UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A

(Amendment No. 2)

(Mark One)

| | þ | ANNUAL
                                                                                                                                REPORT
                                                                                                                                PURSUANT
                                                                                                                                TO
                                                                                                                                SECTION
                                                                                                                                13
                                                                                                                                OR
                                                                                                                                15(d)
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OF
THE SECURITIES EXCHANGE ACT OF 1934

For
the fiscal year ended December 31, 2012

OR

| |  ̈ | TRANSITION
                                                                                                                              REPORT
                                                                                                                              PURSUANT
                                                                                                                              TO
                                                                                                                              SECTION
                                                                                                                              13
                                                                                                                              OR
                                                                                                                              15(d)
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OF
THE SECURITIES EXCHANGE ACT OF 1934



For the
transition period from ___________________ to ________________________

Commission File Number 0-32455



Far East Energy Corporation

(Exact Name of Registrant as Specified
in Its Charter)



|Nevada                                                             | 88-0459590                              
|------------------------------------------------------------------ | ----------------------------------------
|(State or other
    jurisdiction of incorporation or organization) | (I.R.S. Employer
    Identification No.)
|                                                                   |                                         
|363
    N. Sam Houston Parkway East, Suite 380, Houston, Texas     | 77060                                   
|(Address
    of principal executive offices)                       | (Zip Code)                              



Registrant's telephone number, including
area code: (832) 598-0470

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

Securities
registered under 12(g) of the Exchange Act: Common stock (par value $0.001 per share)



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈Noþ



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ̈Noþ







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 þNo ̈



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 þNo  ̈



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



Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer  ̈	Accelerated
filer þ Non-accelerated filer  ̈	
Smaller reporting company  ̈



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ̈Noþ



The aggregate market
value of the voting common stock, par value $0.001 per share, held by non-affiliates of -the registrant was approximately $58,614,000
as of June 30, 2012 (based on $0.17 per share, the last price of the common stock as reported on the OTC Bulletin Board on such
date). For purposes of the foregoing calculation only, all directors, executive officers and 10% beneficial owners have been deemed
affiliates.



The number of shares
of common stock, par value $0.001 per share, outstanding as of April 24, 2013 was 346,371,483.



DOCUMENTS INCORPORATED BY REFERENCE

None.




















EXPLANATORY NOTE



This
Amendment No. 2 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K (the “Annual Report”)
of Far East Energy Corporation (the “Company”) for the fiscal year ended December 31, 2012 (the “Original Filing”),
originally filed on March 18, 2013, as amended by Amendment No. 1, originally filed on March 21, 2013. We are filing this Amendment
to include the information required by Part III of the Annual Report and not included in the Original Filing as we will not file
our definitive proxy statement within 120 days of the end of the Company’s fiscal year ended December 31, 2012. In addition,
in connection with the filing of this Amendment and pursuant to the rules of the Securities and Exchange Commission, we are including
with this Amendment currently dated certifications under Section 302 of the Sarbanes-Oxley Act of 2002. Accordingly, Item
15 of Part IV has also been amended to reflect the filing of these currently dated certifications.



Except
as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date
of the Original Filing, and we have not updated the disclosures contained therein to reflect any events that occurred at a date
subsequent to the filing of the Original Filing. In this Amendment, unless the context indicates otherwise, the terms “Company,”
“we,” “us,” and “our” refer to Far East Energy Corporation and its subsidiaries.



i







FAR EAST ENERGY CORPORATION

TABLE OF CONTENTS



|         |  |                                                                                                    | Page
|-------- |  | -------------------------------------------------------------------------------------------------- | ----
|         |  |                                                                                                    |     
|         |  | PART III                                                                                           |     
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                             | 1   
|Item 11. |  | Executive Compensation                                                                             | 6   
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
    Matters | 24  
|Item 13. |  | Certain Relationships and Related Transactions and Director Independence                           | 28  
|Item 14. |  | Principal Accountant Fees and Services                                                             | 28  
|         |  |                                                                                                    |     
|         |  | PART IV                                                                                            |     
|Item 15. |  | Exhibits and Financial Statement Schedules                                                         | 30  
|         |  |                                                                                                    |     
|         |  | SIGNATURE                                                                                          | 31  











PART III



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE



Executive Officers and Board of Directors



The table below sets
forth the names and ages of each of the members of our board of directors (the “Board”) and our executive officers,
as well as the positions and offices held by such persons. A summary of the background and experience of each of these individuals
is set forth after the table.



|Name                 | Age | Position                                       
|-------------------- | --- | -----------------------------------------------
|Donald A. Juckett    | 68  | Chairman of the Board                          
|Michael R. McElwrath | 61  | President, Chief Executive Officer and Director
|William A. Anderson  | 73  | Director                                       
|C. P. Chiang         | 70  | Director                                       
|John C. Mihm         | 70  | Director                                       
|Lucian L. Morrison   | 76  | Director                                       
|Thomas E. Williams   | 60  | Director                                       
|Bruce N. Huff        | 62  | Chief Financial Officer                        
|Jennifer D. Whitley  | 38  | Interim Chief Financial Officer                



Donald A. Jucketthas served as a director since May 2004 and as Chairman of the Board since August 5, 2009. Dr. Juckett serves on the Compensation
Committee of the Board. Dr. Juckett has more than fifteen years of experience in bilateral activities with Chinese state companies
and Chinese government officials. He has broad bilateral experience involving technology and energy policy agreements, representing
the U.S. Department of Energy with many countries. In November 2005, after retiring from the U.S. Department of Energy, Dr. Juckett
established the Washington, D.C. Office of Geoscience and Energy for the American Association of Petroleum Geologists (“AAPG”),
the largest geosciences professional association in the world. He continues serving as Founding Director for the AAPG, Washington
office. Prior to that, Dr. Juckett was self-employed as an industry consultant. He served at the U.S. Department of Energy from
1988 until his retirement in 2003. At the time of his retirement, Dr. Juckett was Director of the Office of Natural Gas Import
and Export Activities in the Office of Fossil Energy. During his tenure with the U.S. Department of Energy, he served as a member
of the Senior Executive Service and held positions as the Director of Natural Gas and Petroleum Technology, Director of the Office
of Geoscience Research and Acting Deputy Assistant Secretary for Natural Gas and Petroleum Technology. Dr. Juckett managed a portfolio
of international projects, including technology bilateral agreements with China, Russia, Venezuela, Ukraine, Bangladesh, Canada
and Mexico. Beginning in 1998, Dr. Juckett played a leading role in establishing and managing the U.S./China Oil Gas Industry
Forum. In his technology management positions at the U.S. Department of Energy, he was responsible for research, development and
technology transfer for both conventional and non-conventional oil and gas resources (including coalbed methane). From 1974 to
1988, Dr. Juckett worked for Phillips Petroleum Company, now known as ConocoPhillips, Inc., in management positions, including
responsibility for exploration technologies support of five worldwide divisions. Those technology responsibilities ranged from
geochemistry to satellite imagery. Dr. Juckett earned a B.S. degree in chemistry from the State University of New York-Oswego
and a Ph.D. in chemistry from the State University of New York-Albany.



The Board nominated
Dr. Juckett to serve as a director because of his extensive senior management experience in the international oil and gas industry
and his experience at the U.S. Department of Energy involving international projects and agreements, as well as his fifteen years
of experience in bilateral activities with Chinese state companies and Chinese government officials. He brings extensive energy
industry, international operations and management experience to the Board.



1







Michael R. McElwrathhas served as the Company’s President and Chief Executive Officer since October 2003. He became a director in October
2003 and served as Chairman of the Board from October 2003 until January 2005. Mr. McElwrath also served as Secretary and Treasurer
from October 2003 until March 2005. Mr. McElwrath has worked in or with the energy industry for over 30 years, holding a number
of senior executive positions.  He was employed as Vice President of Hudson Highland (formerly known as TMP Worldwide, a
parent company of Monster.com) from 1999 until joining the Company in October 2003. He also served as Acting Assistant Secretary
of Energy in the George H.W. Bush (41st President of the United States) Administration, where he was the top line management official
for development of the nation’s oil, gas and coal policy, as well as management of oil, gas and coal research programs,
and the Strategic Petroleum Reserve. Among other positions, Mr. McElwrath also served as Director of the National Institute for
Petroleum and Energy Research, Director of British Petroleum’s outsourced exploration and production lab for the Americas
and Deputy Assistant Secretary for Policy for the U.S. Department of Interior in the Reagan Administration. Prior to joining the
Reagan Administration, Mr. McElwrath practiced oil and gas and corporate law for approximately ten years. Mr. McElwrath holds
a J.D. from the University of Texas School of Law, as well as a B.A. from the Plan II Honors Program at the University of Texas.
He is also a member of the Society of Petroleum Engineers (“SPE”), the Independent Petroleum Association of America
(“IPAA”), the Texas Independent Producers and Royalty Owners Association, the Research Partnership to Secure Energy
for America (“RPSEA”), the World Affairs Council, and the National Association of Corporate Directors.



The Board nominated
Mr. McElwrath to serve as a director because his position as Chief Executive Officer provides strategic leadership for the Board. 
His extensive senior management experience in the oil and gas industry as well as in the United States government gives the Board
the benefit of his management and operational insight.  With Mr. McElwrath’s extensive executive experience, he brings
strong financial and operational expertise to the Board.



William A. Andersonhas served as a member of the Company’s Board since October 2007. Mr. Anderson is the chairman of the Audit Committee
of the Board and has been designated as an “audit committee financial expert.” He also serves on the Compensation
Committee of the Board. Mr. Anderson served as a consultant for Eastman Dillon Oil and Gas Association from 2006 through 2010.
From 1989 through 2005, he was a founder and partner of Weller, Anderson & Co. Ltd. (“Weller”), a full-service
stock brokerage firm. Prior to founding Weller in 1989, Mr. Anderson held several senior executive positions, including President
of HARC Technologies, President of Rainbow Pipeline Company, President of Farmers Oil Company, Chief Financial Officer of ENSTAR
Corporation, and General Partner and Senior Vice President of Blyth, Eastman, Dillon & Co. Mr. Anderson has extensive corporate
board experience, having served as a director, committee chairman and/or committee member for a number of organizations, including
Rancher Energy Corp., Tom Brown, Inc., Equisales Associates, Inc., Dyson Corporation, NationsBank Houston, Northern Trust Bank
of Texas, American Income Life Insurance Company, Wing Corporation and Seven J-Stock Farm, Inc. He holds an MBA from the Harvard
Business School and a B.S. in Business Administration from the University of Arkansas.



The Board nominated
Mr. Anderson to serve as a director because of his extensive senior management experience in both the oil and gas and financial
industries, as well as his experience as a member of several corporate boards and as an executive. Mr. Anderson qualifies as an
audit committee financial expert and brings strong financial expertise and experience to the Board.



C.P. Chiang
has served on the Board since December 2006. He also serves on the Nominating and Corporate Governance Committee of the Board.
From 2001 until his retirement in 2006, Mr. Chiang served as the China Project Manager/Country Manager of Burlington Resources,
an energy company engaged in exploration, production, refining and marketing oil and gas, where he was responsible for managing
the operations and activities of Burlington Resources in China and worked closely and negotiated with various Chinese governmental
organizations. Throughout his 40 year career in the oil and gas industry, Mr. Chiang has held various engineering and management
positions with oil and gas companies including British Gas E&P, Inc., Tenneco Oil Production and Exploration and Exxon Oil
Company, now known as Exxon Mobil Corporation. Mr. Chiang earned a B.S. degree in mining engineering from National Cheng Kung
University in Taiwan and an M.S. degree in petroleum engineering from New Mexico Institute of Mining and Technology.



2







The Board nominated
Mr. Chiang to serve as a director because of his extensive experience in the oil and gas industry, specifically in China, a key
region to the Company’s operations.  Mr. Chiang has held various management and engineering positions with multiple
oil and gas companies.  Mr. Chiang brings extensive operational and executive experience and expertise to the Board.



John C. Mihm
has served as a director since May 2004. He served as Chairman of the Board from January 2005 through June 2007. Mr. Mihm currently
serves on the Audit Committee and the Nominating and Corporate Governance Committee of the Board. He serves on the board of eProjectManagement
and AETP, a company involved in removing nitrogen from natural gas, and also serves as HNNG Midstream Partners LLC’s Chief
Operating Officer. Mr. Mihm is the owner and President of JCM Consulting, PLLC, which provides services in the engineering, construction,
and project management field. From 1964 until his retirement in 2003, Mr. Mihm worked for Phillips Petroleum Company, now known
as ConocoPhillips, Inc., in various management positions, finally serving as Senior Vice President of Technology and Project Development.
Mr. Mihm’s career includes over 20 years of work experience in China in offshore development and onshore coalbed methane
exploration, working closely with China National Petroleum Corporation, China National Offshore Oil Corporation and SINOPEC on
several joint ventures and employee development programs. He is a past board member of The Society of Petroleum Engineers and
the ASME Foundation (“ASME”). Mr. Mihm is a registered professional engineer in Texas and Oklahoma. Mr. Mihm earned
a B.S. degree in chemical engineering from Texas Tech University and serves on or has served on advisory boards at Texas Tech
University, Oklahoma State University, University of Tulsa, University of Texas, Colorado School of Mines, Georgia Tech and University
of Trondheim.



The Board nominated
Mr. Mihm to serve as a director because it believes that he has extensive experience in the oil and gas industry, specifically
in offshore/onshore development in China and coalbed methane exploration in the United States.  He also has worked closely
with a number of key oil and gas companies in China.  Mr. Mihm brings extensive financial, engineering, operational and management
experience to the Board.



Lucian L. Morrisonwas appointed to the Board in January 2008.   Mr. Morrison is the chairman of the Compensation Committee of the
Board. He also serves as a member of the Audit Committee of the Board and has been designated as an “audit committee financial
expert.”  Mr. Morrison currently serves as a director, audit committee member, compensation committee member and
investment committee member of Erie Indemnity Company.  Additionally, Mr. Morrison served as a director of Encore Trust Company
from 2005 to 2007 and of Encompass Services, Inc. from 1997 to 2003.  He founded Heritage Trust Company in 1979 and served
as its CEO until 1990 when he sold it to Northern Trust Bank of Texas.  He served as director and chairman of the Trust Committee
of Northern Trust Bank of Texas from 1990 until 1992.  He co-founded Sentinel Trust Company in 1997 and continues to serve
as a consultant to the company and its other founders, and a director and a member of the company’s investment committee. 
From 1998 to 2002, he was chairman of Wing Corporation, a private exploration and production company.  Mr. Morrison serves
as an independent trustee and consultant in trust, estate, probate and qualified plan matters and also manages oil and gas properties
in Texas. He is also a development board member of the University of Texas Houston Health Science Center.  He holds a J.D.
from the University of Texas School of Law, a graduate degree from the Southern Methodist University Southwestern Graduate School
of Banking, Trust Division and a B.B.A. in Accounting from the University of Texas School of Business Administration.



The Board nominated
Mr. Morrison to serve as a director because of his extensive senior management experience in the financial industry, his experience
managing oil and gas properties and his experience serving on various boards of directors.  Mr. Morrison qualifies as an
audit committee financial expert and brings extensive financial expertise and experience to the Board, and also qualifies as an
audit committee financial expert.



Thomas E. Williamshas served as a director since February 2004. Mr. Williams is the chairman of the Nominating and Corporate Governance Committee
of the Board and serves on the Audit Committee of the Board. Mr. Williams served as Chairman of the Board from June 2007 through
August 2009. He has been in the energy business for over 30 years as an operator and later in his career in the management and
commercialization of new energy technologies. He held senior executive positions at the U.S. Departments of Energy, Office of
Fossil Energy and Department of Interior during the Bush Administration from 1989 to 1993 and has continued to be involved in
a variety of activities and organizations fostering cooperation between the government and private sector. He was Director and
responsible for privatizing a former major oil upstream research and technology services company in Houston in 1993. The company
was sold in 1997 and he has since started and led a number of successful technology companies. As Vice President of Business Development
of a leading drilling technology company in 2001, he was instrumental in selling the business to Noble Drilling Corporation.



3







In 2005 he co-founded
the Environmentally Friendly Drilling Project with associates from Texas A&M and the Houston Advanced Research Center; knowing
that the effort to identify and develop technologies that would reduce the environmental impact of oil and gas activities must
be led by academia. The project has grown with funding from the government and a broad base of industry operator and service companies.
The program operates with active participation from over 20 universities, national labs and environmental organizations. He continues
to be an active part of the management team of this award winning program.



After he retired
from Noble Corporation in 2007, as Vice President, Research and Business Development, he has served on the Board of Directors
of Petris Technology and Nautilus International LLC. He has also served on the Board of Directors and the Executive Committee
of RPSEA, co-chairman of the DeepStar consortium contributor’s committee which includes over 60 of the leading service providers
to the oil and gas industry.



Mr. Williams is well
known in the industry and has authored numerous energy publications, presentations and articles and continues to serve on a number
of oil and gas organizations, associations, energy advisory boards including the Consumer Energy Alliance, Drilling Engineering
Association, IADC, IPAA, Texas Energy Alliance, AADE, SPE and ASME. He learned the oil and gas business from the ground up as
a roughneck, land manager, director, president and CEO. He has a business degree from Campbellsville University with continuing
education in mineral and property law and business management.



The Board nominated
Mr. Williams to serve as a director because it believes that he has extensive experience in the oil and gas industry in both the
public and private sector. Mr. Williams brings extensive management and operational experience to the Board.



Bruce N. Huffwas appointed as the Company’s Chief Financial Officer on April 19, 2010 and is currently on a leave of absence from
the Company for health reasons. Previously, Mr. Huff served as the Company’s Chief Financial Officer from May 2004 until
his resignation in September 2007. Prior to joining the Company in 2004, Mr. Huff spent 13 years at Harken Energy Corporation,
an oil and gas exploration, development and production company, beginning as Senior Vice President and Chief Financial Officer
and eventually becoming the President and Chief Operating Officer in 1998. From October 2007 through October 2008, Mr. Huff served
as Chief Financial Officer of Opal Energy Corp, an oil and gas exploration company focusing on natural gas exploration in the
Gulf Coast of Texas. He then served as an independent consultant for various oil and gas companies from October 2008 until rejoining
the Company in April 2009 as the Company’s Vice President – Capital Development, assisting the Company in raising
funds for its drilling and exploration programs. He is a graduate of Abilene Christian University and a Certified Public Accountant.



Jennifer D. Whitleywas appointed as the Company’s interim Chief Financial Officer on February 18, 2013 and performs the duties of the principal
financial officer and principal accounting officer of the Company. Previously, Mrs. Whitley served as Director of Finance of the
Company. Prior to joining the Company, Mrs. Whitley served as the Chief Financial Officer of Zero Emission Energy Plants Ltd,
a mid-stream international energy company focused in Louisiana and China, from 2008 to 2010. From 2006 to 2008, Mrs. Whitley served
as the Finance Director of Global Energy Development PLC where she was responsible for all of the financial, accounting, and administrative
matters for the UK listed company’s international oil exploration and production operations. Previously, Mrs. Whitley worked
at Harken Energy Corporation and on the audit staff of Ernst & Young LLP. Mrs. Whitley serves on the board of Zero Emission
Energy Plants Ltd, as well as the board of the Houston Chapter of Financial Executives International. Mrs. Whitley is a graduate
of Abilene Christian University and a Certified Public Accountant.



4







Section 16(a) Beneficial
Ownership Reporting Compliance



Section 16(a) of
the Exchange Act requires our officers, directors and persons who own more than ten percent of our common stock to file reports
of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”). Officers, directors
and greater than ten percent stockholders are required by the SEC’s regulations to furnish us with copies of all Section
16(a) reports they file. Based solely on our review of the copies of such forms received by us, we believe that all filing requirements
applicable to our officers, directors and greater than ten percent stockholders for the year ended December 31, 2012 have been
satisfied in a timely manner.



Code of Ethics



We have adopted a
code of ethics entitled “Code of Business Conduct,” which applies to all of our employees, including our chief executive
officer and chief financial officer. The full text of our Code of Business Conduct is published on our website, at www.fareastenergy.com,
under the “Investor Relations” caption. We intend to disclose future amendments to, or waivers from, certain provisions
of this code on our website within four business days following the date of such amendment or waiver. Information contained on
the website is not part of this report.



Audit Committee



The Audit Committee
was established in accordance with Section 3(a)(58)(A) of the Exchange Act and assists the Board and management of the Company
in ensuring that we consistently act with integrity and accuracy in financial reporting. The Board has adopted a written charter
for the Audit Committee. The Audit Committee’s responsibilities include:



| | · | selecting
                                                                                                             and reviewing our
                                                                                                             independent registered
                                                                                                             public accounting
                                                                                                             firm and their services;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing
                                                                                                             and discussing with
                                                                                                             appropriate members
                                                                                                             of management the
                                                                                                             audited financial
                                                                                                             statements, and related
                                                                                                             accounting and auditing
                                                                                                             principles, practices
                                                                                                             and disclosures;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing
                                                                                                             and discussing our
                                                                                                             quarterly financial
                                                                                                             statements prior
                                                                                                             to the filing of
                                                                                                             those quarterly financial
                                                                                                             statements;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | establishing
                                                                                                             procedures for the
                                                                                                             receipt of, and response
                                                                                                             to, any complaints
                                                                                                             received regarding
                                                                                                             accounting, internal
                                                                                                             accounting controls,
                                                                                                             or auditing matters,
                                                                                                             including anonymous
                                                                                                             submissions by employees;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing
                                                                                                             the accounting principles
                                                                                                             and auditing practices
                                                                                                             and procedures to
                                                                                                             be used for the audit
                                                                                                             of our financial
                                                                                                             statements and reviewing
                                                                                                             the results of those
                                                                                                             audits; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | monitoring
                                                                                                             the adequacy of our
                                                                                                             operating and internal
                                                                                                             controls as reported
                                                                                                             by management and
                                                                                                             the independent registered
                                                                                                             public accounting
                                                                                                             firm.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



William A. Anderson
is the chairman of the Audit Committee and the other members of the Audit Committee are John Mihm, Lucian L. Morrison and Thomas
E. Williams. The Board has determined that each member of the Audit Committee is independent within the meaning of the NYSE Amex
Company Guide and satisfies the NYSE Amex listing standards financial sophistication requirements. The Board has determined that
both William A. Anderson and Lucian L. Morrison are “audit committee financial experts” as that term is defined under
Item 407 of Regulation S-K. The Board of Directors has adopted a written charter for the Audit Committee, and a current copy of
the charter is available on our website at www.fareastenergy.com under the “Investor Relations” caption.



5







ITEM 11. EXECUTIVE
COMPENSATION



Compensation Committee
Interlocks and Insider Participation



Lucian Morrison, Donald
A. Juckett and William A. Anderson served on the Compensation Committee during the 2012 fiscal year. Our independent directors
are, and we expect they will continue to be, the only members of the Compensation Committee. None of our directors or executive
officers has a relationship with us or any other company that the SEC defines as a compensation committee interlock or insider
participation that should be disclosed to stockholders.



Report of the Compensation
Committee



The Compensation Committee
has reviewed and discussed the Compensation Discussion and Analysis below with management, and based on reviews and discussions,
the Compensation Committee recommended to the Board, and the Board has approved, that it be included in this report and in our
2013 Proxy Statement.



Lucian Morrison, Chairman of the Compensation
Committee
William A. Anderson
Donald A. Juckett



6







COMPENSATION DISCUSSION
AND ANALYSIS



Process for Determining
Compensation



It is the responsibility
of the Compensation Committee of our Board to set compensation for executive officers and directors, to establish and administer
an overall compensation program that promotes the long-term interests of the Company and our stockholders, and to evaluate performance
of executive officers.



The
Compensation Committee uses information supplied by various sources, which can include information provided by Company
management and outside compensation consultants, to assist it in determining compensation for our executive officers.
Management’s role is primarily to provide information relevant to performance measurement of the Company and our
executives. At the request of the Compensation Committee, our Chief Executive Officer provides informal evaluations of the
performance of the named executive officers that report directly to him and may make recommendations as to base compensation
and performance awards for these individuals. Additionally, our Chief Executive Officer works with the Compensation Committee
in determining appropriate criteria for evaluating individual and Company performance. Due to the small size of our company,
the Compensation Committee is able to make or specifically approve virtually all decisions regarding executive compensation
and, therefore, the delegation of the committee’s authority in this regard is very limited. From 2004 to 2008, the
Compensation Committee engaged the compensation consulting firm of Towers Watson, from time-to-time to provide various
analyses related to our stock plan and compensation levels. Towers Watson was selected by the Compensation Committee, its
terms of engagement were determined by the Compensation Committee, and it reported directly to the Compensation Committee.
Towers Watson performed no other work for us and had no other outside relationship to the Company’s directors or
officers. The Compensation Committee reviewed the relationship between itself and Towers Watson for potential conflicts of
interest, giving consideration to the factors identified in SEC Rule 10C-1(b)(4) as possibly contributing to conflicts of
interest. Based on its review, the Compensation Committee determined there were no conflicts of interest or potential
conflicts of interest in the engagement of Towers Watson as a compensation consultant.



Compensation Philosophy
and Objectives



In setting overall
total compensation for executive officers, the Compensation Committee strives to achieve and balance the following objectives:



| | · | hiring
                                                                                                             and retaining executive
                                                                                                             officers with the
                                                                                                             background and skills
                                                                                                             to help us achieve
                                                                                                             our company’s
                                                                                                             objectives; including
                                                                                                             maintenance of key
                                                                                                             relationships with
                                                                                                             our Chinese partners
                                                                                                             and financial concerns;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | aligning
                                                                                                             the goals of executive
                                                                                                             officers with those
                                                                                                             of the stockholders
                                                                                                             and the Company;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | motivating
                                                                                                             executive officers
                                                                                                             to achieve the Company’s
                                                                                                             important short,
                                                                                                             medium and long-term
                                                                                                             goals;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | conserving
                                                                                                             cash by setting compensation
                                                                                                             levels consistent
                                                                                                             with market conditions
                                                                                                             and taking into consideration
                                                                                                             the Company’s
                                                                                                             financial condition;
                                                                                                             and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | providing
                                                                                                             sufficient ongoing
                                                                                                             cash compensation
                                                                                                             to retain executives
                                                                                                             in a competitive
                                                                                                             marketplace.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The philosophy we
use in setting compensation levels and structures is based on the following principles:



| | · | compensation
                                                                                                             for our executive
                                                                                                             officers should be
                                                                                                             strongly linked to
                                                                                                             strategic and operational
                                                                                                             performance;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7







| | · | compensation
                                                                                                             should consist of
                                                                                                             an increasingly higher
                                                                                                             percentage of compensation
                                                                                                             that is at risk and
                                                                                                             subject to performance-based
                                                                                                             awards as an executive
                                                                                                             officer’s range
                                                                                                             of responsibility
                                                                                                             and ability to influence
                                                                                                             the Company’s
                                                                                                             results increases;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | compensation
                                                                                                             should be fair and
                                                                                                             competitive in relation
                                                                                                             to the marketplace
                                                                                                             and our financial
                                                                                                             condition;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | employment
                                                                                                             retention incentives
                                                                                                             should be used to
                                                                                                             equalize our employment
                                                                                                             opportunities with
                                                                                                             those of more mature
                                                                                                             companies, to the
                                                                                                             extent appropriate;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | sense
                                                                                                             of ownership and
                                                                                                             long-term perspective
                                                                                                             should be reaffirmed
                                                                                                             through our compensation
                                                                                                             structure; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | outstanding
                                                                                                             achievement should
                                                                                                             be recognized.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Setting Executive
Compensation



The Compensation
Committee annually reviews and approves the base salaries, bonuses and equity awards of our executive officers. During 2012, our
executive officers consisted of:



|Name                 |  | Position                                       
|-------------------- |  | -----------------------------------------------
|Michael R. McElwrath |  | President, Chief Executive Officer and Director
|Bruce N. Huff (1)    |  | Chief Financial Officer                        



| | (1) | On February 18, 2013, Mr. Huff
                                                                 went on a leave of absence for health reasons. During his medical
                                                                 leave of absence, Jennifer D. Whitley, Director of Finance of
                                                                 the Company, has been serving as the Company’s interim
                                                                 Chief Financial Officer.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We use a combination
of compensation elements in our executive compensation program, including:



| | · | salaries;
| | - | ---------



| | · | cash
                                                                                                             retention bonuses;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | cash
                                                                                                             incentive bonuses;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | equity
                                                                                                             awards;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | post-termination
                                                                                                             compensation; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | · | benefits.
| | - | ---------



Salaries and bonuses
are our primary forms of cash compensation. We try to provide a reasonable amount of cash compensation to our employees to retain
their executive talent in a competitive marketplace. We provide short-term incentives by awarding annual cash bonuses determined
by the Compensation Committee on a discretionary basis. The bonuses reward achievement of short-term goals and allow us to recognize
individual and team achievements. The cash portion of our compensation structure consists of a higher percentage of salary as
compared to bonus. Cash incentive bonuses and equity awards are our two forms of performance-based compensation.



We provide long-term
incentives through equity awards, which have consisted of stock options and grant awards of restricted stock that vest over time.
Equity awards are a non-cash form of compensation. We believe equity awards are an effective way for us to reward achievement
of long-term goals, conserve cash resources and create a sense of ownership in our executives. Options become valuable only as
long-term goals are achieved and our stock price rises. They provide our executive officers with a personal stake in the performance
of the Company’s equity even before vesting. Similarly, restricted stock awards that vest over time reward increases in
our stock price while also providing a retention incentive to foster a sense of ownership even in a negative stock market environment.
In most years, a large percentage of the total compensation paid to our executive officers consists of equity awards because we
believe this is consistent with our philosophy of paying for performance and requiring more compensation to be at risk for employees
at the highest level.



8







Our executive officers
have also entered into employment agreements that have defined termination benefits, which we believe, in part, compensate for
the potentially lower annual salary at our company as compared to more mature companies by providing security. Our employment
agreements as well as our equity awards generally provide compensation to our executive officers if they are terminated within
24 months of a change in control of the Company, which helps encourage our executives to devote a maximum amount of their time
and energies to the Company through a change of control and beyond, while compensating them for the reduction in job security
during a period of transition. The competitive compensation and the employment agreements foster an environment of relative security
within which we believe our executives will be able to focus on achieving Company goals. For further discussion of the employment
agreements with our executive officers, see “Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table
– Employment Agreements with Named Executive Officers.”



Total Compensation
and Description and Allocation of Its Components



Total Compensation.
The Compensation Committee reviews total compensation for executive officers annually when they evaluate existing salaries and
determine annual cash bonuses.



The Compensation
Committee blends the components of compensation to achieve a total compensation package that is weighted toward the equity component.
This is consistent with our objective of emphasizing equity awards and conserving cash.



Generally, equity
awards for executive officers have historically constituted a larger percentage of total compensation. During 2012, the Company
granted restricted stock to executive officers. For further information, see “2012 Summary Compensation Table,” “Grants
of Plan-Based Awards in 2012” and “Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table.”



Decisions regarding
salary increases, bonus awards and equity awards are ultimately at the discretion of the Compensation Committee. However, in making
these decisions, the committee considers the achievements of the Company in the previous fiscal year, such as the successful capital
raises to provide funding for the Company’s ongoing activities, the establishment of reserves, the maintenance of critical
relationships with our Chinese partners and financial institutions, the obstacles overcome in our exploration efforts, the successful
negotiation of critical commercial documents such as PSC modification agreements and gas sales agreements, the progress toward
commercial gas production and revenues, and reasonable management of expenditures.



In addition to the
Company’s achievements, the Compensation Committee reviews the accomplishments and performance of the individual executive
officers. For 2012, in reviewing the Company and individual performance and as part of the determination of compensation, the
Compensation Committee considered, among other things, the Company and individual performance factors described below.



During its review
of the 2012 performance criteria, the Compensation Committee gave approximately twenty percent of the weight of its evaluation
of each executive officer based on the Company performance factors. The remainder of the evaluation of each executive officer
was based on individual performance factors and other considerations. These performance factors were also discussed with the applicable
executive officers. The performance factors had a significant impact on the Compensation Committee’s decisions regarding
discretionary adjustments to the cash incentive bonuses for 2012, although they were not given any numerical weight in determining
the amount of such bonuses. The committee also considered the 2012 performance factors in determining salary increases for 2013.



9







In 2013, the Compensation
Committee plans to continue to implement guidelines under which performance at the executive level can be measured with simplicity
and transparency and performance awards can be granted in relation to those performance measures. For an early stage company,
appropriate, reliable performance measures can be difficult to identify. However, the Compensation Committee will seek to identify
measurements that are appropriate to an early stage company and which will relate to the achievement of Company goals, particularly
in the areas of safety, provision of capital, drilling and production and appropriate management of our cash resources. For 2013,
the Compensation Committee intends to set performance measures based on both Company and individual performance factors and to
adopt target bonuses based on a percentage of the executive’s base salary. The committee expects that the maximum bonus
that an executive may earn will be set at a specified percentage of the executive’s base salary. The executive’s ability
to earn that maximum bonus or percentage of salary is largely dependent upon achievement of individual performance factors for
the year. The committee believes these performance factors will be a very strong factor in making bonus decisions and may influence
salary adjustments and equity awards. However, the Compensation Committee plans to continue to use its discretion in making these
compensation decisions.



Salaries.
The Compensation Committee reviews salaries for our executive officers annually near the beginning of the year and, in most years,
adjustments to salaries, if any, have been made effective as of January 1 of that year. Initial base salaries are set forth in
the executive’s employment agreement. The level of salary is determined by market factors when the executive officer is
hired and are adjusted as necessary during the annual review of salary. Infrequently, specific circumstances may prompt a salary
change outside the usual review schedule. The Compensation Committee evaluates adjustments to salary based, in part, on the Company
and individual performance criteria. If an executive has changed or increased his level of responsibility within the Company,
the Compensation Committee also considers a commensurate change in salary.



In January 2012,
the Compensation Committee approved salary increases of 5% for Michael R. McElwrath and Bruce N. Huff. These salary increases
were made to maintain market competiveness, without targeting any specific percentile, and to adjust for increases in cost of
living and this percentage increase was at or below the percentage increases for employees at the Company generally.



Bonuses.
The Compensation Committee awards cash incentive bonuses each year, typically early in the first quarter, for performance during
the previous fiscal year. For 2012, the Compensation Committee set performance measures based on both Company and individual performance
factors and adopted target incentive bonuses based on a percentage of the executive’s base salary. In the case of Mr. McElwrath
the target incentive bonus was set at 65% of his base salary for the applicable year; and for Mr. Huff the target incentive bonus
was set at 45% of base salary for the applicable year. The executive’s ability to earn that maximum bonus or percentage
of salary was largely dependent upon achievement of individual and company performance factors. These standards were established
for Mr. McElwrath and for Mr. Huff in the first quarter of 2012. These performance measures were a very strong factor in making
the bonus decisions and influenced equity awards. However, the Compensation Committee continues to use its discretion in making
these compensation decisions.



In January 2013,
the Compensation Committee approved a $189,600 cash bonus for Michael R. McElwrath and a $75,000 cash bonus for Bruce N. Huff.
On March 13, 2013, the Compensation Committee approved a second tranche of the annual bonus for Mr. McElwrath in the amount of
$81,255 based on the subjective performance factors for 2012 of maintaining and expanding strong relations at the senior levels
of the relevant Chinese organizations and taking the necessary steps making progress towards an overall development plan for the
Shouyang Block. The bonus approved for Mr. McElwrath and Mr. Huff equal to 65% and 26%, respectively, of their stated 2012 base
salary after considering the following performance factors:



10







Mr. McElwrath



|Performance Factors                                                                 |  | Target |     |   | Actual | 
|----------------------------------------------------------------------------------- |  | ------ | --- | - | ------ | 
|Company Performance Factor                                                          |  |        |     |   |        | 
|Safety – 0 fatalities and 0 - 2 days away from work cases (DAFWC)                   |  |        | 20  | % |        | 
|Individual Performance Factors                                                      |  |        |     |   |        | 
|Consummate Strategic Transaction                                                    |  |        | 20  | % |        | 
|Major capital acquisition of $40 - 75 million                                       |  |        | 20  | % |        | 
|Obtain MofCom approval of Shouyang and Yunnan modification agreement                |  |        | 10  | % |        | 
|Obtain initial SEC reserves measured at year-ended 2011                             |  |        | 10  | % |        | 
|Production of 1,500 – 3,000 mcfpd at 12/31/2012                                     |  |        | 10  | % |        | 
|Secure certification of Chinese reserves                                            |  |        | 10  | % |        | 
|Additional Performance Goals (not weighted)                                         |  |        |     |   |        | 
|Maintain strong business relationships at senior levels with Chinese counterparties |  |        |     |   |        | 
|counterparties                                                                      |  |        |     |   |        | 
|Take necessary steps to move towards an overall development plan in Shouyang block  |  |        |     |   |        | 
|                                                                                    |  |        |     |   |        | 
|Total                                                                               |  |        | 100 | % |        | 



Mr. Huff



|Performance Factors                                                                                                                                                                                                                                                                     |  | Target |     |   | Actual | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | --- | - | ------ | 
|Company Performance Factor                                                                                                                                                                                                                                                              |  |        |     |   |        | 
|Safety – 0 fatalities and 0 days away from work cases (DAFWC)                                                                                                                                                                                                                           |  |        | 20  | % |        | 
|Individual Performance Factors                                                                                                                                                                                                                                                          |  |        |     |   |        | 
|Successful joint venture or other strategic transaction                                                                                                                                                                                                                                 |  |        | 20  | % |        | 
|Successful capital raise                                                                                                                                                                                                                                                                |  |        | 20  | % |        | 
|Obtain initial SEC reserves measured at year-end 2011                                                                                                                                                                                                                                   |  |        | 10  | % |        | 
|Manage all financial statements and SEC filings and meet all SEC filing deadlines (subjective determination)                                                                                                                                                                            |  |        | 5   | % |        | 
|Maintain sufficient internal controls over financial reporting (subjective determination)                                                                                                                                                                                               |  |        | 5   | % |        | 
|Assure compliance with all financial instruments (subjective determination)                                                                                                                                                                                                             |  |        | 5   | % |        | 
|Manage cash position of the Company: provide timely cash projections to the CEO, Board and auditors: manage ongoing maintenance of cash flow projections and project economics to support financing transaction and operational planning (subjective determination)                     |  |        | 5   | % |        | 
|Provide timely support for investor relations (subjective determination)                                                                                                                                                                                                                |  |        | 5   | % |        | 
|Maintain a satisfactory system of control, coordination and up-to-date- tracking of all contracts and agreements, transaction documents, stock options, restricted stock, warrant agreements and shareholder transactions, and all other corporate documents (subjective determination) |  |        | 5   | % |        | 
|                                                                                                                                                                                                                                                                                        |  |        |     |   |        | 
|Total                                                                                                                                                                                                                                                                                   |  |        | 100 | % |        | 



11







The Compensation
Committee used similar methodology to determine the cash incentive bonuses for the other senior managers of the Company.



Equity Awards.
Equity awards are an important component in our compensation structure, particularly because we are an early stage company and
it is important for us to conserve cash resources. Equity awards may be granted at a date other than the date that salary and
bonus decisions are made but are typically granted during the first quarter of the year. Beginning in 2007, the Compensation Committee
began to use grants of restricted stock in addition to awards of non-qualified stock options in its equity award component of
compensation and has continued the process of utilizing both equity vehicles in its annual equity awards.



Choice of equity
vehicles. We use grants of options to purchase our common stock for the equity awards granted to our executive officers. Stock
options effectively align our executives’ goals with those of stockholders and motivate executive officers to achieve our
long-term goals. Our option agreements typically include both time-vesting and termination forfeiture terms, which assist us in
inducing the employment and retention of executive officers by providing a financial incentive related to retention. The Compensation
Committee plans to continue to utilize options awards.



In addition, the
Compensation Committee also utilizes restricted stock for equity awards. The committee considered that the use of this form of
equity in some cases, rather than options, would reduce dilution to our existing stockholders, provide equity participation in
our Company to these executives and reduce the overall number of shares granted. The Compensation Committee believes that decreasing
the dilutive effect related to our equity awards will assist in preserving the economic value of our existing stockholders. The
committee also believes that shares of time-vesting restricted stock will encourage achievement of long-term goals and retention
of key executives in a similar manner as option awards while also providing a retention incentive to foster a sense of ownership
even in a negative stock market environment. The Compensation Committee plans to continue to grant options and/or restricted stock
in the future to our executive officers.



Determining the
size of the equity award. We use equity awards as both a reward for past performance and an incentive for future performance.
The Compensation Committee has historically approved discretionary equity award grants to executive officers during the first
quarter of the year.



Each of our executive
officers received a grant of equity awards upon joining the Company, providing them with an initial equity stake and a long-term
incentive. The size of these initial grants is determined primarily by market factors, with such grants offered as an inducement
to accept our offer of employment. Although it has typically granted additional awards annually, the Compensation Committee is
not bound to make continuing equity awards to executive officers, and in fact, does not do so in every case. Factors considered
by the committee in determining whether an executive receives an award of options and/or restricted stock and the size and vesting
schedule of that award include the following:



| | · | the
                                                                                                             performance indicators
                                                                                                             and the events and
                                                                                                             accomplishments used
                                                                                                             to determine total
                                                                                                             compensation, as
                                                                                                             described above;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                             cumulative number
                                                                                                             of shares and terms
                                                                                                             (including option
                                                                                                             exercise price) of
                                                                                                             previous equity awards,
                                                                                                             which may, in the
                                                                                                             view of the Compensation
                                                                                                             Committee, be sufficient
                                                                                                             to achieve the goals
                                                                                                             of the equity award
                                                                                                             program for a given
                                                                                                             individual, without
                                                                                                             supplement in a particular
                                                                                                             year;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                             estimated fair value
                                                                                                             of the award (using
                                                                                                             the Black-Scholes
                                                                                                             option pricing model
                                                                                                             for options) and
                                                                                                             its impact on the
                                                                                                             executive’s
                                                                                                             total compensation;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                             estimated impact
                                                                                                             of the expense of
                                                                                                             the award on reported
                                                                                                             income in the year
                                                                                                             of the award and
                                                                                                             subsequent years;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                             stockholder dilution,
                                                                                                             including overhang
                                                                                                             of existing options
                                                                                                             and warrants for
                                                                                                             our common stock;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12







| | · | the
                                                                                                             shares remaining
                                                                                                             available for grants
                                                                                                             under the 2005 Stock
                                                                                                             Incentive Plan (“2005
                                                                                                             Plan”); and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                             tax consequences
                                                                                                             related to the vesting
                                                                                                             of the equity awards.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2005 Stock Incentive
Plan awards. Since its approval by our stockholders in 2005, with certain exceptions described below, we have granted options
and restricted shares to executive officers under the 2005 Plan. Our grants to executive officers under the 2005 Plan have historically
had a vesting period of three to four years from date of grant and a term of up to ten years. Typically, our option awards provide
for forfeiture of unexercised options after a period of 60 to 90 days after the applicable executive’s termination of employment
with the Company.



Awards granted
outside the 2005 Stock Incentive Plan. Prior to the adoption of the 2005 Plan, grants of options to executives included varying
terms, some differing from the above. Since the adoption of the 2005 Plan, we generally have not granted any awards outside the
2005 Plan except for inducement equity awards. These awards contained terms similar to those made under the 2005 Plan. The Compensation
Committee may continue to grant options and/or restricted stock outside of the 2005 Plan, particularly for inducement grants to
newly appointed executive officers and directors.



Expense recognition.
All compensatory options and restricted stock are expensed over time in accordance with generally accepted accounting principles.
For information on the equity award expense recognized in 2012 for each executive officer, see “Summary Compensation Table
- Option Awards” and “Summary Compensation Table - Restricted Stock Awards.” For further details regarding 2012
equity grants to our named executive officers, see the “Grants of Plan-Based Awards” table. For further information
on the 2005 Plan, see “Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table - 2005 Stock Incentive
Plan” and “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters –
Equity Compensation Plan Information.”



Procedures for
granting equity awards. We have generally granted equity awards to our executive officers annually during the first quarter
of each fiscal year or at employment. Since the adoption of the 2005 Plan, options are dated and assigned exercise prices as of
a trading date following the meeting of the Compensation Committee in which such awards were approved. Exercise prices for option
grants during 2012 have been set at the fair market value on the date of grant or higher. For purposes of determining exercise
prices for our stock option awards, the fair market value of our common stock, on a given date, means the average of the closing
bid and asked prices of the shares of common stock as reported that day on the OTC Bulletin Board. We intend to continue this
practice. We attempt to avoid issuing options near the time of any expected significant movement in our stock price by taking
care, within reason, not to schedule these meetings in proximity to upcoming or recent announcements of significance, such as
earnings releases or other public announcements relating to current or future profitability. Scheduling of meetings of the Compensation
Committee is also impacted by availability of personnel and the need to make timely hiring decisions and cannot be perfectly aligned
with regard to public announcements. Under the 2005 Plan, the Chief Executive Officer, as long as he is a member of the Board,
has the authority to grant equity awards of up to an aggregate of 200,000 shares of common stock in each calendar year to employees
that are not subject to the rules promulgated under Section 16 of the Exchange Act. The exercise prices for such grants made by
the Chief Executive Officer are to be based on the date the award agreement is signed, which is as soon as possible after the
decision to make the award is settled. In practice, all awards have usually been approved by the Compensation Committee.



13







Awards have also
been granted to new executive officers and incumbent directors on or near the date of hire or election. Our current practice is
to grant, date and price options to new executives on the date of hire, which is not the date of their acceptance of our offer
of employment, but rather, the first day they report for work at the Company. Similar to option awards, our current practice is
to grant and date restricted stock awards on the first day the executive reports for work at the Company. Grants to newly elected
directors are generally awarded at the first meeting of the Compensation Committee after their election.



Post Termination
Compensation. We have employment agreements with all of our named executive officers. All of our executive employment
contracts provide some form of termination benefits. As an early stage company whose future may be uncertain, we believe it is
necessary to provide contractual assurance of continued employment to our executives, and that without such assurances, our recruitment
efforts would not be as successful.



Our executive employment
agreements provide for termination benefits, including in certain cases upon a change in control. These clauses assist us in attracting
and retaining executive officers and are designed to provide stable leadership for the Company during any potential or actual
change of control. With the assurance of these benefits, we believe our executives will be better able to objectively evaluate
offers to purchase the Company or other forms of potential change of control. The clauses also encourage continuation of the leadership
and experience of our key executives after a change in control, at least through a period of transition.



For further discussion
of the terms of each employment agreement, see “Narrative to Summary Compensation Table and Grants of Plan-Based Awards
Table – Employment Agreements with Named Executive Officers.”



Perquisites
and Other Benefits. We provide health insurance to our executive officers, which is the same as that provided to our other
U.S. employees. We also provide matching contributions for those U.S. employees who contribute to a 401(k) savings plan, matching
up to 4% of annual salary, subject to certain caps provided by tax regulation. These benefits were approved by the Compensation
Committee when adopted. .



Tax and Accounting
Considerations



Section 162(m) of
the Code generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to any executive
officer unless such compensation is paid pursuant to a qualified performance-based compensation plan. All compensation awarded
to our executive officers in 2012 is expected to be tax deductible. The Compensation Committee considers such deductibility and
the potential cost to the Company when granting awards and considering salary changes.



We account for equity
awards under the provisions of Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (“FAS
No. 123(R)”). We charge the estimated fair value of option and restricted stock awards to income over the time of service
provided by the employee to earn the award, typically the vesting period. The fair value of options is measured using the Black-Scholes
option pricing model. The fair value of restricted stock awards is measured by the closing price of our common stock on the date
of the award, with no discount for vesting period or other restrictions. The compensation expense to the Company under FAS No.
123(R) is one of the factors the Compensation Committee considers in determining equity awards to be granted, and also may influence
the vesting period chosen.



Named Executive Officer
Compensation



With respect
to the 2012 total compensation of Mr. McElwrath and Mr. Huff, approximately 75% and 72%, respectively, of total compensation
was attributable to the elements of salary and annual cash bonus and approximately 22% and 24%, respectively, of total
compensation, as attributable to non-cash equity elements. The allocation between cash and non-cash compensation for our
executive officers was within the range of allocations that the Compensation Committee considers appropriate.



14







COMPENSATION TABLES
AND ADDITIONAL INFORMATION



The following table
sets forth a summary of compensation paid to our Chief Executive Officer and Chief Financial Officer (the “Named Executive
Officers”) for the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010.



2012 Summary Compensation
Table





|                     |  |      |  |        |         |  |       |   |         |        |  |   |                |  |  | Nonequity         |         |  | All          |   |   |       | 
|-------------------- |  | ---- |  | ------ | ------- |  | ----- | - | ------- | ------ |  | - | -------------- |  |  | ----------------- | ------- |  | ------------ | - | - | ----- | 
|Name and             |  |      |  |        |         |  |       |   |         | Stock  |  |   | Option         |  |  | Incentive         |         |  | Other        |   |   |       | 
|Principal Position   |  | Year |  | Salary |         |  | Bonus |   |         | Awards |  |   | Awards
    (1) |  |  | Plan Compensation |         |  | Compensation |   |   | Total | 
|Michael R. McElwrath |  | 2012 |  | $      | 416,700 |  |       | $ | 270,855 | (2)    |  | $ | 202,950        |  |  | $                 | -       |  |              | $ | - |       | 
|President and Chief  |  | 2011 |  |        | 388,631 |  |       |   | 257,985 | (2)    |  |   | 252,184        |  |  |                   | 131,610 |  |              |   | - |       | 
|Executive Officer    |  | 2010 |  |        | 330,750 |  |       |   | 255,000 | (4)    |  |   | -              |  |  |                   | -       |  |              |   | - |       | 
|Bruce N. Huff        |  | 2012 |  |        | 283,500 |  |       |   | 75,000  | (2)    |  |   | 120,450        |  |  |                   | -       |  |              |   | - |       | 
|Chief Financial      |  | 2011 |  |        | 264,375 |  |       |   | 121,500 | (2)    |  |   | 147,900        |  |  |                   | 76,773  |  |              |   | - |       | 
|Officer              |  | 2010 |  |        | 203,125 |  |       |   | 151,250 | (5)    |  |   | 121,000        |  |  |                   | -       |  |              |   | - |       | 



| | (1) | The amounts in this column
                                                                         reflect the value of stock or option awards, as applicable,
                                                                         granted to each Named Executive Officer as determined
                                                                         in accordance with FASB ASC Topic 718.  See
                                                                         Note 12 to the consolidated financial statements included
                                                                         in Part II of this report for assumptions used in valuing
                                                                         these awards and the methodology for recognizing the
                                                                         related expense.  All options awards are for
                                                                         the purchase of our common stock.  Stock awards
                                                                         are grants of restricted stock with time-based vesting
                                                                         conditions. The Company did not grant any option awards
                                                                         during 2010. Mr. McElwrath did not receive any stock
                                                                         awards during 2010.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The bonus for Mr. McElwrath
                                                                         and Mr. Huff is for performance in 2012 and 2011, respectively,
                                                                         none of which was paid during the year of performance.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Represents the cost of
                                                                         matching funds to the Named Executive Officer’s
                                                                         account in the Company’s defined contribution savings
                                                                         plan.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The amount of bonus for Mr. McElwrath in 2010 is
                                                                         made up of two elements: (1) a $215,000 incentive bonus
                                                                         paid in 2011 for performance during 2010, and (2) a $40,000
                                                                         retention bonus paid during 2010 as required under Mr.
                                                                         McElwrath’s then effective employment agreement,
                                                                         which has since been amended to, among other things,
                                                                         eliminate the fixed retention bonus.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | The amount of bonus for Mr. Huff in 2010 is made up of
two elements: (1) $101,250 incentive bonus paid 	in 2011 for performance during 2010, and (2) a $50,000 signing bonus awarded
in conjunction with Mr. 	Huff’s appointment as Chief Financial Officer in April, 2010.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15







Grants of Plan-Based Awards in 2012



The following table
provides information on equity awards granted during 2012:





|Name                 |  | Grant Date |  | All Other Stock Awards:  Number of Shares of Stock or Units (#) |         |  | All Other Option Awards:  Number of Securities Underlying Options (#) |  |   | Exercise or Base Price of Option Awards   ($ / Sh) |  |  | Grant Date Fair Value of Stock and Option Awards ($) | 
|-------------------- |  | ---------- |  | --------------------------------------------------------------- | ------- |  | --------------------------------------------------------------------- |  | - | -------------------------------------------------- |  |  | ---------------------------------------------------- | 
|Michael R. McElwrath |  | 01/24/12   |  |                                                                 | 615,000 |  |                                                                       |  | - |                                                    |  |  | -                                                    | 
|Bruce N. Huff        |  | 01/24/12   |  |                                                                 | 365,000 |  |                                                                       |  | - |                                                    |  |  | -                                                    | 



Narrative to Summary
Compensation Table and Grants of Plan-Based Awards Table



Employment Agreements
with Named Executive Officers



We have employment
agreements with our Named Executive Officers and those agreements are summarized below.



Agreement with
Michael R. McElwrath. The Company has an employment agreement with Mr. McElwrath, which has been amended from time to time.
Prior to December 7, 2010, Mr. McElwrath’s employment agreement entitled him to fixed, retention bonuses of not less than
$20,000 every six months. On December 7, 2010, his employment agreement was amended and restated to extend the term to October
13, 2013 and to eliminate the fixed, retention bonuses. On October 10, 2011, the Company entered into an amended and restated
employment agreement (the “McElwrath Second Amended and Restated Employment Agreement”) with Mr. McElwrath. The McElwrath
Second Amended and Restated Employment Agreement provides for an annual base salary of not less than $396,900 on or after February
16, 2011. The McElwrath Second Amended and Restated Employment Agreement also provides that Mr. McElwrath will be eligible to
receive performance bonuses payable between January 1 and the 13th of April of each year in an amount to be determined
by the Compensation Committee in its discretion. During 2011, Mr. McElwrath’s annual base salary was increased to $396,900
from $330,750. During 2012, Mr. McElwrath’s annual base salary was increased to $416,700 from $396,900, and said increase
was effective January 1, 2012. On May 24, 2012, the Company entered into the First Amendment to the Second Amended and Restated
Employment Agreement to extend the term of the agreement to October 2016.



Unless further extended,
the McElwrath Second Amended and Restated Employment Agreement terminates on October 13, 2016. The McElwrath Second Amended and
Restated Employment Agreement provides that if Mr. McElwrath is terminated by the Company for Cause, the Company will pay his
base salary and all amounts actually earned, accrued or owing as of the date of termination and he will be entitled to exercise
all options granted to him under the McElwrath Second Amended and Restated Employment Agreement or otherwise to the extent vested
and exercisable on the date of termination unless otherwise provided for in Mr. McElwrath’s option agreements.



If Mr. McElwrath’s
employment is terminated by the Company (other than as a result of death, Disability or Cause), or if he terminates his employment
for Good Reason (as defined in the McElwrath Second Amended and Restated Employment Agreement), he shall be entitled to the following:



| | · | a
                                                                                                             lump sum payment
                                                                                                             of (i) two times
                                                                                                             the sum of his base
                                                                                                             salary and bonus
                                                                                                             paid during the immediately
                                                                                                             preceding twelve-month
                                                                                                             period or (ii) 2.99
                                                                                                             times the sum of
                                                                                                             his base salary and
                                                                                                             bonus paid during
                                                                                                             the immediately preceding
                                                                                                             twelve-month period,
                                                                                                             in the event the
                                                                                                             termination was in
                                                                                                             connection with a
                                                                                                             Change of Control;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16







| | · | all amount actually earned, accrued or owing as of the date of termination;
| | - | ---------------------------------------------------------------------------



| | · | continued participation in the medical and dental insurance plans available to the Company’s
executive officers in which the executive was participating on the date of termination for a specified period of time following
termination;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the exercise of all options and restricted stock awards granted to him to the extent vested and
exercisable at the date of termination of his employment provided that, in the event the termination is in connection with a Change
of Control, all options then granted would be immediately and fully vested and exercisable as of the date of the termination and
all restrictions on restricted stock awards awarded would be removed and all rights to such stock vested as of the date of termination;
and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | certain gross-up payments for any excise taxes.
| | - | -----------------------------------------------



For purpose of the
McElwrath Second Amended and Restated Employment Agreement, a change of Control is defined as: (a) subject to certain exceptions,
the acquisition by a person of beneficial ownership of more than 40% of the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of directors, (b) the consummation of a reorganization, merger
or consolidation unless following such transaction 60% or more of the combined voting power of the then-outstanding voting securities
of the entity resulting from such transaction entitled to vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the same persons who were the beneficial owners of such securities immediately
prior to such transaction, (c) the (1) approval by the Company’s stockholders of a complete liquidation or dissolution of
the Company or (2) sale or other disposition (in one transaction or a series of related transactions) of all or substantially all
of the assets of the Company, unless the successor entity existing immediately after such sale or disposition is then beneficially
owned, directly or indirectly, by all or substantially all of the persons who were the beneficial owners, respectively, of the
then outstanding voting securities of the Company entitled to vote generally in the election of directors immediately prior to
such sale or disposition; (d) subject to certain exceptions, if individuals who, as of October 10, 2011 constitute the Board of
the Company cease for any reason to constitute at least a majority of the Board; or (e) the Board adopts a resolution to the effect
that, for purposes hereof, a Change of Control has occurred.



Pursuant to the McElwrath
Second Amended and Restated Employment Agreement, during the term of Mr. McElwrath’s employment, the Company agreed to nominate
Mr. McElwrath for election to the Board of Directors at each annual meeting of the stockholders called for the purpose of electing
directors. Mr. McElwrath is entitled to terminate his employment for Good Reason (as defined in the McElwrath Second Amended and
Restated Employment Agreement) if he is not nominated and elected as a director of the Company or is removed as a director by the
Board of Directors or the stockholders of the Company (other than for Cause, death or Disability).



If
Mr. McElwrath’s employment is terminated as a result of death or Disability, the Company will pay his base salary and all
amounts actually earned, accrued or owing as of the date of termination, and, for a period of three years following the
date of terminationhe or his estate will be entitled to exercise all options granted to him regardless
of whether or not the option is vested and exercisable on the date of termination and all restrictions on restricted stock awards
awarded will be removed and all rights to such stock vested as of the date of termination.



The McElwrath Second
Amended and Restated Employment Agreement contains no covenant not-to-compete or similar restrictions after termination.



Agreement with
Bruce N. Huff. On April 19, 2010, the Company appointed Bruce N. Huff as Chief Financial Officer of the Company and on June
9, 2010, the Company entered into an amended and restated employment agreement (the “Huff Employment Agreement”) with
Mr. Huff. On June 9, 2010, the Company amended the Huff Employment Agreement to, among other things, ensure compliance with the
applicable provisions of the tax code relating to deferred compensation (the “Huff First Amendment”). Mr. Huff’s
annual base salary for 2012 was increased to $283,500 from $270,000.



17







Unless further extended,
the Huff Employment Agreement terminates on January 27, 2016. The Huff Employment Agreement provides that if Mr. Huff is terminated
by the Company for Cause (as defined in the Huff Employment Agreement), the Company will pay his base salary and all amounts actually
earned, accrued or owing as of the date of termination and he will be entitled for a period of three months after termination to
exercise all options granted to him under his employment agreement or otherwise to the extent vested and exercisable on the date
of termination. The Huff Employment Agreement further provides that if Mr. Huff voluntarily terminates his employment with the
Company, the Company will pay his base salary and all amounts actually earned, accrued or owing as of the date of termination and
he will be entitled for a period of one year after termination to exercise all options granted to him under his employment agreement
or otherwise to the extent vested and exercisable on the date of termination.



If Mr. Huff’s
employment is terminated by the Company (other than as a result of death, Disability (as defined in the Huff Employment Agreement)
or Cause), or if he terminates his employment for Good Reason (as defined in the Huff Employment Agreement), he shall be entitled
to the following:



| | · | a lump sum payment of (i) his base salary paid during the immediately preceding twelve-month period
or (ii) two times the sum of his base salary paid during the immediately preceding twelve-month period in the event the termination
occurs within 24 months after a Change of Control;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | all amounts actually earned accrued or owing as of the date of termination; and
| | - | -------------------------------------------------------------------------------



| | · | the right to exercise, for a period of twelve months following the termination of Mr. Huff’s
employment, all options granted to him to the extent vested and exercisable at the date of termination of Employee’s employment
subject to certain restrictions contained in the Huff Employment Agreement.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For purpose of the
Huff Employment Agreement, a Change of Control is defined as: (a) subject to certain exceptions, the acquisition by a person of
beneficial ownership of more than 40% of the combined voting power of the then-outstanding voting securities of the Company entitled
to vote generally in the election of directors, (b) the consummation of a reorganization, merger or consolidation unless following
such transaction 60% or more of the combined voting power of the then-outstanding voting securities of the entity resulting from
such transaction entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the same persons who were the beneficial owners of such securities immediately prior to such transaction,
(c) the (1) approval by the Company’s stockholders of a complete liquidation or dissolution of the Company or (2) sale or
other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company,
unless the successor entity existing immediately after such sale or disposition is then beneficially owned, directly or indirectly,
by all or substantially all of the persons who were the beneficial owners, respectively, of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors immediately prior to such sale or disposition; (d) subject
to certain exceptions, if individuals who, as of April 19, 2010 constitute the Board of the Company cease for any reason to constitute
at least a majority of the Board; or (e) the Board adopts a resolution to the effect that, for purposes hereof, a Change of Control
has occurred.



If Mr. Huff’s
employment is terminated as a result of death or Disability, the Company will pay his base salary and all amounts actually earned,
accrued or owing as of the date of termination and, within one year following the termination, he or his estate will be entitled
to exercise all options granted to him to the extent the option is vested and exercisable and all such options not exercised within
such one year period shall be forfeited.



The Huff Employment
Agreement contains no covenant not-to-compete or similar restrictions after termination.



18







2005 Stock Incentive
Plan



The 2005 Plan permits
the Compensation Committee to grant stock options, including incentive stock options (“ISOs”) and non-qualified stock
options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. Under the current version
of the 2005 Plan, the Company may grant awards with respect to 22,000,000 shares, of which 8,000,000 shares may be granted as restricted
stock, restricted stock units or any other stock-based awards. Unless sooner terminated by the Board or the Compensation Committee,
the 2005 Plan will terminate on May 27, 2015.



The purpose of the
2005 Plan is to (1) aid the Company in attracting, securing and retaining employees of outstanding ability, (2) attract members
to the Board, (3) attract consultants to provide services to the Company, as needed, and (4) motivate such persons to exert their
best efforts on behalf of the Company.



The 2005 Plan is administered
by the Compensation Committee. The 2005 Plan provides that the Chief Executive Officer of the Company as long as he is a member
of the Board, has the authority to grant equity awards of up to an aggregate of 200,000 shares of common stock in each calendar
year to participants who are not subject to the rules promulgated under Section 16 of the Exchange Act.



The total number of
shares of common stock that will be available for grants of ISOs is 2,600,000 shares and the total number of shares of common stock
that will be available for grants of unrestricted shares of common stock, restricted stock, restricted stock units or any other
stock-based awards is 8,000,000 shares. The maximum number of shares with respect to which awards of any and all types may be granted
during a calendar year to any participant is limited, in the aggregate, to 1,500,000 shares. The 2005 Plan also provides that the
maximum amount of a performance-based award to any Covered Employee (as defined in the 2005 Plan) for any fiscal year of the Company
will be $1,000,000. Shares which are subject to awards which terminate, expire, are cancelled, exchanged, forfeited, lapse or are
settled for cash may be utilized again with respect to awards granted under the Plan.



With respect to any
options that are awarded, the exercise price pursuant to which common stock may be purchased will be determined by the Compensation
Committee, but will not be less than the fair market value (as defined in the 2005 Plan) of the common stock on the date the option
is granted. Under the 2005 Plan, fair market value, on a given day, is defined as the mean of the closing bid and asked prices
of the common shares as reported that day on the OTC Bulletin Board. No option shall be exercisable more than 10 years after the
date of grant. The 2005 Plan also grants the Compensation Committee discretion to accelerate vesting or extend the time available
for exercise of options after termination of an executive so long as termination is not for cause (as determined by the Compensation
Committee).



Outstanding Equity
Awards at Fiscal Year-End



The following table
sets forth the number of unexercised options segregated by those that were exercisable and those that were unexercisable as of
December 31, 2012, and the number of vested and unvested shares of restricted stock.



19









|                     |  |            |  | OPTION AWARDS                                                       |         |     | STOCK AWARDS                                                          | 
|-------------------- |  | ---------- |  | ------------------------------------------------------------------- | ------- | --- | --------------------------------------------------------------------- | 
|                     |  |            |  |                                                                     |         |     |                                                                       | 
|Name                 |  | Grant Date |  | Number of Securities Underlying Unexercised Options Exercisable (#) |         |     | Number of Securities Underlying Unexercised Options Unexercisable (#) | 
|Michael R. McElwrath |  | 10/13/03   |  |                                                                     | 480,000 | (1) |                                                                       | 
|                     |  | 12/23/04   |  |                                                                     | 200,000 | (1) |                                                                       | 
|                     |  | 02/02/06   |  |                                                                     | 500,000 | (1) |                                                                       | 
|                     |  | 12/27/07   |  |                                                                     | 500,000 |     |                                                                       | 
|                     |  | 02/11/08   |  |                                                                     | 540,000 | (3) |                                                                       | 
|                     |  | 04/15/09   |  |                                                                     | 150,000 | (3) |                                                                       | 
|                     |  | 04/15/09   |  |                                                                     | 110,000 | (3) |                                                                       | 
|                     |  | 02/07/11   |  |                                                                     | 100,000 |     |                                                                       | 
|                     |  | 01/24/12   |  |                                                                     | -       |     |                                                                       | 
|Bruce N. Huff        |  | 12/23/04   |  |                                                                     | 240,000 | (1) |                                                                       | 
|                     |  | 04/15/09   |  |                                                                     | 100,000 | (2) |                                                                       | 
|                     |  | 04/19/10   |  |                                                                     | -       |     |                                                                       | 
|                     |  | 02/07/11   |  |                                                                     | 58,333  |     |                                                                       | 
|                     |  | 01/24/12   |  |                                                                     | -       |     |                                                                       | 



| | (1) | These options vested 20% on grant date, and 20% on the four subsequent anniversaries of the grant
date thereafter.
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (2) | This grant of restricted stock or options, as applicable, vested in three equal annual installments
with the first installment vesting on the grant date, and the next two installments vesting on the two (2) subsequent anniversaries
of the grant date thereafter.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | This grant of restricted stock or options, as applicable, vest in three (3) equal annual installments
beginning on the first anniversary grant date.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | These options vested 20% on grant date, and 20% on each grant date anniversary thereafter. On January
14, 2009, the original expiration date of December 23, 2009 of this option was extended to December 23, 2014.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | These options vest 25% on the grant date, and 25% on the three (3) subsequent anniversaries of
the grant date thereafter.
| | --- | -------------------------------------------------------------------------------------------------------------------------



20







Potential Payments
Upon Termination or Change in Control



For a description
of the potential payments to our Named Executive Officers upon termination or a change in control, see “Narrative to Summary
Compensation Table and Grants of Plan-Based Awards Table — Employment Agreements with Named Executive Officers” above.
For further discussion of the determination of termination benefits, see “Compensation Discussion and Analysis — Total
Compensation and Description and Allocation of Its Components — Post-Termination Compensation.”



Quantification
of termination benefits. The following table quantifies the termination benefits due to our Named Executive Officers in the
event of their termination for various reasons, including any termination occurring within 24 months following a change of control.
The amounts were computed as if each executive officer’s employment terminated on December 31, 2012.



2012 Potential
Termination Benefits for Named Executive Officers



|                                          |  |                                        |        |  | Termination for Other than Cause, Death, or Disability |  
|----------------------------------------- |  | -------------------------------------- | ------ |  | ------------------------------------------------------ | -
|                                          |  |                                        |        |  |                                                        |  
|Executive Officer/Element of Compensation |  | Termination due to Death or Disability |        |  | or by Executive for Good Reason                        |  
|Michael R. McElwrath                      |  |                                        |        |  |                                                        |  
|Salary and bonus                          |  | $                                      | -      |  |                                                        | $
|Equity awards (1)                         |  |                                        | 45,243 |  |                                                        |  
|Benefits(2)                               |  |                                        | -      |  |                                                        |  
|Tax Gross-up(3)                           |  |                                        | -      |  |                                                        |  
|Total Mr. McElwrath                       |  | $                                      | 45,243 |  |                                                        | $
|                                          |  |                                        |        |  |                                                        |  
|Bruce N. Huff                             |  |                                        |        |  |                                                        |  
|Salary                                    |  | $                                      | -      |  |                                                        | $
|Equity awards (1)                         |  |                                        | -      |  |                                                        |  
|Total Mr. Huff                            |  | $                                      | -      |  |                                                        | $





| | (1) | Equity awards are quantified at the intrinsic value on December 31, 2012 of all options and restricted
stock that was not fully vested and exercisable, but would become exercisable, under the terms of the Named Executive Officer’s
employment agreement, due to the form of termination specified in the column heading. The intrinsic value of options is determined
by calculating the difference between the closing market price of our common stock on December 31, 2012, which was $0.05 per share,
and the exercise price of the option, and multiplying that difference by the number of options exercisable at that given exercise
price. The intrinsic values of all the options are then totaled. The intrinsic value of restricted stock is equal to the number
of shares times the closing price of our common stock on December 31, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Benefits quantified include the incremental cost to the Company of continuing health care benefits
(based on December 2012 premium rates) and the cost of the Company’s matching contributions.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Tax gross-up refers to reimbursement for any excise tax (and taxes on the imputed income attributable
to the reimbursement for the excise tax and tax gross-up) the Named Executive Officer is required to pay under Section 4999 of
the Code for excess parachute payments. This amount reflects the estimated gross-up payments that would be due to Mr. McElwrath
as if he had been terminated on December 31, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21







Directors’
Compensation



The following table
summarizes compensation paid to non-employee directors for 2012. Mr. McElwrath is the only employee serving as a director and he
does not receive any additional compensation for his service on the Board.



2012 Director Compensation



|                    |  | Fees Earned |        |  |            |   |        |            |  |   |       | 
|------------------- |  | ----------- | ------ |  | ---------- | - | ------ | ---------- |  | - | ----- | 
|                    |  | or Paid in  |        |  | Stock      |   |        | Option     |  |   |       | 
|Name                |  | Cash        |        |  | Awards (1) |   |        | Awards (1) |  |   | Total | 
|Donald A. Juckett   |  | $           | 46,300 |  |            | $ | 49,500 |            |  | $ | -     | 
|                    |  |             |        |  |            |   |        |            |  |   |       | 
|William A. Anderson |  |             | 51,200 |  |            |   | 49,500 |            |  |   | -     | 
|                    |  |             |        |  |            |   |        |            |  |   |       | 
|C. P. Chiang        |  |             | 29,100 |  |            |   | 49,500 |            |  |   | -     | 
|                    |  |             |        |  |            |   |        |            |  |   |       | 
|John C. Mihm        |  |             | 32,500 |  |            |   | 49,500 |            |  |   | -     | 
|                    |  |             |        |  |            |   |        |            |  |   |       | 
|Lucian Morrison     |  |             | 41,100 |  |            |   | 49,500 |            |  |   | -     | 
|                    |  |             |        |  |            |   |        |            |  |   |       | 
|Thomas E. Williams  |  |             | 39,500 |  |            |   | 49,500 |            |  |   | -     | 



| | (1) | Stock Awards are quantified in the table according to the amount included in 2012 share-based compensation
expense for the awards granted to each named director through the end of fiscal year 2012. The Company did not award any options
to its directors during 2012. See Note 12 to the Consolidated Financial Statements which is included in Part II of this report
for assumptions used in valuing these awards and the methodology for recognizing the related expense. The expense has been modified
in accordance with SEC rules to eliminate forfeiture assumptions in computing the expense for the year. There were no actual forfeitures
during 2012 by any of the named directors. Any options would have been for the purchase of our common stock. All stock awards are
grants of restricted stock representing time-vesting shares of our common stock.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





22







The table below provides
information regarding the outstanding stock option and restricted stock awards for each of our directors as of December 31, 2012.



2012 Outstanding
Equity Awards for Directors



|Name                |  | Number of  Securities Underlying Unexercised Options (#) |         |  | Number of Shares of Stock That Have Not Vested (#) | 
|------------------- |  | -------------------------------------------------------- | ------- |  | -------------------------------------------------- | 
|                    |  |                                                          |         |  |                                                    | 
|Donald A. Juckett   |  |                                                          | 546,667 |  |                                                    | 
|William A. Anderson |  |                                                          | 316,667 |  |                                                    | 
|C. P. Chiang        |  |                                                          | 306,667 |  |                                                    | 
|John C. Mihm        |  |                                                          | 546,667 |  |                                                    | 
|Lucian Morrison     |  |                                                          | 294,667 |  |                                                    | 
|Thomas E. Williams  |  |                                                          | 546,667 |  |                                                    | 



The Company pays its
non-employee directors cash compensation for their service on the Board. In January 2007, the Board approved a standard compensation
arrangement for directors, effective January 1, 2007. On April 15, 2009, the Compensation Committee amended the standard compensation
arrangement to increase the fees for Board and committee telephone meetings from $500 each to $1,500 and $1,000, respectively.
The current standard compensation arrangement, as amended, is set forth below.



|Schedule of Directors' Fees      
|---------------------------------
|                                 
|Annual cash retainer             
|Board meetings in person         
|Board meetings by telephone      
|Committee meetings in person     
|Committee meetings by telephone  
|Committee Chairman retainer      
|Audit Committee Chairman retainer
|Board Chairman retainer          



The Company also reimburses
directors for the reasonable expenses they incur to attend Board, Board committee and/or investor relations meetings. In addition,
in 2008, the Board approved a policy providing for an annual grant of options to each non-employee director to purchase a target
level of 40,000 shares of common stock, which have an exercise price equal to fair market value on date of grant, a term of ten
years and will vest in their entirety on the first anniversary of the date of grant.  The actual number of options granted
from year to year may be adjusted upwards or downwards based on the business judgment of the Board. The fair market value, on a
given date, is the mean of the closing bid and asked prices of the common shares as reported that day on the OTC Bulletin Board.
These grants are expected to be made during the first quarter each fiscal year. The Company did not grant any options to its directors
during 2012.



In addition to the
annual grants of options to directors described above, we typically grant options to directors upon their initial appointment
or election as a director. The options will vest over three years, with 25% vested immediately and an additional 25% vesting on
the first, second and third anniversary of the date of grant. If upon or within 24 months of a Change of Control (as defined in
the 2005 Plan) a director’s service in their capacity as a director of the Company is terminated, then all options granted
to the director will immediately and fully vest and be exercisable as of the date their service is terminated.



23







ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



Security Ownership



The following table
sets forth, as of April 24, 2013, certain information with respect to the beneficial ownership of our common stock by (a) each
stockholder beneficially owning more than 5% of the Company’s outstanding common stock; (b) each director of the Company
who is a stockholder of the Company; (c) each of the Named Executive Officers who is a stockholder of the Company; and (d) all
Named Executive Officers and directors of the Company as a group. Total shares outstanding on April 24, 2013 were 346,371,483.(1)



|Name of Beneficial Owner           |  | Amount and Nature of Beneficial Ownership of Common Stock |            |      | Percent of Outstanding Common Stock | 
|---------------------------------- |  | --------------------------------------------------------- | ---------- | ---- | ----------------------------------- | 
|Ashmore Group                      |  |                                                           | 56,086,439 | (2)  |                                     | 
|Prudential Jennison Associates LLC |  |                                                           | 28,378,145 | (3)  |                                     | 
|                                   |  |                                                           |            |      |                                     | 
|Named Executive Officers:          |  |                                                           |            |      |                                     | 
|Michael R. McElwrath               |  |                                                           | 6,378,561  | (4)  |                                     | 
|Bruce Huff                         |  |                                                           | 1,716,294  | (5)  |                                     | 
|                                   |  |                                                           |            |      |                                     | 
|Non-Executive Directors:           |  |                                                           |            |      |                                     | 
|Donald A. Juckett                  |  |                                                           | 1,121,965  | (6)  |                                     | 
|William A. Anderson                |  |                                                           | 826,352    | (7)  |                                     | 
|C. P. Chiang                       |  |                                                           | 773,333    | (8)  |                                     | 
|John C. Mihm                       |  |                                                           | 1,687,912  | (9)  |                                     | 
|Lucian L. Morrison                 |  |                                                           | 794,352    | (10) |                                     | 
|Thomas E. Williams                 |  |                                                           | 1,051,458  | (11) |                                     | 
|                                   |  |                                                           |            |      |                                     | 
|All Directors and Executive        |  |                                                           |            |      |                                     | 
|Officers as a Group (8 persons)    |  |                                                           | 14,350,207 | (12) |                                     | 



|
|




|
|

|
|

| | * | Less than 1%.
| | - | -------------



| | (1) | The percentages in the table are calculated using the total shares outstanding plus the number
of securities that can be acquired within 60 days of April 24, 2013, or a total of 346,371,483 shares.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The amount of beneficial ownership of the shares is based on a Schedule 13D filed with the SEC
on January 25, 2013. Ashmore Investments (UK) Limited (“AI(UK)L”) is the parent company of Ashmore Investment Management
Limited (“AIML”). AI(UK)L is a wholly-owned subsidiary of Ashmore Group plc (“Ashmore Group”). Based on
the Schedule 13D, each of Ashmore Group, AI(UK)L and AIML may be deemed to be the beneficial owner of 56,086,439 shares of common
stock underlying warrants acquired on January 15, 2013. Ashmore Group, AI(UK)L and AIML each reported shared voting power and shared
dispositive power over the 56,086,439 shares underlying such warrants. The address for each of Ashmore Group, AI(UK)L and AIML
is 61 Aldwych, London, XO WC2B 4AE.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24







| | (3) | The amount of beneficial ownership of the shares is based on a Schedule 13G filed with the SEC
on February 13, 2013. Jennison Associates LLC (“Jennison”) is a wholly-owned subsidiary of Prudential Financial, Inc.
(“Prudential”). Based on the Schedule 13G, Jennison may be deemed to be the beneficial owner of 28,378,145 shares of
common stock as of December 31, 2012 acquired on behalf of its clients investment advisory accounts. Jennison reports sole voting
power over 26,731,941 shares and shared dispositive power over 28,378,145 shares. Prudential may be deemed to have the power to
exercise or to direct the exercise of such voting and/or dispositive power that Jennison may have with respect to our common stock
portfolios managed by Jennison. Jennison does not file jointly with Prudential, as consequently, shares of our common stock reported
on Jennison’s Schedule 13G may be included in the shares reported on the Schedule 13G filed by Prudential. The address for
Jennison Associates LLC is 466 Lexington Avenue, New York, NY 10017. Prudential also filed a Schedule 13G with the SEC on February
13, 2013 in which it discloses beneficial ownership of 28,908,989 shares of our common stock. The address for Prudential Financial,
Inc. is 751 Broad Street, Newark, New Jersey 07102-3777.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Includes 2,880,000 shares which Michael R. McElwrath may purchase pursuant to options which are
exercisable within 60 days of April 24, 2013. Also includes 144,934 shares of restricted stock which vest in on February 7, 2014;
410,000 shares of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015 and 300,000 shares
of restricted stock that vest in three equal installments on January 31, 2014, January 31, 2015 and January 31, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Includes 456,666 shares which Bruce N. Huff may purchase pursuant to options which are exercisable
within 60 days of April 24, 2013. Also includes 85,000 shares of restricted stock which vest on February 7, 2014 and 243,333 shares
of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Includes 623,333 shares which Donald A. Juckett may purchase pursuant to options which are exercisable
within 60 days of April 24, 2013. Also includes 33,334 shares of restricted stock which vest on February 7, 2014; 100,000 shares
of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015 and 75,000 shares of restricted
stock that vest in three equal installments on January 31, 2014, January 31, 2015 and January 31, 2016.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Includes 393,333 shares which William A. Anderson may purchase pursuant to options which are exercisable
within 60 days of April 24, 2013. Also includes 33,334 shares of restricted stock which vest on February 7, 2014; 100,000 shares
of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015 and 75,000 shares of restricted
stock that vest in three equal installments on January 31, 2014, January 31, 2015 and January 31, 2016. Mr. Anderson disclaims
beneficial ownership of 10,000 of these securities held by Anderson Securities Corp. except to the extent of his pecuniary interest
therein, and the inclusion of these shares in this report shall not be deemed an admission of beneficial ownership of all of the
reported shares for any purpose.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Includes 383,333 shares which C.P. Chiang may purchase pursuant to options which are exercisable
within 60 days of April 24, 2013. Also includes 33,334 shares of restricted stock which vest on February 7, 2014; 100,000 shares
of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015 and 75,000 shares of restricted
stock that vest in three equal installments on January 31, 2014, January 31, 2015 and January 31, 2016.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Includes 623,333 shares which John C. Mihm may purchase pursuant to options which are exercisable
within 60 days of April 24, 2013. Also includes 33,334 shares of restricted stock which vest on February 7, 2014; 100,000 shares
of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015 and 75,000 shares of restricted
stock that vest in three equal installments on January 31, 2014, January 31, 2015 and January 31, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Includes 371,333 shares which Lucian L. Morrison may purchase pursuant to options which are exercisable
within 60 days of April 24, 2013. Also includes 33,334 shares of restricted stock which vest on February 7, 2014; 100,000 shares
of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015 and 75,000 shares of restricted
stock that vest in three equal installments on January 31, 2014, January 31, 2015 and January 31, 2016.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25







| | (11) | Includes 623,333 shares which Thomas E. Williams may purchase pursuant to options which are exercisable
within 60 days of April 24, 2013. Also includes 33,334 shares of restricted stock which vest on February 7, 2014; 100,000 shares
of restricted stock that vest in two equal installments on January 25, 2014 and January 25, 2015 and 75,000 shares of restricted
stock that vest in three equal installments on January 31, 2014, January 31, 2015 and January 31, 2016.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (12) | Includes 6,354,664 shares which may be purchased pursuant to options and warrants which are exercisable
within 60 days of April 24, 2013 by our directors and executive officers.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Equity Compensation
Plan Information



The following table
provides information regarding the equity compensation plans as of December 31, 2012.



|                                        |  |                  |            |  |                  |   |      | Number of        | 
|--------------------------------------- |  | ---------------- | ---------- |  | ---------------- | - | ---- | ---------------- | 
|                                        |  |                  |            |  |                  |   |      | securities       | 
|                                        |  |                  |            |  |                  |   |      | remaining        | 
|                                        |  | Number of        |            |  |                  |   |      | available for    | 
|                                        |  | securities to be |            |  | Weighted         |   |      | future issuance  | 
|                                        |  | issued upon      |            |  | average exercise |   |      | under equity     | 
|                                        |  | exercise of      |            |  | price of         |   |      | compensation     | 
|                                        |  | outstanding      |            |  | outstanding      |   |      | plans (excluding | 
|                                        |  | options,         |            |  | options,         |   |      | securities       | 
|                                        |  | warrants and     |            |  | warrants and     |   |      | reflected in     | 
|Equity Compensation Plan Category       |  | rights (a)       |            |  | rights (b)       |   |      | column (a)) (c)  | 
|Plans approved by security holders (1)  |  |                  | 6,465,833  |  |                  | $ | 0.69 |                  | 
|Plans not approved by security holders  |  |                  |            |  |                  |   |      |                  | 
|- Inducement awards(2)                  |  |                  | 1,068,000  |  |                  |   | 0.64 |                  | 
|- Investor Relations Consultant         |  |                  | 275,000    |  |                  |   | 0.57 |                  | 
|- IRS 409A related grants(3)            |  |                  | 800,000    |  |                  |   | 1.60 |                  | 
|- Prior to adoption of the 2005 Plan(4) |  |                  | 2,540,000  |  |                  |   | 1.57 |                  | 
|Total                                   |  |                  | 11,148,833 |  |                  |   | 0.95 |                  | 



| | (1) | For discussion of the 2005 Stock Incentive Plan (“2005 Plan”), which was approved by
the security holders, see “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
- Narrative to Equity Compensation Plan Information —2005 Stock Incentive Plan.”
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | We awarded as inducement grants options to purchase shares of common stock to new board members
and new employees outside the 2005 Plan. The grants carried a term of ten years.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | We granted options to purchase shares of common stock in December 2007 which were replacements
for options cancelled due to potential adverse tax consequences to the holders of the cancelled options under Section 409A of the
Internal Revenue Code. The cancelled options had been granted prior to adoption of the 2005 Plan. The replacement stock options
have terms between one and approximately six years, and exercise prices in the range of $1.30 to $2.09 per share.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



26







| | (4) | We granted options to purchase shares of common stock prior to the adoption of the 2005 Plan, which
are evidenced by individual stock option agreements. The options were granted to officers, directors and consultants and have a
term of between five and ten years and an exercise price in the range of $0.65 to $2.00 per share.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27







ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



Review of Related
Person Transactions



In accordance with
our audit committee charter, the Audit Committee reviews related person transactions. It is the Company’s policy that we
will not enter into transactions that are considered related person transactions that are required to be disclosed under Item 404
of Regulation S-K unless the Audit Committee or another independent body of the Board first reviews and approves the transactions.



Board Independence



The Board has determined
that each director, except for Michael R. McElwrath, has no material relationship with the Company and is independent within the
meaning of the NYSE AMEX listing standards.



ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES



Independent Registered
Public Accounting Firm Fee Information



Audit Fees



The aggregate fees
billed by JonesBaggett LLP (formerly Payne Smith & Jones, P.C.) for professional services rendered for the audit of our annual
financial statements for the years ended December 31, 2012 and 2011 and for the review of the financial statements included in
our Quarterly Reports on Form 10-Q for those years were $229,655 and $248,261 respectively.



Audit-Related Fees



JonesBaggett LLP did
not render any audit-related professional services for the years ended December 31, 2012 and 2011.



Tax Fees



The aggregate fees billed by JonesBaggett
LLP for professional services rendered for tax compliance, tax advice and/or tax planning for the year ended December 31, 2012
and 2011 was $8,500 and $8,000, respectively. The fees were for the preparation of the 2012 and 2011 corporate tax returns.



All Other Fees



JonesBaggett LLP did
not bill any other fees for professional products or services rendered to us, other than those described above under “Audit
Fees,” “Audit-Related Fees” and “Tax Fees” for the years ended December 31, 2012 and 2011.



The Audit Committee
pre-approved all of the audit and non-audit fees described above for the years ended December 31, 2012 and 2011.



Pre-Approval Policies and Procedures



In accordance with
the Audit Committee Charter, the Audit Committee has established policies and procedures by which it approves in advance any audit
and permissible non-audit services to be provided by our independent registered public accounting firm. Under these procedures,
prior to the engagement of the independent registered public accounting firm for pre-approved services, requests or applications
for the independent registered public accounting firm to provide services must be submitted to our chief financial officer or his
designee and the Audit Committee and must include a detailed description of the services to be rendered. The chief financial officer
or his designee and the independent registered public accounting firm must ensure that the independent registered public accounting
firm is not engaged to perform the proposed services unless those services are within the list of services that have received the
Audit Committee’s pre-approval and must cause the Audit Committee to be informed in a timely manner of all services rendered
by the independent registered public accounting firm and the related fees.



28







Requests or applications
for the independent registered public accounting firm to provide services that require case-by-case approval will be submitted
to the Audit Committee (or any Audit Committee members who have been delegated pre-approval authority) by the chief financial officer
or his designee. Each request or application must include:



| | · | a recommendation by the chief financial officer (or designee) as to whether the Audit Committee
should approve the request or application; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| | · | a joint statement of the chief financial officer (or designee) and the independent registered public
accounting firm as to whether, in their view, the request or application is consistent with the SEC’s and the Public Company
Accounting Oversight Board’s requirements for independence.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Audit Committee
will not permit the independent registered public accounting firm to provide services in connection with a transaction initially
recommended by them, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Code
and related regulations. The Audit Committee also will not permit the independent registered public accounting firm to provide
any services to the extent that the SEC has prohibited the provision of those services by the independent registered public accounting
firm, which generally include:



| | · | bookkeeping or other services related to accounting records or financial statements;
| | - | ------------------------------------------------------------------------------------



| | · | financial information systems design and implementation;
| | - | --------------------------------------------------------



| | · | appraisal or valuation services, fairness opinions or contribution-in-kind reports;
| | - | -----------------------------------------------------------------------------------



| | · | actuarial services;
| | - | -------------------



| | · | internal audit outsourcing services;
| | - | ------------------------------------



| | · | management functions;
| | - | ---------------------



| | · | human resources;
| | - | ----------------



| | · | broker-dealer, investment adviser or investment banking services;
| | - | -----------------------------------------------------------------



| | · | legal services; and
| | - | -------------------



| | · | expert services unrelated to the audit.
| | - | ---------------------------------------



| |  | The Audit Committee delegated authority to the chairman of the Audit Committee to:
| |  | ----------------------------------------------------------------------------------



| | · | pre-approve any services proposed to be provided by the independent registered public accounting
firm and not already pre-approved or prohibited by the Audit Committee’s Pre-Approval Policy;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | increase any authorized fee limit for pre-approved services (but not by more than 20% of the initial
amount that was pre-approved) before the Company or its subsidiaries engage the independent registered public accounting firm to
perform services for any amount in excess of the fee limit; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | investigate further the scope, necessity or advisability of any services as to which pre-approval
is sought.
| | - | ------------------------------------------------------------------------------------------------------------



29







The Chairman is
required to report any pre-approval or fee increase decisions to the Audit Committee at the next Audit Committee meeting. The Audit
Committee does not delegate to management any of the Audit Committee’s authority or responsibilities concerning the independent
registered public accounting firm’s services.



PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES



(a)



| | 1. and 2. | No financial statements or schedules are filed with this
report on Form 10-K/A.
| | --------- | -------------------------------------------------------------------------------



| | 3. | Exhibits
| | -- | --------



A list of the exhibits
filed or furnished with this report on Form 10-K/A (or incorporated by reference to exhibits previously filed or furnished by us)
is provided in the Exhibit Index beginning on page 32 of this report. Those exhibits incorporated by reference herein are indicated
as such by the information supplied in the parenthetical thereafter. Otherwise, the exhibits are filed herewith.



30







SIGNATURES



Pursuant to the requirements
of Section 13 or 15(d) 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, on April 30, 2013.



| | FAR EAST ENERGY CORPORATION
| | ---------------------------
| |                            
| | By:                        
| |                            
| |                            



31







INDEX OF EXHIBITS



|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                     
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1           |  | Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).                                                                              
|3.2           |  | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 17, 2005 (SEC File No. 000-32455)).                                                                                                                             
|4.1           |  | Articles of Incorporation of the Company, as amended (included as Exhibit 3.1).                                                                                                                                                                                                                                 
|4.2           |  | Amended and Restated Bylaws of the Company (included as Exhibit 3.2).                                                                                                                                                                                                                                           
|4.3           |  | Specimen stock certificate (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).                                                                                                        
|4.4           |  | Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 27, 2007 (SEC File No. 000-32455)).                                                                                                                                                       
|4.5           |  | Warrant Agreement, dated August 27, 2007, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on August 27, 2007 (SEC File No. 000-32455)).                                                          
|4.6           |  | Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 30, 2008 (SEC File No. 000-32455)).                                                                                                                                                          
|4.7           |  | Warrant Agreement, dated May 30, 2008, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on May 30, 2008 (SEC File No. 000-32455)).                                                                
|4.8           |  | Warrant Agreement between the Company and Continental Stock Transfer & Trust Company (including the form of warrant) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on December 22, 2009 (SEC File No. 000-32455)).                                                
|4.9           |  | Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on March 9, 2010 (SEC File No. 000-32455)).                                                                                                                                   
|4.10          |  | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 9, 2010 (SEC File No. 000-32455)).                                                                                                                                  
|4.11          |  | Indenture, dated January 15, 2013, among Far East Energy (Bermuda), Ltd., the Company and Wells Fargo Bank, National Association, as trustee (including form of note) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).
|4.12          |  | Warrant Agreement, dated January 15, 2013, between the Company and Continental Stock Transfer and Trust Company, as warrant agent (including form of warrant) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).        
|4.13          |  | Securities Purchase Agreement, dated January 14, 2013, among Far East Energy (Bermuda), Ltd., the Company and the purchasers set forth therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).                      
|4.14          |  | Registration Rights Agreement, dated January 15, 2013, among the Company and the purchasers set forth therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).                                                       
|10.1*         |  | Amended and Restated Employment Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).                                                   
|10.2*         |  | First Amendment to Amended and Restated Employment Agreement, dated April 16, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed on April 19, 2007 (SEC File No. 000-32455)).                                      
|10.3*         |  | Second Amendment to Amended and Restated Employment Agreement, dated November 26, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 27, 2007 (SEC File No. 000-32455)).                               



32







|10.4*  |  | Third Amendment to Amended and Restated Employment Agreement, dated March 7, 2008, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on March 13, 2008 (SEC File No. 000-32455)).                                                                                                                 
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5*  |  | Fourth Amendment to Amended and Restated Employment Agreement, dated December 19, 2008, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).                                                                      
|10.6*  |  | Fifth Amendment to Amended and Restated Employment Agreement, dated May 18, 2009, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 18, 2009 (SEC File No. 000-32455)).                                                                                                                    
|10.7*  |  | Sixth Amendment to Amended and Restated Employment Agreement, dated December 7, 2010, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 13, 2010 (SEC File No. 000-32455)).                                                                                                           
|10.8*  |  | Amended and Restated Employment Agreement, dated October 10, 2011, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 13, 2011 (SEC File No. 000-32455)).                                                                                                                               
|10.9*  |  | First Amendment to Amended and Restated Employment Agreement, dated May 24, 2012, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 25, 2012 (SEC File No. 000-32455)).                                                                                                                    
|10.10* |  | Amended and Restated Employment Agreement, dated June 9, 2010, between the Company and Bruce N. Huff (incorporated by reference to Exhibit 10.75 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed on August 8, 2010 (SEC File No. 000-32455)).                                                                                                    
|10.11* |  | Amendment to the Amended and Restated Employment Agreement, dated January 27, 2012, between the Company and Bruce N. Huff (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 31, 2012 (SEC File No. 000-32455)).                                                                                                                     
|10.12* |  | Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Appendix A to the Company's Proxy Statement on Schedule 14A filed on December 13, 2010 (SEC File No. 000-32455)).                                                                                                                                                                                     
|10.13* |  | Amended and Restated Nonqualified Stock Option Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).                                                                                                              
|10.14* |  | Amended and Restated Nonqualified Stock Option Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).                                                                                                              
|10.15* |  | Nonqualified Stock Option Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).                                                                                                                                   
|10.16* |  | Second Amended and Restated Nonqualified Stock Option Agreement, dated December 27, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)). The original option agreement was entered into on January 29, 2002.
|10.17* |  | Second Amended and Restated Nonqualified Stock Option Agreement, dated December 27, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)). The original option agreement was entered into on October 13, 2003.
|10.18* |  | First Amendment to Non-Qualified Stock Option Agreement, dated December 19, 2008, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.63 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).                                                                            
|10.19* |  | Second Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).                                                                     



33







|10.20* |  | Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Don Juckett (incorporated by reference to Exhibit 10.68 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).           
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.21* |  | Stock Option Agreement, dated May 24, 2004, between the Company and John C. Mihm (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).                                                
|10.22* |  | Stock Option Agreement, dated February 24, 2004, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).                                        
|10.23* |  | Amended and Restated Nonqualified Stock Option Agreement, dated December 27, 2007, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.61 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).      
|10.24* |  | Second Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
|10.25* |  | Third Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)). 
|10.26* |  | Non-Qualified Stock Option Agreement, dated October 1, 2007, between the Company and William A. Anderson (incorporated by reference to Exhibit 10.52 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed on November 7, 2007 (SEC File No. 000-32455)).               
|10.27* |  | Non-Qualified Stock Option Agreement, dated January 9, 2008, between the Company and Lucian L. Morrison (incorporated by reference to Exhibit 10.58 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).                         
|10.28* |  | Form of Non-Qualified Stock Option Agreement for Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.73 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).                          
|10.29* |  | Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.54 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).                                                                                    
|10.30* |  | Form of Incentive Stock Option Agreement for Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 19, 2007 (SEC File No. 000-32455)).                                                                    
|10.31* |  | Restricted Stock Agreement, dated December 27, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.55 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).                               
|10.32* |  | Restricted Stock Agreement, dated December 27, 2007, between the Company and Thomas E. Williams (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).                                 
|10.33* |  | Form of Restricted Stock Agreement for Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 23, 2007 (SEC File No. 000-32455)).                                                                          
|10.34* |  | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (File No. 333-148363) filed on December 27, 2007.                                                                                                                              
|10.35* |  | Form of Letter Agreement with the Company's non-employee directors (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 19, 2007 (SEC File No. 000-32455)).                                                                                                    



34







|10.36 |  | Production Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang, Yunnan Province, the People's Republic of China, dated January 25, 2002, between China United Coalbed Methane Corp. Ltd. and the Company (incorporated by reference to Exhibit 2(i) to the Company's Current Report on Form 8-K filed on February 11, 2002 (SEC File No. 000-32455)).                                                                                   
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.37 |  | Modification Agreement for Product Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang, Yunnan Province, the People's Republic of China, dated October 20, 2005, between China United Coalbed Methane Corporation Ltd. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 26, 2005 (SEC File No. 000-32455)).                                                      
|10.38 |  | Modification Agreement dated April 24, 2007 for Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Enhong and Laochang Area in Yunnan Province, the People's Republic of China, dated December 3, 2002, between China United Coalbed Methane Corporation Ltd. and Far East Energy (Bermuda), Ltd. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 27, 2007 (SEC File No. 000-32455)).
|10.39 |  | Modification Agreement for Production Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang Area, Yunnan Province, The People's Republic of China (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 27, 2009 (SEC File No. 000-32455)).                                                                                                                                              
|10.40 |  | Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Qinnan Area in Shanxi Province, Qinshui Basin, the People's Republic of China, dated April 16, 2002, between China United Coalbed Methane Corporation Ltd. and the Phillips China Inc. (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K filed on March 15, 2005 (SEC File No. 000-32455)).                                                       
|10.41 |  | Application for the Extension of Phase Two of the Exploration Period under the Qinnan PSC, dated December 2, 2005, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 14, 2006 (SEC File No. 000-32455)).                                                                                                  
|10.42 |  | Application for the Extension of Phase Two of the Exploration Period under the Qinnan PSC, dated March 16, 2006, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 17, 2006 (SEC File No. 000-32455)).                                                                                                                                          
|10.43 |  | Approval Certificate from the Ministry of Foreign Trade and Economic Cooperation dated December 30, 2002 (incorporated by reference to Exhibit 2(i) to the Company's Current Report on Form 8-K filed on January 13, 2003 (SEC File No. 000-32455)).                                                                                                                                                                                                                      
|10.44 |  | Memorandum of Understanding, dated March 18, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).                                                                                                                                                             
|10.45 |  | Farmout Agreement Qinnan PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.2 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).                                                                                                                                                             
|10.46 |  | First Amendment to Farmout Agreement Qinnan PSC, dated December 15, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).                                                                                                                                                                     
|10.47 |  | Second Amendment to Farmout Agreement Qinnan PSC, dated December 17, 2004, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.01 to the Company's Current Report on Form 8-K filed on December 23, 2004 (SEC File No. 000-32455)).                                                                                                                                                                                                      
|10.48 |  | Third Amendment to Farmout Agreement Qinnan PSC, dated December 19, 2005, between ConocoPhillips China Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 21, 2005 (SEC File No. 000-32455)).                                                                                                                                                                                                  



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|10.49 |  | Assignment Agreement Qinnan PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.4 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).                                                                                                                                                                                              
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.50 |  | Modification Agreement, dated April 24, 2007, for Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Qinnan Area in Shanxi Province, Qinshui Basin, the People's Republic of China, dated April 16, 2002, by and among China United Coalbed Methane Corporation Ltd., ConocoPhillips China Inc. and Far East Energy (Bermuda), Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 27, 2007 (SEC File No. 000-32455)).  
|10.51 |  | Farmout Agreement Shouyang PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.3 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).                                                                                                                                                                                               
|10.52 |  | First Amendment to Farmout Agreement Shouyang PSC, dated December 15, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).                                                                                                                                                                                                       
|10.53 |  | Second Amendment to Farmout Agreement Shouyang PSC, dated December 17, 2004, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.02 to the Company's Current Report on Form 8-K filed on December 23, 2004 (SEC File No. 000-32455)).                                                                                                                                                                                                                                        
|10.54 |  | Third Amendment to Farmout Agreement Shouyang PSC, dated December 19, 2005, between ConocoPhillips China Inc. and the Company (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 21, 2005 (SEC File No. 000-32455)).                                                                                                                                                                                                                                    
|10.55 |  | Assignment Agreement Shouyang PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.5 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).                                                                                                                                                                                            
|10.56 |  | Application for the Extension of Phase Two of the Exploration Period under the Shouyang PSC, dated December 2, 2005, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.46 to Company's Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 14, 2006 and incorporated herein by a reference).                                                                                                                          
|10.57 |  | Application for the Extension of Phase Two of the Exploration Period under the Shouyang PSC, dated March 16, 2006, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 17, 2006 (SEC File No. 000-32455)).                                                                                                                                                                            
|10.58 |  | Modification Agreement, dated April 24, 2007, for Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Shouyang Area in Shanxi Province, Qinshui Basin, the People's Republic of China, dated April 16, 2002, by and among China United Coalbed Methane Corporation Ltd., ConocoPhillips China Inc. and Far East Energy (Bermuda), Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 27, 2007 (SEC File No. 000-32455)).
|10.59 |  | Modification Agreement for Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Shouyang Area in Shanxi Province, Qinshui Basin, The People's Republic of China (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 27, 2009 (SEC File No. 000-32455)).                                                                                                                                                                       
|10.60 |  | English translation of Shouyang Project Coalbed Methane Purchase and Sales Contract, dated June 12, 2010, between China United Coalbed Methane Corporation, Ltd. and Shanxi Province Guoxin Energy Development Group Limited with Far East Energy (Bermuda), Ltd. as an express third party beneficiary (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 16, 2010 (SEC File No. 000-32455)).                                                              
|10.61 |  | English translation of Letter agreement, dated June 12, 2010, between Far East Energy (Bermuda), Ltd. and China United Coalbed Methane Corporation, Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on June 16, 2010 (SEC File No. 000-32455)).                                                                                                                                                                                                             



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|10.62 |  | Letter, dated June 11, 2010, from Far East Energy (Bermuda), Ltd. to China United Coalbed Methane Corporation, Ltd. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on June 16, 2010 (SEC File No. 000-32455)).                                                                                                      
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.63 |  | Stock Subscription Agreement, dated August 24, 2007, between the Company and International Finance Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 27, 2007 (SEC File No. 000-32455)).                                                                                                         
|10.64 |  | Stock Subscription Agreement, dated June 2, 2008, between the Company and International Finance Corporation (incorporated by reference to Exhibit 10.64 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed on August 6, 2008 (SEC File No. 000-32455)).                                                                     
|10.65 |  | Securities Purchase Agreement, dated March 13, 2009, among the Company, Far East Energy (Bermuda), Ltd., and Arrow Energy International Pte Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 16, 2009 (SEC File No. 000-32455)).                                                                        
|10.66 |  | Placement Agency Agreement, dated August 20, 2010, between the Company and Macquarie Capital (USA), Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 20, 2010 (SEC File No. 000-32455)).                                                                                                               
|10.67 |  | Facility Agreement, dated November 28, 2011, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 2, 2011 (SEC File No. 000-32455)).                                                                                           
|10.68 |  | Amendment Letter to the Facility Agreement dated May 21, 2012, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 7, 2012 (SEC File No. 000-32455)).                                                                      
|10.69 |  | Second Amendment to the Facility Agreement, dated November 28, 2012, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 28, 2012 (SEC File No. 000-32455)).                                                                  
|10.70 |  | Third Amendment to the Facility Agreement, dated December 18, 2012, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2012 (SEC File No. 000-32455)).                                                                   
|10.71 |  | Fourth Amendment to the Facility Agreement, dated as of January 8, 2013, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).                                                               
|10.72 |  | Fifth Amendment to the Facility Agreement, dated January 15, 2013, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).                                                                     
|10.73 |  | Modification Agreement for Production Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang Area, Yunnan Province, The People’s Republic of China, dated December 31, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 21, 2012 (SEC File No. 000-32455)).               
|10.74 |  | Fifth Modification Agreement for Production Sharing Contract for the Exploitation of Coalbed Methane Resources for the Shouyang Area in Shanxi Province, Qinshui Basin, The People’s Republic of China, dated April 26, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 11, 2012 (SEC File No. 000-32455)).
|21.1  |  | List of Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s Annual Report for the fiscal year ended December 31, 2012 filed on March 18, 2012 and incorporated herein by reference).                                                                                                                                                              
|23.1  |  | Consent of JonesBaggett LLP (filed as Exhibit 23.1 to the Company’s Annual Report for the fiscal year ended December 31, 2012 filed on March 18, 2011 and incorporated herein by reference).                                                                                                                                                                      
|23.2  |  | Consent of Resource Investment Strategy Consultants (filed as Exhibit 23.2 to the Company’s Annual Report for the fiscal year ended December 31, 2012 filed on March 18, 2011 and incorporated herein by reference).                                                                                                                                              



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|24.1  |  | Powers of Attorney (filed as Exhibit 24.1 to the Company’s Annual Report for the fiscal year ended December 31, 2012 filed on March 18, 2011 and incorporated herein by reference).                                                                                             
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1† |  | Certification of Chief Executive Officer of the Company under Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                    
|31.2† |  | Certification of Chief Financial Officer of the Company under Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                    
|32.1  |  | Certification of Chief Executive Officer of the Company Pursuant to 18 U.S.C. Sec. 1350 (furnished as Exhibit 32.1 to the Company’s Annual Report for the fiscal year ended December 31, 2012 filed on March 18, 2013 and incorporated herein by reference).                    
|32.2  |  | Certification of Chief Financial Officer of the Company Pursuant to 18 U.S.C. Sec. 1350 (furnished as Exhibit 32.2 to the Company’s Annual Report for the fiscal year ended December 31, 2012 filed on March 18, 2013 and incorporated herein by reference).                    
|99.1  |  | Shouyang US SEC Reserves Report, dated as March 14, 2013, prepared by Resources Investment Strategy Consultants (filed as Exhibit 99.1 to the Company’s Annual Report for the fiscal year ended December 31, 2012 filed on March 18, 2013 and incorporated herein by reference).



|
|




| | * | Management contract or compensatory plan or arrangement.
| | - | --------------------------------------------------------

| | † | Filed herewith
| | - | --------------



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