LUCAS ENERGY, INC. (Form: 10-Q, Received: 08/14/2013 18:10:35)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended June 30, 2013

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

Commission File Number: 001-32508

LUCAS ENERGY, INC.

(Exact name of registrant as specified in its charter)

Nevada	20-2660243
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3555 Timmons Lane, Suite 1550, Houston, Texas 77027

(Address of principal executive offices) (Zip Code)

(713) 528-1881

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 requirements for the past 90 days. Yes x 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 x No o

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", "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company x

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of each class	Number of Shares
Common Stock, par value $0.001 per share	26,919,417 (as of August 13, 2013)

LUCAS ENERGY, INC.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	Page

ITEM 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2013 and March 31, 2013	3

	Condensed Consolidated Statements of Operations for the three months ended June 30, 2013 and 2012	4

	Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2013 and 2012	5

	Notes to the Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	22

ITEM 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	23

ITEM 1A.	Risk Factors	23

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

ITEM 3.	Defaults Upon Senior Securities	24

ITEM 4.	Mine Safety Disclosures	24

ITEM 5.	Other Information	24

ITEM 6.	Exhibits	25

SIGNATURE		25
EXHIBIT INDEX		26

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LUCAS ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			March 31,
	2013			2013
	( Unaudited)
ASSETS
Current Assets
Cash	$	347,519		$	450,691
Accounts Receivable		729,437			832,801
Inventories		115,951			64,630
Other Current Assets		254,931			337,860
Total Current Assets		1,447,838			1,685,982

Property and Equipment
Oil and Gas Properties (Full Cost Method)		45,223,832			44,709,800
Other Property and Equipment		526,162			552,154
Total Property and Equipment		45,749,994			45,261,954
Accumulated Depletion, Depreciation and Amortization		(9,750,176	)		(9,204,649	)
Total Property and Equipment, Net		35,999,818			36,057,305
Other Assets		42,191			-
Total Assets	$	37,489,847		$	37,743,287

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	3,242,270		$	3,696,848
Common Stock Payable		11,252			17,502
Accrued Expenses		364,262			501,809
Advances From Working Interest Owners		-			1,384,085
Asset Retirement Obligation, current		-			73,621
Notes Payable		3,281,796			875,000
Total Current Liabilities		6,899,580			6,548,865

Asset Retirement Obligation		895,406			851,873
Commitments and Contingencies (see Note 10)

Stockholders' Equity
Preferred Stock Series A, 2,000 Shares Authorized of
$0.001 Par, 2,000 Shares Issued and Outstanding		3,095,600			3,095,600
Common Stock, 100,000,000 Shares Authorized of $0.001 Par,
26,771,132 Shares Issued and 26,734,232 Outstanding Shares
at June 30, 2013 and 26,751,407 Issued and 26,714,507
Outstanding Shares at March 31, 2013, respectively		26,771			26,751
Additional Paid in Capital		49,267,545			48,970,509
Accumulated Deficit		(22,645,896	)		(21,701,152	)
Common Stock Held in Treasury, 36,900 Shares, at Cost		(49,159	)		(49,159	)
Total Stockholders' Equity		29,694,861			30,342,549

Total Liabilities and Stockholders' Equity	$	37,489,847		$	37,743,287

The accompanying notes are an integral part of these condensed consolidated financial statements.

LUCAS ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
	June 30,
	2013			2012
Operating Revenues
Crude Oil	$	1,482,438		$	1,712,951
Natural Gas		-			4,854
Total Revenues	$	1,482,438		$	1,717,805
Operating Expenses
Lease Operating Expenses		465,738			929,755
Severance and Property Taxes		80,666			93,179
Depreciation, Depletion,
Amortization, and Accretion		600,677			821,791
General and Administrative		1,097,632			1,448,219
Total Expenses		2,244,713			3,292,944

Operating Loss	$	(762,275	)	$	(1,575,139	)

Other Expense (Income)
Interest Expense		198,262			341,169
Other Expense (Income), Net		(15,793	)		(9,136	)
Total Other Expenses		182,469			332,033

Net Loss	$	(944,744	)	$	(1,907,172	)

Net Loss Per Share
Basic and Diluted	$	(0.04	)	$	(0.09	)
Weighted Average Shares Outstanding
Basic and Diluted		26,765,675			22,141,785

The accompanying notes are an integral part of these condensed consolidated financial statements.

LUCAS ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
		Three Months Ended
		June 30,
		2013			2012
Cash Flows from Operating Activities
Net Loss		$	(944,744	)	$	(1,907,172	)
Adjustments to reconcile net losses to net cash used in operating activities:
	Depreciation, Depletion, Amortization and Accretion		600,677			821,791
	Share-Based Compensation		126,305			97,748
	Amortization of Discount on Notes		71,297			-
	Amortization of Deferred Financing Costs		27,809			-
	Settlement of Debt		(44,287	)		-
Changes in Components of Working Capital and Other Assets
	Accounts Receivable		103,364			664,670
	Inventories		(51,321	)		-
	Prepaid Expenses and Other Current Assets		82,929			6,233
	Accounts Payable, Accrued Expenses and Interest Payable		(163,311	)		(3,270,597	)
	Advances from Working Interest Owners		(1,384,085	)		399,341
Net Cash Used in Operating Activities			(1,575,367	)		(3,187,986	)

Investing Cash Flows
	Additions of Oil and Gas Properties		(983,797	)		(2,379,303	)
	Additions of Other Property and Equipment		(6,508	)		(15,139	)
	Proceeds from Sale of Other Property and Equipment		32,500			-
	Payments Received on Notes Receivable		-			9,753
Net Cash Used in Investing Activities			(957,805	)		(2,384,689	)

Financing Cash Flows
	Net Proceeds from Exercises of Warrants		-			5,618,627
	Proceeds from Issuance of Notes Payable		3,250,000			-
	Deferred Financing Costs		(70,000	)		-
	Repayment of Borrowings		(750,000	)		(50,543	)
Net Cash Provided by Financing Activities			2,430,000			5,568,084

Decrease in Cash and Cash Equivalents			(103,172	)		(4,591	)
Cash and Cash Equivalents at Beginning of the Period			450,691			683,979
Cash and Cash Equivalents at End of the Period		$	347,519		$	679,388

T he accompanying notes are an integral part of these condensed consolidated financial statements.

LUCAS ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - GENERAL

History of the Company. Incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective June 9, 2006.

The accompanying unaudited interim condensed consolidated financial statements of Lucas Energy, Inc., together with its subsidiary (collectively, "Lucas" or the "Company") have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Lucas's annual report filed with the SEC on Form 10-K for the year ended March 31, 2013. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the condensed consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2013 as reported in Form 10-K have been omitted.

The Company's fiscal year ends on the last day of March of the calendar year. The Company refers to the twelve-month periods ended March 31, 2014 and 2013 as its 2014 and 2013 fiscal years, respectively.

Certain reclassifications of prior year balances have been made to conform such amounts to current year classifications. These reclassifications have no impact on net income.

NOTE 2 – LIQUIDITY

At June 30, 2013, the Company’s Total Current Liabilities of $6.9 million exceeded its Total Current Assets of $1.4 million, resulting in a working capital deficit of $5.5 million. At March 31, 2013, the Company’s total current liabilities of $6.5 million exceeded its total current assets of $1.7 million, resulting in a working capital deficit of $4.8 million.

On August 13, 2013, the Company secured a long-term Loan for $7.5 million (as described in Note 13). In order to address the Company's current working capital deficit, a portion of the funds raised in connection with the Loan were used to repay the $3.25 million in outstanding current Notes issued in April and May 2013 (as described in Note 6) as well as outstanding payables.

The Company believes its undeveloped acreage and ability to access the capital markets in both equity and debt provides a sufficient means to conduct its current operations, meet its contractual obligations and undertake a forward outlook on future development of its current fields.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has provided a discussion of significant accounting policies, estimates and judgments in its 2013 Annual Report. There have been no changes to the Company’s significant accounting policies since March 31, 2013.

NOTE 4 – PROPERTY AND EQUIPMENT

Oil and Gas Properties

Lucas uses the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized. Properties not subject to amortization consist of acquisition, exploration and development costs, which are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired and the corresponding costs are added to the capitalized costs subject to amortization. Costs of oil and gas properties are amortized using the units of production method. Amortization expense calculated per equivalent physical unit of production amounted to $35.87 per barrel of oil equivalent (“BOE”) for the three months ended June 30, 2013, and was $40.93 per BOE for the three months ended June 30, 2012.

In applying the full cost method, Lucas performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the “estimated present value,” of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense. As of June 30, 2013, no impairment of oil and gas properties was indicated.

All of Lucas's oil and gas properties are located in the United States. Below are the components of Lucas's oil and gas properties recorded at:


	June 30,			March 31,
	2013			2013
Proved leasehold costs	$	10,262,729		$	10,002,828
Costs of wells and development		34,215,906			33,961,775
Capitalized asset retirement costs		745,197			745,197
Total oil and gas properties		45,223,832			44,709,800
Accumulated depreciation and depletion		(9,608,399	)		(9,077,997	)
Net capitalized costs	$	35,615,433		$	35,631,803

The following table sets forth the changes in the total cost of oil and gas properties during the three months ended June 30, 2013:

Balance at beginning of period - March 31, 2013	$	44,709,800
Acquisition of oil and gas interests using
Cash		69,623
Tangible and intangible drilling costs
and title related expenses		444,409
Balance at end of period - June 30, 2013	$	45,223,832

Other Property and Equipment

On March 21, 2013, Lucas entered into an agreement to sell its Gonzales County, Texas office building for $325,000. A non-reimbursable down payment of $32,500 was paid on June 26, 2013, resulting in the carrying amount of the building to be reduced by the down payment amount. As of June 30, 2013, the building was recognized in Other Property and Equipment for $292,500. The final payment on the building is due September 22, 2013.

NOTE 5 – ASSET RETIREMENT OBLIGATIONS

The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with the retirement of oil and gas property and equipment for the three-month period ended June 30, 2013. Lucas does not have short-term asset retirement obligations as of June 30, 2013.

Carrying amount at beginning of period - March 31, 2013	$	925,494
Liabilities settled		(52,072	)
Accretion		21,984
Carrying amount at end of period - June 30, 2013	$	895,406

NOTE 6 – NOTE PAYABLE

Effective April 4, 2013, the Company entered into a Loan Agreement with various lenders (the “April 2013 Loan Agreement”) pursuant to which such lenders loaned the Company an aggregate of $2,750,000 to be used for general working capital. The lenders included entities beneficially owned by our directors, Ken Daraie (which entity loaned us $2,000,000) and W. Andrew Krusen, Jr. (which entities loaned us $250,000), as well as an unrelated third party which loaned the Company $500,000.

Effective May 31, 2013, the Company entered into a Loan Agreement with various lenders (the “May 2013 Loan Agreement” and together with the April 2013 Loan Agreement, the “Loan Agreements”), pursuant to which such lenders loaned the Company an aggregate of $500,000 to be used for general working capital and to pay amounts the Company owed to Nordic. The lenders were third parties, unaffiliated with the Company, provided that one lender who previously loaned the Company funds in connection with the April 2013 Loan Agreement provided the Company an additional $300,000 loan in connection with the May 2013 Loan Agreement. The Loan Agreement included substantially similar terms as the April 2013 Loan Agreement and was approved by the prior lenders in the April 2013 Loan Agreement, who also waived their right to be repaid from the proceeds from the loans.

The loans provided pursuant to the Loan Agreements were documented by Promissory Notes (the “Notes”) which accrue interest at the rate of 14% per annum, with such interest payable monthly in arrears (beginning June 1, 2013 in connection with the April 2013 Loan Agreement and July 1, 2013 in connection with the May 2013 Loan Agreement) and are due and payable on October 4, 2013 in connection with the April 2013 Loan Agreement and April 4, 2014 in connection with the May 2013 Loan Agreement. The Notes can be prepaid at any time without penalty. In the event any amounts are not paid when due under the Notes and/or in the event any event of default occurs and is continuing under the Notes, the Notes accrue interest at the rate of 17% per annum. The Note holders were each paid their pro rata portion of a commitment fee ($55,000 in connection with the April 2013 Loan Agreement and $15,000 in connection with the May 2013 Loan Agreement) and were each granted their pro rata portion of warrants to purchase 325,000 shares of the Company’s common stock which were evidenced by Common Stock Purchase Warrants (the “Warrants”). The Warrants have an exercise price of $1.50 per share and a term of five years from the grant date.

The Company accounts for the Warrant valuation in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company records the fair value of Warrants issued in connection with those instruments. The fair value of the 275,000 April 2013 Warrants was recorded as a $137,118 debt discount and is being amortized through non-cash interest expense using the effective interest method over the term of the debt. Amortization of this debt discount was $68,559 during the three months ended June 30, 2013. The fair value of the 50,000 May 2013 Warrants was recorded as a $27,383 debt discount and is being amortized through non-cash interest expense using the effective interest method over the term of the debt. Amortization of this debt discount was $2,738 during the three months ended June 30, 2013.

As of June 30, 2013, Lucas has paid $93,042 in cash interest on the April 2013 Notes and $5,833 in cash interest on the May 2013 Notes. Lucas also has recognized amortization expenses totaling $27,809 in relation to deferred financing costs for both Notes, reducing the deferred financing costs asset base to $42,191.

On March 29, 2013, and effective March 31, 2013, Lucas entered into a Settlement and Release Agreement with Nordic Oil USA I, LLLP (“Nordic”), pursuant to which the parties agreed to settle and terminate a prior Purchase and Sale Agreement. Lucas agreed to pay Nordic an aggregate of $1,125,000, of which $1,000,000 has been paid to date. The remaining $125,000 is due on or before September 30, 2013.

NOTE 7 – STOCKHOLDERS' EQUITY

Preferred Stock

As of June 30, 2013, Lucas had 2,000 shares of Series A Convertible Preferred Stock issued and outstanding. The shares of preferred stock were issued for property acquisitions and were recorded at the fair value of the shares on the date of issuance. Each share of the Series A Convertible Preferred Stock is convertible into 1,000 shares of the Company’s common stock and has no liquidation preference and no maturity date. Additionally, the conversion rate of the Series A Convertible Preferred Stock adjusts automatically in connection with and in proportion to any dividends payable by the Company in common stock.

The Company filed a lawsuit against the holder of the Company’s 2,000 outstanding shares of Series A Convertible Preferred Stock in the District Court of Harris County, Texas, on May 9, 2013, seeking a declaratory judgment that the 2,000 shares of Series A Convertible Preferred Stock should be cancelled, injunctive relief prohibiting the holder from selling or transferring the Series A Convertible Preferred Stock, and attorney’s fees. The outcome of the litigation matter cannot be determined at this time with any reasonable certainty.

Common Stock

The following summarizes Lucas's common stock activity during the three-month period ended June 30, 2013:

			Common Shares
			Issued
	Amount		Per Share		Shares		Treasury			Outstanding
Balance at March 31, 2013						26,751,407		(36,900	)		26,714,507
Share-Based Compensation	$	25,256	$	1.28		19,725		-			19,725
Balance at June 30, 2013						26,771,132		(36,900	)		26,734,232

See Note 9 – Share-Based Compensation for information on common stock activity related to Share-Based Compensation, including shares granted to the board of directors, officers, employees and consultants.

Warrants

During the three months ended June 30, 2013, no warrants were exercised or cancelled. As discussed above, the Company granted 325,000 warrants with an exercise price of $1.50 per share and a term of five years in conjunction with the issuance of the April 2013 and May 2013 Notes. Per ASC Topics 480-10-25 and 815-40, the warrants are indexed to the Company’s stock and treated as an equity instrument since the exercise price and shares are known and fixed at the date of issuance, and no other clause in the agreement requires the warrants to be treated as a liability.

The following is a summary of the Company's outstanding warrants at June 30, 2013:

Warrants			Exercise		Expiration	Intrinsic Value
Outstanding			Price ($)		Date	at June 30, 2013
	200,000	(1 )		2.00	September 12, 2013	$	-
	150,630	(2 )		2.98	July 4, 2014		-
	2,510,506	(3 )		2.86	July 4, 2016		-
	1,032,500	(4 )		2.30	October 18, 2017		-
	275,000	(5 )		1.50	April 4, 2018		-
	50,000	(6 )		1.50	May 31, 2018		-
	4,218,636					$	-

(1)

Warrants granted in connection with the sale of units in the Company’s unit offering in September 2012. The warrants were exercisable on the grant date (September 12, 2012) and remain exercisable until September 12, 2013.

(2)

Placement agent warrants granted in connection with the sale of units in the Company's unit offering in December 2010. The warrants became exercisable on July 4, 2011 and will remain exercisable thereafter until July 4, 2014.

(3)

Series B Warrants issued in connection with the sale of units in the Company’s unit offering in December 2010. The Series B Warrants became exercisable on July 4, 2011 and will remain exercisable thereafter until July 4, 2016.

(4)

Warrants issued in connection with the sale of units in the Company’s unit offering in April 2012. The warrants became exercisable on October 18, 2012, and will remain exercisable thereafter until October 18, 2017.

(5)

Warrants issued in connection with the issuance of the April 2013 Notes. The warrants were exercisable on the grant date (April 4, 2013) and remain exercisable until April 4, 2018.

(6)

Warrants issued in connection with the issuance of the May 2013 Notes. The warrants were exercisable on the grant date (May 31, 2013) and remain exercisable until May 31, 2018.

NOTE 8 – INCOME TAXES

The Company has estimated that its effective tax rate for U.S. purposes will be zero for the 2014 fiscal year and consequently, recorded no provision or benefit for income taxes for the three months ended June 30, 2013.

NOTE 9 – SHARE-BASED COMPENSATION

In accordance with the provisions of ASC Topic 718, Lucas measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

Common Stock

Lucas awarded 19,725 shares of its common stock with an aggregate grant date fair value of $25,256 during the three-month period ended June 30, 2013, which were valued based on the trading value of Lucas’s common stock on the date of grant. The shares were awarded according to the employment agreements with certain officers and other managerial personnel .

Stock Options

Of the Company’s outstanding options, 100,800 expired, were exercised, or forfeited during the three months ended June 30, 2013.

The following table sets forth stock option activity for the three-month periods ended June 30, 2013 and 2012:


	Three Months Ended					Three Months Ended
	June 30, 2013					June 30, 2012
				Weighted				Weighted
	Number of			Average		Number of		Average
	Stock Options			Grant Price		Stock Options		Grant Price
Outstanding at March 31		819,668		$	1.55		456,000	$	2.88
Granted		125,000			1.33		-		-
Expired/Cancelled		(100,800	)		1.63		-		-
Outstanding at June 30		843,868		$	1.50		456,000	$	2.88

Lucas granted stock options to purchase shares of common stock during the quarter ended June 30, 2013 to an officer as employee based compensation. Effective April 1, 2013, the officer was granted stock options to purchase 125,000 shares of common stock with a fair value of $66,635 to be amortized and recognized as compensation expenses over the service period. Of the 125,000 options granted to the officer, 75,000 will vest on the one year anniversary of the grant date and the remaining 50,000 will vest on the two year anniversary of the grant date and have a five year exercise period. The exercise price for the options equaled the closing price of the Company stock on March 28, 2013. All issuances were valued at fair value on the date of grant based on the market value of Lucas’s common stock using the Black Scholes option pricing model.

During the quarter ended June 30, 2013, 100,800 options were cancelled due to employee terminations.

Compensation expense related to stock options during the three-month period ended June 30, 2013 and June 30, 2012 was $107,298 and $50,900, respectively.

Options outstanding and exercisable at June 30, 2013 and June 30, 2012 had an intrinsic value of $30,434 and $0, respectively. The intrinsic value is based upon the difference between the market price of Lucas’s common stock on the date of exercise and the grant price of the stock options.

The following tabulation summarizes the remaining terms of the options outstanding:

Exercise	Remaining	Options	Options
Price ($)	Life (Yrs)	Outstanding	Exercisable
1.15	1.50	216,668	116,668
1.33	1.80	125,000	-
2.07	2.30	72,000	72,000
1.63	4.30	105,200	-
1.74	4.30	150,000	50,000
1.61	4.50	50,000	-
1.58	4.60	125,000	75,000
	Total	843,868	313,668

As of June 30, 2013, total unrecognized stock-based compensation expense related to all non-vested stock options was $376,021, which is being recognized over a weighted average period of approximately 2.2 years.

In prior periods, the shareholders of the Company approved the Company's 2012 and 2010 Stock Incentive Plans (the Plans). The Plans are intended to secure for the Company the benefits arising from ownership of the Company's common stock by the employees, officers, directors and consultants of the Company, all of whom are and will be responsible for the Company's future growth. The Plans provide an opportunity for any employee, officer, director or consultant of the Company to receive incentive stock options (to eligible employees only), nonqualified stock options, restricted stock, stock awards and shares in performance of services. There were 715,833 shares available for issuance under the Plans as of June 30, 2013.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Legal Proceedings . From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations, other than the below. We may become involved in material legal proceedings in the future.

On April 8, 2013, the Company entered into a Settlement Agreement with Seidler Oil & Gas, L.P. (“Seidler”) on a lawsuit claiming a refund on previous investments with Lucas Energy. The Company settled the outstanding balance and paid Seidler $1.3 million plus legal fees. Seidler released the Company, its current and past officers, directors and agents from associated claims and Seidler agreed to dismiss the previously filed lawsuit with prejudice. In addition, certain private investors also agreed to release the Company, Seidler, and their respective past and present affiliates from any and all claims.

On October 5, 2012, Knight Capital Americas LLC (as successor in interest to Knight Capital America, L.P. (“Knight”)), filed suit against the Company in the Supreme Court of the State of New York, County of New York (Index No. 157012/2012). The Company previously engaged Knight as a broker/dealer in connection with a proposed fund raise. The suit alleges causes of actions for breach of contract, unjust enrichment, breach of implied covenants, tortious interference and seeks declaratory relief in connection with the Company allegedly failing to pay Knight fees in connection with its right of first refusal to provide broker/dealer services in connection with a subsequently completed fund raise undertaken by the Company. The Company is in the process of attempting to negotiate a settlement with Knight, provided that there can be no assurance that a settlement will be reached or if reached will be on favorable terms to the Company.

On October 13, 2011, Lucas entered into a purchase and sale agreement with Nordic Oil USA I, LLLP (“Nordic”), whereby effective July 1, 2011, Lucas purchased all of Nordic’s right, title and interest in certain oil, gas and mineral leases located in Gonzales, Karnes and Wilson Counties, Texas. The transaction officially closed on November 18, 2011. Lucas agreed to pay Nordic $22 million, payable in the form of a senior secured promissory note (with recourse only to the properties acquired), which accrued interest at the rate of 6% per annum (the “Note”), the payment of which was secured by a Deed of Trust, Security Agreement, Financing Statement and Assignment of Production on the property acquired (the “Deed of Trust”). Lucas failed to pay the note when it was due on November 17, 2012, and the parties were unable to come to terms on a settlement of the debt. Subsequently in December 2012, Nordic filed a lawsuit against Lucas pursuant to which Nordic made claims for the payment of damages in connection with liens attached to the property, the proceeds from alleged wrongful assignments of the property acquired in the transaction, pre-and-post judgment interest, a foreclosure and sale of the property, plus attorney’s fees in the amount of 10% of the principal and interest then owing on the note (as allegedly allowed pursuant to the terms of the Note), and sought damages for breach of contract and attorney’s fees. On March 29, 2013, and effective March 31, 2013 (the “Effective Date”), Lucas entered into a Settlement and Release Agreement with Nordic (the “Settlement Agreement”), pursuant to which the parties agreed to settle and terminate the purchase and sale agreement, Lucas agreed to:

Pay Nordic an aggregate of $1,125,000 as follows:

	o	$250,000 upon the parties entry into the Settlement Agreement (which has been paid to date);
	o	$250,000 on or before April 1, 2013 (which has been paid to date);
	o	$500,000 on or before June 1, 2013 (which has been paid to date); and
	o	$125,000 on or before September 30, 2013,

provided that if Lucas fails to pay any amounts when due, Nordic is able to file an agreed judgment with the court stipulating that Lucas agrees that the amount owed pursuant to the schedule above is immediately due and payable together with 5% interest;

To assign certain properties to Nordic (free of certain liens and encumbrances), together with any rights in the Interests owned by any current or former officers or directors of Lucas; and

To complete certain field work on the properties at Lucas’s sole expense, which has been performed and has an immaterial effect.

Additionally, the parties agreed to mutually release each other and each other’s affiliates and assigns from all claims, causes of actions, damages and liabilities relating to any events which occurred prior to the effective date, whether as a result of the purchase of the properties, the note or otherwise, and to further indemnify each other from any claims associated therewith. Finally, Nordic agreed to dismiss the lawsuit with prejudice five business days after Lucas has made the final payment required as discussed above.

NOTE 11 – POSTRETIREMENT BENEFITS

Lucas maintains a matched defined contribution savings plan for its employees. During the three-month periods ended June 30, 2013 and 2012, Lucas's total costs recognized for the savings plan were $5,178 and $8,600, respectively.

NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION

Net cash paid for interest and income taxes was as follows for the three-month periods ended June 30, 2013 and 2012:

	Three Months Ended June 30,
	2013		2012
Interest	$	99,157	$	341,169
Income taxes		-		-

Non-cash investing and financing activities for the three-month periods ended June 30, 2013 and 2012 included the following:

	Three Months Ended June 30,
	2013		2012

Increase in asset retirement obligations	$	-	$	81,000
Net assumption of note payable
in acquisition of oil and gas properties		-		450,000
Discount on Notes		164,501		-

NOTE 13 – SUBSEQUENT EVENTS

Effective on August 13, 2013, Lucas entered into a Letter Loan Agreement with Louise H. Rogers (the “Letter Loan”). In connection with the Letter Loan and a Promissory Note entered into in connection therewith, Ms. Rogers loaned the Company $7.5 million (the “Loan”). The Loan accrues interest at the rate of 12% per annum (18% upon the occurrence of an event of default), can be prepaid by Lucas at any time without penalty after November 13, 2013 and is due and payable on August 13, 2015, provided that interest only payments are due on the Loan during the first six months of the term (which have been escrowed by Lucas) and beginning on March 13, 2014, Lucas is required to make monthly amortization principal payments of equivalent to the sum of fifty-percent of the Loan during months seven through twenty-four of the term. Lucas is also required to make mandatory prepayments of the loan in the event the collateral securing the Loan does not meet certain thresholds and coverage ratios. The repayment of the Loan is secured by a security interest in substantially all of Lucas’s assets which was evidenced by a Security Agreement and a Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing. Lucas agreed to pay a $15,000 quarterly administrative fee in connection with the Loan and grant the administrator a warrant to purchase up to 279,851 shares of Lucas’ common stock at an exercise price of $1.35 per share. A portion of the funds raised in connection with the Loan were used to repay the $3.25 million in outstanding Notes issued in April and May 2013 (as described in Note 6).

On July 17, 2013, Meson Capital Partners LP, an affiliate of Ryan J. Morris, our Chairman, purchased 185,185 restricted shares of common stock directly from the Company in a private transaction for consideration of $250,000 or $1.35 per share ($0.01 above the closing sales price of the Company’s common stock on July 17, 2013).

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). These forward-looking statements are generally located in the material set forth below under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. For a more detailed description of the risks and uncertainties involved, the following discussion and analysis should be read in conjunction with management’s discussion and analysis contained in Lucas’ Annual Report on Form 10-K for the fiscal year ended March 31, 2013 (the “2013 Annual Report”) and related discussion of our business and properties contained therein.

These forward-looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements which include, among others:

· our growth strategies;

· anticipated trends in our business;

· our ability to make or integrate acquisitions;

· our liquidity and ability to finance our exploration, acquisition and development strategies;

· market conditions in the oil and gas industry;

· the timing, cost and procedure for proposed acquisitions;

· the impact of government regulation;

· estimates regarding future net revenues from oil and natural gas reserves and the present value thereof;

· the outcome of and/or negative perceptions associated with legal proceedings;

· planned capital expenditures (including the amount and nature thereof);

· increases in oil and gas production;

· the number of wells we anticipate drilling in the future;

· estimates, plans and projections relating to acquired properties;

· the number of potential drilling locations; and

· our financial position, business strategy and other plans and objectives for future operations.

We identify forward-looking statements by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “hope,” “plan,” “believe,” “predict,” “envision,” “intend,” “will,” “continue,” “potential,” “should,” “confident,” “could” and similar words and expressions, although some forward-looking statements may be expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements. You should consider carefully the statements under the “Risk Factors” section of this report and other sections of this report which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements, and the following factors:

· the possibility that our acquisitions may involve unexpected costs;

· the volatility in commodity prices for oil and gas;

· the accuracy of internally estimated proved reserves;

· the presence or recoverability of estimated oil and gas reserves;

· the ability to replace oil and gas reserves;

· the availability and costs of drilling rigs and other oilfield services;

· environmental risks; exploration and development risks;

· competition;

· the inability to realize expected value from acquisitions;

· the ability of our management team to execute its plans to meet its goals; and

· other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our businesses, operations and pricing.

Forward-looking statements speak only as of the date of this report or the date of any document incorporated by reference in this report. Except to the extent required by applicable law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Overview

Lucas Energy, Inc., a Nevada corporation, is an independent oil and natural gas company based in Houston, Texas (herein the “Company”, “Lucas”, “Lucas Energy” or “we”). We are engaged in the acquisition and development of crude oil and natural gas from various known productive geological formations, including the Austin Chalk, Eagle Ford and Buda formations, primarily in Gonzales, Wilson and Karnes counties south of the city of San Antonio; and the Eaglebine, Buda, and Glen Rose formations in Leon and Madison counties north of the city of Houston, Texas. Incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective June 9, 2006. Our goal is to acquire, develop, and produce crude oil and natural gas from areas located in, or near, established oil fields that can provide long-term growth and sustainability for the Company.

The Company's strategy is to increase shareholder value by developing its significant acreage positions in the Eagle Ford, Austin Chalk, Eaglebine, Buda and Glen Rose oil bearing formations through a committed development program, effective management and efficiency of its current operations, being opportunistic in industry cycles and trends, and building a strong balance sheet. Below are key points of our strategy:

Development of current asset base. The Austin Chalk has contributed to most of our production in the past year, including over 90% of our producing wells. We are planning to develop and execute a drilling program beginning in the second half of 2013 (our 2014 fiscal year), which include the Austin Chalk, Buda/Glen Rose, and the Eagle Ford areas. The magnitude of the opportunity and associated drilling costs will require external sources of capital. We expect to utilize some combination of debt and equity in conjunction with operating cash flow to fund this development. Dependent upon varying factors such as joint ownership, size of lease and other asset specific conditions, the Company may also utilize joint interest participation partners or other forms of partnering.

Ongoing fieldwide evaluation and optimization. Our strategy is to be cost efficient and manage our operations with sound judgment and excellence. We pride ourselves with considering technological advancements to enhance our operations. This process should enhance production results and also lead to lower operating costs on a per barrel basis.

Maintain a strong balance sheet. Through its extensive asset base, the Company is focused to leverage its current balance sheet and maximize value with an appropriate and flexible capital structure program.

Execution of our business plan. We will conduct the affairs of the Company with the objective of maintaining positive cash flow, managing all essentials of our cost structure, drilling and operating programs, and our corporate general and administrative costs. We have made great strides with this approach by recently eliminating overburdened operating costs and legal impediments to move forward in becoming a contributing player in our core areas.

Our website address is http://www.lucasenergy.com. Our fiscal year ends on the last day of March of each year. The information on, or that may be accessed through, our website is not incorporated by reference into this report and should not be considered a part of this report. We refer to the twelve-month periods ended March 31, 2014 and March 31, 2013 as our 2014 Fiscal Year and 2013 Fiscal Year, respectively.

At June 30, 2013, the Company had leasehold interests (working interests) in approximately 19,100 gross acres, or 15,155 net acres. The Company’s total net developed and undeveloped acreage as measured from the surface to the base of the Austin Chalk formation was approximately 12,042 net acres. In deeper formations, the Company has approximately 3,855 net acres in the Eagle Ford oil window and 3,036 net acres in the Eaglebine, Buda and Glen Rose oil bearing formations.

At the end of June 2013, Lucas was producing approximately 180 net barrels of oil equivalent per day (BOEPD) from 59 active well bores, of which 18 wells accounted for more than 80% of our production. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. An affiliate of Marathon Oil Corporation operates the only two Eagle Ford horizontal wells in our Gonzales leases, of which we have a 15% working interest on each well. Our production sales totaled 14,788 barrels of oil equivalent, net to our interest, for the quarter ended June 30, 2013.

At March 31, 2013, Lucas Energy's total estimated net proved reserves were 5.6 million barrels of oil equivalent (BOE), of which 5.1 million barrels (BBLs) were crude oil reserves, and 2.6 billion cubic feet (BCF) were natural gas reserves (see Supplemental Information to Consolidated Financial Statements). As of June 30, 2013, Lucas employed 13 full-time employees. We also utilized over six contractors on an "as-needed" basis to carry out various functions of the Company, including but not limited to field operations, land administration, corporate activity and information technology maintenance.

Industry Segments

Lucas Energy's operations are all crude oil and natural gas exploration and production related.

Operations and Oil and Gas Properties

We operate in known productive areas in order to decrease geological risk. Our holdings are located in an increased area of current industry activity in Gonzales, Wilson, Karnes, Atascosa, Leon and Madison counties in Texas. We concentrate on three vertically adjoining formations in Gonzales, Wilson and Karnes counties: the Austin Chalk, Eagle Ford and Buda formations, listed in the order of increasing depth measuring from land surface. The recent development of the Eagle Ford as a high potential producing zone has heightened industry interest and success. Lucas Energy’s acreage position is in the oil window of the Eagle Ford trend and has amassed over 12,000 gross acres in the Gonzales and Wilson County, Texas area.

Austin Chalk

The Company’s original activity started in Gonzales County by acquiring existing shut-in and stripper wells and improving production from those wells. Most of the wells had produced from the Austin Chalk. The Austin Chalk is a dense limestone, varying in thickness along its trend from approximately 200 feet to more than 800 feet. It produces by virtue of localized fractures within the formation.

Eagle Ford

On Lucas’s leases, the Eagle Ford is a porous limestone with organic shale matter. The Eagle Ford formation directly underlies the Austin Chalk formation and is believed to be the primary source of oil and gas produced from the Austin Chalk. Reservoir thickness in the area of the Company’s leases varies from approximately 60 feet to 80 feet.

Buda

The Buda limestone underlies the Eagle Ford formation separated by a 10 foot to 20 foot inorganic shale barrier. Its thickness varies from approximately 100 feet to more than 150 feet in this area. The Buda produces from natural fractures and matrix porosity and is prospective across this whole area. There are a number of Buda wells with cumulative production of more than 100,000 barrels of oil.

Eaglebine

The Eaglebine is so named because the Eagle Ford formation overlies the Woodbine formation. This is a continuation of the Eagle Ford trend that is productive from south Texas to the northeast of Houston, Texas. The Woodbine formation is best known as the prolific reservoir in the famous East Texas Oil Field. There has been increased interest and activity in the Eaglebine formation in the Leon, Houston, and Madison county areas. There is established production from horizontal and vertical wells to the east and south of Lucas’s holdings and numerous permits for horizontal wells have been filed for additional exploratory and development drilling.

Our Strengths

We believe our strengths will help us successfully execute our business strategies:

We benefit from the increasing value, attention and activity in the Eagle Ford . We benefit from the increasing number of wells drilled and the corresponding data available from public and governmental sources surrounding our acreage. This activity and data has defined the geographic extent of the Austin Chalk, Eagle Ford, and Buda formations, which we believe will assist us in evaluating future leasehold acquisitions and development operations. In addition, leading operators have developed drilling and completion technologies that have significantly reduced production risk and decreased per unit drilling and completion costs.

Our size, industry knowledge, and contacts allow us to pursue a broader range of acquisition opportunities. Our size provides us with the opportunity to acquire smaller acreage blocks that may be less attractive to larger operators in the area. We believe that our acquisition of these smaller blocks will have a meaningful impact on our overall acreage position.

Experienced management team with proven acquisition, operating and financing capabilities. We benefit from having an experienced management team with proven acquisition, operating and financing capabilities. Mr. Anthony Schnur, our Chief Executive Officer, has over twenty years of extensive oil and gas and financial management experience. He has developed strategic business plans, raised debt and equity capital, and provided asset management, cash flow forecasts, transaction modeling and development planning for both start-ups and special situations. On three separate occasions Mr. Schnur has been asked to lead work-out/turn-around initiatives in the E&P space. He is complemented by Mr. William J. Dale, our Chief Financial Officer, who has 17 years of oil and gas industry financial experience across corporate finance, treasury, strategic planning, and financial reporting, planning and analysis functions both at large global corporations as well as small, entrepreneurial oil and gas companies. He has dual Bachelor degrees in Accounting and Finance, an MBA from the University of Houston and is also a Texas Certified Public Accountant. Functionally he crosses disciplinary lines from finance-planning-execution to operations assessment and acquisition evaluation and due diligence. Further, the Company has attracted new talent in its operations, reservoir analysis, land and accounting functions and it believes it has brought together a professional and dedicated team to deliver value to Lucas shareholders.

RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations for the three-month periods ended June 30, 2013 and 2012 should be read in conjunction with the condensed consolidated financial statements of Lucas Energy and notes thereto included in this Quarterly Report on Form 10-Q. As used below, the abbreviations "Bbls" stands for barrels, "NGL" stands for natural gas liquids, "Mcf" for thousand cubic feet and "Boe" for barrels of oil equivalent on the basis of six Mcf per barrel. The majority of the numbers presented below are rounded numbers and should be considered as approximate.

Three Months Ended June 30, 2013 vs. Three Months Ended June 30, 2012

We reported a net loss for the three months ended June 30, 2013 of $944,744, or $0.04 per share. For the same period a year ago, we reported a net loss of $1.9 million, or $0.09 per share. Our net loss decreased by $1.0 million primarily due to a decrease in general and administrative (G&A) and lease operating expenses (LOE) expenses of $0.8 million and a decrease in depreciation, depletion, amortization and accretion of $0.2 million.

The following table sets forth the operating results and production data for the three-month periods ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013		2012		Increase (Decrease)			% Increase (Decrease)
Sale Volumes:
Crude Oil (Bbls)		14,788		19,077		(4,289	)		(23	%)
Natural Gas & NGL (Mcf)		-		1,463		(1,463	)		(100	%)
Total (Boe)		14,788		19,321		(4,533	)		(24	%)

Crude Oil (Bbls per day)		163		210		(47	)		(22	%)
Natural Gas (Mcf per day)		-		16		(16	)		(100	%)
Total (Boe per day)		163		213		(50	)		(24	%)

Average Sale Price:
Crude Oil ($/Bbl)	$	100.25	$	89.79	$	10.46			12	%
Natural Gas ($/Mcf)	$	-	$	3.32	$	(3.32	)		(100	%)


Net Operating Revenues:
Crude Oil	$	1,482,438	$	1,712,951	$	(230,513	)		(14	%)
Natural Gas & NGL		-		4,854		(4,854	)		(100	%)
Total Revenues	$	1,482,438	$	1,717,805	$	(235,367	)		(14	%)

Oil and Gas Revenues

Total crude oil and natural gas revenues for the three months ended June 30, 2013 decreased $0.2 million, or 14%, to $1.5 million from $1.7 million for the same period a year ago due primarily to an unfavorable crude oil volume variance of $0.4 million offset by a favorable crude oil price variance of $0.2 million. The production decline is primarily related to the Company having a reduced property base due to the assignment of certain Company properties to Nordic per the Settlement Agreement just prior to year end (see Note 10 - Commitments and Contingencies in the attached financial statements).

Operating and Other Expenses

The following table summarizes our production costs and operating expenses for the periods indicated:

	Three Months Ended June,
	2013			2012			Increase (Decrease)			%Increase (Decrease)
Direct lease operating expense	$	286,538		$	490,484		$	(203,946	)		(42	%)
Workovers expense		144,017			384,992			(240,975	)		(63	%)
Other		35,183			54,279			(19,096	)		(35	%)
Total Lease Operating Expenses	$	465,738		$	929,755		$	(464,017	)		(50	%)
Severance and Property Taxes		80,666			93,179			(12,513	)		(13	%)
Depreciation, Depletion,
Amortization and Accretion		600,677			821,791			(221,114	)		(27	%)

General and Administrative (G&A)	$	971,327		$	1,350,471		$	(379,144	)		(28	%)
Share-Based Compensation		126,305			97,748			28,557			29	%
Total G&A Expense	$	1,097,632		$	1,448,219		$	(350,587	)		(24	%)

Interest Expense		198,262			341,169			(142,907	)		(42	%)
Other Expense (Income), Net		(15,793	)		(9,136	)		(6,657	)		73	%

Lease Operating Expenses

Lease operating expenses decreased $0.5 million for the current quarter as compared to the prior year period principally due to an over 50% decline in direct lease operating and workovers expenses from the Company’s expanding effort to improve operating efficiencies.

Depreciation, Depletion, Amortization and Accretion (DD&A)

DD&A decreased $0.2 million primarily due to a decrease in production of 4,533 Boe compared to the previous period. The unit DD&A rate per Boe also decreased from $40.93 to $35.87 for the three months ended June 30, 2013 compared to June 30, 2012.

General and Administrative Expenses

G&A decreased by $0.3 million primarily due to the Company’s overall focus in improving the efficiency of the daily operating activities within the Company as well as less consulting, contracting and outsourcing expenses.

Interest Expense

Interest expense for the three months ended June 30, 2013 consisted of interest payments of approximately $0.2 million made in relation to the Notes issued in April 2013 and May 2013. When compared to the same period a year ago, which primarily related to incurred interest expense of approximately $0.3 million on the Nordic note, there is an approximate decrease of $0.1 million.

Other Expense (Income), Net

Other Expense (Income) for the three months ended June 30, 2013, primarily consisted of $30,000 in financing fees offset by $44,000 in discounts from accounts payable settlements and $1,500 in office space rental income from our Gonzales County office.

LIQUIDITY AND CAPITAL RESOURCES

The primary sources of cash for Lucas during three months ended June 30, 2013 were funds generated from sales of crude oil and natural gas and borrowings. The primary uses of cash were funds used in operations and repayment of other borrowings.

Working Capital

At June 30, 2013, the Company’s total current liabilities of $6.9 million exceeded its total current assets of $1.4 million for a working capital deficit of $5.5 million. At March 31, 2013, the Company’s total current liabilities of $6.5 million exceeded its total current assets of $1.7 million, resulting in a working capital deficit of $4.8 million.

On August 13, 2013, the Company secured a long-term Loan for $7.5 million (as described in Note 13). In order to address the Company’s current working capital deficit, a portion of the funds raised in connection with the Loan were used to repay the $3.25 million in outstanding current Notes issued in April and May 2013 (as described in Note 6) as well as outstanding payables.

Cash Flows

	Three Months Ended June 30,
	2013			2012
Cash flows used in operating activities		(1,575,367	)		(3,187,986	)
Cash flows used in investing activities		(957,805	)		(2,384,689	)
Cash flows provided by financing activities		2,430,000			5,568,084
Net decrease in cash and cash equivalents		(103,172	)		(4,591	)

Net cash used in operating activities was approximately $1.6 million for the three months ended June 30, 2013 as compared to $3.2 million for the same period a year ago. The decrease in net cash used in operating activities of $1.6 million was due primarily to a $1.0 million reduction of net loss and the paying down of all the outstanding advances to working interest owners via the settlement of the Seidler lawsuit (see Note 10 – Commitments and Contingencies in the attached financial statements).

Net cash used in investing activities was approximately $1.0 million for the three months ended June 30, 2013 as compared to net cash used in investing activities of $2.4 million for the same period a year ago. The decrease in net cash used in investing activities was primarily due to a $1.4 million reduction of additions to oil and gas properties.

The decrease in net cash provided by financing activities of $3.2 million for the three months ended June 30, 2013 was primarily due to $5.6 million of additional proceeds from the exercises of warrants in the prior period compared to the issuance of $3.25 million in notes payable (described below) offset by $0.8 million in repayment on the note payable to Nordic (see Note 10 – Commitments and Contingencies in the attached financial statements).

Financing

Effective May 31, 2013, the Company entered into a Loan Agreement with various lenders (the “May 2013 Loan Agreement” and together with the April 2013 Loan Agreement, the “Loan Agreements”), pursuant to which such lenders loaned the Company an aggregate of $500,000 to be used for general working capital and to pay amounts the Company owed to Nordic Oil USA I, LLLP ("Nordic”). The lenders were third parties, unaffiliated with the Company, provided that one lender who previously loaned the Company funds in connection with the April 2013 Loan Agreement provided the Company an additional $300,000 loan in connection with the May 2013 Loan Agreement. The May 2013 Loan Agreement included substantially similar terms as the April 2013 Loan Agreement and was approved by the prior lenders, who also waived their right to be repaid from the proceeds from the loans.

On July 17, 2013, Meson Capital Partners LP (which is indirectly beneficially owned by our Chairman, Ryan J. Morris), purchased 185,185 restricted shares of our common stock in a private transaction for consideration of $250,000 or $1.35 per share ($0.01 above the closing sales price of our common stock on July 17, 2013).

Lucas plans to continue to focus a substantial portion of its capital expenditures in various known prolific and productive geological formations, including the Austin Chalk, Eagle Ford and Buda formations, primarily in Gonzales, Wilson, and Karnes counties south of the city of San Antonio, Texas and in the Eaglebine, Buda, and Glen Rose formations in Madison and Leon counties north of the city of Houston, Texas. Lucas expects capital expenditures to be greater than cash flow from operating activities for the 2014 fiscal year. To cover the anticipated shortfall, our business plan includes establishing a reserve-based line of credit, initiate bank or private borrowings, and/or issue equity or debt offerings.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the risk of loss arising from adverse changes in market rates and prices. We are exposed to risks related to increases in the prices of fuel and raw materials consumed in exploration, development and production. We do not engage in commodity price hedging activities.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures .

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. The Company’s management, including the Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2013.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting during the three months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Lucas is periodically named in legal actions arising from normal business activities. Lucas evaluates the merits of these actions and, if it determines that an unfavorable outcome is probable and can be reasonably estimated, Lucas will establish the necessary reserves. Described below is information in regards to three proceedings which did not arise from Lucas’s normal business activities and which Lucas believes are material to the Company:

The Company filed a lawsuit against the holder of the Company’s 2,000 outstanding shares of Series A Convertible Preferred Stock in the District Court of Harris County, Texas, on May 9, 2013, seeking a declaratory judgment that the 2,000 shares of Series A Convertible Preferred Stock should be cancelled, injunctive relief prohibiting the holder from selling or transferring the Series A Convertible Preferred Stock, and attorney’s fees. The defendant has filed an answer denying our claims and alleging certain affirmative defenses. The parties are currently in the discovery phase of the litigation, and the outcome of the litigation matter cannot be determined at this time with any reasonable certainty.

On October 5, 2012, Knight Capital Americas LLC (as successor in interest to Knight Capital America, L.P. (“Knight”)), filed suit against the Company in the Supreme Court of the State of New York, County of New York (Index No. 157012/2012). The Company previously engaged Knight as a broker/dealer in connection with a proposed fund raise. The suit alleged causes of actions for breach of contract, unjust enrichment, breach of implied covenants, tortious interference and seeks declaratory relief in connection with the Company allegedly failing to pay Knight fees in connection with its right of first refusal to provide broker/dealer services in connection with a subsequently completed fund raise undertaken by the Company. The Company is in the process of attempting to negotiate a settlement with Knight, provided that there can be no assurance that a settlement will be reached or if reached will be on favorable terms to the Company.

ITEM 1A. RISK FACTORS.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013 ( the “2013 Annual Report”), as filed with the SEC on June 28, 2013. The information in such risk factors, in addition to the other information set forth in this quarterly report, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On July 17, 2013, Meson Capital Partners LP (“Meson LP”), purchased 185,185 restricted shares of our common stock in a private transaction for consideration of $250,000 or $1.35 per share ($0.01 above the closing sales price of our common stock on July 17, 2013). Securities owned directly by Meson LP, are owned indirectly by Meson Capital Partners LLC ("Meson LLC") by virtue of it being the general partner of Meson LP and by Ryan J. Morris, our Chairman, by virtue of his position as managing member of Meson LLC.

We claim an exemption from registration pursuant to Section 4(2) and Rule 506 of the Securities Act of 1933, as amended since the forging issuance did not involve a public offering, the recipient took the securities for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipient (a) was an “accredited” investor; and (b) was beneficially owned by a director of the Company.

In connection with the Loan (described in Item 5. Other Information, below), the Company agreed to grant the administrator of the Loan a warrant to purchase up to 279,851 shares of the Company’s common stock at an exercise price of $1.35 per share.

We claim an exemption from registration pursuant to Section 4(2) and Rule 506 of the Securities Act of 1933, as amended since the forging grant did not involve a public offering, the recipient took the securities for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipient was an “accredited” investor.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

Effective on August 13, 2013, Lucas entered into a Letter Loan Agreement with Louise H. Rogers (the “Letter Loan”). In connection with the Letter Loan and a Promissory Note entered into in connection therewith, Ms. Rogers loaned the Company $7.5 million (the “Loan”). The Loan accrues interest at the rate of 12% per annum (18% upon the occurrence of an event of default), can be prepaid by Lucas at any time without penalty after November 13, 2013 and is due and payable on August 13, 2015, provided that interest only payments are due on the Loan during the first six months of the term (which have been escrowed by Lucas) and beginning on March 13, 2014, Lucas is required to make monthly amortization principal payments of equivalent to the sum of fifty-percent of the Loan during months seven through twenty-four of the term. Lucas is also required to make mandatory prepayments of the loan in the event the collateral securing the Loan does not meet certain thresholds and coverage ratios (as described in greater detail in such Letter Loan). A post-closing condition to the funding is that the Company complete an equity funding equal to $1 million on or before the six month anniversary of the closing. The Letter Loan also provided the right for Ms. Rogers to designate an individual to attend and participate in the Company’s Board of Director’s meetings in a non-official capacity. The Letter Loan includes customary events of default and positive and negative covenants for facilities of similar nature and size as the Letter Loan.

The repayment of the Loan is secured by a security interest in substantially all of Lucas’s assets which was evidenced by a Security Agreement and a Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (the “Deed of Trust”). The Company paid a commitment fee of $150,000 and an advisory fee of $225,000 in connection with its entry into the Letter Loan. Lucas also agreed to pay a quarterly administrative fee in connection with the Loan and grant the administrator a warrant (evidenced by a Common Stock Purchase Warrant) to purchase up to 279,851 shares of Lucas’ common stock at an exercise price of $1.35 per share.

The warrants are exercisable until the earlier of (a) August 13, 2018; and (b) three years after the payment in full of the Loan. The warrant provides that at no time shall shares of common stock be issued to the holder upon exercise of the warrant which would result in such holder owning or controlling more than 4.99% of the Company’s outstanding common stock, subject of the holder’s right to waive such limitation with 61 days prior written notice. The warrant contains cashless exercise rights, provided that in the event the shares of common stock issuable upon exercise of the warrant are registered under the Securities Act of 1933, as amended, the warrant can only be exercised for cash. The warrant also provides that it is not exercisable by the holder until the earlier of (a) the repayment in full of the Loan; or (b) the occurrence of an event of default under the Letter Loan. The Company also granted the holder piggy-back registration rights in connection with the shares of common stock issuable upon exercise of the warrants, which remain in effect until such shares of common stock can be sold without restriction pursuant to Rule 144 of the Securities Act of 1933, as amended.

The above description of the Letter Loan, Promissory Note, Security Agreement, Deed of Trust and Common Stock Purchase Warrant, are not complete and are qualified in their entirety by the full text of the Letter Loan, Promissory Note, Security Agreement, Deed of Trust and Common Stock Purchase Warrant, copies of which are incorporated by reference hereto as Exhibits 10.1, 10.2, 10.3, 10.4 and 4.1.

A portion of the funds raised in connection with the Loan were used to repay in full the $3.25 million in outstanding Notes issued in April and May 2013 (as described above under “Liquidity and Capital Resources” – “Financing”).

ITEM 6. EXHIBITS.

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LUCAS ENERGY, INC.

(Registrant)

/s/ William J. Dale

William J. Dale

Chief Financial Officer

(Principal Financial Officer)

Date: August 14, 2013

EXHIBIT INDEX

Exhibit No.	Description

*4.1	Common Stock Purchase Warrant (Robertson Global Credit, LLC)(1)
*10.1	Letter Loan Agreement (Louise H. Rogers)(August 13, 2013)(1)
*10.2	Promissory Note ($7.5 million)(Louise H. Rogers)(August 13, 2013)
*10.3	Security Agreement (Louise H. Rogers)(August 13, 2013)
*10.4	Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement, and Fixture Filing (Louise H. Rogers)(August 13, 2013)

*31.1	Section 302 Certification of Periodic Report of Principal Executive Officer.

*31.2	Section 302 Certification of Periodic Report of Principal Financial Officer.
**32.1	Section 906 Certification of Periodic Report of Principal Executive Officer.
**32.2	Section 906 Certification of Periodic Report of Principal Financial Officer.

***101.INS	XBRL Instance Document.

***101.SCH	XBRL Schema Document.

***101.CAL	XBRL Calculation Linkbase Document.

***101.DEF	XBRL Definition Linkbase Document.

***101.LAB	XBRL Label Linkbase Document.

***101.PRE	XBRL Presentation Linkbase Document

(1) the Common Stock Purchase Warrant which forms Exhibit A to the Letter Loan Agreement has been filed separately as Exhibit 4.1.

* Filed herewith.

** Furnished herewith.

*** Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets –June 30, 2013 and March 31, 2013, (ii) the Condensed Consolidated Statements of Operations - Three Months Ended June 30, 2013 and 2012, (iii) the Condensed Consolidated Statements of Cash Flows - Three Months Ended June 30, 2013 and 2012; and (iv) Notes to Condensed Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SCHEDULE A

Definitions

“ LEI ” means Lucas Energy, Inc., the Borrower in this Loan transaction.

“ Rogers ” means Louise H. Rogers, the Lender in this Loan transaction.

******

“ Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract, or otherwise.

“ Approved Engineer ” means any independent engineer recognized in the U.S. oil and gas loan syndication market and satisfactory to Rogers. The parties agree that Forrest A. Garb & Associates, Inc., and Octagon Advisors are deemed to be Approved Engineers.

“ Asset ” means, as to any Person, all property of any kind, real or personal, tangible or intangible, legal or equitable, whether now owned or subsequently acquired, including, without limitation, the Hydrocarbon Interests, money, stock, accounts receivable, contract rights, franchises, value as a going concern, causes of action, undivided fractional ownership interests, intellectual property rights, and anything of any value that can be made available for, or may be appropriated to, the payment of debts.

“ Asset Coverage Deficiency ” means either (a) the Asset Coverage Ratio as of any Test Date is less than 4.00 to 1.00, or (b) the Total Proved PV10% in effect on the Test Date is less than $30,000,000.

“ Asset Coverage Ratio ” means, as of any Test Date, the ratio of (a) Total Proved PV10% as in effect on the Test Date to (b) the Obligations as of the Test Date.

“ Authorized Officer ” means those officers of LEI whose signatures and incumbency have been certified by LEI to Rogers.

“ Business Day ” means any day that is neither a Saturday nor Sunday nor a legal holiday on which banks are authorized or required to be closed in Tyler, Texas, or Houston, Texas.

“ Capital Stock ” means any and all shares, interests (including partnership interests and membership interests), participations, or other equivalents (however designated) of capital stock of a corporation, partnership, limited liability company, or other legal entity; securities convertible into or exchangeable for shares, interests, or participations in any and all equivalent ownership interests in a Person; and any and all warrants or options to purchase any of these ownership interests.

“ Cash Equivalent Investment ” means, at any time:

(a) any evidence of Debt that matures not more than one year after the date the Debt is issued or guaranteed by the United States Government;

(b) commercial paper that matures not more than six months from the date of issue, that is issued by (i) a corporation (other than an Affiliate of LEI) organized under the laws of any state of the United States or of the District of Columbia and rated one of the three highest rating categories by S&P or Moody’s, or (ii) any lender (or its holding company);

(c) any certificate of deposit or bankers acceptance that matures not more than one year after it is obtained that is issued by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $250,000,000.00, and whose long-term certificates of deposit or bankers acceptances are, at the time of acquisition by LEI, rated A-1 by S&P or P-1 by Moody’s;

(d) deposit accounts in a bank or trust company organized under the laws of the United States or any state of the United States that has capital, surplus, and undivided profits aggregating at least $250,000,000.00 and whose commercial paper or short term bank deposits (or that of the holding company with which the bank or trust company is affiliated) are rated A-1 by S&P or P-1 by Moody’s;

(e) marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by any U.S. agency and backed by the full faith and credit of the United States, as the case may be, in each case maturing no later than one year from the date of acquisition; or

(f) money market, mutual, or similar funds that invest in obligations referred to clauses (a) , (b) , (c) , (d) , or (e) of this definition, and in each case the funds have assets in excess of $250,000,000.00.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

“ Change in Management ” means: (a) Anthony C. Schnur shall cease or fail for any reason to serve and function in his current capacity as Chief Executive Officer of LEI and is not succeeded in that position by a person reasonably acceptable to Rogers; or (b) William J. Dale shall cease or fail for any reason to serve and function in his current capacity as Chief Financial Officer of LEI and is not succeeded in that position by a person reasonably acceptable to Rogers.

“ Collateral Property ” means any Mortgaged Property or Collateral, each as defined and specified in the applicable Security Document.

“ Confidential Information ” means all business plans, data, production results, reports, and all information of any nature concerning LEI’s financial statements and resources, results of operations, technical information, business dealings, negotiations with third parties, potential mergers and acquisitions, and all other material non-public information relating to LEI. Confidential Information shall not include information that (a) is known by Rogers prior to its disclosure by LEI and that is not subject to other confidentiality obligations; (b) is or becomes publicly known through no breach of the Letter Loan Agreement or any other agreement binding Rogers; (c) is received from a third party without a breach of any confidentiality obligation known to Rogers; (d) is independently developed by Rogers; or (e) is disclosed with LEI’s prior written consent.

“ Contract Operator Agreement ” means any contract or agreement to which LEI is a party and pursuant to which another Person (other than LEI or owner of a working interest in the Oil and Gas Properties) provides operating services with respect to any of LEI’s Oil and Gas Properties, as amended, supplemented or otherwise modified.

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“ Debt ” and “ Indebtedness ” both mean all liabilities of a Person that should be classified as liabilities in accordance with GAAP, and includes current unsecured trade, utility, and non-extraordinary accounts payable arising in the ordinary course of business.

“ Debt Service Reserve Escrow Account ” means the account set up by Robertson Global Credit, LLC, at Bank of Texas to hold in escrow LEI’s prepayment via escrow of the first six months of interest payments under the Note.

“ Default ” means any Event of Default or any condition, occurrence or event that, after notice or lapse of time or both, would constitute an Event of Default, as described more fully in the Letter Loan Agreement and in the relevant Security Document.

“ Disposition ” and “ Dispose ” both mean the sale, transfer, license, lease, or other disposition of any Asset by any Person.

“ Determination Period ” means the period from the date of the Letter Loan Agreement to the initial Scheduled Collateral Value Determination Date, and each subsequent six-month period between Scheduled Collateral Value Determination Dates.

“ Environmental Laws ” means any applicable federal, state, or local laws, rules, or regulations, and any judicial, arbitral, or administrative interpretations of them, including any applicable judicial, arbitral, or administrative order, judgment, permit, approval, decision, or determination pertaining to health or safety (to the extent health or safety relate to exposure to Hazardous Materials) or the environment in effect at the time in question, including CERCLA; the Federal Water Pollution Control Act, as amended; the Occupational Safety and Health Act, as amended; the Resource Conservation and Recovery Act, as amended (“ RCRA ”); the Safe Drinking Water Act, as amended; the Toxic Substances Control Act, as amended; the Superfund Amendment and Reauthorization Act of 1986, as amended; the Hazardous Materials Transportation Act, as amended; comparable state and local laws; and other environmental conservation and protection laws. The terms “hazardous substance,” “Release,” and “threatened Release” shall have the meanings specified in CERCLA, and the terms “solid waste” and “disposal” (or “disposed”) shall have the meanings specified in RCRA and the term “oil” shall have the meaning specified in the Oil Pollution Act, as amended (“ OPA ”); provided , that (i) in the event either CERCLA, RCRA, or OPA is amended in a manner that broadens the meaning of any term defined in those Acts, the broader meaning shall apply with respect to Sections 2.2 through 2.5 of the Mortgages from and after the date of adoption and legal effect of the amendment, and, with respect to Section 2.7 of the Mortgages, as of the earliest date on which the adopted amendment has legal effect (including legally enforceable retroactive effect); and (ii) to the extent the laws of the state or states in which any Property of LEI is located establish a meaning for “hazardous substance,” “release,” “threatened release,” “solid waste,” “disposal,” or “oil” that is broader than that specified in CERCLA, RCRA, or OPA, the broader meaning shall apply, with respect to Sections 2.2 through 2.5 of the Mortgages, from and after the date of adoption and legal effect of the amendment, and, with respect to Section 2.7 of the Mortgages, as of the earliest date on which the adopted amendment has legal effect (including legally enforceable retroactive effect).

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code.

“ GAAP ” means generally accepted accounting principles.

Schedule A - Definitions

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“ Governmental Authority ” means the government of the United States or of any other nation or country, or of any political subdivision of that nation or country, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank, or other entity exercising executive, legislative, judicial, taxing, regulatory, or administrative powers or functions of or pertaining to government.

“ Hazardous Material ” means any pollutant or contaminant or hazardous, dangerous, or toxic chemical, material, or substance within the meaning of any applicable national, regional, state, or local law, regulation, ordinance, or legally enforceable requirement (including consent decrees and administrative orders) regulating or imposing liability concerning any hazardous, toxic, or dangerous waste, substance, or material, and as any of these may be subsequently amended.

“ Hedge Transaction ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options, forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of these (including any options to enter into any of these), regardless of whether the transaction is governed by or subject to any master agreement; and (b) any and all transactions of any kind, and the related confirmations, that are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement to the extent relating to any of the transactions described in the preceding clause (a) , in each case, as amended, supplemented, restated, or otherwise modified from time to time.

“ Hedging Obligations ” means, with respect to any Person, all liabilities or obligations of that Person under any Hedge Transaction.

“ Hydrocarbon Interests ” means all rights, titles, interests, and estates now owned or subsequently acquired by LEI in any and all oil, gas, and other liquid or gaseous hydrocarbon properties and interests, including, without limitation, mineral fee or lease interests, production sharing agreements, concession agreements, license agreements, service agreements, risk service agreements, or similar Hydrocarbon interests granted by an appropriate Governmental Authority, farmout, overriding royalty and royalty interests, net profit interests, oil payments, production payment interests, and similar interests in Hydrocarbons, including any reserved or residual interests of whatever nature.

“ Hydrocarbons ” means oil, gas, casing head gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons, all products refined, separated, settled, and dehydrated from them and all products refined from them, including, without limitation, kerosene, liquefied petroleum gas, refined lubricating oils, diesel fuel, drip gasoline, natural gasoline, helium, sulfur, and all other minerals.

“ including ” means including without limiting the generality of any description preceding the term, and, for purposes of the Letter Loan Agreement and each other Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit a general statement that is followed by or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned.

“ Indemnified Parties ” means Rogers and her representatives, advisors, employees, agents, heirs, successors, and assigns.

Schedule A - Definitions

Rogers-LEI Loan/August 13, 2013

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“ Initial Reserve Report ” means that certain reserve report dated as of April 1, 2013, prepared by Forrest A. Garb and Associates, Inc., reflecting reserves as of April 1, 2013.

“ Investment ” means, with respect to any Person: (a) any loan, advance, extension of credit, or capital contribution made by that Person to any other Person (excluding commission, travel, and similar advances to officers and employees made in the ordinary course of business); (b) any guarantee, endorsement, or other secondary liability of a Person for or upon the obligations or Debt of any other Person (whether directly or indirectly); and (c) the acquisition (whether for cash, property, services, securities, or otherwise) of any Capital Stock or other ownership or similar interest by a Person in any other Person. The amount of any Investment shall be the original principal or capital amount invested (without adjustment by reason of the financial condition of the other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of the property.

“ Lien ” means, with respect to any Person, any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. For purposes of the Letter Loan Agreement, the term “Lien” shall exclude contractual provisions establishing set off rights, netting arrangements, and negative pledges.

“ Loan ” is Rogers’ agreement to lend to LEI on or about August 13, 2013, Seven Million Five Hundred Thousand 00/100 Dollars ($7,500,000.00), pursuant to the terms and conditions set forth in the Letter Loan Agreement and the other Loan Documents.

“ Loan Document ” means the Letter Loan Agreement, the Note, and each Security Agreement, Mortgage, and other Security Documents, together, in each case, with all exhibits, schedules, and attachments to them, and all other agreements, documents, or instruments executed or delivered from time to time in connection with or pursuant to any of the documents listed, and any amendments to or restatements of any of the documents listed.

“ Material Adverse Effect ” means a material negative change to or impairment of: (i) the business, properties, assets, liabilities, conditions (financial or otherwise), operations, or prospects of LEI; (ii) the ability of LEI to perform its obligations under any of the Loan Documents; or (iii) the validity or enforceability of the Letter Loan Agreement or any of the other Loan Documents.

“ Maturity Date ” is August 13, 2015.

“ Moody’s ” means Moody’s Investors Service, Inc.

“ Mortgage ” means each mortgage, collateral mortgage, deed of trust, security agreement, or assignment, in a form reasonably acceptable to Rogers and delivered by LEI pursuant to the terms of the Letter Loan Agreement, in each case as amended, supplemented, restated, or otherwise modified from time to time.

“ Mortgaged Property ” is defined in each Mortgage.

“ Net Cash Proceeds ” means in connection with the Disposition of any Assets permitted by Section 8(i) of the Letter Loan Agreement, the cash proceeds received from the issuance or sale, as applicable, net of all investment banking fees, legal fees, accountants’ fees, underwriting discounts, and commissions and other customary fees and expenses actually incurred and satisfactorily documented in connection with the Disposition.

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“ Note ” that certain Promissory Note entered into between LEI and Rogers dated August 13, 2013, in the original principal amount of $7,500,000.00, and also means all other promissory notes accepted from time to time in substitution for the original Note or any amendment, modification, or renewal of the Note.

“ Obligations ” means all obligations, Indebtedness, and liabilities of LEI to Rogers that now exist or that subsequently arise under or in connection with the Letter Loan Agreement, the Note, and/or each other Loan Document, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, including the obligations, Debt, and liabilities of LEI, and all interest accruing on these items (including any interest that accrues after the commencement of any proceeding by or against LEI under any bankruptcy, insolvency, liquidation, moratorium, receivership, reorganization, or other debtor relief law) and all attorneys’ fees and other expenses incurred in the collection or enforcement of these items.

“ Oil and Gas ” means petroleum, natural gas, and other related hydrocarbons or minerals or any of them and all other substances produced or extracted in association with them.

“ Oil and Gas Business ” means (a) the acquisition, exploration, exploitation, development, operation, management, and disposition of interests in Hydrocarbon Interests and Hydrocarbons; (b) gathering, marketing, treating, processing, storage, selling, and transporting of any production from these interests or Hydrocarbon Interests, including, without limitation, the marketing of Hydrocarbons obtained from unrelated Persons; (c) any business relating to or arising from exploration for or development, production, treatment, processing, storage, transportation, or marketing of oil, gas, and other minerals and products produced in association with these items; and (d) any activity that is ancillary, necessary, synergistic, or desirable to facilitate the activities described in clauses (a) through (c) of this definition.

“ Oil and Gas Properties ” means Hydrocarbon Interests; the Assets now or subsequently pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements, and declarations of pooled units and the units created by the declarations of pooled units (including without limitation all units created under orders, regulations, and rules of any Governmental Authority) that may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts, and other agreements that relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange, or processing of Hydrocarbons from or attributable to the Hydrocarbon Interest; all Hydrocarbons in and under and that may be produced and saved or attributable to the Hydrocarbon Interests, the lands covered by them, and all oil in tanks and all rents, issues, profits, proceeds, products, revenues, and other income from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances, and Assets in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests; Assets, gas gathering systems, gas plants, rights, titles, interests, and estates described or referred to above, including any and all Assets, real or personal, now owned or subsequently acquired and situated upon, used, held for use, or useful in connection with the operating, working, or development of any of the Hydrocarbon Interests or Asset (excluding drilling rigs, automotive equipment, or other personal property that may be on the premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells, or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements, and servitudes, together with all additions, substitutions, replacements, accessions, and attachments to any and all of the items listed in this definition.

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“ Pension Plan(s) ” means any and all employee benefit pension plans of LEI and/or any of its Subsidiaries in effect from time to time, as that term is defined in ERISA.

“ Person ” means any natural person, corporation, limited liability company, partnership, joint venture, firm, association, trust, government, governmental agency, or any other entity, whether acting in an individual, fiduciary, or other capacity.

“ Proved Reserves ” means “Proved Reserves” as defined in the Definitions for Oil and Gas Reserves (for purposes of this paragraph they are referred to as the “Definitions”) promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question. “Proved Developed Producing Reserves” means Proved Reserves that are categorized as both “Developed” and “Producing” in the Definitions; “Proved Developed Nonproducing Reserves” means Proved Reserves that are categorized as both “Developed” and “Nonproducing” in the Definitions; and “Proved Undeveloped Reserves” means Proved Reserves that are categorized as “Undeveloped” in the Definitions.

“ Reserve Report ” means a report setting forth the Proved Reserves by reserve category attributable to the Hydrocarbon Interests constituting Proved Reserves owned directly by LEI, a projection of the rate of production and net operating income with respect to them as of a specified date, and all other information that is customarily obtained from and provided in these reports, in form and substance reasonably satisfactory to Rogers. All Reserve Reports shall be prepared by an Approved Engineer and in accordance with the definition of Total Proved PV10%.

“ S&P ” means Standard & Poor’s Ratings Group.

“ SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of the SEC’s principal functions.

“ Security Agreement ” means the Security Agreement entered into between Rogers and LEI dated August 13, 2013, and all other Security Agreements in a form reasonably acceptable to Rogers and executed and delivered from time to time by LEI in favor of Rogers to secure the Obligations, including each Security Agreement delivered pursuant to Section 7(f) of the Letter Loan Agreement and as that Section may be amended, restated, supplemented, or modified from time to time.

“ Security Document ” means, individually, any Mortgage, any Security Agreement, and any similar document securing the Obligations, including any document delivered pursuant to Section 7(f) of the Letter Loan Agreement. “ Security Documents ” means, as the context requires, any or all of these documents.

“ Scheduled Collateral Value Determination Date ” means April 1 and October 1 of each calendar year.

“ Subsidiary ” means, with respect to any Person: any corporation, limited liability company, partnership, or other entity in which the Person owns a greater than 50% ownership interest or in which the Person has the voting power necessary to elect a majority of the Board of Directors or managers of the entity (regardless of whether at the time the Capital Stock or other ownership interests of any other class or classes of the corporation, limited liability company, partnership, or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by that Person, by that Person and one or more Subsidiaries of that Person, or by one or more other Subsidiaries of that Person. Unless the context otherwise clearly requires, references in the Letter Loan Agreement to a “Subsidiary” or the “Subsidiaries” refer to a Subsidiary or the Subsidiaries of LEI.

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“ Test Date ” means: (a) any Scheduled Collateral Value Determination Date; (b) the date of any interim collateral value determination pursuant to Section 3(c) of the Letter Loan Agreement; (c) the date of any Disposition permitted by Section 8(i) of the Letter Loan Agreement; or (d) at Rogers’s discretion, the sixtieth day after the receipt by Rogers of the engineering report required to be delivered pursuant to Section 7(a)(v) of the Letter Loan Agreement.

“ Total Proved PV10% ” means, with respect to any Proved Reserves reasonably expected to be produced from any Oil and Gas Properties, the net present value, discounted at ten percent per annum, of the future net revenues expected to accrue to LEI’s interests in the Proved Reserves during the remaining expected economic lives of the reserves. Each calculation of expected future net revenues shall be determined by Rogers in her sole discretion and in accordance with the then existing standards of the Society of Petroleum Engineers, provided that in any event: (a) appropriate deductions shall be made for severance and ad valorem taxes, and for operating, gathering, transportation, and marketing costs required for the production and sale of the reserves; (b) appropriate adjustments are made for commodity and basis hedging activities pursuant to Section 6(p) ; (c) the pricing assumptions used in determining Total Proved PV10% for any particular reserves shall be based upon the quarterly Tristone Base Case Deck Price only; and (d) the cash-flows derived from the pricing assumptions set forth in clauses (b) and (c) above shall be further adjusted to account for the historical basis differential in a manner reasonably acceptable to Rogers; provided, however, that for purposes of this calculation, Proved Developed Producing Reserves shall constitute not less than 20% of the Total Proved PV10%.

“ Tristone Base Case Deck Price ” means the most current quarterly published price survey from regional energy-sector banks provided by Macquarie Tristone. It is available via the Macquarie Tristone website www.macquarie.com. If the published survey is no longer available, it is the average base case price deck of three regional reserve lending banks as decided by both LEI and Rogers.

Schedule A - Definitions

Rogers-LEI Loan/August 13, 2013

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By:	/s/ Anthony C. Schnur
	Anthony C. Schnur , Chief Executive Officer

	Date of Signature: 8/9 , 2013

Holder/Payee’s Mailing Address:	c/o Sharon E. Conway
	Attorney at Law
	2441 High Timbers, Suite 410
	The Woodlands, Texas 77380-1052

Place for Payment (including county):	XXXXXXXXX
	XXXXXXXXX
	(Paid via wire transfer as set forth below)

Principal Amount:	Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00)

Monthly Interest Rate:	One Percent (1.0%). Interest accruing under this Note shall be computed on the basis of a 360-day year and shall be assessed for the actual number of days elapsed.

Maturity Date:	The entire principal balance remaining and all accrued interest is due and payable on or before August 13, 2015 (the “Maturity Date”).

Bank Name:
ABA Routing Number:
Account Number:
Customer/Account Name:	Louise H. Rogers

Notice of Payment:	Immediately upon receiving confirmation that each wire transfer payment has been completed, LEI shall send via e-mail to Rogers’ attorney, Sharon E. Conway, a copy of the confirmation. Failure to send this confirmation to Ms. Conway shall constitute an Event of Default.

Mandatory Prepayment:	The Letter Loan Agreement sets forth the terms and conditions under which LEI is required to make prepayments of principal or the Indebtedness evidenced by this Note.

		Lucas Energy, Inc. By: /s/ Anthony C. Schnur Its: Chief Executive Officer Printed Name: Anthony C. Schnur Date: August 13, 2013

Date:	August 13, 2013

Maker:	Lucas Energy, Inc., a Nevada Corporation (“LEI”)

Maker’s Mailing Address:	3555 Timmons Lane
	Suite 1550
	Houston, Texas 77027
	Attention: Anthony C. Schnur

Holder/Payee:	Louise H. Rogers, as her separate property (“Rogers”)

Annual Interest Rate on Matured,
Unpaid Amounts (Default Rate):	Eighteen Percent (18%) per Texas Finance Code Chapters 306 and 303

Security for Payment:	The Letter Loan Agreement describes in detail the security for this Note, and it as well as the Security Agreement between LEI and Rogers dated August 13, 2013 (the “Security Agreement”), and the Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement, and Fixture Filing dated August 13, 2013, are all incorporated by reference into this Note for all purposes as if fully set forth at length.

	(Seal)
	Bailey Kristen Harrell
	Notary Public, State of Texas
	My Commission Expires		/s/ Bailey Kristen Harrell
	April 11, 2017		Notary Public in and for the State of Texas

The name and mailing address of the Secured Party is: Louise H. Rogers, as her Separate Property c/o Sharon E. Conway Attorney at Law 2441 High Timbers, Suite 410 The Woodlands, Texas 77380-1052 Telephone: (281) 681-2230 Facsimile No: (281) 754-4685	The name and mailing address of the Trustee is: Sharon E. Conway, Trustee Attorney at Law 2441 High Timbers, Suite 410 The Woodlands, Texas 77380-1052 Telephone: (281) 681-2230 Facsimile No: (281) 754-4685

	1.	Correct Legal Name of Mortgagor as Registered in the Jurisdiction in which Mortgagor is Incorporated or Organized and State of Incorporation or Organization of Mortgagor:

	LUCAS ENERGY, INC., a Nevada Corporation


	2.	Organization Identification Number as Designated by Mortgagor’s State of Incorporation or Organization:

	Organization I.D. No. C31179-2003


	3.	Principal Place of Business of Mortgagor:
		3555 Timmons Lane
		Suite 1550
		Houston, Texas 77027