelines applicable to reserves estimates as of the end of 2014 and 2013. The reserve estimates represent our net revenue interest in our properties. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates.

Our proved reserve estimate report dated January 1, 2015, attached as Exhibit 99.2 uses the following average adjusted prices:

Oil - $95.28 / bbl

Gas - $4.36 / Mcf

Our proved reserve estimate report dated January 1, 2014, attached as Exhibit 99.3, uses the following average adjusted prices:

Oil - $94.34 / bbl

Gas - $6.68 / Mcf

The standardized measure of discounted future net cash flows relies on estimates of oil and gas reserves using commodity prices and costs at year-end. The benchmark oil and gas prices used are the preceding 12-month averages of the first-day-of-the month spot prices posted for the WTI oil and Henry Hub natural gas. Oil prices have been adjusted by lease for gravity, transportation fees, and regional price differentials. Gas prices per thousand cubic feet have been adjusted by lease for Btu content, transportation fees, and regional price differentials. The adjustments are based on the differential between historic oil and gas sales and the corresponding benchmark price.

Proved reserves are those oil and gas reserves, 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. For proved reserves, the drilling for oil and gas must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time period.

“Reasonable certainty” can be determined under two approaches. If deterministic methods are used, reasonable certainty means a “high degree of confidence” that the quantities will be recovered. A “high degree of confidence” exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimate ultimate recovery with time and with reasonable certainty that the estimated ultimate recovery is much more likely to increase or remain constant than to decrease. If probabilistic methods are used, reasonable certainty means at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.

The reserve estimates are prepared by Forrest Garb & Associates, Inc., qualified third party engineering firms by licensed engineers as part of the Company’s internal controls. All of the Company’s reserves were subject to the reserve report by Forrest Garb & Associates, Inc. and the Company has not presented any internally-generated reserve amounts that were not included in the report from Forrest Garb & Associates, Inc. The Company’s technical person primarily responsible for overseeing the Forrest Garb & Associates, Inc. reserve estimates was Edward Shaw, our Chief Operating Officer. Mr. Shaw has been an officer of ImPetro Resources LLC since its inception in February 2010 and our Chief Operating Officer since we were formed in June 2011. Mr. Shaw was also Chief Operating Officer of South Texas Oil Company from 2005 to 2010 and headed its field operations in Texas. Thus, Mr. Shaw has extensive operational experience in the areas in which we concentrate our oil and gas operations. Mr. Shaw worked from 2000 to 2005 in New Zealand researching and developing methods of monitoring oil wells to optimize production, including using existing products integrated with emerging telemetry technologies. Mr. Shaw has a degree in electrical engineering.

Oil and Natural Gas Volumes, Prices and Operating Expense

The following tables set forth certain information regarding the production volumes, revenue, average prices received and average production costs associated with our sale of oil and natural gas from continuing operations for the two years ended December 31, 2014 and 2013. The drilling operations on the Bigfoot-Texas formations in fiscal 2013 and 2014 generally targeted drilling out the properties with shallower, less expensive wells thus holding the leases and preventing them from expiring. This means that deeper formations such as Eagle Ford and Pearsall Shales are held by production and can be developed or sold at a later date.

Bigfoot - Texas	Year Ended December 31,
	2014		2013
Net Production:
Oil (Bbl)		4,431		4,011
Natural Gas (Mcf)		0		-
Barrel of Oil Equivalent (Boe)		4,431		4,011
Oil and Natural Gas Sales:
Oil	$	402,705		376,829
Natural Gas		0
Total	$	402,705		376,829
Average Sales Price:
Oil ($ per Bbl)	$	90.89		93.95
Natural Gas ($ per Mcf)		-		-

Barrel of Oil Equivalent ($ per Boe)	$	90.89		93.95
Oil and Natural Gas Costs:
Lease operating expenses	$	322,458		419,140
Production taxes		18,267		17,101
Other operating expenses		-		-
Average production cost per Boe	$	76.90		108.76

Crittendon – Texas	Year Ended December 31,

	2014		2013
Net Production:
Oil (Bbl)		13,786		-
Natural Gas (Mcf)		202,007		-
Barrel of Oil Equivalent (Boe)		47,454		-
Oil and Natural Gas Sales:
Oil	$	1,106,900	$	-
Natural Gas		825,371		-

Total	$	1,932,271	$	-
Average Sales Price:
Oil ($ per Bbl)	$	80.29	$	-
Natural Gas ($ per Mcf)		4.09		-

Barrel of Oil Equivalent ($ per Boe)	$	40.72	$	-
Oil and Natural Gas Costs:
Lease operating expenses	$	1,105,331	$	-
Production taxes		101,625		-
Other operating expenses		-		-
Average production cost per Boe	$	25.43	$	-

Giddings – Texas	Year Ended December 31,

	2014		2013
Net Production:
Oil (Bbl)		112,861		70,683
Natural Gas (Mcf)		169,435		123,795
Barrel of Oil Equivalent (Boe)		141,100		91,315
Oil and Natural Gas Sales:
Oil	$	10,190,042	$	6,821,671
Natural Gas		924,976		752,303

Total	$	11,115,108	$	7,573,975
Average Sales Price:
Oil ($ per Bbl)	$	90.29	$	96.51
Natural Gas ($ per Mcf)		5.46		6.08

Barrel of Oil Equivalent ($ per Boe)	$	78.77	$	82.94
Oil and Natural Gas Costs:
Lease operating expenses	$	3,729,761	$	2,683,694
Production taxes		479,201		325,401
Other operating expenses				-
Average production cost per Boe	$	29.83	$	32.95

Logan, Kingfisher, McClain - Oklahoma	Year Ended December 31,
	2014		2013
Net Production:
Oil (Bbl)		49,820		52,152
Natural Gas (Mcf)		407,570		383,526
Barrel of Oil Equivalent (Boe)		117,749		116,073
Oil and Natural Gas Sales (dollars in thousands):
Oil	$	4,598,882	$	5,003,563
Natural Gas		2,123,917		2,010,787

Total	$	6,722,799	$	7,014,350
Average Sales Price:
Oil ($ per Bbl)	$	92.31	$	95.94
Natural Gas ($ per Mcf)		5.21		5.24

Barrel of Oil Equivalent ($ per Boe)	$	57.09	$	60.43
Oil and Natural Gas Costs (dollars in thousands):
Lease operating expenses	$	686,940	$	495,323
Production taxes		96,601		92,122
Other operating expenses
Average production cost per Boe	$	6.65	$	5.06

Exploration, Development and Acquisition Capital Expenditures

The following table sets forth certain information regarding the gross costs incurred in the purchase of proved and unproved properties and in development and exploration activities.

Bigfoot - Texas	Year Ended December 31,
	2014			2013

Unproved prospects	$	18,843		$	10,495
Proved prospects		69,457			132,281
Development and exploration costs		0			0

Total consolidated operations		50,614			142,739

Asset Retirement Obligations (non-cash)	$	(50,614	)	$	0

Crittendon - Texas	Year Ended December 31,
	2014		2013

Unproved prospects	$	482,161	$	-
Proved prospects		17,007,057		-
Development and exploration costs		736,703

Total consolidated operations		18,225,921		-

Asset Retirement Obligations (non-cash)	$	798,572	$	-

Giddings - Texas	Year Ended December 31,
	2014		2013

Unproved prospects	$	1,191,710	$	1,128,334
Proved prospects		353,988		1,493,628
Development and exploration costs		10,853,435		8,694,352

Total consolidated operations		11,691,157		11,316,314

Asset Retirement Obligations (non-cash)	$	54,530	$	19,218

Logan, Kingfisher, McClain - Oklahoma	Year Ended December 31,
	2014		2013

Unproved prospects	$	193,260	$	1,538,004
Proved prospects		3,745		501,531
Development and exploration costs		4,676,449		2,427,620

Total consolidated operations		4,865,964		4,467,154

Asset Retirement Obligations (non-cash)	$	46,963	$	23,194

Producing Wells

The following table sets forth the number of producing oil and natural gas wells in which we owned an interest as of December 31, 2014. Some wells produce both oil and natural gas.

	Company Operated				Non-Operated				Total
	Gross		Net		Gross		Net		Gross		Net
Oil		104		96.7		24		4.8		128		101.5
Natural gas		11		6.8		-		-		11		6.8
Total		115		103.5		24		4.8		139		108.3

Acreage Data

The following table summarizes our gross and net developed and undeveloped oil and natural gas acreage under lease as of December 31, 2014.

	Developed Acres				Undeveloped Acres
	Gross		Net		Gross		Net
Bigfoot (Texas)(1)		2,930		2,930		0		0
Giddings (Texas)(2)		9,459		9,336		3,799		3,614
Logan, Kingfisher, McClain (Oklahoma)		5,055		1,229		0		0
Crittenden Field (Texas)		5,160		2,759		0		0

Total		22,604		16,254		3,799		3,614

__________________________

(1)	Undeveloped acreage includes acreage located in the Bigfoot fields.
(2)	Other includes acreage in Giddings.

As is customary in the oil and natural gas industry, we can generally retain our interest in undeveloped acreage by drilling activity that establishes commercial production sufficient to maintain the leases or by paying delay rentals during the remaining primary term of leases. The oil and natural gas leases in which we have an interest are for varying primary terms, and if production under a lease continues from our developed lease acreage beyond the primary term, we are entitled to hold the lease for as long as oil or natural gas is produced.

Our oil and natural gas properties consist primarily of oil and natural gas wells and our interests in leasehold acreage, both developed and undeveloped.

Drilling Activity

The following table sets forth our drilling activity during the twelve month period ended December 31, 2014 and 2013 (excluding wells in progress at the end of the period). In the table, “gross” refers to the total number of wells in which we have a working interest and “net” refers to gross wells multiplied by our working interest therein.

Bigfoot - Texas

Year Ended December 31,

2014

2013

Gross

Net

Gross

Net

Development wells

Productive

Non-productive

Exploratory wells

Productive

Non-productive

Giddings - Texas

Year Ended December 31,

2014

2013

Gross

Net

Gross

Net

Development wells

Productive

3.0

3.2

Non-productive

Exploratory wells

Productive

Non-productive

Logan, Kingfisher, McClain - Oklahoma

Year Ended December 31,

2014

2013

Gross

Net

Gross

Net

Development wells

Productive

0.8

0.2

Non-productive

Exploratory wells

Productive

Non-productive

Present Activities

Since December 31, 2014, we have completed and began producing 1 well (0.4 net wells) in McClain County, Oklahoma.

Lease Expiration Summary

Most of our oil and gas leases are held by production or have terms, including delay rentals, which extend beyond December 31, 2016. The following table is a summary of our expiring leases in 2015 and 2016 cross-referenced to assigned proven undeveloped estimated reserves. 0.53% of our estimated proved reserves and 0.76% of our estimated proven undeveloped reserves are subject to oil and gas leases that expire before December 31, 2016. In order to maintain these reserves, we will need to either commence operations relating to these properties or negotiate lease extensions. We will require sufficient capital to complete or participate in the required drilling program or lease extensions. We do not anticipate that any lease extension will bring the lease terms past 2017.

The following table is based on estimates as of December 31, 2014. Some of the Texas reserve units with assigned proven undeveloped reserves have leases expiring in both 2015 and 2016. Such unit reserves have been divided up between 2015 and 2016 based on the percentage net acreage within the reserve units assigned to the respective leases. The Oklahoma properties do not have proven undeveloped reserve units containing leases with 2015 or 2016 expirations. Our Bigfoot properties do not have expiring leases in 2015 or 2016.

Effective Date – December 31, 2014

2015 and 2016 Expiring Leases	Proven Reserves Assigned to 2015 Lease Expirations ($ thousands)		Percentage PUD Reserves Assigned to 2015 Lease Expirations		Percentage Total Proven Reserves Assigned to 2015 Lease Expirations		Proved Reserves Assigned to 2016 Lease Expirations ($ thousands)		Percentage PUD Reserves Assigned to 2016 Lease Expirations			Percentage Total Proved Reserves Assigned to 2016 Lease Expirations			Proved Reserves Assigned to 2015 and 2016 Lease Expirations ($ thousands)		Percentage PUD Reserves Assigned to 2015 and 2016 Lease Expirations		Percentage Total Proved Reserves Assigned to 2015 and 2016 Lease Expirations

Giddings - Texas		759		0.76%		0.53%		0		0.0	%		0.0	%		759		0.76%		0.53%
Total		759		0.76%		0.53%		0		0.0	%		0.0	%		759		0.76%		0.53%

2015 and 2016 Expiring Leases	PUD Reserves Assigned to 2015 Lease Expirations		PUD Oil Reserves Assigned to 2015 Lease Expirations		PUD Natural Gas Reserves Assigned to 2015 Lease Expirations		PUD Reserves Assigned to 2016 Lease Expirations		PUD Oil Reserves Assigned to 2016 Lease Expirations
	($ thousands)		(BBL)		(MMCF)		($ thousands)		(BBL)

Giddings - Texas		759		171		94		0		0
Total		759		171		94		0		0

2015 and 2016 Expiring Leases	PUD Natural Gas Reserves Assigned to 2016 Lease Expirations		PUD Reserves Assigned to 2015 and 2016 Lease Expirations		PUD Oil Reserves Assigned to 2015 and 2016 Lease Expirations		PUD Natural Gas Reserves Assigned to 2015 and 2016 Lease Expirations
	(MMCF)		($ thousands)		(BBL)		(MMCF)

Giddings - Texas		0		759		171		94
Total		0		759		171		94

Management’s Experience with Horizontal Drilling

The Company intends to engage in directional drilling, which includes horizontal drilling, to develop our estimated proven undeveloped reserves, particularly in our Eagle Ford Shale play acreage. Our CEO, Michael Pawelek has been engaged in directional drilling and operating wells in our target areas since 1999. Our Chief Operating Officer, Edward Shaw has been engaged in directional drilling and operating wells in our target areas since 2005 and has been involved in over thirty directionally drilled wells during that period. Further, the Company’s Vice-President of Operations, Thomas Saunders, has extensive directional drilling experience. Mr. Saunders has 36 years of domestic and international production and drilling experience, including 31 years of direct supervisory drilling, workover, construction, and production operations experience. Mr. Saunders’ past experience has been with Tenneco, Arco, Anadarko, and BP. He received a BS degree in Petroleum Engineering from Texas A&M University. Mr. Saunders worked from 1979 to 1982 in our operational area and has had several consulting engagements in our operational area since then. Mr. Saunders has participated in the drilling of over 200 directionally drilled wells starting in the 1990s.

Delivery Commitments

The Company is not currently committed to providing a fixed and determinable quantity of oil or gas under existing contracts.

Item 3. LEGAL PROCEEDINGS.

See Note 13 of the Notes to Consolidated Financial Statements.

Lawsuit Relating to 17.23% of Our Common Stock Shares

We have interpleaded 2,190,891 common stock shares or approximately 17.2348% of our common stock shares into Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford, Cause No. FST-CV12-6015112-S. These are the residual common stock shares that belonged to Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Energy Partners LP. after the distribution of the partnerships shares.

Item 4. Mine Safety Disclosures

N/A

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

The information in this item should be read in conjunction with the Management Discussion and Analysis of Financial Condition and Results of Operations in Item 7, and the consolidated financial statements and the related notes thereto in Item 8.

Market Information For The Common Stock

Holders

At March 30, 2015, there were 35 holders of record of common stock, plus we have interpleaded 2,190,891 common stock shares into the Connecticut Superior Court.

Dividends

Starboard Resources, Inc. has never paid a regular cash dividend on common stock and has no plans to institute payment of regular dividends.

Recent Sales of Unregistered Securities

Bridge Financing – 2012

On May 16, 2012, we issued a note with a principal amount of $909,090 to SOSventures, LLC. SOSventures, LLC is a limited partner of Giddings Oil and Gas LP and Hunton Oil Partners, LLC and is affiliated with our chairman, Bill Liao. The note carried an interest rate of ten percent (10%) and maturing May 1, 2013. The note was prepaid in full in July 2012.

Put Option Waiver – 2012

2)	Issuing, or authorize the issuance of any class of security that is not identical to our common stock held by the parties to the put option waiver agreement;

3)	Issuing any equity securities (other than employment compensation shares, as defined) without granting pre-emptive rights to the parties to the put option waiver agreement;

4)	Amending, modifying or waiving the certificate of incorporation or bylaws; and

5)	Selling all or substantially all of the Company’s assets or its subsidiaries’ assets.

The veto rights expire upon our obtaining an effective exchange listing. The put option waiver agreement is attached as Exhibit 4.3.

Subordinated Credit Facility with SOSventures, LLC

As of March 16, 2015, we have $10 million drawn against the SOSventures, LLC credit facility. In light of the December 19, 2014 notice from Independent Bank relating to the payment of interest to SOSventures, LLC, pursuant to the Intercreditors Agreement (Exhibit 10.6.2), we are accruing interest payments to SOSventures, LLC since the date of that notice.

Item 6. Selected Financial Data

The Company’s subsidiaries, ImPetro Operating LLC and ImPetro Resources LLC were formed in Delaware in January 2010. The Company was formed in Delaware in June 2011.

	Years Ended December 31
	2014			2013
Operating Revenues	$	20,172,792		$	14,965,153
Income (Loss) from Continuing Operations per Share/Unit		(0.22	)		(0.13	)
Net Income (Loss)		(2,760,920	)		(1,545,813	)
Total Assets		101,803,226			84,231,186
Long-Term Obligations and Redeemable Preferred Share/Units		50,558,604			30,567,396
Cash Dividends (or Distributions) Declared per Share/Unit		--			--

Item 7. Management’s Discussion and Analysis or Plan of Operations

Forward-Looking Statements

We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update this information. We urge you to carefully review and consider the disclosures made in this report and our other filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

Overview

Starboard is an independent energy company engaged primarily in the exploration for, and development of, natural gas and crude oil reserves. We generate our revenues and cash flows from two primary sources: investing activities and the proceeds from the sale of oil and gas production on properties we hold or participate in.

As of April 15, 2015, we owned interests in 140 producing oil and natural gas wells. We operate 115 or 82% of those wells. Our oil and natural gas production for 2014 consisted of 180,898 bbls of oil and 779,012 Mcf of gas.

We began 2014 with estimated proved reserves of 5,091 MBOE and ended the year with 6,264 MBOE.

Strategy

We produce from operated oil and natural gas wells in the liquids rich, oil-bearing window of the Eagle Ford trend of South Texas and the nearby, oil-prone Giddings field where in combination we control 16,189 gross acres (15,880 net acres). We also completed a transaction to acquire acreage in West Texas, which we call the Crittendon Field and where we control 5,160 gross acres (2,759 net acres). In addition, we have material non-operated working interests in producing properties and conventional prospects located throughout Logan and McClain counties in Oklahoma, which account for 5,055 gross acres (1,229 net acres). The combined reserve base and net production are each over 70% oil-weighted and are currently approximately 82% held by production.

Our total proved reserves, based on our January 1, 2015 independent reserve estimate report, were 5,788 MBOE, consisting of 10,771 MMcf of natural gas, 3,993 Mbbl of oil. The PV-10 of our proved reserves at January 1, 2015 was $128.4 million based on the average of the beginning of each month prices through December 2014 of $95.28 per Bbl for oil and condensate and $4.36 per MMBtu for natural. At January 1, 2015, 23% of our estimated proved reserves were proved developed reserves and 69% of our estimated proved reserves were oil and condensate. Our average daily production for the year ending December 31, 2014 was 990 BOE per day.

PV-10 estimated proved reserves is a non-GAAP financial measure as defined in Item 10(e) of Regulation S-K and is defined on page 32 of this annual report. Reconciliation to the most directly comparable GAAP financial measure (standardized measure of discounted future net cash flows) is found in the table on page 33 of this annual report. We believe that PV-10 value provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies.

At January 1, 2015, based on the reserves estimated by our independent reservoir engineers, we had 5,788 MBOE of estimated proved reserves with a PV-10 of $128.4 million. At January 1, 2015, 23% of our estimated proved reserves were proved developed reserves and 69% of our estimated proved reserves were oil and condensate. We grew our average daily production 76% from 563 BOE per day at year-end 2013 to 990 BOE per day at year-end 2014.

As part of this strategy, we focus on the following areas:

Bigfoot - Texas

We control about 3,000 gross acres across Frio and Atascosa counties in southern Texas, comprising less than 1% of our total proved reserves.

Giddings – Bastrop - Texas

Giddings is our largest acreage position with just over 13,000 gross acres located within the Eagle Ford trend. Our acreage is spread across Bastrop, Burleson, Brazos, Fayette, Lee, and Gonzales counties. From a reserve perspective, Giddings comprises the largest portion of our total proved reserves at 72%.

Logan County - Oklahoma

Our non-operated working interests are located in Oklahoma, spread across Logan, Kingfisher, and McClain counties. Our position consists of just over 5,000 gross acres and comprises 10% of our total proved reserves.

Crittendon - Winkler County - Texas

In Winkler County we control about 5,160 gross acres. Our position comprises 17% of our total proved reserves.

Key Performance Indicators

Our management team has defined and tracks performance against several key production, sales and operational performance indicators, including, without limitation, the following:

●	average daily natural gas and oil production;

●	weighted average sales price received for natural gas and oil; and

●	lifting costs.

We believe that tracking these performance indicators on a regular basis enables us to better understand whether we are on target to achieve our internal production, sales and other plans and projections and forecast working capital, cash flow and liquidity items and allows us to determine whether we are successfully implementing our strategies.

The following table sets forth information regarding production volumes, average sales prices received and lifting costs for the periods indicated:

Production Volumes, Sales Prices and Lifting Costs

	Years Ended December 31,
	2014		2013
Production:
Natural gas-Mcf (1)		779,012		507,321
Crude oil-bbl (2)		180,898		126,845

Average Sales Prices:
Natural gas (1)	$	4.97	$	5.31
Crude oil (2)		90.10		96.20

Lifting cost per equivalent BOE (3)	$	19.80	$	22.10

(1)	Natural gas production is located in Texas and Oklahoma.
(2)	Crude oil production is located in Texas and Oklahoma.
(3)	Lifting cost represents lease operating expenses divided by the net volumes of production, and is measured in BOE based on an energy content factor of six-to-one (i.e., six Mcf of natural gas to one barrel of oil). Lease operating expenses include normal operating costs such as pumper fees, operator overhead, salt water disposal, repairs and maintenance, chemicals, equipment rentals, production taxes and ad valorem taxes.

Operating expenses

Lease operating expense and production taxes

The following table presents the major components of Starboard’s lease operating expense for the last two years and for the year ended December 31, 2014 and 2013 on a BOE basis:

	Years Ending December 31,
	2014				2013
	Total		Per BOE		Total		Per BOE
Lease operating costs	$	5,457,472	$	17.56	$	4,237,207	$	20.04
Production taxes	$	695,693	$	2.24	$	434,623	$	2.06

Total	$	6,153,165	$	19.80	$	4,671,830	$	22.10

Lease operating expense and production taxes from continuing operations for the year ended December 31, 2014 totaled $6,153,165 versus $4,671,830 for the year ended December 31, 2013. This translated to a decrease of $2.30/BOE on a volume basis. This reduction reflects Starboard’s increased drilling and production activities.

Results of Operations

Comparison of Year Ended December 31, 2014 to Year Ended December 31, 2013

Total Revenues. Total revenues increased $5,207,639 to $20,172,792 for 2014 from $14,965,153 for 2013, driven primarily by increased oil and natural gas production from existing reserves and our acquisition of the Crittenden Field properties.

Oil and Gas Production. Total natural gas and oil production for 2014 consisted of 779,012 Mcf of natural gas and 180,898 bbls of oil, as compared to total natural gas and oil production for 2013, which consisted of 507,321 Mcf of natural gas and 126,845 bbls of oil due to increased drilling and the Crittendon Field acquisition.

Our average sales price received for natural gas decreased to $4.97 per Mcf in 2014 from $5.31 per Mcf in 2013. Our average sales price received for oil decreased to $90.10 per bbl in 2014 from $96.20 per bbl in 2013. Changes in natural gas and oil prices can significantly impact our natural gas and oil sales and related cash flows. Natural gas prices have increased slightly over the past two to three years. A continuation of lower prices may materially adversely affect the sales prices we receive and our revenues and cash flow.

Costs and Expenses. Total costs and expenses (excluding depreciation and depletion) increased $2,676,875 to $11,416,872 for 2014 from $8,739,997 for 2013, due generally to increased production expenses. Lease operating expenses increased $1,220,265 to $5,457,472 for 2014 from $4,237,207 for 2013, due primarily to increased production activity and the acquisition of the Crittenden Field properties. General and administrative expenses increased $789,663 to $3,876,698 for 2014 from $3,087,035 for 2013, due primarily to fees charged in connection with increased staffing due to greater drilling activity. Depletion, depreciation and amortization expense increased $3,703,785 to $10,140,152 for 2014 from $6,436,367 for 2013, due primarily to increased depletion expenses associated with new property acquisitions. Impairment of oil and gas properties for 2014 was $4,428,378 and $0 for 2013.

Net Income (Loss). Net income (loss) was ($3,062,847) or ($0.25) per diluted common share, for 2014 as compared to ($1,545,815) or ($0.13) per diluted common share, for 2013. The increase in net loss was attributable primarily to a decrease in deferred income taxes.

Other Income (Expenses) Total other income (expenses) increased $2,599,184 to $1,625,466 in 2014, where increased interest expense (which increased by $2,030,939 from 2013 to $2,617,481) was offset by gains on asset sales ($2,115,967) and derivative contracts (which increased income by $2,089,151 from 2013 to $2,065,998).

In 2014, we invested $34.8 million in oil and gas properties. We produced 310,733 BOE during the year.

Capital Costs ($000):	Year Ended 2014		Year Ended 2013
Acquisitions	$	17,671	$	--
Exploration and Development		17,163		15,928
Total CAPEX before asset retirement obligations		34,834		15,928
Asset retirement obligation costs		--		42
Total CAPEX	$	34,834	$	15,970

Asset retirement obligation (non-cash)	$	849	$

Proved Reserves (MBOE):
Beginning		5,091		5,072
Production		(311)		(211	)
Purchases		1,433		--
Sale of reserves		(139)		--
Discoveries and extensions		614		656
Revisions		(900)		(427	)

Ending reserves		5,788		5,091

Reserve additions before revisions (BOE)		1,597		445
Reserve additions after revisions (BOE)		697		18

The implementation of our strategy requires that we continually incur significant capital expenditures in order to replace current production and find and develop new oil and gas reserves. In order to finance our capital and exploration program, we depend on cash flow from operations, bank debt and equity offerings as discussed below in Liquidity and Capital Resources.

Oil and Gas Production

Year-over-year production increased from 211,399 BOE for the year ended December 31, 2013 to 310,733 BOE for the year ended December 31, 2014. This increase was due to increased crude oil and natural gas production from the acquisition of 16 oil and gas wells from the Crittendon properties as well as the drilling of 10 gross (3.8 net) new wells in 2014. The following table reflects the increase (decrease) in oil and gas sales revenue due to changes in price and volume:

	Years Ended December 31,
	2014		2013
Production:
Natural gas-Mcf		779,012		507,321
Crude oil-bbl		180,898		126,845

Average Sales Prices:
Natural gas	$	4.97	$	5.31
Crude oil		90.10		96.20

_____________________

Revenues

Revenues from continuing operations for the year ended December 31, 2014 totaled $20,172,792 as compared to $14,965,153 for the year ended December 31, 2013 representing a $5,207,639 increase. Production volumes for the year ended December 31, 2014 were year 180,898 bbls of oil and 779,012 Mcf of natural gas or 310,733 BOE. This compares to 126,845 bbls of oil and 507,321 Mcf of natural gas or 211,399 BOE for the year ended December 31, 2013 representing a 99,335 BOE increase in production. For the year ended December 31, 2014, the average sales price per barrel of oil was $90.10 and $4.97 per Mcf for natural gas as compared to $96.20 per barrel and $5.31 per Mcf, respectively for the year ended December 31, 2013. These results indicate that the increase in revenue is primarily attributable to increased production volumes and offset by weaker commodity prices.

Operating expenses

Lease operating expense and production taxes

The following table presents the major components of Starboard’s lease operating expense for the last two years ended December 31, 2014 and 2013 on a BOE basis:

	Years Ending December 31,
	2014				2013
	Total		Per BOE		Total		Per BOE
Leasing operating costs	$	5,457,472	$	17.56	$	4,237,207	$	20.04
Production taxes	$	695,693	$	2.24	$	434,623	$	2.06

Total	$	6,153,165	$	19.80	$	4,671,830	$	22.10

Lease operating expense and production taxes from continuing operations for the year ended December 31, 2014 totaled $6,153,165 versus $4,671,830 for the year ended December 31, 2013. This translated to a decrease of $2.30/BOE on a volume basis. This decrease reflects Starboard’s increased drilling activity.

Accretion of asset retirement obligation

Accretion expense for the asset retirement obligations increased by $160,020 for the year ending December 31, 2014 compared to the year ended December 31, 2013. This increase is primarily the result of the additional wells..

Depletion, depreciation and amortization (DD&A)

For the year ended December 31, 2014, the Company recorded DD&A expense of $10,140,152 ($32.63/BOE) compared to $6,436,367 ($30.45/BOE) for the year ended December 31, 2013 representing an increase of $1.13. This increase reflects the impact of the depletion expenses associated with new property acquisitions on the balance sheet.

General and administrative expense (G&A expense)

G&A expense for the year ended December 31, 2014 increased $789,663 from the year ended December 31, 2014 to $3,876,698. The increase was due primarily to fees charged in connection with increased staffing due to greater drilling activity.

Bank Credit Facility

On June 27, 2013 we entered into a senior secured credit facility from Independent Bank, providing for a $100.0 million revolving credit facility, subject to scheduled or elective collateral borrowing base redeterminations based on our oil and natural gas reserves. The credit facility matures on June 1, 2016. As of September 30, 2014, our borrowing base was $23.5 million. The outstanding borrowings bear interest at a rate that is currently based on the prime plus 0.0% with a 4.00% floor. We also must pay an unused commitment fee of 0.5% per year on the undrawn amount of the borrowing base. As of December 31, 2014 we have borrowed approximately $22.5 million on the credit facility.

On December 19, 2014, counsel for Independent Bank, provider of our bank credit facility, transmitted a letter stating that:

The Amendment resolves the matters addressed in the December 19, 2014 letter from Independent Bank’s counsel referenced above.

Bank Term Loan

On March 26, 2014, we entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% per annum. The agreement was obtained to fund the development of our acquisition of oil and natural gas properties. The loan requires 18 equal monthly payments of approximately $194,000 starting on October 1, 2014 and maturing on March 1, 2016 and is subject to the same covenants as the Credit Agreement. The term loan agreement is Exhibit 10.9 to this annual report.

The loan under the term agreement bears interest at the greater of: (1) the prime rate, the annual rate of interest announced by the Wall Street Journal as its “prime rate”, plus the applicable margin of 3.00% or (2) the floor rate of 6.75%.

As of April 15, 2015, we anticipate that this term loan will be paid back, in large part, from the capital received under the Second Amendment to the First Amendment and Restated Credit Agreement with SOSventures, LLC.

SOSventures, LLC Credit Agreement

On July 25, 2013 we entered into an amended credit agreement with SOSventures, LLC providing for a term loan through February 16, 2016 in an amount up to $10,000,000 at a 17.00% interest rate through May 29, 2014 and 22.00% interest rate thereafter. The loan under this Agreement will be secured by a second lien on the Company’s assets. The credit agreement and the related intercreditor agreement are attached as Exhibits 10.6.1 and 10.6.2.

The credit agreement prevents us from incurring indebtedness to banks or lenders, other than Independent Bank, without the consent of SOSventures, LLC. It also prevents us from incurring most contingent obligations or liens (other than to Independent Bank). It also restricts our ability to pay dividends, issue options and warrants and repurchase our common stock shares. The limitation on options and warrants does not apply to equity compensation plans.

As of March 16, 2015, with accrued and unpaid interest we have $10.6 million drawn against the SOSventures, LLC credit facility. In light of the December 19, 2014 notice from Independent Bank relating to the payment of interest to SOSventures, LLC, pursuant to the Intercreditors Agreement (Exhibit 10.6.2), we are accruing interest payments to SOSventures, LLC.

Hedging Activities

At January 1, 2015, we had the following open crude oil derivative contracts:

			January 1, 2015
	Instrument	Commodity	Volume (bbl / month)		Floor Price	Ceilings Price	Purchased Put Option Price
January 2015 – October 2015	Put	Crude Oil		5,000			77.00 – 80.00
November 2015 – December 2015	Put	Crude Oil		2,800			80.00
January 2015 – December 2015	Put	Crude Oil		4,000			70.00
January 2016 – March 2016	Put	Crude Oil		1,500			75.00

Liquidity and Capital Resources

During fiscal 2014 compared to fiscal 2013, net cash flow provided by operating activities declined by $5,837,180 to $5,324,563. This decline was primarily attributable to the repayment of accounts payable.

Our current assets were $7,958,793 on December 31, 2014. Cash on hand comprised approximately $3,574,427. This compared to cash on hand of $5,794,417 at December 31, 2013. Accounts payable decreased from $9,484,861 at December 31, 2013 to $5,758,605 at December 31, 2014 as a result of the asset sale in Oklahoma.

The consolidated financial statements continue to reflect a much increased but ongoing drilling and acquisition program which amounted to $34,749,337 during 2014. Our capital program is designed to increase production through exploration and workovers within our fields and through joint venture programs. This strategy will involve industry partners in these efforts so as to reduce our upfront cash requirements and reduce risk dollars expended. This represents an increase of $17,023,663 from our capital investment in 2013.

Our primary sources of liquidity are cash provided by operating activities, our revolving bank facility, a subordinated credit facility, sales of non-core properties and access to capital markets. Historically, our primary sources of liquidity have been borrowings under bank credit facilities, cash flows from operations, and private financings. Our primary use of capital has been for the exploration, development and acquisition of oil and gas properties. As we pursue reserves and production growth, we continually consider which capital resources, including equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Our future ability to grow proved reserves and production will be highly dependent on the capital resources available to us. We continually monitor market conditions and consider taking on additional debt, selling non-core assets, or farm-out arrangements. We strive to maintain substantial borrowing capacity under our senior secured revolving credit facility to facilitate drilling on our undeveloped acreage positions and permit us to selectively expand our acreage positions. Depending on the timing and concentration of the development of our non-proved locations, we may be required to generate or raise significant amounts of capital to develop all of our potential drilling locations should we endeavor to do so. In the event our cash flows are materially less than anticipated and other sources of capital we historically have utilized are not available on acceptable terms, we may curtail our capital spending.

Our 2015 capital budget is primarily focused on the development of existing core areas through exploitation and development. We expect to fund our 2015 capital budget with a mix of cash flows from operations, borrowing from our revolving bank facility, advances under out subordinated credit facility with SOSventures, LLC and the participation of minority interest owners in new wells. The exact amount of capital spending for 2015 will depend upon individual well performance results, cash flow and, where applicable, partner negotiations on the timing of drilling operations. We may also modify our capital budget based on available capital from our bank facility, our ability to sell a minority interest in new wells and our ability to raise third party financing. In addition, we have offered participations in our drilling program to industry partners over this time frame, further reducing our capital requirements. If necessary, we may also access capital through proceeds from potential asset dispositions, borrowings under our senior secured revolving credit facility and the future issuance of debt and/or equity securities. We expect our 2015 capital budget to be $10 - $12 million. We spent approximately $0.5 million of our capital budget between January 1, 2015 and March 1, 2015.

The amount, timing and allocation of capital expenditures are largely discretionary and within management's control. If oil and gas prices decline to levels below our acceptable levels, or costs increase to levels above our acceptable levels, we may choose to defer a portion of our budgeted capital expenditures until later periods in order to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flow. We may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive. Since the majority of our acreage is held by production, we have the flexibility to develop our acreage in a disciplined manner in order to maximize the resource recovery of the assets. We consistently monitor and adjust our projected capital expenditures in response to success or lack of success in drilling activities, changes in prices, availability of financing, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, contractual obligations, internally generated cash flow and other factors both within and outside our control.

The following table summarizes our contractual obligations and commercial commitments as of December 31, 2014:

	Payments Due By Period
	Total		Less than 1 year			1 - 3 years		4 - 5 years		After 5 years
Contractual obligations:					(in thousands)
Principal debt payments	$	35,437	$	2,333		$	33,104	$	0	$	—
Office lease		715		170			530		15		—

Total	$	36,152	$	2,502		$	33,635	$	15	$	—

Sources and Uses of Funds

Cash flow from operations is a significant source of liquidity. We generate our operating cash flow primarily from the sale of oil and natural gas. This operating cashflow is generally attributable to working interests owned and held directly by us in wells on producing oil and gas properties (which generate monthly revenue and cash flow to the extent such wells produce natural gas and oil) and carried working interests in such wells (which also generate monthly revenue and cash flow to the extent such wells produce natural gas and oil), as well as overriding royalty interests and reversionary interests (which may generate additional monthly revenue and cash flow to the extent such wells produce natural gas and oil).

Cash and cash equivalents totaled $3,574,427 as of December 31, 2014, as compared to $5,794,417 as of December 31, 2013. Cash provided by (used in) operating activities was $6,560,221 for the year ended December 31, 2014, compared to $11,161,743 for the year ended December 31, 2013.

Changes in cash flows from operations are largely due to the same factors that affect our net income, excluding various non-cash items such as impairments of assets, depreciation, depletion and amortization and deferred income taxes. For example, changes in production volumes and market prices for natural gas and oil directly impact the level of our cash flow from operations. See the discussion under "Results of Operations."

We use cash flows from operations to fund expenditures related to our exploration, development and acquisition of natural gas and oil properties. We use cash provided by our oil and natural gas sales. We have historically obtained most of the capital to fund expenditures related to oil and natural gas production from a combination of operating cash flow and borrowing on our bank facility.

Net cash provided by financing activities was $22,660,960 for the year ended December 31, 2013, compared to $7,972,584 for the year ended December 31, 2012. These financing activities primarily reflect borrowing on our bank facility as well as the second lien facility and the term loan.

Although we typically retain a significant degree of control over the timing of our capital expenditures, we may not always be able to defer or accelerate certain capital expenditures to address any potential liquidity issues. In addition, changes in drilling and field operating costs, drilling results that alter planned development schedules, acquisitions or other factors could cause us to revise our drilling program, which is largely discretionary.

As of December 31, 2014, we had a working capital deficit of $1,520,192, which consisted of $7,925,457 of current assets offset by $9,445,649 of current liabilities. Current assets as of December 31, 2014 included cash of $3,574,427 and accounts receivable of $2,368,294. Current liabilities as of December 31, 2014 included accounts payable and accrued liabilities of $5,835,145 and revenue payable of $828,924. Included in the current liabilities is Independent Bank term note of $2,332,465 as of December 31, 2015. This note will be paid off as part of the April 15, 2015 Amendment to the SOSventures, LLC Credit Facility.

Our current credit facility is with Independent Bank (See Exhibits 10.5.1 through 10.5.14). The $100 million secured facility has a current borrowing base of $23.5 million, matures in 2016, and has a prime variable interest rate with a 4.0% floor. We have $22.5 million drawn on the facility at December 31, 2013.

On June 3, 2014 we agreed to amend our credit agreement with SOSventures, LLC, originally entered into on July 25, 2013, providing for a term loan through February 16, 2016 in an amount up to $20,000,000 at an 18.00% interest rate. The loan under this agreement is secured by a second lien on our assets. The credit agreement and the related intercreditor agreement are attached as Exhibits 10.6.1 and 10.6.2. On March 26, 2012 we drew down the full amount of the credit facility to finance an acquisition.

Outlook

We believe that our future growth is dependent on our ability to continue drilling and developing our existing reserve base across our core areas in Texas and Oklahoma. As of March 16, 2014, we have spent approximately $0.5 million of our 2015 capital expense budget. For the full year 2015 we estimate our capital expense will be in the range of $10 - $12 million but may adjust that downward if capital is not available or increase that amount if we acquire additional capital. As we continue to drill and produce from our existing reserve base, we expect our unit costs to decline as our production increases. To further grow our revenues, we also expect to actively pursue an acquisition strategy that will focus on our core areas in Texas and Oklahoma.

As of April 15, 2015, we have entered an agreement in which the outstanding balance of $21,750,000 on our Independent Bank credit facility (the full borrowing base) reduced by $250,000 per month before September 1, 2015 and $350,000 per month thereafter, unless re-determined after 150 days from the date of the Amendment. The agreements with Independent Bank and SOSventures, LLC as of April 15, 2015 will also result in paying off the Independent Bank term loan. We also borrowed the $10,000,000 SOSventures, LLC subordinated credited agreement to finance our acquisition and have an outstanding balance and another $3 million from SOSventures in connection with our April 15, 2015 agreements with Independent Bank and SOSventures, LLC that resultedin the payment of the Independent Bank term loan. These agreements also resulted in receiving a financial commitment from SOSventures, LLC to allow the Company to drill two wells on its Crittenden Field properties.

Our ability to meet our debt covenants and our capacity to incur additional indebtedness will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. For example, lower oil and natural gas prices could result in a redetermination of the borrowing base under our Bank Credit Facility and SOSventures, LLC Credit Agreement at a lower level and reduce our adjusted consolidated EBITDA, and thus could reduce our ability to incur indebtedness and may requires us to sell assets to pay down the credit facility. Investing in undeveloped acreage, coupled with our drilling plans, may also impact our near-term ability to comply with our debt covenants. Of course, over the longer term, we expect that our strategy and our investments will result in increased production and reserves, lower lease operating costs and more abundant drilling opportunities. As a consequence, we constantly monitor our liquidity and capital resources, endeavor to anticipate potential covenant compliance issues and work with the lenders under our Bank Credit Facility and SOSventures, LLC Credit Agreement to address any such issues ahead of time.

If, in the future, if we are unable to comply with these covenants and the lenders under our Bank Credit Facility and SOSventures, LLC Credit Agreement are unwilling to provide us with covenant flexibility, we may be forced to repay or refinance amounts then outstanding under the Bank Credit Facility and SOSventures, LLC Credit Agreement and seek alternative sources of capital to fund our business and anticipated capital expenditures. In the event that we are unable to access sufficient capital to fund our business and planned capital expenditures, we may be required to curtail our drilling, development, land acquisition and other activities, which could result in a decrease in our production of oil and natural gas, may be subject to forfeitures of leasehold interests to the extent we are unable or unwilling to renew them, and may be forced to sell some of our assets on an untimely or unfavorable basis, each of which could adversely affect our results of operations and financial condition. Further, the failure to comply with the restrictive covenants relating to our indebtedness could result in the declaration of a default and cross default under the instruments governing our indebtedness, potentially resulting in acceleration of our obligations and adversely impacting our financial condition.

Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing reserves and production and finding additional reserves. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil and natural gas industry. We therefore continuously monitor our liquidity and the capital markets and evaluate our development plans in light of a variety of factors, including, but not limited to, our cash flows, capital resources, acquisition opportunities and drilling success.

We strive to maintain financial flexibility while pursuing our drilling plans and evaluating potential acquisitions, and will therefore may consider accessing capital markets (if on acceptable terms) as necessary to, among other things, maintain substantial borrowing capacity under our Bank Credit Facility and SOSventures, LLC Credit Agreement, facilitate drilling on our undeveloped acreage position and permit us to selectively expand our acreage position while sustaining sufficient operating cash levels. Our ability to complete future debt and equity offerings and maintain or increase our borrowing base is subject to a number of variables, including our level of oil and natural gas production, reserves and commodity prices, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Prices for oil and natural gas have historically been subject to seasonal fluctuations characterized by peak demand and higher prices in the winter heating season; however, the impact of other risks and uncertainties have influenced prices throughout recent years. Even if we are otherwise successful in growing our reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate such estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements. Below, we have provided expanded discussion of the more significant accounting policies, estimates and judgments. We believe these accounting policies reflect the more significant estimates and assumptions used in preparation of our consolidated financial statements. Please read the notes to our audited consolidated financial statements included in this report for a discussion of additional accounting policies and estimates made by management.

Oil and Gas Producing Activities

Our oil and gas producing activities were accounted for using the successful efforts method of accounting as further defined under FASB ASC 932, Extractive Activities – Oil and Natural Gas. Costs to acquire leasehold rights in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, delay rentals and geological and geophysical costs are expensed.

Depletion and Depreciation

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.

Impairments

The carrying value of oil and gas properties is assessed for possible impairment on a field by field basis and 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. For the years ended December 31, 2014 and 2013, the Company’s impairment charges were approximately $4,428,378, and $0, respectively.

Asset Retirement Obligations

The Company records for the estimated liability for the plugging and abandonment of natural gas and oil wells at the end of their productive lives following the provisions of ASC 410-20, Asset Retirement Obligations. Asset retirement obligations are estimated at the present value of expected future net cash flows based on reserve estimates and federal and state regulatory requirements and are discounted using the Company’s credit adjusted risk free rate. Because the Company uses unobservable inputs in estimating asset retirement obligations, it considers such obligations a Level 3 measurement under ASC 820. At the time of abandonment, we recognize a gain or loss on abandonment to the extent that actual costs do not equal the estimated costs.

Goodwill

At December 31, 2014 and December 31, 2013 the Company had goodwill of $959,681.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The Company follows FASB ASC Topic 350 Goodwill and Intangible Asset Impairment Testing. Our 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 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.

Pricing mechanism for oil and gas reserves estimation

The SEC's rules require reserve estimates to be calculated using a 12-month average price. Price changes can still be incorporated to the extent defined by contractual arrangements.

The SEC rules also amend the definition of proved oil and gas reserves to include reserves located beyond development spacing areas that are immediately adjacent to developed spacing areas if economic recoverability can be established with reasonable certainty. These revisions are designed to permit the use of alternative technologies to establish proved reserves in lieu of requiring companies to use specific tests. In addition, they establish a uniform standard of reasonable certainty that applies to all proved reserves, regardless of location or distance from producing wells. Because the revised rules generally expand the definition of proved reserves, proved reserve estimates could increase in the future based upon adoption of the revised rules.

Estimated proved oil and gas reserves

The evaluation of our oil and gas reserves is critical to management of our operations and ultimately our economic success. Decisions such as whether development of a property should proceed and what technical methods are available for development are based on an evaluation of reserves. These oil and gas reserve quantities are also used as the basis of calculating the unit-of-production rates for depreciation, evaluating impairment and estimating the life of our producing oil and gas properties in our asset retirement obligations. Proved reserves are classified as either proved developed or proved undeveloped. Proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Estimated proved undeveloped reserves include reserves expected to be recovered from new wells from undrilled proven reservoirs or from existing wells where a significant major expenditure is required for completion and production.

Independent reserve engineers prepare the estimates of our oil and gas reserves presented in this report based on guidelines promulgated under GAAP and in accordance with the rules and regulations of the Securities and Exchange Commission. The evaluation of our reserves by the independent reserve engineers involves their rigorous examination of our technical evaluation and extrapolations of well information such as flow rates and reservoir pressure declines as well as other technical information and measurements. Reservoir engineers interpret this data to determine the nature of the reservoir and ultimately the quantity of total oil and gas reserves attributable to a specific property. Our total reserves in this report include only quantities that we expect to recover commercially using current prices, costs, existing regulatory practices and technology. While we are reasonably certain that the total reserves will be produced, the timing and ultimate recovery can be affected by a number of factors including completion of development projects, reservoir performance, regulatory approvals and changes in projections of long-term oil and gas prices. Revisions can include upward or downward changes in the previously estimated volumes or proved reserves for existing fields due to evaluation of (1) already available geologic, reservoir or production data or (2) new geologic or reservoir data obtained from wells. Revisions can also include changes associated with significant changes in development strategy, oil and gas prices or production equipment/facility capacity.

Standardized measure of discounted future net cash flows

The standardized measure of discounted future net cash flows relies on these estimates of oil and gas reserves using commodity prices and costs at year-end. The benchmark oil and gas prices used are the preceding 12-month averages of the first-day-of-the month spot prices posted for the WTI oil and Henry Hub natural gas. Oil prices are based on a benchmark price of $95.28 per barrel and have been adjusted by lease for gravity, transportation fees, and regional price differentials. Gas prices per thousand cubic feet are based on a benchmark price of $4.36 per million British thermal units and have been adjusted by lease for Btu content, transportation fees, and regional price differentials. The adjustments are based on the differential between historic oil and gas sales and the corresponding benchmark price. While we believe that future operating costs can be reasonably estimated, future prices are difficult to estimate since the market prices are influenced by events beyond our control. Future global economic and political events will most likely result in significant fluctuations in future oil prices.

Unproved reserves

The SEC’s rules permit disclosure of probable and possible reserves and provide definitions of probable reserves and possible reserves. Disclosure of probable and possible reserves is optional. We have chosen not to disclose probable and possible reserves.

Executive Compensation

The Company entered into employment contracts with Michael Pawelek, Edward Shaw and Kim Vo which provide for stock grants, stock options and change of control payments. The Company accounts for these grants, options and payments under FASB 718.

No Delayed Adoption of New or Revised Accounting Standards under the Jumpstart our Business Startups Act (JOBS ACT)

We made the irrevocable decision under the JOBS Act to implement new or revised accounting standards applicable to reporting issuers when required of reporting issuers that are not Emerging Growth Companies under the JOBS Act.

Item 7.A Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to a variety of market risks including commodity price risk, interest rate risk and counterparty and customer risk. We address these risks through a program of risk management which may include the use of derivative financial instruments in the future.

Commodity price exposure. We are exposed to market risk as the prices of oil and natural gas fluctuations as a result of changes in supply and demand and other factors. To partially reduce price risk caused by these market fluctuations, we enter into derivative financial instruments to cover a portion of our future production.

We currently use put options to manage risks related to changes in oil and natural gas prices. Our hedging program has a target of hedging at least 50% of our production. The following table sets forth the summary position of our derivative contracts as of March 1, 2014:

			January 1, 2015
	Instrument	Commodity	Volume (bbl / month)		Floor Price	Ceilings Price	Purchased Put Option Price
January 2015 – October 2015	Put	Crude Oil		5,000			77.00 – 80.00
November 2015 – December 2015	Put	Crude Oil		2,800			80.00
January 2015 – December 2015	Put	Crude Oil		4,000			70.00
January 2016 – March 2016	Put	Crude Oil		1,500			75.00

Our put options were included as a current and long-term asset in our financial statements dated December 31, 2014 in the amount of $1,799,422. Further information about the fair value measurement of our options may be found in Note 1 to our Financial Statements included in this report.

Counterparty and customer credit risk. Joint interest receivables arise from billing entities which own partial interest in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we wish to drill. We have limited ability to control participation in our wells. We are also subject to credit risk due to concentration of our oil and natural gas receivables with several significant customers. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial position, results of operations and cash flows

While we do not require our customers to post collateral and we do not have a formal process in place to evaluate and assess the credit standing of our significant customers for oil and natural gas receivables, we do evaluate the credit standing of such counterparties as we deem appropriate under the circumstances. This evaluation may include reviewing a counterparty’s credit rating, latest financial information and, in the case of a customer with which we have receivables, its historical payment record, the financial ability of the customer’s parent company to make payment if the customer cannot and undertaking the due diligence necessary to determine credit terms and credit limits.

Impact of Inflation. Inflation in the United States has been relatively low in recent years and did not have a material impact on our results of operations for the year ended December 31, 2014. But, the drop in oil and gas prices did affect our 2014 financial results and we anticipate a material impact from lower oil and gas prices in 2015.

Although the impact of inflation has been generally insignificant in recent years, it is still a factor in the United States economy and while not a current condition, we tend to specifically experience inflationary pressure on the cost of oilfield services and equipment with increases in oil and natural gas prices and with increases in drilling activity in our areas of operations. The unavailability or high cost of drilling rigs, completion equipment and services, supplies and personnel, including hydraulic fracturing equipment and personnel, could adversely affect our ability to establish and execute exploration and development plans within budget and on a timely basis, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Item 8. Financial Statements and Supplementary Data.

Starboard Resources, Inc.’s consolidated financial statements for the fiscal year ended December 31, 2014 and the fiscal year ended December 31, 2013 are attached beginning on page F-1.

PART III

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

We engaged Rothstein Kass on June 5, 2013, to audit our financial statements for the year ending December 31, 2013. In 2014 KPMG LLP acquired certain assets of Rothstein Kass. We engaged KPMG to audit our 2014 financial statements on July 31, 2014.

We have not consulted Rothstein Kass or KPMG LLP regarding the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the registrant's financial statements. Further, no written report was provided to the registrant or oral advice was provided that Rothstein Kass or KPMG concluded was an important factor considered by the registrant in reaching a decision as to the accounting, auditing or financial reporting issue.

Further, we have not consulted Rothstein Kass or KPMG LLP regarding disagreements with a former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure or a reportable event under SEC Regulation S-K Item 304(a)(1)(v).

Item 9A. Controls and Procedures

Management’s Evaluation of Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and disposition of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The scope of management’s assessment of the effectiveness of internal control over financial reporting includes all of our Company’s subsidiaries.

The Company’s Chief Executive Officer and Chief Accounting Officer evaluated the Company’s disclosure controls and procedures as of December 31, 2014. In making their assessment, the Company's Chief Executive Officer and Chief Financial Officer were guided by the releases issued by the SEC and to the extent applicable was based upon the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the exemption for an Emerging Growth Company under Section 404(b) of the Sarbanes-Oxley Act of 2002 (as amended by Section 103 of the JOBS Act.).

Disclosure controls and procedures. As of December 31, 2014, the Company was obligated to be a reporting company and file periodic or current reports with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934. Thus, the Company must assess its disclosure controls and procedures in connection with its presentation of its information for the year ending December 31, 2014, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, which is presented in this Form 10-K. The Company maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. The Company’s Chief Executive Officer and Chief Accounting Officer are responsible for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluating their effectiveness.

Based on their evaluation the Company’s disclosure controls and procedures which took place as of the end of the period covered by this report, the Chief Executive Officer and Chief Accounting Officer have concluded that, as of such date, our disclosure controls and procedures were ineffective, due to the material weaknesses in our internal control over financial reporting described below.

Material weakness in internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Starboard's annual or interim financial statements will not be prevented or detected on a timely basis. During the preparation of our condensed consolidated financial statements for the quarter ended September 30, 2014, we identified that our processes and procedures for the computation of deferred income taxes and stock option expenses were not effective. This control deficiency would have resulted in a material error in our condensed consolidated financial statements for the three months ended September 30, 2014. Accordingly, management has concluded this deficiency in internal control over financial reporting constituted a material weakness.

Further, while preparing this annual report, we identified an additional material weakness in the preparation of the reserve report for December 31, 2014. Specifically, an impairment of our reserves relates to the adoption of our development plan for our undeveloped oil and gas reserves which, for the purpose of booking such undeveloped reserves, must show that such reserves are scheduled to be drilled within five years under SEC Regulation S-X Rule 4-10(a)(31)(ii). We identified the impairment amount at $4,428,378 which has a material impact on our financial statements. This impairment is connected with the impact of lower oil and gas prices in the amount of capital available for the development plan.

Moreover, on September 15, 2014, the Company's Chief Financial Officer informed the Company he was resigning, effective immediately. The open Chief Financial Officer position led to an insufficient number of experienced personnel to provide reasonable assurance that transactions are being recorded as necessary to ensure timely preparation of financial statements in accordance with GAAP, including the preparation of these interim financial statements. Management is in the process of evaluating various remedial actions relating to this material weakness, including hiring a new Chief Financial Officer. In the interim, management has hired a national accounting firm to serve as a technical resource during the financial statement close process and as needed until a qualified Chief Financial Officer is hired.

Management's remediation initiatives. The stock option expense matter relates to FASB 718-10-20, which requires that the stock option expense be determined in the quarter in which the contract is signed rather than the quarter in which stockholder approval of the stock option approval of the compensation (and the equity compensation plan under which the relevant stock options are to be issued) is obtained if stockholder approval is “essentially a formality or perfunctory.” The relevant employment agreements and the Company’s 2014 Equity Compensation Plan were approved by the Board of Directors in the quarter ending September 30, 2014, but were not voted on by stockholders until the Company’s annual meeting on October 28, 2014. It was subsequently determined that the stockholder approval was “essentially a formality or perfunctory” because the Company has two shareholder groups which control a majority of the Company’s common stock when combined and that our Chairman, Bill Liao, is an employee of one such stockholder group and our director, Peter Benz, is affiliated with the other such stockholder group. Thus, the Company is required to record the stock option compensation in the quarter ending September 30, 2014 rather than at the time of the stockholder meeting. Had this error not been caught in the review process, it would have resulted in a material understatement of our expenses for the three month period ending September 30, 2014. But, this error would not have resulted in a material change for the full year presentation for the year ending December 31, 2014.

The deferred tax matter relates to the Company using the incorrect tax basis for certain assets and liabilities as well as understating the net operating loss deferred tax asset. These errors relate to year ended December 31, 2013 and impacted the three and nine months ended September 30, 2013. We have made adjustments for these errors as stated in our financial statements. We have also hired an outside national accounting firm to consult on deferred tax matters.

The Company's accounting staff will be trained on the limits of capital available for five year development plans under SEC Regulation S-X Rule 4-10(a) (31)(ii) and we will add this issue as an item to review with petroleum engineers used for reserve estimates. But, the conditions that led to the material weakness, including the lack of a Chief Financial Officer, remain.

Changes in control over financial reporting. In the three months ending December 31, 2014 there have no changes in control over financial reporting that will have a material impact in control over financial reporting except as reported above.

Item 9B. Other Information

Entry into Material Definitive Agreements

The Company has entered into the Fourth Amendment to the Credit Agreement with Independent Bank (Exhibit 10.5.15), the Second Amendment to the Credit Agreement with SOSventures, LLC (Exhibit 10.6.4) and the related Intercreditor Agreement amendment (Exhibit 10.6.5). These are material definitive agreements. These agreements are further described in Item 7 herein relating to Management’s Discussion and Analysis or Plan of Operations.

Unregistered Sales of Equity Securities

In connection with the Second Amendment to our Credit Agreement with SOSventures, LLC, SOSventures, LLC will be issued warrants to purchase up to 2,542,397 of our common stock common stock shares at $1.00 per share with a two year term. If fully purchased, 2,542,397 common stock shares would equal 20% of our currently outstanding common stock.

Material Impairments

We are reporting an impairment of $4,428,378, which is material. The impairment was recently determined in conjunction with the preparation of the financial statements included with this Form 10-K. The Company reported a material weakness in its internal controls in connection with its accounting for this material impairment further described in Item 9A herein.

Changes in Control of Registrant

SOSventures, LLC is part of a group that currently owns approximately 38% of our Company stock. As described above, SOSventures, LLC now has warrants that could allow it to purchase a controlling interest in the Company.

Item 10. Directors, Executive Officers and Corporate Governance

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Each of our executive officers shall serve until his successor is elected and qualified. Each member of our board of directors serves until the next annual meeting of stockholders unless removed for breaches of director duties under our By-laws. The directors listed below were appointed in connection with the adoption of our Amended and Restated Limited Liability Company Operating Agreement dated January 20, 2012 and will serve until our next annual meeting or until their earlier resignation.

Name	Age	Position
Michael Pawelek (1)	56	Chief Executive Officer and Director
Edward Shaw	52	Chief Operating Officer
Kim Vo	42	Chief Accounting Officer
Bill Liao (1)	47	Director and Chairman of Board of Directors
Charles S. Henry, III (1)	46	Director
Peter Benz(1)	54	Director
Craig Dermody (1)	56	Director

____________________

(1)

Pawelek, Liao, Henry, Benz and William Mahoney were elected to the Board pursuant Starboard Resources, LLC Restated and Amended Operating Agreement dated January 20, 2012, which provided for the designation of new members of the board of directors. Craig Dermody was elected to the Board of Directors in May 2012 pursuant to the Operating Agreement. Under that Agreement one designated director was the Chief Executive Officer (Michael Pawelek), one director was designated by SOSventures, LLC (Bill Liao), one director was designated by Summerline Asset Management, LLC on behalf of Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC (Peter Benz), and one director was designated by Asym Energy Investments LLC (Craig Dermody). Additionally, two other directors, designated “independent directors” were designated under the Operating Agreement, Charles Henry, III and William Mahoney. William Mahoney resigned from the Board of Directors in April 2013 for personal reasons and has not been replaced. He subsequently passed away. The same director structure and designations were carried over to Starboard Resources, Inc. upon its conversion from a limited liability company.

Michael Pawelek became a Director of our Company on January 20, 2012 and has been our and Chief Executive Officer since our acquisition of the assets of ImPetro Resources LLC on June 10, 2011. Mr. Pawelek has over 27 years of exploration and production and oilfield services industries experience. Prior to Starboard, he was the CEO and President of ImPetro Resources LLC from 2010 to 2011 and CEO and President of South Texas Oil Company in 2009. South Texas Oil Company was a reporting company that filed bankruptcy in 2009 in San Antonio, Texas in Cause No. 09-54233 and was liquidated in bankruptcy. From 2004 to 2008 Mr. Pawelek was President of BOSS Exploration & Production Corporation, a privately held Gulf Coast exploration and production company. Mr. Pawelek began his career as a geophysicist with Clayton Williams Company; was a district geophysicist with TXO Production Corporation; founded CPX Petroleum which drilled over 60 wells under his management; founded and was the CEO of Universal Seismic Associates, Inc.; served as VP of Operations of Amenix USA, Inc., a private exploration and production company focused on oil and natural gas exploration in Louisiana and served as President of Sonterra Resources, Inc., a company that has oil and natural gas assets in Texas state waters in Matagorda Bay. He received a BS degree in Petroleum Engineering from Texas A&M. As a result of these professional experiences, Mr. Pawelek possesses particular knowledge and experience in the operations of oil and gas companies that strengthen the board’s collective qualifications, skills, and experience.

Edward Shaw has been our Chief Operating Officer since our acquisition of the assets of ImPetro Resources LLC on June 10, 2011. Mr. Shaw was Chief Operating Officer of ImPetro Resources LLC from 2010-2011. From 2005 to 2009 Mr. Shaw was COO and Vice-President of Operations for Nutek Oil and South Texas Oil Company. South Texas Oil Company was a reporting company that filed bankruptcy in 2009 in San Antonio, Texas in Cause No. 09-54233 and was liquidated in bankruptcy. Mr. Shaw began his career as a systems analyst before becoming involved in the oil and gas industry. He has prior experience in Saudi Arabia and in New Zealand researching and developing methods of monitoring oil wells to optimize production, including using existing products integrated with emerging telemetry technologies. He holds a Diploma in Electrical Engineering.

Kim Vo has been our Controller and Chief Accounting Officer since our acquisition of the assets of ImPetro Resources LLC on June 10, 2011. Ms. Vo previously worked as the Controller of ImPetro Resources from February 2010 to June 2011 and the Controller of South Texas Oil Company from June 2008 to January 2010. Previously Starboard, Ms. Vo was the controller for Blackbrush Oil & Gas and Aminex USA. Ms. Vo earned a Masters in Professional Accounting and BBA from the University of Texas at Austin.

Bill Liao became a Director and Chairman of the Board of Directors of our Company on January 20, 2012. Mr. Liao has extensive experience with public company dynamics, governance and investor relations. Mr. Liao has been a venture partner with SOSventures, LLC since 2011. Mr. Liao was also a director of XING AG from 2003 to 2009. XING AG is listed on the Frankfurt stock exchange. Mr. Liao also has worked in the commodities trading arena with several boutique Swiss investment funds and has established BandWithVentures an Irish based tech startup. As a result of these professional experiences, Mr. Liao possesses particular knowledge and experience in developing companies that strengthen the board’s collective qualifications, skills, and experience. Mr. Liao serves on our Audit Committee and Compensation Committee.

Charles S. Henry III became a Director of our Company on January 20, 2012. Since August 2007 Mr. Henry has been a Senior Geological Advisor for the Gulf of Mexico for Energy XXI (Bermuda) Limited. (NASDAQ: EXXI). Energy XXI’s oil and gas operations focus on South Louisiana and the Gulf of Mexico and do not overlap with our oil and gas operations onshore in Texas and Oklahoma. From 2006 to 2007 Mr. Henry worked as a Senior Asset Geoscientist for Energy Partners, Ltd. focusing on South Louisiana exploration. From 2002 to 2006 Mr. Henry was a Senior Geologist for Domination Exploration & Production, Inc. focusing on South Louisiana exploration. Mr. Henry has a B.S in Geology from Louisiana State University, a M.S. in Geology from the University of New Orleans and a M.B.A. from Tulane University. As a result of these professional experiences and academic training, Mr. Henry possesses particular knowledge and experience in understanding and advising on geological and oil and gas issues involving our current and accretive oil and gas properties that strengthen the board’s collective qualifications, skills, and experience. Mr. Henry serves on our Compensation Committee.

Mr. Henry is a respondent in an arbitration filed by Gregory Imbruce and business entities controlled by Mr. Imbruce. On March 18, 2014, Gregory Imbruce, Giddings Investments, LLC, Giddings Genpar LLC, Hunton Oil Genpar, LLC, Asym Capital III LLC, Glenrose Holdings, LLC and Asym Energy Investment LLC filed a claim through the American Arbitration Association against Charles S. Henry, III, John P. Vaile, as Trustee of John P. Vaile Living Trust, John Paul Otierno, SOSventures LLC, Bradford Higgins, William Mahoney, Edwards M. Conrads, Robert J. Conrads, Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP and named other limited partners in the partnerships as relief defendants. Claimants make the following claims against Mr. Henry: (i) breach of limited partnership agreements; (ii) breach of implied covenant of good faith and fair dealing; (iii) conversion of stock certificates subject to Company’s Amended Interpleader action includes as Exhibit 99.1.5; (iv) theft of stock certificates subject to Company’s Amended Interpleader action includes as Exhibit 99.1.5; (v) unjust enrichment; (vi) violations of the Delaware Uniform Limited Partnership Act; and (vii) breach of fiduciary duty. The claimants seek declaratory and injunctive relief as to who has authority to act as general partner of the partnerships, constructive trust on our common stock shares previously distributed to limited partners in the partnerships and damages. Mr. Henry had previously made claims in 2012 in litigation against Mr. Imbruce and the other claimants in Connecticut Superior Court. Mr. Henry and the other claimants allege fiduciary duty breaches, conversion, civil theft, violations of Connecticut Unfair Trade Practices Act, unjust enrichment, common law fraud, negligence, fraudulent conveyance and civil conspiracy and seek damages, injunctive relief, a constructive trust and an accounting.

Peter Benz became a Director of our Company on January 20, 2012. Mr. Benz serves as the Chairman and Chief Executive Officer of Viking Asset Management, LLC and is a member of its Investment Committee. He has been affiliated with Viking Asset Management, LLC since 2001. His responsibilities include assuring a steady flow of candidate deals, making asset allocation and risk management decisions and overseeing all business and investment operations. He has more than 25 years of experience specializing in investment banking and corporate advisory services for small growth companies in the areas of financing, merger/acquisition, funding strategy and general corporate development. Prior to founding Viking in 2001, Mr. Benz founded Bi Coastal Consulting Company where he advised hundreds of companies regarding private placements, initial public offerings, secondary public offerings and acquisitions. He has founded three public companies and served as a director for four other public companies. Prior to founding Bi Coastal Consulting, Mr. Benz was responsible for private placements and investment banking activities at Gilford Securities in New York, NY. Mr. Benz became a director of usell.com, Inc. (“USEL”) on May 15, 2014. Mr. Benz is a graduate of Notre Dame University. As a result of these professional experiences, Mr. Benz possesses particular knowledge and experience in developing companies and capital markets that strengthen the board’s collective qualifications, skills, and experience. Mr. Benz serves on our Audit Committee.

Craig Dermody became a Director of our Company on May 20, 2012. Mr. Dermody brings over 30 years of experience in the institutional investment securities industry. Mr. Dermody is currently a partner with Johnson Rice & Co. LLC, an energy investment banking securities firm Mr. Dermody has been employed by Johnson Rice since 1994. Prior to Johnson Rice, he was a Sr. Vice President with Prudential Securities and a Sr. Vice President with Howard Weil Labouisse Friedrichs, where he began his career in 1981. He served on the Board of Directors of Halter Environmental, a company focused on oil spill recovery vessels from 1990-1991. Mr. Dermody received his BS from Southeastern Louisiana University. As a result of these professional experiences, Mr. Dermody possesses particular knowledge and experience in developing companies and capital markets that strengthen the board’s collective qualifications, skills, and experience. Mr. Dermody serves on our Audit Committee and Compensation Committee.

Consent requirements for material Company actions before we obtain an exchange listing

We have yet to apply for a listing on a national securities exchange. Under Section 6 of the put option waiver agreement attached as Exhibit 4.3, until such time as we obtain a listing on a national securities exchange, we are required to obtain the consent of the Longview Marquis Master Fund, L.P., LMIF Investments, LLC and SMF Investments, LLC to take any of the following actions:

a. consummate a sale of the equity securities of the Company to the extent that the valuation of all equity securities of the Company at the time of such sale is more than thirty percent (30%) below the then present value of our estimated proved future oil and gas net revenues calculated at an annual discount rate of ten percent (10%);

b. issue, or authorize the issuance of, any class of equity security that is not identical to the class of equity securities held by Longview Marquis Master Fund, L.P., LMIF Investments, LLC and SMF Investments, LLC ;

c. issue any equity securities without providing preemptive rights to Longview Marquis Master Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC and Summerline Capital Partners, LLC as will enable them to maintain, post-issuance, their percentage equity ownership of the Company owned pre-issuance (these shareholders own approximately 17.72% of our common stock);

d. amend, modify or waive any provision of our certificate of incorporation or bylaws; or

e. sell all or substantially all of the assets of the Company or its subsidiaries.

PROMOTER

Gregory Imbruce, acting alone or in conjunction with one or more other persons, directly or indirectly took initiative in founding and organizing Starboard Resources LLC in June 2011. Thus Mr. Imbruce is defined as a “Promoter” under SEC Rule 405. Mr. Imbruce was our director from its founding to April 2012. Mr. Imbruce is the founder and Managing Director of Asym Energy Investments, LLC, formed in 2009, and related business entities. On March 7, 2012 the FINRA National Adjudicatory Council found that Mr. Imbruce “violated Exchange Act Rule 105 and NASD Rule 2110” because he “purchased securities in a secondary public offering from a participating underwriter, after he sold the subject securities short during the restricted period.” The National Adjudicatory Council fined Mr. Imbruce $5,000 and imposed a ten business day suspension. On July 18, 2012 Mr. Imbruce was named a defendant in Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford, Cause Nos. FST-CV-12-5013927-S and FST-CV-12-6014987-S, styled Charles Henry III, Ahmed Ammar, John P. Vaile as Trustee of John P. Vaile Living Trust, John Paul Otieno, SOSventures, LLC, Bradford Higgins, William Mahoney, Robert J. Conrads, Edward M. Conrads, William F. Pettinati, Jr. individually and derivatively on behalf of Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund LP v. Gregory Imbruce, Giddings Investments LLC, Giddings Genpar LLC, Hunton Oil Genpar LLC, Asym Capital III LLC, Starboard Resources, Inc., Glenrose Holdings LLC and Asym Energy Investments LLC. This lawsuit was originally filed on July 18, 2012. The Plaintiffs allege fiduciary duty breaches, conversion, civil theft, violations of Connecticut Unfair Trade Practices Act, unjust enrichment, common law fraud, negligence, fraudulent conveyance and civil conspiracy and seek damages, injunctive relief, a constructive trust and an accounting. These allegations focus on the issuance of 550,000 Starboard Resources LLC Units to “Giddings Investments, LLC.” The allegations claim that this issuance was derived from the conversion of participation rights in Company wells that belong to Giddings Oil & Gas LP. The lawsuit makes several other claims of breaches of duties by Defendants in connection with Defendants or their affiliates serving as general partners of Giddings Oil & Gas LP, Asym Energy Fund III LP, and Hunton Oil Partners LP. Mr. Imbruce denies the allegations.

On August 27, 2014 the Connecticut Banking Commissioner issued a Consent Order against Gregory Imbruce, Hunton Oil Partners LP, Hunton Oil Genpar LLC, Giddings Oil & Gas LP, Giddings Genpar LLC, Asym Energy Fund III LP and Asym Capital III LP in Docket No. CF-13-8064-S (“Order”). The Consent Order stated that Imbruce and other respondents acknowledged and neither admitted nor denied the Connecticut Securities and Business Investments Division’s allegations in previous filings and agreed not to take any action or make or permit to be made any public statement denying those allegations, but the Consent Order does not affect positions taken in litigations, arbitrations and legal proceedings to which the Connecticut Banking Commissioner is not a party. The Consent Order orders Imbruce and the other respondents to cease and desist engaging in conduct that would constitute a violation of the following provisions:

1)	violated Section 36b-6(c)(1) of the Connecticut Securities Act relating to acting as an unregistered adviser;

2)	violated Section 36b-6(c)(2) of the Connecticut Securities Act relating to acting as an unregistered investment adviser agent;

3)	violated Section 36b-6(c)(3) of the Connecticut Securities Act relating to engaging an unregistered investment adviser agent;

4)	violated Section 36b-4(a) of the Connecticut Securities Act relating to committing fraud in connection with the offer and sale of securities; and

5)	violated Section 36b-23 of the Connecticut Securities Act relating to making a misleading statement to the Connecticut Department of Banking Division of Securities (Imbruce only).

The Section 36b-4(a) order is a disqualifying event under SEC Rule 506(d). The Consent Order includes a waiver of this and other disqualifications as a result of this event.

Mr. Imbruce was ordered to pay an administrative fine of $75,000.

Indemnification Claim

In a letter dated January 20, 2015, Mr. Imbruce, through his counsel, demanded indemnification and advancement under Delaware law in the above-referenced litigation and arbitration under Section 4.6 of the Amended and Restated Limited Liability Company Operating Agreement of Starboard Resources LLC dated January 20, 2012 and contemporaneously made a litigation hold demand. We have denied the claim acting through our Delaware counsel. Among other things, noting that the litigation and arbitration involved claims against Imbruce as a control person of the general partners (and managers of the general partners of Hunton Oil Partners LP, Giddings Oil & Gas LP and Asym Energy Fund III LP by claimants acting in their capacity as limited partners of Hunton Oil Partners LP, Giddings Oil & Gas LP and Asym Energy Fund III LP.

Going Public Delay Fee

Under the Securities Purchase and Exchange Agreement dated June 10, 2011, if we failed to go public by reverse merger with a public company or through obtaining an effective Form 10 registration statement under the Securities Exchange Act of 1934 by December 2011, we were obligated to pay or accrue $60,715 per month to the parties to the Securities Purchase and Exchange Agreement. The going public delay fee ceased accruing on August 6, 2013. Our financial statements for the year ended December 31, 2014 showed an accrued liability for this fee in the amount of approximately $738,104. Of this amount $193,313 was accrued to Giddings Investments, LLC a business entity controlled by Gregory Imbruce. The beneficiaries of these payments is disputed by the Plaintiffs in Henry v. Imbruce.

Overriding Royalty Interests Transactions

Before the formation of Starboard Resources, Inc. or its current subsidiary, ImPetro Resources, LLC, Summerview Marquis Fund, L.P. and Longview Marquis Master Fund, L.P. provided financing to South Texas Oil Company. As part of that financing, Summerview Marquis Fund, L.P. and Longview Marquis Master Fund, L.P. received an assignment of certain overriding royalty interests in the South Texas Oil Company properties in Atascosa, Bastrop, Brazos, Burleson, Fayette, Frio, Gonzales and Lee County, Texas.

In 2009 South Texas Oil Company filed a Chapter 11 bankruptcy and received debtor-in-possession financing from Giddings Oil & Gas LP. In February 2010 the bankruptcy court accepted a credit bid from Summerview Marquis Fund, L.P. and Longview Marquis Master Fund, L.P. for the oil and gas assets of South Texas Oil Company subject to the debtor-in-possession security interest of Giddings Oil & Gas LP.

ImPetro Resources LLC was formed in Delaware on January 21, 2010 to provide a vehicle to own and operate these South Texas Oil Company assets. The formation agreements from February and March 2010 as to the equity and debt of ImPetro Resources LLC are described below in our description of previous unregistered securities transactions in Item 10. As part of these organizational transactions, Glenrose Holdings LLC, an affiliate of the general partner of Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP, received an allocation of overriding royalty interests in the oil and gas properties in Atascosa, Bastrop, Brazos, Burleson, Fayette, Frio, Gonzales and Lee County, Texas. Glenrose Holdings, LLC is a Delaware limited liability company controlled by Gregory Imbruce.

Between February 4, 2010 and June 12, 2011, ImPetro Resources LLC paid $115,769 to Glenrose Holdings LLC on the overriding royalty interests. These payments were made before we acquired ImPetro Resources LLC and its properties and are not consolidated into our financial statements.

Between June 12, 2011 and February 21, 2012, we paid $120,788 to Glenrose Holdings LLC on the overriding royalty interests. We integrated these payments into our financial statements for the relevant time periods.

In an agreement dated June 10, 2011 Summerview Marquis Fund, L.P. and Longview Master Fund, L.P. sold their overriding royalty interests to Glenrose Holdings LLC for $200,000. After this transaction Glenrose Holdings LLC owned all the overriding royalty interests.

In an agreement dated January 20, 2012, we purchased all the overriding royalty interest from Glenrose Holdings LLC for $700,000.

Participation Rights Transaction

In 2011 Giddings Investments, LLC owned certain participation rights in oil and gas properties related to our oil and gas projects. Giddings Investments LLC is a Delaware limited liability company controlled by Gregory Imbruce. The limited partners of Giddings Oil & Gas LP have claimed in a lawsuit that these participation rights were paid for and were property of Giddings Oil & Gas LP and that Mr. Imbruce illegally converted this asset to Giddings Investments, LLC. As part of the Securities Purchase and Exchange Agreement dated June 10, 2011, Giddings Investments, LLC received 550,000 limited liability company units in Starboard Resources, LLC. These were subsequently converted into 550,000 common stock shares in June 2012 when we converted to a Delaware corporation. Due to the dispute over the rightful ownership of the consideration provided to us for the 550,000 limited liability company units, we filed an interpleader action regarding the resulting 550,000 common stock shares in Connecticut District Court.

Management Fees and Performance Reallocation

Through June 12, 2011, the Company, on a consolidated basis with Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP, incurred a management fee calculated and payable annually in advance equal to 2.00% of the total capital commitments determined as of the beginning of each calendar quarter. Further, through June 12, 2011, generally 20% of the interest income allocated to the partners in Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP was reallocated to the partnerships’ manager, subject to certain conditions. These manager entities were controlled by Gregory Imbruce. As of June 12, 2011, we no longer paid a management fee or reallocated interest income to management. The management fee was $110,000 in 2011.

Evaluation of Section 16 Compliance

The Section 16 filings relating to the Company since it last reported its Section 16 Compliance in its Form 10-K for the year ending December 31, 2013 were timely filed except for two Forms 4 relating to stock options granted to Michael J. Pawelek and Edward Shaw filed September 11, 2014. These stock option grants were timely reported by the Company through a Form 8-K on September 4, 2014, but the follow up Forms 4 were not filed until September 11, 2014.

Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics that applies to all of its directors, officers and employees. The Code of Ethics will be posted the Company’s website at www.starboardresources.com and is referenced as Exhibit 14 to this annual report.

Item 11. Executive Compensation

Financial Restatement. Currently, the Company does not have an official policy in place governing retroactive modifications to any cash or equity-based incentive compensation paid to the Named Executive Officers where the payment of such compensation was predicated upon the achievement of specified financial results that were subsequently the subject of a restatement. The Company will, if the need arises, make a determination as to whether and to what extent compensation should be clawed back should there be a financial restatement.

Stock Ownership Requirements. The Company does not maintain a policy relating to stock ownership guidelines or requirements for its Named Executive Officers. The Company does not believe it is necessary to impose such a policy on the executive officers. The Named Executive Officers, as a group, held approximately 0% of the Company’s stock as of December 31, 2012. If circumstances change, the Compensation Committee will review whether such a policy is appropriate for its executive officers.

Trading in the Company’s Stock Derivatives. The Company does not currently have a policy in place prohibiting executive officers of the Company from purchasing or selling options on the Company’s common stock, engaging in short sales with respect to the Company’s common stock, or trading in puts, calls, straddles, equity swaps or other derivative securities that are directly linked to the Company’s common stock. The Company is not aware that any of the executive officers have entered into these types of arrangements.

Tax Deductibility of the Named Executive Officers’ Incentive and Equity Compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction to public companies for compensation over $1.0 million paid to a corporation’s Principal Executive Officer and the three (3) other most highly compensated executive officers (excluding the Principal Financial Officer). In connection with the compensation of the Company’s executive officers, the Company is aware of Code section 162(m) as it relates to deductibility of qualifying compensation paid to executive officers. The Company attempts, where practical, to comply with the requirements of Code section 162(m) so that all compensation is deductible.

We entered into employment contracts dated April 1, 2012 with Michael Pawelek, Edward Shaw and Kim Vo which provide for stock grants, stock options and change of control payments. We account for these grants, options and payments using the intrinsic value method. After we obtained an effective registration statement under the Securities Act of 1933 or the Securities Act of 1934 in 2013, we began to account for equity-based compensation under FASB ASC 718. This was a change to our accounting methods.

Financial Restatement. Currently, we do not have an official policy in place governing retroactive modifications to any cash or equity-based incentive compensation paid to the Named Executive Officers where the payment of such compensation was predicated upon the achievement of specified financial results that were subsequently the subject of a restatement. We will, if the need arises, make a determination as to whether and to what extent compensation should be clawed back should there be a financial restatement.

Stock Ownership Requirements. We do not maintain a policy relating to stock ownership guidelines or requirements for its Named Executive Officers. We do not believe it is necessary to impose such a policy on the executive officers. The Named Executive Officers, as a group, held approximately 0% of our stock as of December 31, 2014. If circumstances change, the Compensation Committee will review whether such a policy is appropriate for its executive officers.

Trading in our Stock Derivatives. We do not currently have a policy in place prohibiting our executive officers from purchasing or selling options on our common stock, engaging in short sales with respect to our common stock, or trading in puts, calls, straddles, equity swaps or other derivative securities that are directly linked to our common stock. We are not aware that any of the executive officers have entered into these types of arrangements.

Tax Deductibility of the Named Executive Officers’ Incentive and Equity Compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction to public companies for compensation over $1.0 million paid to a corporation’s Principal Executive Officer and the three (3) other most highly compensated executive officers (excluding the Principal Financial Officer). In connection with the compensation of our executive officers, we are aware of Code section 162(m) as it relates to deductibility of qualifying compensation paid to executive officers. We attempt, where practical, to comply with the requirements of Code section 162(m) so that all compensation is deductible.

Employment Agreements. In 2012 we executed employment agreements with the Chief Executive Officer, the Chief Operating Officer and the Controller. The stock-based compensation to be awarded under the 2012 agreements was not made pursuant to any equity compensation plan. The compensation in the 2012 agreements with our Chief Executive Officer and our Chief Operating Officer was reaffirmed by amended and restated employment agreements with them in 2014. This compensation to our Chief Executive Officer, Chief Operating Officer and Controller was ratified by our stockholders at the stockholder meeting on October 28, 2014.

Further we awarded new stock options to our Chief Executive Officer and Chief Operating Officer pursuant to our 2014 Equity Compensation Plan through the 2014 amended and restated employment agreements. The 2014 Equity Compensation Plan was ratified by our stockholders at our October 28, 2014 stockholder meeting.

Michael Pawelek—Chief Executive Officer

The Amended and Restated Employment Agreement with Michael J. Pawelek (“Pawelek Agreement”) is effective August 14, 2014. It replaces the Mr. Pawelek’s previous employment agreement dated April 1, 2012. The Pawelek Agreement provides that Mr. Pawelek shall provide services as Chief Executive Officer and President. He will earn a base salary of $295,000 per year which will also cover his services as our director. He will receive an automobile allowance of $1,000 per month. Mr. Pawelek will also be eligible for cash bonuses.

In addition to the cash compensation, Mr. Pawelek’s equity grant from the April 1, 2012 employment was reaffirmed. The reaffirmed compensation is as follows:

a)	a grant of 116,550 shares of restricted stock payable which vested on March 1, 2015.

b)	a further stock grant upon our IPO equal to 1% of the difference between Company’s market capital based on its underwritten IPO price and our book value at the time of the IPO based upon pricing such shares at the IPO price.

c)	stock options to purchase 1.0% of fully-diluted capital stock as of the IPO date at 100% of underwritten IPO price. These options will vest after two years after the IPO date and carry a ten year term and with cashless exercise provisions.

d)	stock options to purchase 1.0% of our fully-diluted capital stock as of the second anniversary of IPO date at 100% of closing sale price on second anniversary of IPO date. These options will vest after six years and carry a ten year term and with cashless exercise provisions.

Under the new agreement, Mr. Pawelek shall receive options to purchase 450,000 additional common stock shares as of August 14, 2014. These stock options carry an exercise price of $4.75 per share, customary cashless exercise provisions and a ten year term. The first 150,000 of these stock options shall vest on August 14, 2015. Thereafter these stock options will vest at 12,500 per month over the following two years. If a “Business Combination” occurs before August 14, 2016, then Mr. Pawelek will receive an additional 150,000 common stock options. A “Business Combination” is a merger, consolidation, reorganization, recapitalization or share exchange involving new ownership of more than 50% of the outstanding shares of Company common stock, a sale or disposition of all or substantially all our assets, or the acquisition of 50% or more of our voting securities other than through the issuance of securities by us. Finally, Mr. Pawelek will receive a “Trigger Bonus” of cash $500,000 if he does not receive timely notice of continued employment after a Business Combination.

The options will vest on an accelerated schedule under certain conditions. First, if there is: 1) Business Combination on or after August 14, 2016; 2) a termination without “Cause;” 3) the death or disability of Mr. Pawelek, or 4) Mr. Pawelek’s “Good Reason Resignation,” then this stock option grant will vest in full. “Cause” means: 1) dishonesty in the performance of duties and obligations to the Company, 2) final conviction of a felony or misdemeanor involving moral turpitude which materially and adversely affects our reputation and financial condition; and 3) a deliberate and material breach by Mr. Pawelek of material covenants in the employment agreement that result in material adverse effect on our financial condition with a 30 day cure period for Mr. Pawelek. “Disability” means that despite any reasonable accommodation required by law, Mr. Pawelek is unable to perform the essential functions of the position as a result of physical or mental incapacity and that inability has persisted for a period of 120 consecutive days or more in any twelve month period or for more than 180 days. “Good Reason Resignation” means: 1) a material breach of the employment agreement by us; 2) the Board of Directors determining to move our principal office from San Antonio, Texas; 3) Mr. Pawelek is removed from the position of Chief Executive Officer and/or President; 4) Mr. Pawelek is required to report to any person other than the Board of Directors; 5) a material diminution of Mr. Pawelek’s duties, responsibilities and authority as provided in the employment agreement; 6) Mr. Pawelek is required to travel from our principal office in San Antonio, Texas more than 10 days in a three month period (with a carveout for travel related to road shows and securities offerings); 7) Mr. Pawelek receives a non-extension notice or is not notified of continued employment in a pending Business Combination; and 8) we fail to deliver new equity compensation awards by the grant dates.

Upon termination by Mr. Pawelek’s death, Mr. Pawelek’s estate receives six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits. Upon termination by Mr. Pawelek’s disability, he receives six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits plus 18 months of group medical and dental insurance for Mr. Pawelek and his family. Upon termination for Cause, Mr. Pawelek is to receive six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits. If Mr. Pawelek is terminated without “Cause” or is subject to a “Good Reason Resignation,” Mr. Pawelek will receive receives: 1) three years and six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits, with three years of salary payable as a lump sum at Mr. Pawelek’s option, 2) 18 months of group and dental insurance coverage; 3) pay a $500,000 “Trigger Bonus” relating to not being retained after a Business Combination, if earned; and 4) if we have failed to grant the 450,000 stock options to Mr. Pawelek, 450,000 fully vested stock appreciation rights to be settled solely in cash with base price for the stock of $4.75.

The employment agreement requires additional payments by us relating to tax benefits for Mr. Pawelek. Those benefits require us to pay a gross up tax payment which will include all of Mr. Pawelek’s federal, state, local, FICA and additional excise tax relating to payments determined to be “excess parachute payments” within the meaning of Internal Revenue Code Section 280G that would cause Mr. Pawelek to be liable for excise tax under Internal Revenue Code Section 4999 plus interests and penalties relating to this liability. Further, we are obligated to pay all of Mr. Pawelek’s income taxes resulting from the lapse of forfeiture restrictions on the equity compensation awarded in the April 1, 2012 employment agreement and reaffirmed in this employment agreement.

Finally, Mr. Pawelek will receive the employee benefits and indemnification rights also received by other Company employees.

Mr. Pawelek’s employment agreement is attached as Exhibit 10.1 to this annual report.

Edward Shaw—Chief Operating Officer

The Amended and Restated Employment Agreement with Edward Shaw (“Shaw Agreement”) is effective August 14, 2014. It replaces the Mr. Shaw’s previous employment agreement dated April 1, 2012. The Shaw Agreement provides that Mr. Shaw shall provide services as Chief Operating Officer and report to the Chief Executive Officer. He will earn a base salary of $255,000 per year which will also cover his services as our director. He will receive an automobile allowance of $1,000 per month. Mr. Shaw will also be eligible for cash bonuses.

In addition to the cash compensation, Mr. Shaw’s equity grant from the April 1, 2012 employment is reaffirmed. The reaffirmed compensation is as follows:

a)	a grant of 116,550 shares of restricted stock payable which vested on March 1, 2015.

b)	a further stock grant upon our IPO equal to 1% of the difference between our market capital based on its underwritten IPO price and our book value at the time of the IPO based upon pricing such shares at the IPO price.

c)	stock options to purchase 1.0% of fully-diluted capital stock as of the IPO date at 100% of underwritten IPO price. These options will vest after two years after the IPO date and carry a ten year term and with cashless exercise provisions.

d)	stock options to purchase 1.0% of our fully-diluted capital stock as of the second anniversary of IPO date at 100% of closing sale price on second anniversary of IPO date. These options will vest after six years and carry a ten year term and with cashless exercise provisions.

Under the new agreement, Mr. Shaw shall receive options to purchase 450,000 additional common stock shares as of August 14, 2014. These stock options carry an exercise price of $4.75 per share, customary cashless exercise provisions and a ten year term. The first 150,000 of these stock options shall vest on August 14, 2015. Thereafter these stock options will vest at 12,500 per month over the following two years. If a “Business Combination” occurs before August 14, 2016, then Mr. Shaw will receive an additional 150,000 common stock options. A “Business Combination” is a merger, consolidation, reorganization, recapitalization or share exchange involving new ownership of more than 50% of the outstanding shares of Company common stock, a sale or disposition of all or substantially all our assets, or the acquisition of 50% or more of our voting securities other than through the issuance of securities by us. Finally, Mr. Shaw will receive a “Trigger Bonus” of cash $500,000 if he does not receive timely notice of continued employment after a Business Combination.

The options will vest on an accelerated schedule under certain conditions. First, if there is: 1) Business Combination on or after August 14, 2016; 2) a termination without “Cause;” 3) the death or disability of Mr. Shaw, or 4) Mr. Shaw’s “Good Reason Resignation,” then this stock option grant will vest in full. “Cause” means: 1) dishonesty in the performance of duties and obligations to the Company, 2) final conviction of a felony or misdemeanor involving moral turpitude which materially and adversely affects our reputation and financial condition; and 3) a deliberate and material breach by the Mr. Shaw of material covenants in the employment agreement that result in material adverse effect on our financial condition with a 30 day cure period for the Mr. Shaw. “Disability” means that despite any reasonable accommodation required by law, Mr. Shaw is unable to perform the essential functions of the position as a result of physical or mental incapacity and that inability has persisted for a period of 120 consecutive days or more in any twelve month period or for more than 180 days. “Good Reason Resignation” means: 1) a material breach of the employment agreement by us; 2) the Board of Directors determining to move our principal office from San Antonio, Texas; 3) Mr. Shaw is removed from the position of Chief Operating Officer; 4) Mr. Shaw is required to report to any person other than the Board of Directors; 5) a material diminution of Mr. Shaw’s duties, responsibilities and authority as provided in the employment agreement; 6) Mr. Shaw is required to travel from our principal office in San Antonio, Texas more than 10 days in a three month period (with a carveout for travel related to road shows and securities offerings); 7) Mr. Shaw receives a non-extension notice or is not notified of continued employment in a pending Business Combination; and 8) we fail to deliver new equity compensation awards by the grant dates.

Upon termination by Mr. Shaw’s death, Mr. Shaw’s estate receives six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits. Upon termination by Mr. Shaw’s disability, he receives six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits plus 18 months of group medical and dental insurance for Mr. Shaw and his family. Upon termination for Cause, Mr. Shaw is to receive six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits. If Mr. Shaw is terminated without “Cause” or is subject to a “Good Reason Resignation,” Mr. Shaw will receive receives: 1) three years and six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits, with three years of salary payable as a lump sum at Mr. Shaw’s option, 2) 18 months of group and dental insurance coverage; 3) pay a $500,000 “Trigger Bonus” relating to not being retained after a Business Combination, if earned; and 4) if we have failed to grant the 450,000 stock options to Mr. Shaw, 450,000 fully vested stock appreciation rights to be settled solely in cash with base price for the stock of $4.75.

The employment agreement requires additional payments by us relating to tax benefits for Mr. Shaw. Those benefits require us to pay a gross up tax payment which will include all of Mr. Shaw’s federal, state, local, FICA and additional excise tax relating to payments determined to be “excess parachute payments” within the meaning of Internal Revenue Code Section 280G that would cause Mr. Shaw to be liable for excise tax under Internal Revenue Code Section 4999 plus interests and penalties relating to this liability. Further, we are obligated to pay all of Mr. Shaw’s income taxes resulting from the lapse of forfeiture restrictions on the equity compensation awarded in the April 1, 2012 employment agreement and reaffirmed in this employment agreement.

Finally, Mr. Shaw will receive the employee benefits and indemnification rights also received by other Company employees. Mr. Shaw’s employment agreement is attached as Exhibit 10.2 to this annual report.

Kim Vo – Chief Accounting Officer

Ms. Vo’s current employment agreement was entered into as of April 1, 2012 and is for a term of three years. At the conclusion of that term, Ms. Vo would be an at-will employee.

Under the agreement, Ms. Vo serves as our Controller. Pursuant to the agreement, Ms. Vo will receive a $95,000 annual base salary for the period beginning on the Commencement Date (April 1, 2012) and for each subsequent year through the ending date of the agreement. Ms. Vo is also entitled to earn an annual performance bonus. The amount of the annual bonus is targeted at 100% of her annual base salary, based upon performance criteria established by the Committee. The amount of the actual annual bonus can be less than or more than the target annual bonus, but in no event will it exceed 200% of the then applicable base salary.

According to the terms of the agreement, Ms. Vo also received a grant of 116,550 shares of restricted stock (“Vo Restricted Shares”) which vested on March 1, 2015.

Ms. Vo will further receive a stock grant upon our IPO equal to 1% of the difference between Company’s market capital based on its underwritten IPO price and our book value at the time of the IPO based upon pricing such shares at the IPO price. Upon the IPO Ms. Vo will also receive two sets of options from us. The first set of options is options to purchase 1.0% of fully-diluted capital stock as of the IPO date at 100% of underwritten IPO price. These options will vest after two years after the IPO date and carry a ten year term and with cashless exercise provisions. The second set of options is options to purchase 1.0% of our fully-diluted capital stock as of the second anniversary of IPO date at 100% of closing sale price on second anniversary of IPO date. These options will vest after six years and carry a ten year term and with cashless exercise provisions.

Ms. Vo is entitled to participate in employee benefit plans, including executive bonus plans, cash bonus awards and long-term incentive plans that are generally made available by us to our senior executives. We will also provide health, dental, disability and life insurance to Ms. Vo under such group plans as we make available to all our full-time employees.

We will also reimburse Ms. Vo for all reasonable and necessary out-of-pocket expenses incurred by her while working on our behalf.

Ms. Vo is entitled to receive 30 days’ pay plus accrued vacation pay and reimbursable expenses upon termination of the employment agreement for death, disability or a termination for cause. “Cause” includes Ms. Vo: (1) engaging in dishonesty in the performance of her duties; (2) being convicted or entering a plea of guilty or nolo contendere to any felony or to any misdemeanor involving moral turpitude; (3) breaching a material covenant in her employment agreement that is not cured within 30 days of written notice of such breach; (4) committing willful misconduct, bad faith, fraud or gross negligence in fulfilling her responsibilities for the Company or its subsidiaries; or (5) committing an act of fraud, embezzlement or similar crime against any individual or entity.

If Ms. Vo is terminated without Cause or terminates her employment agreement for a “Good Reason” she would be due the payment of her base salary for the lesser of one year or the period remaining on her employment agreement. “Good Reason” means: (1) a material breach of the employment agreement by us; (2) a reduction in Ms. Vo’s base salary; or (3) our moving our principal offices from San Antonio, Texas. All these “Good Reasons” are subject to notice provisions to the Company within 90 days of the event and a 30 day cure period for the Company.

Ms. Vo’s employment agreement is attached as Exhibit 10.3 to this annual report.

Summary Compensation Table

The Summary Compensation Table below displays the total compensation awarded to, earned by or paid to the Named Executive Officers for the fiscal years ending December 31, 2014, 2013 and 2012. All amounts shown below are in dollars.

Name and Principal Position	Year	Salary		Bonus		Stock Award(s)			Option Award(s)			All Other Compensation		Total
Michael Pawelek	2014	$	268,750	$					$	1,203,000	(2)	$	4,000	$	1,475,750
Chief Executive Officer	2013	$	217,500	$	5,000	$	-		$	-		$	-	$	218,000
	2012	$	200,000	$	-	$	1,165,500	(1)	$	-		$	-	$	1,365,500
Edward Shaw	2014	$	220,555	$					$	1,203,000	(2)	$	4,000	$	1,427,555
Chief Operating Officer	2013	$	171,825	$	5,000	$	-		$	-		$	-	$	158,000
	2012	$	158,000	$	-	$	1,165,500	(1)	$	-		$	-	$	1,323,500
Eric Alfuth(3)	2014	$	127,500	$	-		-		$	-				$	127,500
Chief Financial Officer	2013	$	180,000	$	5,000	$	-		$	-		$	-	$	185,000
	2012	$	138,304	$	-	$	-		$	-		$	-	$	138,304
N. Kim Vo	2014	$	120,175	$	-		-		$	-				$	120,175
Controller	2013	$	103,312	$	5,000	$	-		$	-		$	-	$	108,312
	2012	$	95,000	$	-	$	1,165,500	(1)	$	-		$	-	$	1,260,500

(1)	Under our employment agreements dated April 1, 2012, with Michael Pawelek, Edward Shaw and Kim Vo each earned 116,550 common stock shares as of March 1, 2015 under the employment agreements with the Company. These common stock grants were not made pursuant to an equity compensation or stock grant plan. The stock awards were valued at $10 per share under FASB ASC Topic 718 in 2012 when we were a private company. We currently had no market for its common stock shares at the time of the stock awards. Our stockholders ratified these common stock grants at our October 28, 2014 stockholder meeting.
(2)	Under our amended and restated employment agreements with Michael Pawelek and Edward Shaw dated August 15, 2014, Michael Pawelek and Edward Shaw each received 450,000 stock options priced at $4.75 issued under our stockholder-ratified 2014 Equity Compensation Plan that vest over three years. See Note 10 of our attached Condensed and Consolidated Financial Statements for the basis for the calculation of the value of the option grant.
(3)	Eric Alfuth resigned as CFO in September 2014.

OUTSTANDING EQUITY AND GRANTS OF PLAN-BASED AWARDS

The Company granted plan-based awards in 2014, but not in 2013 or 2012. The Outstanding Equity Awards at Fiscal Year End Table reflects each Named Executive Officer’s unexercised option award holdings and unvested restricted stock awards at December 31, 2014 on an individual award basis.

Option Awards													Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options			Equity Incentive Plan Awards: Number of Securities Underlying Unearned Options			Option Exercise Price		Option Expiration Date		Number of Shares of Stock That Have Not Vested			Market Value of Shares of Stock that Have Not Vested			Equity Incentive Plan Awards: Number of Unearned Shares, other Rights That Have Not Vested		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Other Rights That Have Not Vested
Michael Pawelek		-		450,000	(1)		450,000	(1)	$	4.75	Aug-24			116,500	(2)	$	448,718	(3)		-		-
Edward Shaw		-		450,000	(1)		450,000	(1)	$	4.75	Aug-24			116,500	(2)	$	448,718	(3)		-		-
Kim Vo		-		-			-			-		-		116,500	(2)	$	448,718	(3)		-		-

(1)	Under our amended and restated employment agreements with Michael Pawelek and Edward Shaw dated August 15, 2014, Michael Pawelek and Edward Shaw each received 450,000 stock options priced at $4.75 issued under our stockholder-ratified 2014 Equity Compensation Plan. The options vest as follows: 1) 150,000 options each vest in August 2015; and 2) the remaining options vest at 12,500 each per month over the following two years. All options will be vested by August 2017.
(2)	Under our employment agreements dated April 1, 2012, with Michael Pawelek, Edward Shaw and Kim Vo each earned 116,550 common stock shares as of March 1, 2015 under their employment agreements with us. These common stock grants were reaffirmed in our amended and restated employment agreements with Michael Pawelek and Edward Shaw dated August 15, 2014. Our stockholders ratified these common stock grants at our October 28, 2014 stockholder meeting. Subsequent to the reporting period, Mr. Pawelek, Mr. Shaw and Ms. Vo satisfied the terms of their employment agreements for the vesting of these stock grants and each received 116,500 shares of our common stock.
(3)	We have not previously had a liquid market for our stock. The last sale of our common stock in 2014 was the sale of 2,500 of our common stock shares for $3.85 by one of our stockholders in a Rule 144 transaction on or about August 28, 2014. The market value of shares of stock that have not vested has been calculated with reference to the price in this sale.

OPTION EXERCISES AND STOCK VESTED

The Option Exercises and Stock Vested Table reflects the stock options actually exercised by, and shares of stock that vested for, each of the Named Executive Officers during 2014.

Option Awards

Stock Awards

Name

Number of Shares

Acquired On Exercise

Value Realizedon Exercise

Number of Shares

Acquired on Vesting

Value Realized on

Vesting

Michael Pawelek

—

Edward Shaw

—

Kim Vo

—

Michael Pawelek and Edward Shaw each received 450,000 options priced at $4.75 under our 2014 Equity Compensation Plan in 2014. No stock options or awards were exercised by the Named Executive Officers in 2014. We entered employment agreements in 2012 with Mr. Pawelek, Mr. Shaw and Ms. Vo that provide for the vesting of options contingent on our underwritten initial public offering or change of control. These 2012 grants to Mr. Pawelek and Mr. Shaw were re-affirmed in our 2014 amended and resated employment agreements with Mr. Pawelek and Mr. Shaw. No options have been awarded to date under these agreements.

We do not provide pension benefits to the Named Executive Officers.

We do not provide nonqualified deferred compensation benefits to the Named Executive Officers.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

This section discusses the incremental compensation that we would pay to each Named Executive Officer in the event of the Named Executive Officer’s termination of employment with us under various scenarios (“termination events”) including 1) voluntary resignation; 2) involuntary termination; 3) termination without cause or for Good Reason in connection with a change in control; 4) termination in the event of disability; and 5) termination in the event of death.

We not have a previous stock trading price. We cannot present calculations based on previous stock trading prices.

Pursuant to applicable SEC rules, the analysis contained in this section does not consider or include payments made to a Named Executive Officer with respect to contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation, in favor of our Named Executive Officers and that are available generally to all salaried employees, such as our 401(k) Plan. The actual amounts that would be paid upon a Named Executive Officer’s termination of employment can only be determined at the time of such Named Executive Officer’s termination. Due to the number of factors that affect the nature and amount of any compensation or benefits provided upon the termination events, any actual amounts paid or distributed may be higher or lower than reported below. Factors that could affect these amounts include the timing during the year of any such event and our stock price

Michael Pawelek, Edward Shaw and Kim Vo

We entered into employment agreements with Michael Pawelek, Edward Shaw and Kim Vo effective as of April 1, 2012. We entered into Amended and Restated Employment Agreements with Michael Pawelek and Edward Shaw effective August 14, 2014. The April 1, 2012 agreement with Ms. Vo has a three year term. Ms. Vo would be an at-will employee thereafter. The August 14, 2014 agreements with Mr. Pawelek and Mr. Shaw have three year terms with renewals for one year terms.

Mr. Pawelek’s and Mr. Shaw’s 450,000 stock options each with a $4.75 price will vest on an accelerated schedule under certain conditions. First, if there is: 1) Business Combination on or after August 14, 2016; 2) a termination without “Cause;” 3) the death or disability of Mr. Pawelek or Mr. Shaw, or 4) Mr. Pawelek’s or Mr. Shaw’s “Good Reason Resignation,” then the stock option grant will vest in full. “Cause” means: 1) dishonesty in the performance of duties and obligations to the Company, 2) final conviction of a felony or misdemeanor involving moral turpitude which materially and adversely affects our reputation and financial condition; and 3) a deliberate and material breach by Mr. Pawelek or Mr. Shaw of material covenants in the employment agreement that result in material adverse effect on our financial condition with a 30 day cure period for Mr. Pawelek and Mr. Shaw. “Disability” means that despite any reasonable accommodation required by law, Mr. Pawelek or Mr. Shaw are unable to perform the essential functions of the position as a result of physical or mental incapacity and that inability has persisted for a period of 120 consecutive days or more in any twelve month period or for more than 180 days. “Good Reason Resignation” means: 1) a material breach of the employment agreement by us; 2) the Board of Directors determining to move our principal office from San Antonio, Texas; 3) Mr. Pawelek is removed from the position of Chief Executive Officer and/or President or Mr. Shaw being removed from the position of Chief Operating Officer; 4) Mr. Pawelek is required to report to any person other than the Board of Directors; 5) a material diminution of Mr. Pawelek’s or Mr. Shaw’s duties, responsibilities and authority as provided in the employment agreement; 6) Mr. Pawelek and Mr. Shaw being required to travel from our principal office in San Antonio, Texas more than 10 days in a three month period (with a carveout for travel related to road shows and securities offerings); 7) Mr. Pawelek or Mr. Shaw receives a non-extension notice or is not notified of continued employment in a pending Business Combination; and 8) we fail to deliver new equity compensation awards by the grant dates.

Upon termination by Mr. Pawelek’s or Mr. Shaw’s death, Mr. Pawelek’s estate or Mr. Shaw’s estate receives six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits. Upon termination by Mr. Pawelek’s or Mr. Shaw’s disability, he receives six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits plus 18 months of group medical and dental insurance for Mr. Pawelek and his family. Upon termination for Cause, Mr. Pawelek and Mr. Shaw are to receive six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits. If Mr. Pawelek or Mr. Shaw is terminated without “Cause” or is subject to a “Good Reason Resignation,” they will receive receives: 1) three years and six months additional base salary plus adjustments with the survival of all vested equity entitlements, indemnity rights and tax benefits, with three years of salary payable as a lump sum at Mr. Pawelek’s or Mr. Shaw’s option, 2) 18 months of group and dental insurance coverage; 3) pay a $500,000 “Trigger Bonus” relating to not being retained after a Business Combination, if earned; and 4) if we have failed to grant the 450,000 stock options to Mr. Pawelek or Mr. Shaw, 450,000 fully vested stock appreciation rights to be settled solely in cash with base price for the stock of $4.75.

Ms. Vo will each be entitled to receive 30 days’ pay plus accrued vacation pay and reimbursable expenses upon termination of the employment agreement for death, disability or a termination for cause. “Cause” includes Ms. Vo: (1) engaging in dishonesty in the performance of his or her duties; (2) being convicted or entering a plea of guilty or nolo contendere to any felony or to any misdemeanor involving moral turpitude; (3) breaching a material covenant in his or her employment agreement that is not cured within 30 days of written notice of such breach; (4) committing willful misconduct, bad faith, fraud or gross negligence in fulfilling his or her responsibilities for the Company or its subsidiaries; or (5) committing an act of fraud, embezzlement or similar crime against any individual or entity.

If is terminated without Cause or terminates his or her employment agreement for a “Good Reason” he or she would be due the payment of his or her base salary for the lesser of one year or the period remaining on his or her employment agreement. “Good Reason” means: (1) a material breach of the employment agreement by us; (2) a reduction in Ms. Vo’s base salary; or (3) our moving our principal offices from San Antonio, Texas. All these “Good Reasons” are subject to notice provisions to us within 90 days of the event and a 30 day cure period for the Company.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information about our equity compensation plans and arrangements as of March 30, 2015.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans(excluding securities reflected in column(a)) (c)
Equity compensation plans approved by security holders	900,000	(1)	$	4.75		1,343,266	(1)
Equity compensation plans not approved by security holders	0	(1)	$	—		—	(1)

Total	900,000		$	4.75		1,343,266

(1)

We granted 349,650 common stock shares to Michael Pawelek, Edward Shaw and N.Kim Vo under their employment agreements with us effective March 1, 2015. These common stock grants were not made pursuant to an equity compensation or stock grant plan. These stock grants were ratified by our stockholders at a stockholder’s meeting on October 28, 2014. The information about these stock grants is presented in the table of Outstanding Equity Grants on page 66 of this annual report.

Summary of 2014 Equity Compensation Plan

Eligibility and Available Awards

Our 2014 Equity Compensation Plan (“2014 Plan”) provides for the grant of incentive stock options and non-qualified stock options (collectively, “stock options”), restricted stock, restricted stock units, stock appreciation rights and other stock or performance-based awards (each, an “Award”). It requires the reservation of up to 2,243,266 common stock shares to be issued under the 2014 Plan. All the employees, non-employee directors, non-employee consultants and service providers to us and our affiliates (as defined in the 2014 Plan), are eligible to receive grants of Awards under the 2014 Plan. However, incentive stock options may be granted only to employees. The selection of eligible individuals to whom Awards will be granted is within the discretion of the Compensation Committee. We currently expect that all of our employees will participate in the 2014 Plan, along with four non-employee directors who serve on our Board of Directors.

Administration

The 2014 Plan will be administered by the Compensation Committee of our Board of Directors. Grants of Awards to non-employee members of the Board of Directors will be made by the Board of Directors.

Subject to the provisions of the 2014 Plan, the Compensation Committee will have the authority to: (a) construe and interpret the 2014 Plan, any Award Agreement and any other agreement or document executed pursuant to the 2014 Plan; (b) prescribe, amend and rescind rules and regulations relating to the 2014 Plan or any Award; (c) select persons to receive Awards; (d) determine the form, terms and conditions of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under the 2014 Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of 2014 Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this 2014 Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; (k) amend or terminate the 2014 Plan, provided, however, the Committee will not amend the 2014 Plan in any manner that requires shareholder approval without such approval; and (l) make all other determinations necessary or advisable for the administration of this 2014 Plan. Any action taken or determination made by the Compensation Committee or the Board of Directors pursuant to the 2014 Plan will be binding on all parties. No member of the Board of Directors or the Compensation Committee will be liable for any action or determination made in good faith with respect to the 2014 Plan or an Award granted thereunder.

Our Board of Directors may amend, suspend or terminate the 2014 Plan at any time without prior notice to or consent of any person; provided, however, except as specifically permitted under the 2014 Plan, in connection with a change of control, no amendment (other than any amendment the board deems necessary in order to permit Awards to meet the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), or other applicable laws, or to prevent adverse tax consequences to the participants), suspension or termination of the 2014 Plan may, without the consent of the holder of an Award, terminate such Award or adversely affect such person’s rights with respect to such Award in any material respect unless or to the extent specified in the Award itself.

Stock Available for Issuance

The maximum number of shares of common stock that may be issued under the 2014 Plan is 2,243,266 common stock shares shares, subject to adjustment as provided in the 2014 Plan. 900,000 stock options have been granted to date, leaving 1,343,266 common stock shares authorized under the 2014 Plan.

Each common share that is the subject of an Award granted under the 2014 Plan may be made available from authorized but unissued shares, treasury stock or shares acquired in the open market. No fractional common shares shall be issued under the 2014 Plan and settlement of such fractional shares shall be made in cash. Each common share that is the subject of an Award, including each share underlying an Award that is measured by shares but that is intended to be settled in cash, shall be charged against the maximum share limitations at the time the Award is granted and may not again be made subject to Awards under the 2014 Plan pursuant to such limitations. Without limiting the generality of the foregoing, the number of common shares remaining available for an Award under the maximum share limitations, as reduced for charges in respect of Awards made from time to time, shall not be increased (nor shall prior charges be reversed) for, among other things, common shares (i) not issued and that cease to be issuable for any reason, including, but not limited to, forfeiture, revocation, cancelation or amendment of an Award or the settlement of an Award, in whole or in part, by the payment of cash, (ii) tendered in payment of the exercise price of any stock option, (iii) tendered to, or withheld by, us to satisfy tax withholding or other obligations, and/or (iv) repurchased by us, whether with stock option proceeds or otherwise.

Adjustments Upon Changes in Capitalization or Reorganization

The type or number of common shares authorized under the 2014 Plan or subject to an Award under the 2014 Plan, and/or the exercise or purchase price applicable to an Award, subject to any required action by our stockholders, will automatically be proportionately adjusted in the event that the outstanding common shares are changed into or exchanged for a different kind of security by reason of a merger, recapitalization, reclassification, stock split, payment of stock dividend, consolidation of common shares or a combination of common shares. The 2014 Plan does not permit the Compensation Committee to reprice non-qualified stock options or stock appreciation rights without stockholder approval.

Types of Awards

Stock Options. Stock options entitle the holder to purchase a specified number of common shares upon vesting at an exercise price per share specified on the date of grant. The Compensation Committee has the authority to grant stock options, specifying the terms and conditions of each stock option (including the time or times at which and the circumstances under which the stock option is exercisable), subject to the terms of the 2014 Plan. The Compensation Committee will also have the authority to determine whether stock options granted to employees will be incentive stock options or non-qualified stock options. Unless otherwise provided in the Award agreement, stock options will vest such that one-third of the original number of common shares granted shall vest on each anniversary of the date of grant until the stock option fully vests or is forfeited or expires.

Except as described below, the exercise price at which common shares may be purchased upon the exercise of a stock option will not be less than 85% of the fair market value of our common stock on the date that the stock option is granted. Incentive stock options will not be granted to a person who directly or by attribution owns owning more than 10% of all classes of stock of the Company or of any Parent or Subsidiary of the Company. The aggregate fair market value of common shares granted pursuant to one or more options (determined as of the date the option is, or the respective dates the options are, granted under the 2014 Plan or any other option plan of ours or our affiliates) that become exercisable with respect to an employee for the first time as incentive stock options during any one calendar year cannot exceed $100,000.

Except in certain grants of incentive stock options (which may not be exercised later than five years after the date of grant), no option may be exercised later than the date which is ten years after the date of grant. To exercise a stock option granted under the 2014 Plan, the person entitled to exercise the stock option must provide written notice to us, setting forth the number of common shares with respect to which the stock option is to be exercised, accompanied by full payment for the common shares being purchased and any required withholding taxes, unless other arrangements have been made with the Compensation Committee. The payment can be made (i) by cash or check, (ii) subject to such conditions and requirements as the Compensation Committee may specify, by our withholding common shares otherwise issuable from the exercise of the stock option, (iii) with the consent of the Compensation Committee, by tendering to our common shares owned by the participant for more than six months having an aggregate fair market value as of the date of exercise that is not greater than the full exercise price for the common shares with respect to which the stock option is being exercised, or (iv) subject to such instructions as the Compensation Committee may specify and at the participant’s written request, by our delivering certificates for the common shares for which the stock option is being exercised to a broker for sale on behalf of the participant; provided that the participant has irrevocably instructed such broker to remit directly to us, on the participant’s behalf, the full amount of the exercise price from the proceeds of such sale.

Stock Awards. A Stock Award is our offer to sell to an eligible person Shares that may or may not be subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the “Purchase Price”), the restrictions to which the Shares will be subject, if any, and all other terms and conditions of the Stock Award. The Purchase Price of Shares sold pursuant to a Stock Award will be determined by the Committee on the date the Stock Award is granted and may not be less than 85% of the Fair Market Value of the Shares on the grant date, except in the case of a sale to a Ten Percent Owner, in which case the Purchase Price will be 100% of the Fair Market Value. The Compensation Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the participant. Prior to the transfer of any Stock Award, the Committee shall determine the extent to which such Stock Award has been earned. Performance Periods may overlap and participants may participate simultaneously with respect to Stock Awards that are subject to different Performance Periods and have different performance goals and other criteria.

Stock Bonuses. A Stock Bonus is an award of Shares for extraordinary services rendered to us or our Parents or Subsidiaries. A Stock Bonus will be awarded pursuant to an Award Agreement (the “Stock Bonus Agreement”) that will be in such form (which need not be the same for each participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of the 2014 Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the participant’s individual Award Agreement (the “Performance Stock Bonus Agreement”). Stock Bonuses may vary from participant to participant and between groups of participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine.

The Compensation Committee will determine the number of Shares to be awarded to the participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. The earned portion of a Stock Bonus may be paid to the participant by us either currently or on a deferred basis, as agreed by the participant and us, with such interest or dividend equivalent, if any, as the Committee may determine. Payment of an interest or dividend equivalent (if any) may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, as the Committee will determine.

Stock Units. Stock Units represent the right of the recipient to receive a share or an amount based on the value of our common stock shares. Stock Units may be paid at the end of specified vesting or performance period or may be deferred to a date authorized by the Compensation Committee (or the Board of Directors for non-employee directors). Payment for Stock Units may be made in cash or shares or a combination of both. Stock Unit awards shall be made by the Compensation Committee (or the Board of Directors for non-employee directors) who will also decide under what circumstances recipients may retain Stock Units after termination of the recipient’s employment or service. Additionally, the Compensation Committee (or the Board of Directors for non-employee directors) may grant dividend equivalents based on the common stock underlying the Stock Units.

Stock Appreciation Rights (“SAR”). Stock Appreciation Rights are rights to receive bonuses based on the appreciation in our stock over a specified time period. The Compensation Committee (or the Board of Directors for non-employee directors) may grant SARs to employees, non-employee directors and consultants individually or in tandem with Options. The Compensation Committee (or the Board of Directors for non-employee directors) may grant SARs that are subject to achieving performance goals or other conditions to be specified in the Award agreement and can accelerate exercisability of all outstanding SARs for any reason. SARs granted to persons who are not exempt employees under the Fair Labor Standards of Act of 1938 are not exercisable for at least six months after grant. For SARs that are in tandem with incentive stock options, the SAR may only be granted as of the date of the incentive stock option. Tandem SARs terminate upon the execution of the tandem Option and are exercisable only when the tandem Option is exercisable. Upon the exercise of a SAR, the related tandem Option shall also terminate to the extent of an equal number of shares. SAR grants shall not exceed ten years terms. SARS may be paid in cash or stock as determined by the Compensation Committee (or the Board of Directors for non-employee directors), provided that the necessity of tax withholdings is considered. Common stock shares are valued at fair market value as of the date of the SAR exercise. When the SAR is exercised, the recipient shall receive settlement in an amount equal to the value of the stock appreciation for the number of SAR units exercised. The stock appreciation is the amount the base amount for the SAR specified in the SAR award agreement.

Other Stock or Performance-Based Awards. Any other stock or performance-based award is an Award not otherwise described in the 2014 Plan, the value of which is based in whole or in part by reference to, or based on or related to, a common share or cash as determined by the Compensation Committee (or the Board of Directors for non-employee directors) to be consistent with the purposes of the 2014 Plan. Any other stock or performance-based award may be payable in cash, common shares, or a combination thereof. The Compensation Committee (or the Board of Directors for non-employee directors) has the authority and discretion to determine the terms and conditions of other stock or performance-based awards, including any performance criteria covering such Awards, consistent with the 2014 Plan.

The 2014 Plan authorizes the Compensation Committee to grant any Award and provide that such Award shall be granted to comply with the requirements of Section 162(m) of the Code.

The Compensation Committee shall establish the performance goals for a performance period and the amount and terms, in writing, for each Award. The performance goals may include, without limitation, the following factors including, without limitation, the following factors: (a) net revenue and/or net revenue growth; (b) earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; (c) operating income and/or operating income growth; (d) net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) total shareholder return and/or total shareholder return growth; (g) return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; (k) Periodic increases in proved or probable oil and gas reserves; (l) Periodic increases in oil and gas production; and (k) Individual business objectives. Performance goals may differ among participants and Awards.

Withholding

We are generally required to withhold tax on the amount of income recognized by a participant with respect to an Award. The Compensation Committee (or the Board of Directors for non-employee directors) may make such provision for the withholding of taxes as it deems necessary. Withholding requirements may be satisfied by (a) tender of a cash payment to us, (b) withholding of common shares otherwise issuable under an Award or (c) tender to the us shares of our common stock owned by the participant if such tendered common shares have been held by such participant for at least six months.

Transferability

Except as otherwise specifically provided in the 2014 Plan, no Award and no right under the 2014 Plan, contingent or otherwise, other than restricted stock which has vested, will be (i) assignable, saleable or otherwise transferable by a participant except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order or (ii) subject to any encumbrance, pledge or charge of any nature. No transfer by will or by the laws of descent and distribution shall be effective to bind the Company unless the Compensation Committee shall have been furnished with a copy of the deceased participant’s will or such other evidence as the Compensation Committee may deem necessary to establish the validity of the transfer. Any attempted transfer in violation of the 2014 Plan shall be void and ineffective for all purposes. Except as otherwise specifically provided under the 2014 Plan, only the participant or his guardian (if the participant becomes disabled), or in the event of his death, his legal representative or beneficiary, may exercise stock options or stock appreciation rights, receive cash payments and deliveries of shares or otherwise exercise rights under the 2014 Plan. The executor or administrator of the participant’s estate, or the person or persons to whom the participant’s rights under any Award will pass by will or the laws of descent and distribution, shall be deemed to be the participant’s beneficiary or beneficiaries of the rights of the participant and shall be entitled to exercise such rights as are provided under the 2014 Plan.

Amendment of Awards

The Compensation Committee (or the Board of Directors for non-employee directors) may amend an Award; provided, however, that no amendment of an Award may, without the consent of the participant, adversely affect the participant’s rights with respect to such Award in any material respect.

Term of the 2014 Plan

The 2014 Plan shall terminate ten years after the date of its initial adoption by the Board of Directors, unless earlier terminated by the Board of Directors. No Award may be granted hereunder after termination of the 2014 Plan.

Change of Control

Unless otherwise provided in an Award, upon the occurrence of a change in control (defined generally as certain reorganizations, mergers, consolidations, sales of all or substantially all of our assets or liquidations), the Board of Directors may, but is not required to, (i) accelerate vesting and the time at which all stock options and stock appreciation rights then outstanding may be exercised; (ii) waive, alter and/or amend the performance criteria and other restrictions and conditions of Awards then outstanding, with the result that the affected Awards may be deemed vested, and any applicable restricted period or other limitations on payment in full with respect thereto shall be deemed to have expired, as of the date of the change of control or such other date as may be determined by the Board of Directors; (iii) cause the acquirer to assume the 2014 Plan and the Awards or exchange the Awards for the acquirer’s stock; (iv) terminate the 2014 Plan; or (v) terminate and cancel all outstanding unvested or unexercised Awards as of the date of the change of control on such terms and conditions as it deems appropriate.

The Board of Directors will, in connection with a change of control, have the right to require all participants to transfer and deliver to us all Awards previously granted to the participants in exchange for an amount equal to the cash value of the Awards. The cash value of an Award will equal the sum of (i) in the case of an Award that is not a stock option or restricted stock, the cash value of all benefits to which the participant would be entitled upon settlement or exercise of any Award and (ii) in the case of a stock option or restricted stock, the excess of the market value per common share over the option price, or the market value per common share of restricted stock, as applicable, multiplied by the number of common shares as to which such Award is vested.

Termination, Death and Disability

Except as otherwise provided in an Award agreement, an option, award or bonus terminates when the recipient has, for any reason, ceased to provide services as an employee, officer, director, consultant, independent contractor or advisor to the Company or a parent or subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Company, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to a formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a subsidiary as it may deem appropriate, except that in no event may an option be exercised after the expiration of the term set forth in the option agreement. The Committee will have sole discretion to determine whether a participant has ceased to provide services and the effective date on which the participant ceased to provide services.

As to options, if the participant’s service is terminated for any reason except death or disability, then the participant may exercise such participant’s options only to the extent that such options would have been exercisable upon the termination date, but must be exercised no later than three (3) months after the termination date (or such longer time period not exceeding five (5) years as may be approved by the Compensation Committee, with any exercise beyond three (3) months after the termination date deemed to be an non-qualified stock option). If the participant’s service is terminated because of the participant’s death or disability (or the participant dies within three (3) months after a termination other than for cause or because of participant’s disability), then the participant’s options may be exercised only to the extent that such options would have been exercisable by the participant on the termination date and must be exercised by the participant (or the participant’s legal representative) no later than twelve (12) months after the termination date (or such longer time period not exceeding five (5) years as may be approved by the Committee, with any such exercise beyond (i) three (3) months after the termination date when the termination is for any reason other than the participant’s death or disability, or (ii) twelve (12) months after the termination date when the termination is for participant’s death or disability, deemed to be an non-qualified stock option). Notwithstanding these above post-termination provisions, if the participant’s service is terminated for cause, neither the participant, the participant’s estate nor such other person who may then hold the option shall be entitled to exercise any option with respect to any shares whatsoever, after termination, whether or not after termination the participant may receive payment from the Company or a subsidiary for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits.

For stock awards, if a participant is terminated during a performance period for any reason, then such participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the stock award only to the extent earned as of the date of termination in accordance with the stock purchase agreement, unless the Committee determines otherwise.

Summary of Certain Federal Income Tax Considerations

The following summary is based on applicable provisions of the Code, as currently in effect, and the income tax regulations and proposed income tax regulations issued thereunder. This summary does not purport to cover federal employment tax or other federal tax consequences that may be associated with the 2014 Plan, nor does it cover state, local or foreign taxes.

Status of Stock Options. Stock options granted under the 2014 Plan may be either incentive stock options or non-qualified stock options. Under certain circumstances, an incentive stock option may be treated as a non-qualified stock option. The tax consequences, both to the option holder and to us, differ depending on whether a stock option is an incentive stock option or a non-qualified stock option.

Non-qualified Options. No federal income tax is imposed on the option holder upon the grant of a non-qualified stock option. If the shares of common stock received by an option holder upon the exercise of a non-qualified stock option are not subject to certain restrictions in the hands of the option holder (such as the restrictions described below in “Restricted Stock”), then the option holder will be treated as receiving compensation, taxable as ordinary income in the year of exercise. The amount recognized as ordinary income upon such an exercise is the excess of the fair market value of the shares of common stock at the time of exercise over the exercise price paid for such common stock.

Incentive Stock Options. No federal income tax is imposed on the option holder upon the grant of an incentive stock option. The option holder will recognize no income for federal income tax purposes upon exercise of an incentive stock option, if the option holder (i) does not dispose of the shares of common stock acquired pursuant to the exercise of an incentive stock option within two years from the date the option was granted or within one year after the shares of common stock were transferred to the option holder (the “Holding Period”), and (ii) is an employee of either (a) the company granting the option, (b) a parent or subsidiary corporation of such corporation, or (c) a corporation (or a parent or subsidiary corporation of such corporation) which has assumed such option of another corporation as a result of a corporate reorganization, merger, or similar transaction. Such employment must continue for the entire time from the date the option was granted until three months before the date of exercise, or twelve months before the date of exercise if employment ceases due to permanent and total disability or death. If common stock received upon exercise of an incentive stock option is disposed of after completion of the Holding Period, any difference between the exercise price paid for such common stock and the amount realized on the disposition will be treated as a long-term capital gain or loss. We would not be entitled to any deduction in connection with the grant or exercise of the incentive stock option or the disposition after completion of the Holding Period of the shares of common stock so acquired.

If, however, an option holder disposes of shares of common stock received upon exercise of an incentive stock option before completion of the Holding Period (a “Disqualifying Disposition”), the option holder would be treated as having received, at the time of disposition, compensation taxable as ordinary income. In the event of a Disqualifying Disposition, the option holder must notify the Compensation Committee of such disposition within 10 days of such event. In the event of a Disqualifying Disposition, subject to the application of Section 162(m) of the Code, as discussed below, we may claim a deduction for compensation paid at the same time and in the same amount as compensation is treated as being received by the option holder. Generally, the amount treated as compensation is the excess of the fair market value of the common stock at the time of exercise over the exercise price. The balance of the gain, if any, realized upon such a disposition will be treated as a long-term or short-term capital gain depending on the holding period. If the amount realized at the time of disposition is greater than the exercise price but less than the fair market value of the common stock at the time of exercise and the disposition is a transaction in which a loss, if sustained, would otherwise be recognizable under the Code, then the amount treated as ordinary income is the excess of the amount realized on the disposition over the participant’s adjusted basis in the stock. If the amount realized at the time of the disposition is less than the exercise price, the option holder will not be required to treat any amount as ordinary income, provided that the disposition is of a type that would give rise to a recognizable loss. In such event, the loss will be treated as a long-term or short-term capital loss depending upon the holding period. A disposition generally includes a sale, exchange or gift, but does not include certain other transfers, such as by reason of death or a pledge or exchange of common shares described in Section 424(c) of the Code.

Alternative Minimum Tax. Although the exercise of an incentive stock option does not result in current taxable income, there are implications with regard to the Alternative Minimum Tax (“AMT”). The excess of the fair market value of shares of common stock acquired upon exercise of an incentive stock option over the exercise price paid for such common shares of common stock is an adjustment to AMT income for the option holder’s taxable year in which such exercise occurs (unless the shares of common stock are disposed of in the same taxable year in a Disqualifying Disposition and the amount realized is less than the fair market value of the common shares on the date of exercise, in which event the amount included in AMT income will not exceed the amount realized on the disposition over the adjusted basis of the common shares).

Other Stock or Performance-Based Awards. In general, participant who receives other stock or performance-based awards will not be taxed on receipt of the Award, but instead the cash or the fair market value of shares of common stock received will be taxable as ordinary income on the date that the cash or common shares are received in payment of the Award. Subject to the application of Section 162(m) of the Code, as discussed below, and assuming we satisfy the federal income tax reporting and other deductibility requirements with respect to such compensation, we will be entitled to a deduction for an amount corresponding to the ordinary income recognized by the participant.

Other Tax Considerations

In the event of a change of control of the Company, certain payments in the nature of compensation to certain individuals, if contingent on the change in control, could be nondeductible to us and subject to an additional 20% tax to the recipient. Awards under the 2014 Plan that are made or that vest or become payable in connection with a change in control may be required to be taken into account in determining whether these penalties apply.

Section 162(m) of the Code places a $1,000,000 cap on the deductible compensation that may be paid to certain executives of publicly traded corporations. Amounts that qualify as “performance-based compensation” under Section 162(m)(4)(C) of the Code are exempt from the cap and do not count toward the $1,000,000 limit. Generally, stock options and stock appreciation rights granted with an exercise or grant price at least equal to the fair market value of the underlying stock on the date of grant will qualify as performance-based compensation. Other Awards may or may not so qualify, depending on their terms.

Section 409A of the Internal Revenue Code

Some Awards granted under the 2014 Plan may be considered non-qualified deferred compensation that is subject to special rules and additional tax under Section 409A of the Code. The Compensation Committee will generally design and administer such Awards to comply with the rules of Section 409A of the Code and avoid the imposition of any additional tax under Section 409A of the Code. However, there is no commitment or guarantee that any federal, state or local tax treatment will apply or be available to any participant.

Inapplicability of ERISA

Based on current law and published interpretations, we do not believe that the 2014 Plan is subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Notwithstanding the foregoing, the 2014 Plan expressly provides that there is no commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person who participates or is eligible to participate in the 2014 Plan.

COMPENSATION OF DIRECTORS

Non-employee members of the Board of Directors have not been paid in the past for participation on the Board or on Board committees. Further, the Board of Directors has not adopted any policy on paying members of the Board of Directors. Finally, none of the members of the Board of Directors have a written agreement with the Company. Mr. Michael Pawelek serves as a Director but is not entitled to any additional compensation for such service.

The Director Compensation Table below displays the total compensation awarded to, earned by or paid to Directors for the fiscal year ending December 31, 2014. All amounts shown below are in dollars.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compen-sation ($)		Change in Pension Value and Non-qualified Deferred Compen-sation Earnings ($)		All Other Compen-sation ($)		Total ($)
Michael Pawelek (1)	$	272,750	$	—	$	1,203,000		—	$	—	$	4,000	$	1,479,750
Bill Liao		—		—		—		—		—		—		—
Peter Benz		—		—		—		—		—		—		—
Charles Henry, III		—		—		—		—		—		—		—
Craig Dermody		—		—		—		—		—		—		—

(1)	Includes compensation for serving as Chief Executive Officer.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following tables show the security ownership of certain beneficial owners and management as of March 30, 2014.

Security Ownership of Certain Beneficial Owners

Title of Class	Name and Address of Beneficial Owner(1)	Amount and Nature of Beneficial Ownership (1)	Percentage of Class
Common Stock	Bradford R. Higgins(2)	235,825	1.8551	%
Common Stock	LMIF Investments, LLC(3)	750,514	5.9040	%
Common Stock	Longview Marquis Master Fund, L.P. (3)	876,957	6.8987	%
Common Stock	Estate of William Mahoney(4)	981,038	7.7174	%
Common Stock	Sean O'Sullivan Revocable Living Trust(5)	532,139	4.1861	%
Common Stock	SMF Investments, LLC(3)	547,307	4.3054	%
Common Stock	SOSventures, LLC(5)	4,060,805	31.9447	%
Common Stock	Shares Interplead into Connecticut Superior Court	2,190,891	17.2348	%

(1)

Beneficial ownership number and percentage is based upon shares of common stock as of March 30, 2015. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares which such person has the right to acquire within 60 days. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above, any security which such person or group of persons has the right to acquire within 60 days is deemed to be outstanding for the purpose of computing the percentage ownership for such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. As a result, the denominator used in calculating the beneficial ownership among our stockholders may differ.

(2)	Stockholder’s address is 1079 Oenoke Ridge, New Canaan, CT 06840. Stockholder is part of a group with SOSventures, LLC and Sean O’Sullivan Revocable Living Trust.

(3)	Stockholders’ address is c/o Viking Asset Management, LLC, 66 Bovet Road, Suite 320, San Mateo, CA 99402. The natural persons with ultimate voting or investment control over the common stock shares held by Longview Marquis Master Fund, L.P., LMIF Investments, LLC and SMF Investments, LLC are Peter Benz, S. Michael Rudolph and Merrick Okamoto. Peter Benz is a Company director. Due to Mr. Benz’s possible voting control over the 2,174,778 common stock shares owned by Longview Marquis Master Fund, L.P., LMIF Investments, LLC and SMF Investments, LLC, he is listed as beneficial owner of said common stock shares.
(4)	Stockholder’s address is 991 Ponus Ridge, New Canaan, CT 06840. The natural person with ultimate voting or investment control over the common stock shares held by the Estate of William Mahoney is the Estate’s executor, Alice Mahoney.
(5)	Stockholders’ address is Penrose Wharf, 2nd Floor, Alfred Street, Cork, Ireland. The natural person with ultimate voting or investment control over the common stock shares held by the Sean O’Sullivan Revocable Living Trust and SOSventures, LLC is Sean O’Sullivan. Stockholder is part of a group with Bradford Higgins.

Security Ownership of Management

Title of Class	Name and Address of Beneficial Owner(1)	Amount and Nature of Beneficial Ownership (1)	Percentage of Class
Common Stock	Michael Pawelek, Chief Executive Officer and Director	116,550	0.9169	%
Common Stock	Edward Shaw, Chief Operating Officer	116,550	0.9169	%
Common Stock	N. Kim Vo, Controller	116,550	0.9169	%
Common Stock	Bill Liao, Director, Chairman of Board of Directors	-	-
Common Stock	Peter Benz, Director	2,174,778	17.1081	%
Common Stock	Craig Dermody, Director	154,935	1.2188	%
Common Stock	Charles Henry, III, Director	155,725	1.2250	%
Common Stock	All executive officers, directors and director nominees as a group (8 persons)	2,835,088	22.3025	%

(1)

Beneficial ownership number and percentage is based upon shares of common stock as of March 30, 2014. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares which such person has the right to acquire within 60 days. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above, any security which such person or group of persons has the right to acquire within 60 days is deemed to be outstanding for the purpose of computing the percentage ownership for such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. As a result, the denominator used in calculating the beneficial ownership among our stockholders may differ.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

Subordinated Credit Facility with SOSventures, LLC

The Chairman of our Board of Directors, Bill Liao, works for SOSventures, LLC. Further, a group composed of SOSventures, LLC, Sean O’Sullivan Revocable Living Trust and Bradford R. Higgins constitute a group owning 4,863,720 or 39.34% of our common stock shares.

On June 3, 2014 we agreed to amend our credit agreement with SOSventures, LLC, originally entered into on July 25, 2013, providing for a term loan through February 16, 2016 in an amount up to $20,000,000 at an 18.00% interest rate. The loan under this agreement is secured by a second lien on our assets.The credit agreement and the related intercreditor agreement are attached as Exhibits 10.6.1 and 10.6.2.

The credit agreement prevents us from incurring indebtedness to banks or lenders, other than Independent Bank, without the consent of SOSventures, LLC. It also prevents us from incurring most contingent obligations or liens (other than to Independent Bank). It also restricts our ability to pay dividends, issue options and warrants and repurchase our common stock shares. The limitation on options and warrants does not apply to equity compensation plans.

Director Independence

The Company defines “independent director” as an independent director defined by Nasdaq Rule 5605(a)(2). Under the Company’s independent director policy, all references to the Company include the Company’s subsidiaries and “Family Member” means a director’s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in the director’s home. Specifically, the Company’s independent directors:

1)	are not Company executive officers or employees or family members of Company executive officers and neither the director nor the family member has been so employed as an executive officer or (for the director only) employee in the past three years;

2)	do not have a relationship which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of directors or would interfere with the exercise of independent judgment in carrying out the director’s responsibilities;

3)	have not accepted (and have not had a family member accept) compensation from the Company in excess of $120,000 during any twelve consecutive months within the three years preceding the determination of independence except for:

a)	compensation for board or board committee service;

b)	employee compensation paid to a family member of the director, provided that the family member is not an executive officer of the Company;

c)	benefits under tax-qualified retirement plans; and

d)	non-discretionary compensation;

are not and have no family members who are, partners in, or a controlling shareholders or executive officers of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than the following:

a)	payments arising solely from investments in our securities; or

b)	payments under non-discretionary charitable contribution matching programs;

5)	are not employed and have no family member who are employed as executive officers of another business entity where, at any time in the past three years, an executive officer of the Company has served on the compensation committee of that entity; or

6)	are not employed and have no family member who are employed as a current partner of our outside auditor, or were partners or employees of our outside auditor who worked on our audit at any time during any of the past three years.

Under these standards, the Company currently views Bill Liao, Charles S. Henry, III and Craig Dermody to be independent directors. We consider payments payable pursuant to the SOSventures, LLC subordinated credit facility to be payments arising solely from investments in the Company’s securities.

Peter Benz is affiliated with Viking Asset Management, LLC which manages Longview Marquis Mater Fund, L.P., LMIF Investments LLC and SMF Investments LLC. These shareholders currently have approval rights over our material transactions pursuant to the July 20, 2012 put option waiver agreement attached as Exhibit 4.3. Those rights terminate upon the Company obtaining an exchange listing. Consequently, if we obtain an exchange listing we anticipate viewing Peter Benz as an independent director.

On May 8, 2013 the Company was notified that the limited partners of these limited partnerships have appointed Charles S. Henry, III the “replacement general partner” of Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP. From May 8, 2013 through February 25, 2014, Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP owned approximately 77.94% of our outstanding common stock. From February 25, 2014 to March 17, 2014, these partnerships owned approximately 13.27% of our outstanding common stock. Thus, Mr. Henry was an affiliated director during this designated time period. Mr. Henry ceased to be an affiliated director no later than March 18, 2014 when the Company interpleaded the common stock shares relating to Giddings Oil & Gas LP, Asym Energy Fund III LP and Hunton Oil Partners LP into the Connecticut Superior Court.

Item 14. Principal Accountant Fees and Services

Audit Fees.

The aggregate fees billed for each of the last two fiscal years for professional services rendered by Rothstein Kass, one of our former principal accountants, for the audit of our annual financial statements and review of our financial statements included in or Form 10-Q or services that are normally provided by Rothstein Kass in connection with statutory and regulatory filings or engagements for those fiscal years amount to $39,750 for 2014 and $130,273 for 2013.

The aggregate fees billed for professional services by KPMG LLP, our current principal accountants for 2014, for the audit of our annual financial statements and review of our financial statements included in or Form 10-Q amount to $185,250 for 2014. We had no engagement with KPMG LLP for 2013.

Audit-Related Fees

The Company paid no other aggregate fees billed in each of the last two fiscal years for assurance and related services by Rothstein Kass or KPMG LLP, our former and current principal accountants, that are reasonably related to the performance of the audit or review of our financial statements.

Tax Fees.

The aggregate fees billed in each of the last two fiscal years for professional services rendered by Rothstein Kass, our former principal accountant, for tax compliance, tax advice, and tax planning amount to $14,000 for 2014 and $16,500 for 2013.

All Other Fees.

There were no other fees billed in each of the last two fiscal years for products and services by Rothstein Kass, our principal accountant, other than the services reported above.

Audit Committee’s Pre-Approval Policies and Procedures

Our Audit Committee Charter requires that the Audit Committee preapprove all audit services to be provided to the Company, whether provided by the principal auditor or other firms, and all other services (review, attest and non-audit) to be provided to the Company by the independent auditor; provided, however, that de minimis non-audit services may instead be approved in accordance with applicable SEC rules.

Percentage of Services Approved by Audit Committee

Our Audit Committee approved the following percentages of Audit Fees, Audit-Related Fees and Tax Fees for KPMG LLP and Rothstein Kass, our current and former principal accountants, for the designated years.

	Audit Fees			Audit-Related Fees			Tax Fees
2014 – KPMG, LLP		100	%		0	%	100	%
2013 – Rothstein Kass		100	%		-		100	%

KPMG LLP was our principal accountant for the year ended December 31, 2014.

Rothstein Kass was our principal accountant for the year ended December 31, 2013. Less than 50 percent of the hours expended on Rothstein Kass’s engagement to audit our financial statements for the year ended December 13, 2013 were attributed to work performed by persons other than Rothstein Kass’s full-time, permanent employees.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this report:

1. Financial Statements. See Item 8.

2. Financial Statement Schedules. Not applicable.

All other schedules have been omitted because the required information is shown in the consolidated financials or notes thereto, or they are not applicable.

3. Exhibits. See Index to Exhibits for listing of exhibits which are filed herewith or incorporated by reference.

(b) Reports on Form 8-K

On May 14, 2014, the Company filed a Form 8-K relating to the pro forma financial information of the Crittendon Field properties that had been acquired by the Company on March 26, 2014.

On July 3, 2014, the Company filed a Form 8-K announcing the First Amendment to the First Amended and Restated Credit Agreement with SOSventures, LLC, which, among other items, increased the credit facility to $20,000,000.

On July 7, 2014, the Company filed a Form 8-K relating to the change in the Company’s certifying accountant from Rothstein Kass to KPMG LLP, pending acceptance by KPMG LLP.

On August 5, 2014, the Company filed a Form 8-K reporting that KPMG LLP had accepted the appointment as the Company’s certifying accountant.

On September 3, 2014, the Company filed a Form 8-K reporting the approval of amended and restated employment agreements for Michael Pawelek and Edward Shaw and the adoption by the Board of Directors of the Company’s 2014 Equity Compensation Plan.

On September 16, 2014, the Company filed a Form 8-K reporting the resignation of the Company’s Chief Financial Officer, Eric Alfuth.

On October 31, 2014, the Company filed a Form 8-K with the results of its 2014 meeting of stockholders.

On November 13, 2014, the Company filed a Form 8-K with the Company’s Certificate of Amendment to its Certificate of Incorporation.

On December 23, 2014, the Company filed a Form 8-K describing correspondence received from counsel for Independent Bank alleging an event of default on the Company’s credit facility with Independent Bank.

On March 18, 2015, the Company filed a Form 8-K containing a press release it had issued regarding Gregory Imbruce and his authority to act for the Company.

EXHIBIT LIST

The following exhibits are included as part of this Form 10-K. References to “the Company” in this Exhibit List mean Starboard Resources, Inc., a Delaware corporation.

Exhibit No.	Description

3.1.1	Certificate of Incorporation(1)

3.1.2	Certificate of Conversion(2)

3.1.3	Certificate of Amendment(3)

3.2.1	Amended and Restated Bylaws(4)

3.2.2	Starboard Resources Amended and Restated Operating Agreement dated January 20, 2012(5)

4.1	Securities Purchase and Exchange Agreement between Starboard Resources, LLC, Longview Marquis Master Marquis Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC dated June 10, 2011(6)

4.2	Agreement between Asym Capital III LLC, Giddings Genpar LLC, Hunton Oil Genpar LLC and SOSventures, LLC regarding Starboard Resources, LLC dated January 20, 2012(7)

4.3	Agreement between Starboard Resources, LLC, Longview Marquis Master Marquis Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC dated July 20, 2012 (Relating to Waiver of Put Option)(8)

4.4	2014 Equity Compensation Plan(9)

10.1	Amended and Restated Employment Agreement, dated as of August 14, 2014, between Starboard Resources, Inc. and Michael Pawelek.(10)

10.2	Amended and Restated Employment Agreement, dated as of August 14, 2014, between Starboard Resources, Inc. and Edward Shaw.(11)

10.3	Employment Agreement, dated as of April 1, 2012, between Starboard Resources, Inc. and N. Kim Vo.(12)

10.4	Participation Agreement with Husky Ventures, LLC.(13)

10.5.01	Credit Agreement dated as of June 27, 2013 between Starboard Resources, Inc. as borrower and Independent Bank as lender.(14)

10.5.02	Security Agreement dated as of June 27, 2013 between Starboard Resources, Inc. as debtor and Independent Bank as secured party. (15)

10.5.03	Mortgage, Deed of Trust, Security Agreement, Fixture Filing and Financing Statement for Texas oil and gas properties from Starboard Resources, Inc., Mortgagor, to John E. Davis, Trustee, and Independent Bank, mortgagee.(16)

10.5.04	Note from Starboard Resources, Inc. to Independent Bank dated July 27, 2012.(17)

10.5.05	Certificate of Ownership Interests – Starboard Resources, Inc. dated June 27, 2013.(18)

10.6.3

Exhibit No.	Description
10.5.06	Omnibus Certificate – Starboard Resources, Inc. dated June 27, 2013.(19)

10.5.07	Guaranty dated June 27, 2013 from ImPetro Operating, LLC.(20)

10.5.08	Security Agreement dated June 27, 2013 between ImPetro Operating, LLC and Independent Bank.(21)

10.5.09	Omnibus Certificate – ImPetro Operating, LLC dated June 27, 2013.(22)

10.5.10	Waiver of Operator’s Lien – ImPetro Operating, LLC dated June 27, 2013.(23)

10.5.11	Guaranty dated June 27, 2013 from ImPetro Resources, LLC.(24)

10.5.12	Security Agreement dated June 27, 2013 between ImPetro Resources, LLC and Independent Bank.(25)

10.5.13	Omnibus Certificate – ImPetro Resources, LLC dated June 27, 2013.(26)

10.5.14	Note dated June 27, 2013 – Starboard Resources, Inc.(27)

10.5.15	Fourth Amendment to Credit Agreement with Independent Bank dated April 15, 2015(28)

10.6.1	Credit Agreement dated July 25, 2013 between Starboard Resources, Inc. and SOSventures, LLC(29)

10.6.2	Intercreditor Agreement dated July 25, 2013 between Independent Bank, and SOSventures LLC(30)

10.6.3	Second Amendment to Credit Agreement between SOSventures, LLC and Starboard Resources dated April 15, 2015(31)

10.6.4	Amendment to Intercreditor Agreement between Independent Bank, SOSventures, LLC and Starboard Resources, Inc. dated April 15, 2015(32)

10.7.1	Sunoco – Texon LP Crude Purchase Agreement(33)

10.7.2	Sunoco – Texon LP Crude Purchase Agreement Amendment(34)

10.8	DCP Midstream, LP Gas Purchase Agreement(35)

14	Code of Ethics.(36)

21	List of subsidiaries(37)

23.2	Consent of Forrest A. Garb & Associates, Inc., independent petroleum engineers.(38)

31.1	Management Certification – Principal Executive Officer.

31.2	Management Certification – Principal Accounting Officer.

32.1	Section 1350 Certification.

99.2	Reserve Report as of January 1, 2015 from Forrest Garb & Associates, Inc.(39)

99.3	Reserve Report as of January 1, 2014 from Forrest Garb & Associates, Inc.(40)

Reference No.	Reference Description
(1)	Incorporated by reference to Exhibit 3.1.1 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(2)	Incorporated by reference to Exhibit 3.1.2 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(3)	Incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the SEC on November 13, 2014.

(4)	Incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the SEC on October 31, 2014.

Reference No.	Reference Description
(5)	Incorporated by reference to Exhibit 3.2.3 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(6)	Incorporated by reference to Exhibit 4.1 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(7)	Incorporated by reference to Exhibit 4.2 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(8)	Incorporated by reference to Exhibit 4.3 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(9)	Incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed October 31, 2014.

(10)	Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on September 4, 2014.

(11)	Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed with the SEC on September 4, 2014.

(12)	Incorporated by reference to Exhibit 10.3 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(13)	Incorporated by reference to Exhibit 10.4 of the Company’s Form 10 filed with the SEC on June 7, 2013 which became effective August 6, 2013.

(14)	Incorporated by reference to Exhibit 10.5.01 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(15)	Incorporated by reference to Exhibit 10.5.02 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(16)	Incorporated by reference to Exhibit 10.5.03 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(17)	Incorporated by reference to Exhibit 10.5.04 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(18)	Incorporated by reference to Exhibit 10.5.05 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(19)	Incorporated by reference to Exhibit 10.5.06 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(20)	Incorporated by reference to Exhibit 10.5.07 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(21)	Incorporated by reference to Exhibit 10.5.08 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(22)	Incorporated by reference to Exhibit 10.5.09 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(23)	Incorporated by reference to Exhibit 10.5.10 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(24)	Incorporated by reference to Exhibit 10.5.11 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

Reference No.	Reference Description
(25)	Incorporated by reference to Exhibit 10.5.12 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(26)	Incorporated by reference to Exhibit 10.5.13 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(27)	Incorporated by reference to Exhibit 10.5.14 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(28)	Filed herewith.

(29)	Incorporated by reference to Exhibit 10.6.1 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(30)	Incorporated by reference to Exhibit 10.6.2 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(31)	Filed herewith.

(32)	Filed herewith.

(33)	Incorporated by reference to Exhibit 10.7.1 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(34)	Incorporated by reference to Exhibit 10.7.2 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(35)	Incorporated by reference to Exhibit 10.8 of the Company’s Form 10/A filed with the SEC on July 26, 2013 which became effective August 6, 2013.

(36)	Incorporated by reference to Annex 3 of the Company’s Schedule 14A filed with the SEC on September 26, 2014.

(37)	Filed herewith.

(38)	Filed herewith.

(39)	Filed herewith.

(40)	Incorporated by reference to Exhibit 99.2 of the Company’s Form 10-K/A filed with the SEC on April 30, 2014

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	STARBOARD RESOURCES, INC.

DATE: April 15, 2015	BY:	/s/ Michael J. Pawelek
		Michael J. Pawelek,
		Chief Executive Officer

Signature	Title	Date

/s/ Michael J. Pawelek	CEO and Director	April 15, 2015
Michael J. Pawelek

/s/ Peter Benz	Director	April 15, 2015
Peter Benz

/s/ Craig Dermody	Director	April 15, 2015
Craig Dermody

/s/ Charles S. Henry, III	Director	April 15, 2015
Charles S. Henry, III

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AND

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

DECEMBER 31, 2014 AND 2013


STARBOARD RESOURCES, INC. AND SUBSIDIARIES



Report of Independent Registered Public Accounting Firm			F-1 – F-2

Financial Statements

Consolidated Balance Sheets			F-3

Consolidated Statements of Operations			F-5

Consolidated Statements of Changes in Stockholders' Equity			F-6

Consolidated Statements of Cash Flows			F-7 - F-8

Notes to Consolidated Financial Statements			F-9 - F-20

Supplemental Information

Supplemental Oil and Natural Gas Disclosures			F-21 - F-27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Starboard Resources, Inc.:

We have audited the accompanying consolidated balance sheet of Starboard Resources, Inc. and subsidiaries as of December 31, 2014, and the related consolidated statement of operations, changes in stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Starboard Resources, Inc. and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.



		/s/ KPMG LLP

Dallas, Texas

April 15, 2015

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Starboard Resources, Inc.:

We have audited the accompanying consolidated balance sheet of Starboard Resources, Inc. and subsidiaries as of December 31, 2013, and the related consolidated statement of operations, changes in stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Starboard Resources, Inc. and subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Rothstein Kass

Dallas, Texas

March 31, 2014

F-2

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31,	2014		2013
			(See Note 2)
ASSETS

Current assets
Cash	$	3,574,427	$	5,794,417
Trade receivable		1,860,293		1,778,213
Joint interest receivable		508,001		60,374
Current Derivative Asset		1,699,156		-
Prepaid expenses		283,580		153,410

Total current assets		7,925,457		7,786,414

Oil and natural gas properties and other equipment
Oil and natural gas properties, successful efforts method, net of accumulated depletion		91,766,118		74,165,670
Other property and equipment, net of depreciation		103,757		168,631

Total oil and natural gas properties and other equipment, net		91,869,875		74,334,301

Other assets
Derivative Asset		66,930		-
Goodwill		959,681		959,681
Other		981,283		1,112,025

Total other assets		2,007,984		2,071,706

Total assets	$	101,803,266	$	84,192,421

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities	$	5,835,145	$	9,484,861
Joint interest revenues payable		828,924		967,780
Current derivative liability		-		62,834
Current maturities of notes payable		2,353,322		25,209
Current asset retirement obligations		428,258		366,360

Total current liabilities		9,445,649		10,907,044

Long-term liabilities
Derivative liabilities		-		51,187
Notes payable		23,161,567		12,531,879
Related party note payable		10,180,000		-
Deferred income tax		14,039,742		15,545,910
Asset retirement obligations		3,177,295		2,070,308

Total long-term liabilities	$	50,558,604	$	30,199,284

F-3

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

December 31,	2014			2013
Commitments and contingencies				(See Note 2)

Stockholders' equity
Preferred stock, $.001 par value, authorized 10,000,000 shares;
none issued and outstanding	-			-
Common stock, $.001 par value, authorized 150,000,000 shares;
12,362,336 shares issued at December 31, 2013 and 2012		12,362			12,362
Paid-in capital in excess of par		55,919,905			54,446,105
Retained deficit		(14,133,294	)		(11,372,374	)

Total stockholders' equity		41,798,973			43,086,093

Total liabilities and stockholders' equity	$	101,803,226		$	84,192,421

F-4

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

Years Ended December 31,	2014			2013
				(See Note 2)

Oil, natural gas, and related product sales	$	20,172,792		$	14,965,153

Expenses
Depreciation and depletion		10,140,152			6,436,366
Lease operating		5,457,471			4,237,207
General and administrative		3,876,698			3,087,034
Professional fees		986,774			777,655
Production taxes		695,693			434,623
Accretion of discount on asset retirement obligation		319,703			159,683
Exploration		80,853			43,794
Impairment of oil and gas properties		4,428,378			-
Gain on sale of assets		(2,115,967	)		-

Total expenses		23,869,435			15,176,362

Operating loss		(3,696,643	)		(211,209	)

Other income (expense)
Interest income and expense		(2,617,481	)		(586,542	)
Going public delay expense		-			(425,005	)
Gain (loss) from derivative contracts		2,065,998			(23,153	)

Total other expense		(551,483	)		(1,034,700	)

Income (loss) before income taxes		(4,248,126	)		(1,245,909	)

Income tax (expense) benefit:
Current income tax (expense) benefit		(15,465	)		(26,502	)
Deferred income tax (expense) benefit		1,502,671			(273,402	)

Total income tax (expense) benefit		1,487,206			(299,904	)

Net loss	$	(2,760,920	)	$	(1,545,813	)


Net loss per basic and diluted common share	$	(0.22	)	$	(0.13	)


Weighted average basic and diluted common shares outstanding		12,362,336			12,362,336

F-5

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Year Ended December 31, 2014 and 2013

	Common Stock				Paid-in
	($.001 Par Value)				Capital in
	Shares		Amount		Excess of Par		(Deficit)			Total
Balances, January 1, 2012		12,362,336	$	12,362	$	53,247,305	$	(9,826,561	)	$	43,433,106

Stock-based Compensation		-		-		1,198,800		-		$	1,198,800

Net Loss		-		-		-	$	(1,545,813	)	$	(1,545,813	)

Balances, December 31, 2013 (See Note 2)		12,362,336	$	12,362	$	54,446,105	$	(11,372,374	)	$	43,086,093

Stock-based Compensation		-		-	$	1,473,800		-		$	1,473,800

Net Loss		-		-		-	$	(2,760,920	)	$	(2,760,920	)

Balances, December 31, 2014		12,362,336	$	12,362	$	55,919,905	$	(14,133,294	)	$	41,798,973

F-6

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,	2014			2013
				(See Note 2)

Cash Flows from Operating Activities
Net loss	$	(2,760,920	)	$	(1,545,813	)
Adjustments to reconcile net loss to net cash provided by operating activities		-			-
Depreciation and depletion		10,140,152			6,436,366
Impairment of oil and gas properties		4,428,378			-
Deferred income taxes		(1,506,168	)		273,402
Stock-based compensation		1,473,800			1,198,800
Accretion of asset retirement obligation		319,703			159,683
Going public delay expense		-			425,005
Unrealized (gain) loss on derivative contracts		(1,880,107	)		(45,348	)
Accretion of debt issuance costs		192,739			210,832
Gain on asset sale		(2,115,916	)
Increase (decrease) in cash attributable to changes in operating assets and liabilities:
Trade receivable		(82,079	)		(577,897	)
Joint interest receivable		(447,627	)		(4,653	)
Prepaid expenses and other assets		71,808			(102,339	)
Accounts payable and accrued liabilities		(1,134,686	)		4,323,757
Joint interest revenues payable		(138,856	)		409,948
		-
Net cash provided by operating activities		6,560,221			11,161,743

Cash flows from investing activities
Development of oil and natural gas properties		(16,492,626	)		(16,103,521	)
Acquisition of oil and natural gas properties		(16,803,448	)		-
Proceeds from sale of oil and natural gas properties		1,891,743			1,780,629	)
Acquisition of other property and equipment		(9,495	)		-
Oil and natural gas abandonment costs		(27,345	)		(47,806	)
Other assets		-			(6,071	)

Net cash used in investing activities		(31,441,171	)		(14,376,769	)

Cash flows from financing activities
Proceeds from notes payable, net of debt issuance costs		23,849,558			18,141,803	)
Deferred offering costs		(86,231	)		(150,738	)
Repayments of notes payable		(1,102,367	)		(10,018,481	)

Net cash provided by financing activities		22,660,960			7,972,584

Net increase (decrease) in cash		(2,219,990	)		4,757,558

Cash, beginning of year		5,794,417			1,036,859

Cash, end of year		3,574,427			5,794,417

F-7

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Years Ended December 31,	2014		2013

Supplemental disclosure of cash flow information
Cash paid during the period for taxes		3,835		-
Cash paid during the period for interest	$	2,231,137	$	377,144

Supplemental disclosure of non-cash investing transactions
Payables related to oil and natural gas capitalized expenditures	$	1,537,638	$	1,622,160
Capitalized asset retirement cost	$	849,181	$	52,792
Payable settled through asset sales	$	3,872,674

Supplemental disclosure of non-cash financing transactions
Notes payable issued for purchase of equipment	$		$	34,428

F-8

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Starboard Resources, LLC was formed in Delaware on June 2, 2011 as a limited liability company named Starboard Resources LLC to acquire, own, operate, produce, and develop oil and natural gas properties primarily in Texas and Oklahoma. On June 28, 2012, Starboard Resources, LLC converted from a Delaware limited liability company to a Delaware C-Corporation called Starboard Resources, Inc. (“Starboard”). The membership units of Starboard Resources LLC were exchanged on a 1:1 basis for common shares of Starboard Resources, Inc.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

These consolidated financial statements were approved and available for issuance on April 15, 2015. Subsequent events have been evaluated through this date.

Revision of prior period financial statements and out-of-period adjustments

During the year ended December 31, 2014, we identified and corrected an immaterial tax provision error that originated in prior periods. We assessed the materiality of the errors in accordance with the SEC guidance on considering the effects of prior period misstatements based on an analysis of quantitative and qualitative factors. Based on this analysis, we determined that the errors were immaterial to each of the prior reporting periods affected and, therefore, amendments of reports previously filed with the SEC were not required. However, we have concluded that correcting the errors in our 2014 financial statements would materially overstated results for the year ending December 31, 2014. Accordingly, we have reflected the correction of these prior period errors in the periods in which they originated and revised our consolidated balance sheet and consolidated statement of equity for the year ended December 31, 2013, and our consolidated statement of cash flows for the year ended December 31. 2013

The effect of the immaterial correction on the condensed consolidated balance sheet as of December 31, 2013 are as follows (in thousands):

	As Reported			Correction			As Revised

Deferred tax assets	$	39		$	(39	)	$	0
Total current assets		7,825			(39	)		7,786
Total assets	$	84,231		$	(39	)	$	84,192

Deferred tax liabilities	$	15,914		$	(368	)	$	15,546
Total liabilities		41,474			(368	)		41,106

Accumulated deficit		(11,701	)		329			(11,372	)
Total stockholders' equity		42,757			329			43,086
Total liabilities and stockholders' equity	$	84,231		$	(39	)	$	84,192

The effect of the corrections on the Company’sconsolidated statements of operations for the year ended December 31, 2013 are as follows:

	As Reported			Correction			As Revised
For the year ended December, 2013
Loss before income taxes		(1,246	)		-			(1246	)
Deferred income tax benefit (expense)		629			(329	)		300
Net loss	$	(1,875	)	$	(329	)	$	(1,546	)

F-9

The effect of the corrections on the Company’s consolidated statements of cash flows for the year ended December 31, 2013 are as follows:

	As Reported			Correction			As Revised
For the year ended December 31, 2013
Cash flows from operating activities:
Net income (loss)	$	(1,875	)	$	329		$	(1,546	)
Deferred income taxes		603			(329	)		274
Other		12,434			-			12,434
Net cash provided by operating activities		11,162			-			11,162

Net cash used in investing activities		(14,377	)		-			(14,377	)

Net provided by financing activities		7,973			-			7,973
Net increase in cash		4,758			-			4,758
Cash, beginning of period		1,037			-			1,037
Cash, end of period	$	5,794			-		$	5,794

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Starboard and its wholly owned subsidiaries, ImPetro Resources, LLC (“ImPetro”) and ImPetro Operating (“Operating”) (Collectively the “Company”). All intercompany transactions and balances have been eliminated in consolidation.

Oil and Gas Natural Gas Properties

The Company uses the successful efforts method of accounting for oil and natural gas producing activities, as further defined under ASC 932, Extractive Activities - Oil and Natural Gas. Under these provisions, costs to acquire mineral interests in oil and natural gas properties, to drill exploratory wells that find proved reserves, and to drill and equip development wells are capitalized.

Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process that relies on interpretations of available geologic, geophysic and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. Capitalized costs of producing oil and natural gas interests are depleted on a unit-of-production basis at the field level.

If an exploratory well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. If a determination cannot be made as to whether the reserves that have been found can be classified as proved, the cost of drilling the exploratory well is not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired and its costs are charged to expense. Its cost can, however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as a producing well and the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.

The carrying value of oil and gas properties is assessed for possible impairment on a field by field basis and 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. For year December 31, 2014, the Company's impairment charge approximated $4,428,378. During the year-ended December 31, 2013 the Company did not incur an impairment charge.

Other Property and Equipment

Other property and equipment, which includes field equipment, vehicles, and office equipment, is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Vehicles and office equipment are generally depreciated over a useful life of five years and field equipment is generally depreciated over a useful life of twenty years.

F-10

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. Goodwill is not amortized; rather, it is tested for impairment annually and when events or changes in circumstances indicate that fair value of a reporting unit with goodwill has been reduced below carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. However, the Company only has one reporting unit. To assess impairment, the Company has the option to qualitatively assess if it is more likely than not that the fair value of the reporting unit is less than the book value. Absent a qualitative assessment, or, through the qualitative assessment, if the Company determines it is more likely than not that the fair value of the reporting unit is less than the book value, a quantitative assessment is prepared to calculate the fair market value of the reporting unit. If it is determined that the fair value of the reporting unit is less than the book value, the recorded goodwill is impaired to its implied fair value with a charge to operating expenses. As of December 31, 2014 and 2013 and the years then ended there was no impairment of goodwill.

Deferred Offering Costs

The Company complies with the requirements of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (SAB) Topic 5A ‘‘Expenses of Offering’’. Deferred offering costs consist principally of accounting, legal and other fees incurred through the consolidated balance sheet dates that are related to a proposed initial public offering and that will be charged to stockholders’ equity upon the receipt of the offering proceeds or charged to expense if the offering is not completed. For the years ended December 31, 2014 and 2013, the Company incurred deferred offering costs of approximately $86,231 and $151,000, respectively, relating to expenses connected with the proposed offering. The deferred offering costs are included in other assets in the consolidated balance sheets. Additionally, these costs are reviewed periodically by management for indications of impairment. For the years ended December 31, 2014 and 2013, the Company did not have an impairment charge.

Asset Retirement Obligations

The Company follows the provisions of ASC 410-20, Asset Retirement Obligations. ASC 410-20 requires entities to record the fair value of obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depleted as part of the oil and natural gas property. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company’s asset retirement obligations relate to the plugging, dismantlement, removal, site reclamation and similar activities of its oil and natural gas properties.

Asset retirement obligations are estimated at the present value of expected future net cash flows and are discounted using the Company’s credit adjusted risk free rate. The Company uses unobservable inputs in the estimation of asset retirement obligations that include, but are not limited to, costs of labor, costs of materials, profits on costs of labor and materials, the effect of inflation on estimated costs, and the discount rate. Accordingly, asset retirement obligations are considered a Level 3 measurement under ASC 820. Additionally, because of the subjectivity of assumptions and the relatively long lives of the Company’s wells, the costs to ultimately retire the Company’s wells may vary significantly from prior estimates.

Revenue Recognition and Natural Gas Imbalances

The Company utilizes the accrual method of accounting for natural gas and crude oil revenues, whereby revenues are recognized based on the Company’s net revenue interest in the wells upon delivery to third parties. The Company will also enter into physical contract sale agreements through its normal operations.

Gas imbalances are accounted for using the sales method. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. However, the Company has no history of significant gas imbalances.

Cash

The Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. As of December 31, 2014 and 2013, the Company did not hold any cash equivalents.

The Company maintains its cash balances in financial institutions which are insured by the Federal Deposit Insurance Corporation (“FDIC”). From time to time, the Company will maintain cash balances in a financial institution that may exceed the FDIC coverage of $250,000. The Company has not experienced any losses in such accounts and believes it is not subject to any significant credit risk on cash.

Trade Receivable and Joint Interest Receivable

Trade receivable is comprised of accrued natural gas and crude oil sales and joint interest receivable is comprised of amounts owed to the Company from joint interest owners for their proportionate share of expenses. Generally, operators of natural gas and crude oil properties have the right to offset joint interest receivables with revenue payables. Accordingly, any joint interest owner that has a joint interest receivable and joint interest revenue payable as of December 31, 2014 and 2013 are shown at net in the accompanying consolidated balance sheets.

F-11

The Company performs ongoing credit evaluations of its customers’ and extends credit to virtually all of its customers. Credit losses to date have not been significant and have been within management’s expectations. In the event of complete non-performance by the Company’s customers and joint interest owners, the maximum exposure to the Company is the outstanding trade and joint interest receivable balance at the date of non-performance. For the years ended December 31, 2014 and 2013, the Company had no bad debt expense.

Derivative Activities

The Company utilized oil and natural gas derivative contracts to mitigate its exposure to commodity price risk associated with its future oil and natural gas production. These derivative contracts have historically consisted of options, in the form of price floors or collars. The Company’s derivative financial instruments are recorded on the consolidated balance sheets as either an asset or a liability measured at fair value. The Company does not apply hedge accounting to its oil and natural gas derivative contracts and accordingly the changes in the fair value of these instruments are recognized in the statement of operations in the period of change.

The Company’s derivative instruments are issued to manage the price risk attributable to our expected natural gas and oil production. While there is risk that the financial benefit of rising natural gas and oil prices may not be captured, Company management believes the benefits of stable and predictable cash flow are more important. Every unsettled derivative instrument is recorded on the accompanying consolidated balance sheets as either an asset or a liability measured at its fair value. Changes in a derivative’s fair value are recognized in earnings unless specific hedge accounting criteria are met. Cash flows from natural gas and oil derivative contract settlements are reflected in operating activities in the accompanying consolidated statements of cash flows.

Realized and unrealized gains and losses on derivatives are accounted for using the mark-to-market accounting method. The Company recognizes all unrealized and realized gains and losses related to these contracts in each period in gain (loss) from derivative contracts in the accompanying consolidated statements of operations.

Lease Operating Expenses

Lease operating expenses represent, pumpers’ salaries, saltwater disposal, ad valorem taxes, repairs and maintenance, expensed workovers and other operating expenses. Lease operating expenses are expensed as incurred.

Sales-Based Taxes

The Company incurs severance tax on the sale of its production which is generated in Texas and Oklahoma. These taxes are reported on a gross basis and are included in production taxes within the accompanying consolidated statements of operations.

Stock-Based Compensation and Equity Incentive Plans

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. The standard requires the measurement and recognition of compensation expense in the Company’s consolidated statements of operations for all share-based payment awards made to the Company’s employees, directors and consultants including employee stock options, non-vested equity stock and equity stock units, and employee stock purchase grants. Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, reduced by an estimate of the annualized rate of expected forfeitures, and is recognized as an expense over the employees’ expected requisite service period, generally using the straight-line method. In addition, ASC 718 requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow as prescribed under previous accounting rules.

The Company’s forfeiture rate represents the historical rate at which the Company’s stock-based awards were surrendered prior to vesting. ASC 718 requires forfeitures to be estimated at the time of grant and revised on a cumulative basis, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

During the years ended December 31, 2014 and 2013, the Company incurred a stock based compensation expense of approximately $1,474,000 and $1,199,000, respectively, and is included in the accompanying consolidated statements of operations in general and administrative expenses.

Income Taxes

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

F-12

The Company is required to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Company recording a tax liability that increases expense in that period. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 2014. The Company’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.

The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of December 31, 2014.

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated in the same manner, but also considers the impact to common shares for the potential dilution from stock options, non-vested share appreciation rights and non-vested restricted shares. For the year ended December 31, 2014, there were 1,249,650 potentially dilutive non-vested restricted shares and stock options. For the year ended December 31, 2013, there were 349,650 potentially dilutive non-vested restricted shares. The potentially dilutive shares, for the December 31, 2014 and 2013, are considered antidilutive since the Company is in a net loss position and thus result in the basic net income (loss) per common share equaling the diluted net income (loss) per common share.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s estimates of oil and natural gas reserves are, by necessity, projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of natural gas and oil that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. Estimates of economically recoverable natural gas and oil reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future natural gas and oil prices, future operating costs, severance taxes, development costs and workover costs, all of which may in fact vary considerably from actual results. The future drilling costs associated with reserves assigned to proved undeveloped locations may ultimately increase to the extent that these reserves are later determined to be uneconomic. For these reasons, estimates of the economically recoverable quantities of expected natural gas and oil attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity of the reserves, which could affect the carrying value of the Company’s oil and natural gas properties and/or the rate of depletion related to the oil and natural gas properties.

NOTE 3 – FAIR VALUE MEASUREMENTS

As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date. The carrying amounts of the Company’s financial assets and liabilities, such as cash, trade receivable, joint interest receivable, joint interest revenues payable, accounts payable and accrued liabilities and related party payable, approximate their fair values because of the short maturity of these instruments. The carrying amount of the notes payable in long-term debt also approximates fair value due to its variable-rate characteristics.

F-13

The following tables present information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2014 and December 31, 2013:

							Balance as of
							December 31,
($ in thousands)	Level 1		Level 2		Level 3		2014
Assets (at fair value):
Derivative assets (oil put options)	$	0	$	1,766	$	0	$	1,766

							Balance as of
							December 31,
($ in thousands)	Level 1		Level 2		Level 3		2013
Liabilities (at fair value):
Derivative liabilities (oil collar and put options)	$	0	$	114	$	0	$	114

NOTE 4 – PROPERTY ACQUISITION

On March 26, 2014 (the “Acquisition Date”), the Company completed the purchase of oil and natural gas leases and leasehold interests (the “Oil and Natural Gas Properties”) from White Oak Resources VI, LLC and Permian Atlantis LLC (collectively the “Seller”) for the purpose of increasing the Company’s oil and natural gas operations in the Permian Basin. The assets acquired are: (a) oil and natural gas leases and leasehold interests in Winkler and Loving Counties in Texas and Lea County, New Mexico; (b) twenty-nine wellbores; and (c) any contracts or agreements related to the foregoing lands, leases and wells. The Oil and Natural Gas Properties include total acreage held by production of 5,160 gross developed acres (1,983.61 net developed acres). Additionally, producing wells and surrounding acreage have been unitized under Texas Railroad Commission regulations. Under the terms of the agreement, the Company purchased the Oil and Natural Gas Properties for $16,803,000 in cash, including before purchase price adjustments.

Unaudited Pro Forma Condensed Combined Financial Statements

The following unaudited pro forma financial statements give effect to the acquisition of the Oil and Natural Gas Properties. The unaudited pro forma condensed statement of operations for the year ended December 31, 2014 and 2013 reflects the acquisition of the Oil and Natural Gas Properties as if it had occurred on January 1, 2013.

It is not intended to be indicative of the Company's results of operations or financial position that might have been achieved had the acquisition been completed as of the dates presented, or the Company's future results of operations or financial position.

in thousands, except share data	Year Ended December 31, 2014		Year Ended December 31, 2013
Oil, natural gas, and related product sales	$	20,855	$	17,512

Net loss	$	2,442	$	92

Net loss per basic and diluted common share	$	0.20	$	0.00

Weighted average basic and diluted common shares outstanding		12,362,336		12,362,336

Financial Statement Presentation and Purchase Price Allocation

The following table summarizes the purchase price and values of assets acquired and liabilities assumed:

Fair value of assets acquired and liabilities assumed (in thousands)
Proved oil and natural gas properties (1)	$	17,662
Revenue payable		(27	)
Asset retirement obligations		(832	)
Total fair value of assets acquired and liabilities assumed, net	$	16,803

Cash consideration transferred	$	16,803

(1) Amount includes asset retirement costs of approximately $832.

F-14

NOTE 5 – OIL AND NATURAL GAS PROPERTIES

The following table presents a summary of the Company’s oil and natural gas properties at December 31, 2014 and December 31, 2013:

($ in thousands)	December 31, 2014			December 31, 2013
Oil and natural gas properties
Proved-developed producing properties	$	96,691		$	72,208
Proved-developed non-producing properties		2,880			1,384
Proved-undeveloped properties		13,330			9,410
Unproved properties		1,996			4,208
Less: Accumulated depletion		(23,131	)		(13,044	)
Total oil and natural gas properties, net of accumulated depletion	$	91,766		$	74,166

NOTE 6 – ASSET RETIREMENT OBLIGATIONS

The Company has recognized the fair value of its asset retirement obligations related to the future costs of plugging, abandonment, and remediation of oil and natural gas producing properties. The present value of the estimated asset retirement obligations has been capitalized as part of the carrying amount of the related oil and natural gas properties. The liability has been accreted to its present value as of the end of each period. At December 31, 2014 and December 31, 2013, the Company evaluated 169 and 125 wells, respectively, and has determined a range of abandonment dates between January 2014 and September 20632061. The following table represents a reconciliation of the asset retirement obligations for the year ended December 31, 2014 and December 31, 2013:

	Year Ended December 31, 2014			Year Ended December 31, 2013
($ in thousands)
Asset retirement obligations, beginning of period	$	2,437		$	2,272
Additions to asset retirement obligation		859			43
Liabilities settled during the period		0			(48	)
Accretion of discount		320			160
Revision of estimate		(10	)		10
Asset retirement obligations, end of period	$	3,606		$	2,437

The assert retirement liability is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.

NOTE 7 – GOING PUBLIC DELAY FEE

We entered a “Securities Purchase and Exchange Agreement” dated June 10, 2011, with Longview Marquis Master Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC (collectively “Summerline”). The Agreement says if the Company, for any reason, does not go public on or before that date that is one hundred fifty days after the June 13, 2011 (the “Going Public Delay Date”), the Company shall pay to each applicable stockholder an aggregate amount equal to the product of (i) such stockholder’s allocation percentage multiplied by (ii) $60,715 (the “Going Public Delay Fee”) on the last business day of each calendar month, for each such calendar month following the Going Public Delay Date through and including the date of going public (the “Going Public Delay Period”). For any partial calendar months during the Going Public Delay Period, the Going Public Delay Fee shall be pro-rated appropriately. For the year ended December 31, 2013, the Company has incurred a delay fee of approximately $425,000 which is currently included in accrued liabilities on the accompanying condensed consolidated balance sheets.

Effective August 6, 2013, the Company ceased to incur Going Public Delay Fees due to an effective Form 10 filing.

NOTE 8 – DERIVATIVES

We use derivatives to hedge our oil production. Our current hedge position consists put options, of some which have deferred premiums paid at settlement. These contracts and any future hedging arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase. In addition, these arrangements may limit the benefit to us of increases in the price of oil. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instrument, which we utilize entirely to hedge our production and do not enter into for speculative purposes. We have not designated the derivative contracts as hedges for accounting purposes, and accordingly, we record the derivative contracts at fair value and recognize changes in fair value in earnings as they occur.

F-15

At December 31, 2014, we had the following open crude oil derivative contracts:

			December 31, 2014
	Instrument	Commodity	Volume (bbl / month)		Floor Price	Ceilings Price	Purchased Put Option Price	Fair Value (in thousands)
Jan.2015 – Oct. 2015	Put	Crude Oil		5,000			77.00 – 80.00	999
Nov. 2015 – Dec. 2015	Put	Crude Oil		2,800			80.00	110
Jan. 2015 – Dec. 2015	Put	Crude Oil		4,000			70.00	590
Jan.2016 – March 2016	Put	Crude Oil		1,500			75.00	67

The following tables identify the fair value amounts of derivative instruments included in the accompanying consolidated balance sheets as derivative contracts, categorized by primary underlying risk. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. The following tables also identify the net gain (loss) amounts included in the accompanying consolidated statements of operations as gain (loss) from derivative contracts.

Fair Value of Derivative Financial Instruments

(amounts in thousands)	December 31, 2014		December 31, 2013
Derivative financial instruments - Current asset	$	1,699	$	0
Derivative financial instruments - Long-term assets		67		0
Derivative financial instruments - Current liabilities		0		(63	)
Derivative financial instruments - Long-term liabilities		0		(51	)
Net derivative financial instruments	$	1,699	$	(114	)

Effect of Derivative Financial Instruments

	December 31,
(amounts in thousands)	2014		2013
(Gain)/loss from derivative contracts	$	2,066	$	-

NOTE 9 – NOTES PAYABLE

On June 27, 2013, the Company entered into a credit agreement (“Credit Agreement”) with Independent Bank to borrow up to $100,000,000 at a current rate of 4.00% annum. The Credit Agreement was obtained to fund the development of the Company’s oil and natural gas properties and refinance the prior bank facility. At December 31, 2014 and December 31, 2013, the Company had approximately $22,495,780 and $12,436,000, respectively, in borrowings outstanding under the Credit Agreement.

The Credit Agreement provides for a borrowing base of $23,500,000 as of December 31, 2014, which is re-determined semi-annually and upon requested special redeterminations. Additionally, the borrowing base may be adjusted at the financial institution’s discretion which is based in part upon external factors over which the Company has no control. If the re-determined borrowing base were to be less than outstanding borrowings under the Credit Agreement, the Company would be required to repay the deficit. The Company incurs a commitment fee of 0.5% on the unused portion of the credit facility or if less, the borrowing base. The Credit Agreement matures at June 1, 2016.

Loans under the Credit Agreement bear interest at the greater of: (1) the prime rate, the annual rate of interest announced by the Wall Street Journal as its “prime rate”, or (2) the floor rate of 4.00%.

The Credit Agreement is collateralized by the oil and natural gas properties and contains several restrictive covenants including, among others: (1) a requirement to maintain a current ratio, of not less than 1.0 to 1.0; (2) a maximum permitted ratio of debt to adjusted EBITDAX of not more than 3.5 to 1.0; (3) a maximum permitted ratio of adjusted EBITDAX to interest expense of not more than 3.0 to 1.0; and (4) a prohibition against incurring debt, subject to permitted exceptions.

F-16

On March 26, 2014, the Company entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% annum. The agreement was obtained to fund the development of the Company’s acquisition of oil and natural gas properties (see note 4). The term loan had an outstanding balance of approximately $2,941,000 outstanding at December 31, 2014. The loan requires 18 equal monthly payments of approximately $194,000 starting on October 1, 2014 and maturing on March 1, 2016 and is subject to the same covenants as the Credit Agreement.

On April 15, 2015 the Company entered into the Fourth Amendment to the Credit Agreement with Independent Bank (“Amendment”). The agreement provides that the borrowing base is $21,750,000 as of the date of the Amendment that will be reduced by $250,000 per month before September 1, 2015 and $350,000 per month thereafter, unless re-determined after 150 days from the date of the Amendment. The Company is obligated to provide Independent Bank an engineering report acceptable to the Bank before September 1, 2015 showing proven and producing and proven undeveloped oil and gas reserves, discounted present value of future net income for the Company’s oil and gas properties as of September 1, 2015, projections of annual rate of production, gross income and net income relating to these reserves and take-or-pay, prepayment and gas balancing obligations.

NOTE 10 – STOCK BASED COMPENSATION AND CONDITIONAL PERFORMANCE AWARDS

On April 1, 2012, the Company entered into employment agreements (the “Employment Agreement”) which provided a restricted stock grant and a conditional performance award to key members of management.

The restricted stock grant of 349,650 shares had a grant date fair value of $10.00 per share and vests in full upon the earlier of an initial public offering (“IPO”) which includes the sale of shares to the public, a business combination whereas 50% or more of the voting power is transferred to the new owners, or March 1, 2015. During the twelve months ended December 31, 2014 and 2013, the Company incurred a stock-based compensation expense of approximately $1,474,000 and $1,199,000, respectively, related to the restricted stock grant, which is included in the accompanying condensed consolidated statements of operations in general and administrative expenses. As of December 31, 2014 and December 31, 2013, there was approximately $299,700 and $1,498,500, respectively, of unrecognized stock-based compensation expense related to the non-vested restricted stock grant. At December 31, 2014 and December 31, 2013, this unrecognized stock-based compensation is expected to be expensed on a straight-line basis over 3 and 15 months. As of December 31, 2014 and as of December 31, 2013, there have been no forfeitures associated with the restricted stock grant.

Additionally, the Employment Agreement provides for a conditional performance award where if an IPO occurs, the employee will receive: (1) a cash payment of 1% of the difference between the Company market capital and the book value at the time of the IPO, (2) common stock options to purchase 1.0% of the fully-diluted capital stock as of the IPO date and IPO price which will vest over a four year period and contain a cashless exercise, (3) common stock options to purchase 1.0% of the fully-diluted capital stock as of the 2nd anniversary of the IPO date at the closing price of the common stock on the 2nd anniversary date of the IPO and will vest six years after the grant and contain a cashless exercise. As of the twelve months months ended December 31, 2014 and 2013, the conditional performance feature is not probable and as such, no compensation expense related to the conditional performance feature has been recognized.

On August 30, 2014, the Company amended and restated the Employment Agreement which provided for additional stock options.

The equity award of options to purchase 900,000 shares at the exercise price of $4.75 per share and vesting over three years from September 4, 2014 with a one-year cliff (in respect of 300,000 shares) and monthly vesting thereafter of 25,000 shares over the remaining two years. For the year ended, the Company incurred a stock-based compensation expense of approximately $275,000 related to stock option, which is included in the accompanying condensed consolidated statements of operations in general and administrative expenses. As of December 31 2014, there was approximately $2,200,000 of unrecognized stock-based compensation related to the non-vested stock options.

The assumptions used in the Black-Scholes Option Pricing Model for the stock options granted were as follows:

	2014
Risk-free interest rate		1.87	%
Expected volatility of common stock		92	%
Dividend yield	$	0.00
Expected life of options	5.72 years

The following table summarizes information about stock option activity and related information for the year ended December 31, 2014:

	Number of Shares Underlying Options		Weighted Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contractual Life (in Years)
Outstanding at December 31, 2013		-	$	-	$	-		-
Granted		900,000		4.75		2.75		10
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding at December 31, 2014		900,000		4.75		2.75		10
Exercisable at December 31, 2014		-		-		-		-

F-17

NOTE 11 – RELATED PARTY TRANSACTIONS

Related Party Credit Agreement

On March 29, 2013, the Company entered a credit agreement with SOSventures, LLC providing for a term loan through February 16, 2016 in an amount up to $10,000,000 at a 17.00% interest rate through March 29, 2014 and 22.00% interest rate thereafter. The loan under this agreement is secured by a second lien on the Company’s assets. The Company may not incur further indebtedness beyond this loan and the Credit Agreement without the consent of SOS Ventures, until such time as the SOS Ventures loan is fully repaid.

On May 30, 2014, the Company amended its credit agreement with SOSventures, LLC providing for a term loan through February 1, 2016 in an amount up to $20,000,000 at an 18.00% interest rate. As of December 31, 2014, the Company has borrowed $10,000,000 under this agreement.

The term loan is collateralized under a second lien by the oil and natural gas properties and contains several restrictive covenants including, among others: (1) a requirement to maintain a current ratio, of not less than 1.0 to 1.0; (2) a maximum permitted ratio of debt to adjusted EBITDAX of not more than 4.0 to 1.0; (3) a maximum permitted ratio of adjusted EBITDAX to interest expense of not more than 3.0 to 1.0; and (4) a prohibition against incurring debt, subject to permitted exceptions.

On April 15, 2015 the Company entered the Second Amendment to the First Amendment and Restated Credit Agreement and several other agreements which provided that SOSventures, LLC will provide an additional $3 million on its credit facility to be used to pay the outstanding balance of the Independent Bank term loan, pay on the Independent Bank credit facility and for operations. Additionally, SOSventures deposit $5 million into a controlled account at Independent Bank to be used to drill two wells in the Crittendon Field referenced in the Independent Bank Amendment. Further, SOSventures, LLC will receive interest on its credit facility and a 1% overriding royalty interest on the Company’s Crittendon Field properties effective upon the drilling of these two oil and gas wells until such time as the credit facility is repaid. Finally, SOSventures, LLC shall receive warrants to purchase 2,542,397 of the Company's common shares for $1.00 per share with a two-year term. If fully purchased 2,542,397 would equal 20% of our currently outstanding common stock.

NOTE 12 – LEGAL PROCEEDINGS

From time-to-time, the Company may become subject to proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.

NOTE 13 – STOCKHOLDER’S EQUITY

Conversion to C-Corporation

On June 28, 2012, the Company converted from a Delaware limited liability company to a Delaware C-Corporation. The membership units outstanding as of June 28, 2012 were converted to common shares at a 1:1 ratio. The conversion to a C-Corporation has been retroactively applied throughout the consolidated financial statements.

Prior to June 28, 2012, at the end of each fiscal year of the Company, the net profits or losses were allocated to the capital accounts of the members based on the members’ ownership percentage of the Company, which is determined by taking the number of common shares held by the stockholder and dividing by the total issued and outstanding common shares (“Sharing Percentage”).

Preferred Shares

The Company is authorized to issue up to 10,000,000 preferred shares, par value $0.001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. No preferred shares were issued and outstanding as of December 31, 2014 and 2013.

Common Shares

The Company has a single class of common shares that have the same rights, preferences, limitations, and qualifications. The Company is authorized to issue up to 150,000,000 shares, par value $0.001 per share, in the aggregate and from time to time may increase the number of shares authorized.

F-18

NOTE 14 – INCOME TAXES

For the years ended December 31, 2014 and 2013, the Company estimated that its current and deferred tax provision was as follows:

	2014			2013
Current taxes
Federal
State		(15,465	)		(26,502	)
		(15,465	)		(26,502	)

Deferred taxes
Federal		1,449,296			(402,379	)
State		53,375			128,977
		1,502,671			(273,402	)
Total current and deferred tax benefit/(expense)		1,487,206			(299,904	)

A reconciliation of income tax expense (benefit) computed by applying the U.S. federal statutory income tax rate and the reported effective tax rate on income for the years ended December 31, 2014 and 2013 are as follows:

	2014		2013
Income tax benefit calculated using the federal statutory income tax rate		1,444,432		423,609
State income taxes, net of federal income taxes		37,910		102,475
Permanent differences, rate changes and other		4,864		(825,988	)
Total income tax benefit (expense)		1,487,206		(299,904	)

Deferred income taxes arise from temporary differences in the recognition of certain items for income tax and financial reporting purposes. The approximate tax effects of significant temporary differences which comprise the deferred tax assets and liabilities at December 31, 2014 and 2013 are as follows:

	December 31,
	2014			2013
Deferred tax assets:
Federal and state net operating loss carryforward		6,864,241			4,195,157
Stock-based compensation		1,214,378			713,286
Asset retirement obligations		1,225,887			828,467
Derivatives					38,767
Other		5,784			-
Total deferred tax assets		9,310,290			5,775,677

Deferred tax liabilities:
Oil and gas properties and fixed assets		(22,749,563	)		(21,321,587	)
Derivatives		(600,469	)
Total deferred tax liabilities		(23,350,032	)		(21,321,587	)

Net deferred tax liability		(14,039,742	)		(15,545,910	)

F-19

At December 31, 2014, the Company has net operating losses as follows:

	Amount		Expiration
Net operating losses:
Federal	$	19,819,471	Dec. 2032 to 2034
State		3,175,043	Dec. 2032 to 2034

F-20

SUPPLEMENTAL INFORMATION

Presented in accordance with

FASB ASC Topic 932, Extractive Activities - Oil and Gas

F-21

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

Supplemental Oil and Natural Gas Disclosures (Unaudited)

The following tables set forth supplementary disclosures for oil and gas producing activities in accordance with FASB ASC Topic 932, Extractive Activities - Oil and Gas.

Capitalized Costs

The following table presents a summary of the Company’s oil and natural gas properties at December 31, 2014 and 2013:

($ in thousands)	2014			2013
Oil and natural gas properties
Proved-developed producing properties	$	96,691		$	72,208
Proved-developed non-producing properties		2,880			1,384
Proved-undeveloped properties		13,330			9,410
Unproved properties		1,996			4,208
Less: Accumulated depletion		(23,131	)		(13,044	)
Total oil and natural gas properties, net of accumulated depletion	$	91,766		$	74,166

Costs Incurred

The following table summarizes costs incurred in oil and natural gas property acquisition, exploration, and development activities. Property acquisition costs as those incurred to purchase lease or otherwise acquire property, including both undeveloped leasehold and the purchase of reserves in place. Exploration costs include costs of identifying areas that may warrant examination and examining specific areas that are considered to have prospects containing oil and natural gas reserves, including costs of drilling exploratory wells, geological and geophysical costs, and carrying costs on undeveloped properties. Development costs are incurred to obtain access to proved reserves, including the cost of drilling development wells, and to provide facilities for extracting, treating, gathering and storing oil and natural gas. Additionally, costs incurred also include new asset retirement obligations established. Asset retirement obligations included in the tables below in the as reported columns for the years ended December 31, 2014 and 2013 were approximately $849,000 and $42,000, respectively

Costs incurred (capitalized and charged to expense) in oil and natural gas activities for the years ended December 31, 2014 and 2013 were as follows:

	2014		2013
Acquisitions of proved properties	$	16,803,448	$	-
Exploration		785,314		43,794
Development		17,244,950		15,926,200
Total costs incurred	$	34,833,712	$	15,969,994

Supplemental Oil and Natural Gas Disclosures (Unaudited) (continued)

Oil and Natural Gas Operating Results

Results of operations from oil and natural gas producing activities for the years ended December 31, 2014 and 2013, excluding Company overhead and interest costs, were as follows:

	2014			2013
Oil, natural gas and related product sales	$	20,172,792		$	14,965,153
Lease operating costs		(5,457,471	)		(4,237,207	)
Production taxes		(695,693	)		(434,623	)
Exploration costs		(80,533	)		(43,794	)
Depletion		(5,457,471	)		(6,386,669	)
Impairment		(4,428,378	)		-
Results of operations from oil and natural gas producing activities	$	4,053,246		$	3,862,860

F-22

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

Supplemental Oil and Natural Gas Disclosures (Unaudited) (continued)

Proved Reserves Methodology

The Company’s estimated proved reserves, as of December 31, 2014 and 2013, are made in accordance with the SEC’s final rule, Modernization of Oil and Gas Reporting, which amended Rule 4-10 of Regulation S-X (the “Final Rule”). As defined by the Final Rule, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible in future years from known reservoirs under existing economic conditions, operating methods, and government regulations. Projects to extract the hydrocarbons must have commenced or an operator must be reasonably certain that it will commence the projects within a reasonable time. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the projects. Further requirements for assignment of estimated proved reserves include the following:

The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by natural gas, oil, and/or water contacts, if any; and (B) adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data. In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons and highest known oil seen in well penetrations unless geoscience, engineering, or performance data and reliable technology establishes a lower or higher contact with reasonable certainty. Reliable technologies are any grouping of one or more technologies (including computational methods) that have been field-tested and have been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

Reserves which can be produced economically through applications of improved recovery techniques (including, but not limited to fluid injections) are included in the proved classification when successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, and other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based.

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The prices used are the average crude oil and natural gas prices during the twelve month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

Reserves engineering is a subjective process of estimating underground accumulations of crude oil, condensate, natural gas, and natural gas liquids that cannot be measured in an exact manner. The accuracy of any reserves estimate is a function of the quality of available date and of engineering and geological interpretation and judgment. The reserves actually recovered, the timing of production of those reserves, as well as operating costs and the amount and timing of development expenditures may be substantially different from original estimates. Revisions result primarily from new information obtained from development drilling, production history, field tests, and data analysis and from changes in economic factors including expectation and assumptions as to availability of financing for development projects.

Reserve Quantity Information

The following table presents the Company’s estimate of its proved oil and gas reserves all of which are located in the United States. The estimates have been prepared with the assistance of Forrest A. Garb & Associates, Inc., an independent petroleum reservoir engineering firm. Oil reserves, which include condensate and natural gas liquids, are stated in barrels and gas reserves are stated in thousands of cubic feet.

F-23

STARBOARD RESOURCES, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION Supplemental Oil and Natural Gas Disclosures (Unaudited) (continued) PROVED-DEVELOPED AND UNDEVELOPED RESERVES	Crude Oil (Bbl)			Natural Gas (Mcf)

December 31, 2012		3,497,860			9,446,650
Revisions of previous estimates		(282,828	)		(861,839
Extensions and discoveries		562,723			562,130
Acquisitions of reserves
Sales of reserves
Production		(126,845	)		(507,321	)
December 31, 2013		3,650,910			8,639,620
Revisions of previous estimates		(772,982	)		(742,628	)
Extensions and discoveries		558,000			333,230
Acquisitions of reserves		797,360			3,811,000
Sales of reserves		(59,370	)		(474,930)
Production		(180,898	)		(758,638	)
December 31, 2014		3,993,020			10,771,270

PROVED DEVELOPED RESERVES
December 31, 2014		853,560			4,324,760
December 31, 2013		484,610			2,100,200

The following table presents the Company’s changes in proved undeveloped reserves.

PROVED UNDEVELOPED RESERVES	Crude Oil (Bbl)			Natural Gas (Mcf)

December 31, 2012		3,071,680			7,120,210
Revisions of previous estimates		(237,423	)		(452,650	)
Extensions and discoveries		562,723			562,130
Acquisitions of reserves		-			-
Sales of reserves		-			-
Transfer to developed		(230,680	)		(690,270	)
December 31, 2013		3,166,300			6,539,420
Revisions of previous estimates		(764,160	)		(1,396,210	)
Extensions and discoveries		540,350			237,800
Acquisitions of reserves		531,350			1,887,730
Sales of reserves		(59,370	)		(474,930)
Transfer to developed		(334,170	)		(822,240	)
December 31, 2014		3,598,810			6,462,010

Approximately $12,558,000 was spent during 2014 related to proved undeveloped reserves that were transferred to proved developed reserves. Estimated future development costs relating to the development of proved undeveloped reserves are projected to be approximately $11 million for 2015, $17 million for 2015, and $36 million for 2016.

Future cash flows are computed by applying a first-day-of-the-month 12-month average price of natural gas (Henry Hub) and oil (West Texas Intermediate) to year end quantities of proved natural gas and oil reserves. Future operating expenses and development costs are computed primarily by the Company's petroleum engineers by estimating the expenditures to be incurred in developing and producing the Company’s proved natural gas and oil reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions. For the year ended December 31, 2014, the oil and natural gas prices were applied at $95.28/Bbl and $4.36/MMBtu, respectively, in the standardized measure. For the year ended December 31, 2013, the oil and natural gas prices were applied at $96.90/Bbl and $3.67/MMBtu, respectively, in the standardized measure. Each of the reference prices for oil and natural gas were adjusted for quality factors and regional differences.

F-24

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

Supplemental Oil and Natural Gas Disclosures (Unaudited) (continued)

Standardized Measure of Discounted Future Net Cash Flow and Changes Therein Relating to Proved Oil and Gas Reserves

The following tables, which presents a standardized measure of discounted future cash flows and changes therein relating to proved oil and gas reserves as of December 31, 2014 and 2013, for the years ended December 31, 2014 and 2013, is presented pursuant to ASC 932. In computing this data, assumptions other than those required by the Financial Accounting Standards Board could produce different results. Accordingly, the data should not be construed as being representative of the fair market value of the Company’s proved oil and gas reserves.

A discount factor of 10 percent was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement costs or fair value of the Company's natural gas and oil properties. An estimate of fair value would take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative of time value of money and the risks inherent in reserve estimates of natural gas and oil producing operations. There have been no estimates for future plugging and abandonment costs.

Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2014

Future cash inflows	$	435,341,260
Less: Production costs		(104,680,910	)
Development costs		(92,010,030	)
Future income taxes		(72,379,134	)
Future net cash flows		166,271,186
10% discount factor		(76,155,055	)
StStandardized measure of discounted future net cash flows	$	90,116,131

Changes in Standardized Measure of Discounted Future Net Cash Flows for the Year Ended December 31, 2014

Standardized measure - beginning of year	$	91,073,201
Increase (decrease)
Sales, net of production costs		(13,632,609	)
Net changes in prices and production costs		(8,272,410	)
Development costs incurred during year		14,252,896
Changes in future development costs		(23,346,670	)
Extensions, discoveries, and improved recoveries		15,039,952
Revisions of previous quantity estimates		(22,903,692	)
Accretion of discount		15,988,173
Net change in income taxes		3,763,259
Purchases and sales of mineral interests		18,320,370
Change in production rates and other		(166,339	)
Standardized measure - end of year	$	90,116,131

F-25

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

Supplemental Oil and Natural Gas Disclosures (Unaudited) (continued)

Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2013

Future cash inflows	$	402,112,260
Less: Future production costs		(82,947,000	)
Future development costs		(91,795,000	)
Future income tax expense		(73,315,987	)
Future net cash flows		154,054,273
10% discount factor		(62,981,072	)
Standardized measure of discounted future net cash inflows	$	91,073,201

Changes in Standardized Measure of Discounted Future Net Cash Flows for the Year Ended December 31, 2013

Beginning of year	$	85,466,507
Sales of oil and natural gas, net of production costs		(10,293,324	)
Net changes in prices and production costs		7,547,696
Development costs incurred during the year		11,556,941
Changes in future development costs		(9,300,011	)
Extensions, discoveries, and improved recoveries		11,620,753
Revisions of previous quantity estimates		(15,492,304	)
Accretion of discount		12,556,186
Net change in income taxes		(3,025,202	)
Purchases and sale of mineral interests
Timing and other		435,959
End of year	$	91,073,201

Significant Changes in Reserves for the Year Ended December 31, 2014

Net Changes in Prices and Production Costs: For the year ended December 31, 2014, the oil and natural gas prices were applied at $95.28/Bbl and $4.36/MMBtu, respectively, in the standardized measure. At December 31, 2013, the oil and natural gas prices were applied at $96.90/Bbl and $3.67/MMBtu, respectively, in the standardized measure. The increase in oil and natural gas prices resulted in a significant increase in future expected cash flows and reserves. Each of the reference prices for oil and natural gas were adjusted for quality factors and regional differences.

Extensions, Discoveries, and Improved Recoveries: During the year ended December 31, 2014, the Company had extensions and discoveries of 558,000 Bbl of crude oil and 333,230 Mcf of natural gas from primarily newly identified drilling opportunities in the Eaglebine oil and natural gas reservoirs as well as new drills in Oklahoma.

Revisions of Previous Quantity Estimates: During the year ended December 31, 2014, the Company adjusted its previous estimates by (772,982) Bbl of crude oil and (758,638) Mcf of natural gas from primarily revisions of proved undeveloped reserves that the Company currently has interests in due to increases in estimated production costs and the requirement that a development plan for the undeveloped oil and gas reserves must be adopted indicating that such reserves are scheduled to be drilled within five years under SEC Regulation S-X Rule 4-10(a)(31)(ii).

Purchases and sales of mineral interests: During the year ended December 31, 2014, the Company purchased the Crittendon Field.

Accretion of Discount: Accretion during the year ended December 31, 2013 was the result of accretion of the future net revenues at a standard rate of 10% due to the passage of time.

F-26

STARBOARD RESOURCES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

Supplemental Oil and Natural Gas Disclosures (Unaudited) (continued)

Significant Changes in Reserves for the Year Ended December 31, 2013

Net Changes in Prices and Production Costs: For the year ended December 31, 2013, the oil and natural gas prices were applied at $96.90/Bbl and $3.67/MMBtu, respectively, in the standardized measure. At December 31, 2012, the oil and natural gas prices were applied at $94.68/Bbl and $2.76/MMBtu, respectively, in the standardized measure. The increase in oil and natural gas prices resulted in a significant increase in future expected cash flows and reserves.

Extensions, Discoveries, and Improved Recoveries: During the year ended December 31, 2013, the Company had extensions and discoveries of 562,723 Bbl of crude oil and 562,130 Mcf of natural gas from primarily newly identified drilling opportunities in the Eaglebine oil and natural gas reservoirs.

Significant Changes in Reserves for the Year Ended December 31, 2013 (continued)

Revisions of Previous Quantity Estimates: During the year ended December 31, 2013, the Company adjusted its previous estimates by (282,828) Bbl of crude oil and (452,650) Mcf of natural gas from primarily revisions of proved undeveloped reserves that the Company currently has interests in due to increases in estimated production costs.

Accretion of Discount: Accretion during the year ended December 31, 20132012

Net Changes in Prices and Production Costs: For the year ended December 31, 2012, the oil and natural gas prices were applied at $94.68/Bbl and $2.76/MMBtu, respectively, in the standardized measure. At December 31, 2011, the oil and natural gas prices were applied at $95.84/Bbl and $4.15/MMBtu, respectively, in the standardized measure. Additionally, estimated future production costs per barrel of oil equivalent (BOE) increased from December 31, 2011 to 2012. The decrease in oil and natural gas prices and increase in production costs resulted in a significant decrease in future expected cash flows and reserves.

Extensions, Discoveries, and Improved Recoveries: During the year ended December 31, 2012, the Company had extensions and discoveries of 1,037,240 Bbl of crude oil and 344,575 Mcf of natural gas from primarily newly identified drilling opportunities in the Eaglebine and Hunton oil and natural gas reservoirs2012, the Company adjusted its previous estimates by (760,571) Bbl of crude oil and 171,497 Mcf of natural gas from primarily revisions of proved undeveloped reserves that the Company currently has interests in due to decreases in future forecasted prices of oil and natural gas and increases in estimated production costs.

Accretion of Discount: Accretion during the year ended December 31, 2012 was the result of accretion of the future net revenues at a standard rate of 10% due to the passage of time.

F-27

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Brushy Resources Inactive 10-K2014 FY Annual report

Content analysis