UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K






x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the fiscal year ended December
31, 2009 or




o TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For
the transition period from __________to_________







Commission
file number: 333-152571





Recovery
Energy, Inc.


(Name of
registrant as specified in its charter)





NEVADA
            
            74-3231613(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)





1515
Wynkoop Street, Suite 200, Denver, CO 80202


(Address
of principal executive offices, including zip code)





Registrant’s
telephone number including area code:  (888) 887-4449





Securities
registered under Section 12(b) of the Act:





Title
      of each class
            
            Name
      of each exchange on which registered$0.0001 par value
      Common
      Stock





Securities
registered under Section 12(g) of the Act:


None





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





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes  o No x





Indicate
by check mark if 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 past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes  x No o





Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not  contained herein, and will not be contained, to
the best of the 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. o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Act):




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





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





State the
aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed fiscal
quarter:  $53,436,003.





As of
April 14, 2010, 13,358,001 shares of the registrant’s common stock were issued
and outstanding.


DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the registrant’s definitive proxy statement for its Annual Meeting of
Stockholders for 2010 to be filed with the Commission within 120 days after the
close of its fiscal year are incorporated by reference into Part III
hereof.














FORM
10-K ANNUAL REPORT


FISCAL
YEAR ENDED DECEMBER 31, 2009


RECOVERY
ENERGY INC





Item
            
            PagePART
      I1.
            Business
            31A.
            Risk
      Factors
            111B.
            Unresolved
      Staff Comments
            172.
            Properties
            173.
            Legal
      Proceedings
            184.
            Reserved
            18PART
      II5.
            Market
      for Common Equity, Related Stockholder Matters and Issuer Purchases
      of Equity Securities
            196.
            Selected
      Financial Data
            207.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            207A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            228.
            Financial
      Statements and Supplementary Data
            229.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            229A(T).
            Controls
      and Procedures
            229B.
            Other
      Information
            24PART
      III10.
            Directors,
      Executive Officers and Corporate Governance
            2411.
            Executive
      Compensation
            2412.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            2413.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            2414.
            Principal
      Accountant Fees and Services
            24PART
      IV15.
            Exhibits
      and Financial Statement Schedules
            26


2




CAUTIONARY
NOTICE





This
annual report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.  Those
forward-looking statements include our expectations, beliefs, intentions and
strategies regarding the future.  Such forward-looking statements
relate to, among other things, our proposed exploration and drilling operations
on our various properties, the expected amount of capital required to finance
our 2009 capital budget, the expected production and revenue from our various
properties, and estimates regarding the reserve potential of our various
properties.  These and other factors that may affect our results are
discussed more fully in “Risk Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and elsewhere in this
report.  We caution readers not to place undue reliance on any
forward-looking statements.  We do not undertake, and specifically
disclaim any obligation, to update or revise such statements to reflect new
circumstances or unanticipated events as they occur, except as required by law,
and we urge readers to review and consider disclosures we make in this and other
reports that discuss factors germane to our business.  See in
particular our reports on Forms 10-K, 10-Q, and 8-K subsequently filed from time
to time with the Securities and Exchange Commission.





PART
I


Item
1.  BUSINESS


Industry
terms used in this report are defined in the Glossary of Oil and Natural Gas
Term located at the end of this Item 1.





Overview





Recovery
Energy Inc. is a development stage independent oil and gas company engaged in
the acquisition, drilling and production of oil and natural gas properties and
prospects within the United States. Our business strategy is designed to create
maximum shareholder value by leveraging the knowledge, expertise and experience
of our management team along with that of our operating partners.





We target
low to medium risk projects that have the potential for multiple producing
horizons, and offer repeatable success allowing for meaningful production and
reserve growth. Our acquisition and exploration pursuits of oil and natural gas
properties are principally located in Colorado, Nebraska, Wyoming, Kansas,
Oklahoma, and Texas. We currently own interests in approximately 18,800 gross
(13,900 net) leasehold acres, of which 15,960 gross (12,286 net) acres are
classified as undeveloped acreage.




As of December 31, 2009, we had not
successfully acquired any properties; therefore our total production was 0 mboe
net. The total 2009 year end proved reserves is also 0 mboe.





Our executive offices are located at
1515 Wynkoop Street, Suite 200, Denver, Colorado 80202, and our telephone number
is (888) 887-4449.  Our web site iswww.recoveryenergyco.com.  Additional information
which may be obtained through our web site does not constitute part of this
annual report on Form 10-K.  A copy of this annual report on Form 10-K
is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
DC 20549.  Information on the operation of the SEC’s Public Reference
Room can be obtained by calling the SEC at 1-800-SEC-0330.  The SEC
also maintains an internet site that contains reports, proxy and information
statements and other information regarding our filings at
www.sec.gov.





Recent
Developments and Related Transactions





During
fiscal year 2009 through the date of this report, we have engaged in the
following transactions, some of which were with related parties:





On
September 21, 2009, the Company purchased 100% of the outstanding
membership units of Recovery Energy Services, LLC (f/k/a Coronado Acquisition,
LLC) for 85,000 shares of our Common Stock.  In connection with this
acquisition, the Company agreed to convert a $3,250,000 note that was issued by
Recovery Energy Services, LLC into 2,100,000 shares of the Company's common
stock.  The $3,250,000 note was used to fund the acquisition of two
drilling rigs in May 2009.  The Registrant was a "shell company" (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) immediately before the completion of the
transaction.  We changed our name from Universal Holdings, Inc. to
Recovery Energy, Inc. at the completion of the transaction.





We
entered into two purchase and sale agreements with Edward Mike Davis, LLC
(“Davis”) for the purchase of oil and gas properties, one effective October 1,
2009 for the Church Field and the other effective December 1, 2009 for the Wilke
Field.  Simultaneously with the execution of the first agreement
(Church Field), the Company sold 50% of the interests purchased in the Church
Field to a third party for $750,000.




3





Pursuant
to the first agreement (Church Field), Davis elected to require Recovery to
repurchase the 250,000 shares of common stock issued as part of the purchase
price for $750,000.  As a result of the seller’s election, the Company
sold to IEXCO, LLC a company controlled by Roger A. Parker, chairman of our
Board of Directors, its remaining 50% interest in the properties that were
purchased under the purchase and sale agreement effective October 1, 2009 for
$750,000 cash.  Pursuant to this agreement with IEXCO, LLC, the
Company had the right to repurchase such interest at $825,000 exercisable until
March 15, 2010.  The Company also paid the seller $750,000 in exchange
for the 250,000 shares of common stock issued pursuant to the first agreement,
which was accompanied by a mutual release.   The Company did not
exercise its repurchase option and therefore does not own an interest in the
Church Field as of the date of this filing.   Starting in January
2010, Recovery was appointed as the operator for the Church Field and
accordingly Recovery charges the working interest owners an operator’s fee for
each well each month.  IEXCO, LLC will pay Recovery its share of the
operator fee which is 50% of the monthly per well charge.





Under the
second agreement (Wilke Field) we were required to pay the $2,200,000 cash
portion of the purchase price on December 18, 2009, and that payment was not
made.  As of December 31, 2009 the property reverted back to Davis and
the Company retained an option to repurchase the property at Davis’s discretion
through January 15, 2010.





In
January, 2010 the Company acquired the Wilke Field from Davis for $4,500,000
effective as of January 1, 2010.  Included in the acquisition were
seven producing wells and a 50% working interest in two development prospects
located in Nebraska and Colorado.  In February, 2010 the Company
entered into a credit agreement with Hexagon Investments, LLC to finance 100% of
the repurchase of the Wilke Field properties.   The loan bears annual
interest of 15%, will mature on December 1, 2010 and is secured by mortgages on
the Wilke Field properties.  Hexagon Investments received 1,000,000
shares of the Company's common stock in connection with the
financing.  Hexagon Investments has the right to cause the sale of the
Wilke Field properties and use the proceeds to repay the loan at any time after
October 29, 2010 if the Company has not completed a private equity sale by that
date sufficient to repay the loan in full on or before December 1,
2010.  The credit agreement contained customary terms such as
representations and warranties and indemnification.





In March, 2010 the Company acquired the
Albin Field properties from Davis for $6,000,000 and 550,000 shares of our
common stock.  We simultaneously entered into a loan agreement with
Hexagon Investments to finance 100% of the cash portion of the purchase
price.  The loan bears annual interest of 15%, will mature on December
1, 2010 and is secured by mortgages on the Albin Field
properties.  Hexagon Investments received 750,000 shares of the
Company’s common stock in connection with the financing.  Hexagon
Investments has the right to cause the sale of the Albin Field properties and
use the proceeds to repay the loan at any time after October 29, 2010 if the
Company has not completed a private equity sale by that date sufficient to repay
the loan in full on or before December 1, 2010.  The credit agreement
contains customary terms such as representations and warranties and
indemnification.





Davis and
Hexagon currently own 2,000,000 shares and 1,750,000 shares, respectively, of
our common stock, representing 14.9% and 13.1%, respectively, of our outstanding
shares at March 31, 2010.





Each of these transactions were
approved by our board of directors.




Our Oil and Gas Operations





We intend
to invest primarily in domestic oil and natural gas interests, including
producing properties, prospects, leases, wells, mineral rights, working
interests, royalty interests, overriding royalty interests, net profits
interests, production payments, farm-ins, drill to earn arrangements,
partnerships, easements, rights of way, licenses and permits, in Colorado,
Nebraska, Wyoming, Kansas, Oklahoma, and Texas.  We intend to divest
the two drilling rigs we currently own.





Our
Strategy





It is our
belief that the exploration and production industry’s most significant value
creation occurs through the drilling of successful development wells and the
enhancement of oil recovery in mature fields.  Our goal is to create
significant value while maintaining a low cost structure.  To this
end, our business strategy includes the following elements:




Participation in development
prospects in known producing basins. We pursue prospects in known
producing onshore basins where we can capitalize on our development and
production expertise. We intend to operate the majority of our properties and
evaluate each prospect based on its geological and geophysical
merits.




Negotiated acquisitions of
properties. We acquire producing properties based on our view of the
pricing cycles of oil and natural gas and available exploration and development
opportunities of proved, probable and possible reserves.




Leasing of prospective
acreage. In the course of our business, we identify drilling
opportunities on properties that have not yet been leased.  At times,
we take the initiative to lease prospective acreage and sell all or any portion
of the leased acreage to other companies that want to participate in the
drilling and development of the prospect acreage.




4





Controlling
Costs. We maximize our returns on capital by minimizing
our expenditures on general and administrative expenses.  We also
minimize initial capital expenditures on geological and geophysical overhead,
seismic data, hardware and software by partnering with cost efficient operators
that have already invested capital in such.  We also outsource some of
our geological, geophysical, reservoir engineering and land functions in order
to help reduce capital requirements.





We intend
to use commodity price hedging instruments to reduce our exposure to oil and
natural gas price fluctuations and to help ensure that we have adequate cash
flow to fund our debt service costs and capital programs. From time to time, we
will enter into futures contracts, collars and basis swap agreements, as well as
fixed price physical delivery contracts; however, it is our preference to
utilize hedging strategies that provide downside commodity price protection
without unduly limiting our revenue potential in an environment of rising
commodity prices.  We intend to use hedging primarily to manage price
risks and returns on certain acquisitions and drilling programs.  Our
policy is to consider hedging an appropriate portion of our production at
commodity prices we deem attractive.  In the future we may also be required
by our lenders to hedge a portion of production as part of any
financing.





It is our
long-term goal to achieve a well diversified and balanced portfolio of oil and
natural gas producing properties located in North America.





At the
present time, we have one employee, who serves as our Chief Executive
Officer.    We employ the services of independent consultants and
contractors to perform various professional services, including reservoir
engineering, land, legal, environmental and tax services. We also pursue
alliances with third parties in the areas of geological and geophysical services
and prospect generation, evaluation and prospect leasing.  We believe
that by limiting our management and employee costs, we are able to better
control total costs and retain flexibility in terms of project
management.





Principal
Oil and Gas Interests





As of
December 31, 2009 we did not own any interests in oil or gas
assets.  Subsequent to December 31, 2009 we completed the acquisition
of seven producing wells in the Nebraska and Colorado portion of the DJ Basin in
the Wilke acquisition, as well as interest in two development projects and in
March, we acquired four producing wells in the Nebraska and Wyoming portion of
the DJ Basin in the Albin acquisition as well as interest in 15,900 acres of
undeveloped leases, each described under “Recent Developments”
above.





Competition





We
compete with numerous other companies in virtually all facets of our business.
Our competitors in the exploration, development, acquisition and production
business include major integrated oil and gas companies as well as numerous
independents, including many that have significantly greater financial resources
and in-house technical expertise than we do.




Marketing and Pricing





We will
derive revenue principally from the sale of oil and natural gas. As a result,
our revenues are determined, to a large degree, by prevailing prices for crude
oil and natural gas. We will sell our oil and natural gas on the open market at
prevailing market prices or through forward delivery contracts. The market price
for oil and natural gas is dictated by supply and demand, and we cannot
accurately predict or control the price we may receive for our oil and natural
gas.





Our
revenues, cash flows, profitability and future rate of growth will depend
substantially upon prevailing prices for oil and natural gas. Prices may also
affect the amount of cash flow available for capital expenditures and our
ability to borrow money or raise additional capital. Lower prices may also
adversely affect the value of our reserves and make it uneconomical for us to
commence or continue production levels of natural gas and crude oil. 
Historically, the prices received for oil and natural gas have fluctuated
widely. Among the factors that can cause these fluctuations are:





·
            
            changes
      in global supply and demand for oil and natural gas;·
            
            the
      actions of the Organization of Petroleum Exporting Countries, or
      OPEC;·
            
            the
      price and quantity of imports of foreign oil and natural
    gas;·
            
            acts
      of war or terrorism;·
            
            political
      conditions and events, including embargoes, affecting oil-producing
      activity;·
            
            the
      level of global oil and natural gas exploration and production
      activity;·
            
            the
      level of global oil and natural gas inventories;·
            
            weather
      conditions;·
            
            technological
      advances affecting energy consumption; and·
            
            the
      price and availability of alternative
fuels.





From time
to time, we will enter into hedging arrangements to reduce our exposure to
decreases in the prices of oil and natural gas. Hedging arrangements may expose
us to risk of significant financial loss in some circumstances including
circumstances where:




5





·
            
            our
      production and/or sales of natural gas are less than
    expected;·
            
            payments
      owed under derivative hedging contracts come due prior to receipt of the
      hedged month’s production revenue; or·
            
            the
      counter party to the hedging contract defaults on its contract
      obligations.





In
addition, hedging arrangements may limit the benefit we would receive from
increases in the prices for oil and natural gas. We cannot assure you that any
hedging transactions we may enter into will adequately protect us from declines
in the prices of oil and natural gas. On the other hand, where we choose not to
engage in hedging transactions in the future, we may be more adversely affected
by changes in oil and natural gas prices than our competitors who engage in
hedging transactions.





Government
Regulations





General. Our operations
covering the exploration, production and sale of oil and natural gas are subject
to various types of federal, state and local laws and regulations. The failure
to comply with these laws and regulations can result in substantial penalties.
These laws and regulations materially impact our operations and can affect our
profitability. However, we do not believe that these laws and regulations affect
us in a manner significantly different than our competitors. Matters regulated
include permits for drilling operations, drilling and abandonment bonds, reports
concerning operations, the spacing of wells and unitization and pooling of
properties, restoration of surface areas, plugging and abandonment of wells,
requirements for the operation of wells, and taxation of production. At various
times, regulatory agencies have imposed price controls and limitations on
production. In order to conserve supplies of oil and natural gas, these agencies
have restricted the rates of flow of oil and natural gas wells below actual
production capacity, generally prohibit the venting or flaring of natural gas
and impose certain requirements regarding the ratability of production. Federal,
state and local laws regulate production, handling, storage, transportation and
disposal of oil and natural gas, by-products from oil and natural gas and other
substances and materials produced or used in connection with oil and natural gas
operations. While we believe we will be able to substantially comply with all
applicable laws and regulations, the requirements of such laws and regulations
are frequently changed. We cannot predict the ultimate cost of compliance with
these requirements or their effect on our actual operations.





Federal Income Tax. Federal
income tax laws significantly affect our operations. The principal provisions
that affect us are those that permit us, subject to certain limitations, to
deduct as incurred, rather than to capitalize and amortize, our domestic
“intangible drilling and development costs” and to claim depletion on a portion
of our domestic oil and natural gas properties based on 15% of our oil and
natural gas gross income from such properties (up to an aggregate of 1,000
barrels per day of domestic crude oil and/or equivalent units of domestic
natural gas).





Environmental Matters. The
discharge of oil, gas or other pollutants into the air, soil or water may give
rise to liabilities to the government and third parties and may require us to
incur costs to remedy discharges. Natural gas, oil or other pollutants,
including salt water brine, may be discharged in many ways, including from a
well or drilling equipment at a drill site, leakage from pipelines or other
gathering and transportation facilities, leakage from storage tanks and sudden
discharges from damage or explosion at natural gas facilities of oil and gas
wells. Discharged hydrocarbons may migrate through soil to water supplies or
adjoining property, giving rise to additional liabilities.




A variety of federal and state laws and
regulations govern the environmental aspects of natural gas and oil production,
transportation and processing and may, in addition to other laws, impose
liability in the event of discharges, whether or not accidental, failure to
notify the proper authorities of a discharge, and other noncompliance with those
laws. Compliance with such laws and regulations may increase the cost of oil and
gas exploration, development and production, although we do not anticipate that
compliance will have a material adverse effect on our capital expenditures or
earnings. Failure to comply with the requirements of the applicable laws and
regulations could subject us to substantial civil and/or criminal penalties and
to the temporary or permanent curtailment or cessation of all or a portion of
our operations.





The
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
also known as the “superfund law,” imposes liability, regardless of fault or the
legality of the original conduct, on some classes of persons that are considered
to have contributed to the release of a “hazardous substance” into the
environment. These persons include the owner or operator of a disposal site or
sites where the release occurred and companies that dispose or arrange for
disposal of the hazardous substances found at the time. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be subject to
joint and severable liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources, and it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the hazardous substances released into the environment. We could be
subject to liability under CERCLA because our jointly owned drilling and
production activities generate relatively small amounts of liquid and solid
waste that may be subject to classification as hazardous substances under
CERCLA.




6





The
Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), is the
principal federal statute governing the treatment, storage and disposal of
hazardous wastes. RCRA imposes stringent operating requirements, and liability
for failure to meet such requirements, on a person who is either a “generator”
or “transporter” of hazardous waste or an “owner” or “operator” of a hazardous
waste treatment, storage or disposal facility. At present, RCRA includes a
statutory exemption that allows most oil and natural gas exploration and
production waste to be classified as nonhazardous waste. A similar exemption is
contained in many of the state counterparts to RCRA. As a result, we are not
required to comply with a substantial portion of RCRA’s requirements because our
operations generate minimal quantities of hazardous wastes. At various times in
the past, proposals have been made to amend RCRA to rescind the exemption that
excludes oil and natural gas exploration and production wastes from regulation
as hazardous waste. Repeal or modification of the exemption by administrative,
legislative or judicial process, or modification of similar exemptions in
applicable state statutes, would increase the volume of hazardous waste we are
required to manage and dispose of and would cause us to incur increased
operating expenses.





The Oil
Pollution Act of 1990 (“OPA”) and regulations thereunder impose a variety of
regulations on “responsible parties” related to the prevention of oil spills and
liability for damages resulting from such spills in United States waters. The
OPA assigns liability to each responsible party for oil removal costs and a
variety of public and private damages. While liability limits apply in some
circumstances, a party cannot take advantage of liability limits if the spill
was caused by gross negligence or willful misconduct or resulted from violation
of federal safety, construction or operating regulations. Few defenses exist to
the liability imposed by OPA. In addition, to the extent we acquire offshore
leases and those operations affect state waters, we may be subject to additional
state and local clean-up requirements or incur liability under state and local
laws. OPA also imposes ongoing requirements on responsible parties, including
proof of financial responsibility to cover at least some costs in a potential
spill. We cannot predict whether the financial responsibility requirements under
the OPA amendments will adversely restrict our proposed operations or impose
substantial additional annual costs to us or otherwise materially adversely
affect us. The impact, however, should not be any more adverse to us than it
will be to other similarly situated owners or operators.





The
Federal Water Pollution Control Act Amendments of 1972 and 1977 (“Clean Water
Act”) imposes restrictions and controls on the discharge of produced waters and
other wastes into navigable waters. Permits must be obtained to discharge
pollutants into state and federal waters and to conduct construction activities
in waters and wetlands. Certain state regulations and the general permits issued
under the Federal National Pollutant Discharge Elimination System program
prohibit the discharge of produced waters and sand, drilling fluids, drill
cuttings and certain other substances related to the crude oil and natural gas
industry into certain coastal and offshore waters. Further, the EPA has adopted
regulations requiring certain crude oil and natural gas exploration and
production facilities to obtain permits for storm water discharges. Costs may be
associated with the treatment of wastewater or developing and implementing storm
water pollution prevention plans. The Clean Water Act and comparable state
statutes provide for civil, criminal and administrative penalties for
unauthorized discharges of crude oil and other pollutants and impose liability
on parties responsible for those discharges for the costs of cleaning up any
environmental damage caused by the release and for natural resource damages
resulting from the release. We believe that our operations comply in all
material respects with the requirements of the Clean Water Act and state
statutes enacted to control water pollution.




Underground injection is the subsurface
placement of fluid through a well, such as the reinjection of brine produced and
separated from crude oil and natural gas production. The Safe Drinking Water Act
of 1974, as amended, establishes a regulatory framework for underground
injection, with the main goal being the protection of usable aquifers. The
primary objective of injection well operating requirements is to ensure the
mechanical integrity of the injection apparatus and to prevent migration of
fluids from the injection zone into underground sources of drinking water.
Hazardous-waste injection well operations are strictly controlled, and certain
wastes, absent an exemption, cannot be injected into underground injection
control wells. Failure to abide by our permits could subject us to civil and/or
criminal enforcement. We believe that we are in compliance in all material
respects with the requirements of applicable state underground injection control
programs and our permits.





The Clean
Air Act of 1963 and subsequent extensions and amendments, known collectively as
the “Clean Air Act”, and state air pollution laws adopted to fulfill its mandate
provide a framework for national, state and local efforts to protect air
quality. Our operations utilize equipment that emits air pollutants which may be
subject to federal and state air pollution control laws. These laws require
utilization of air emissions abatement equipment to achieve prescribed emissions
limitations and ambient air quality standards, as well as operating permits for
existing equipment and construction permits for new and modified equipment. We
believe that we are in compliance in all material respects with the requirements
of applicable federal and state air pollution control laws.





There are
numerous state laws and regulations in the states in which we operate which
relate to the environmental aspects of our business. These state laws and
regulations generally relate to requirements to remediate spills of deleterious
substances associated with oil and gas activities, the conduct of salt water
disposal operations, and the methods of plugging and abandonment of oil and gas
wells which have been unproductive. Numerous state laws and regulations also
relate to air and water quality.





We do not
believe that our environmental risks will be materially different from those of
comparable companies in the oil and gas industry. We believe our present
activities substantially comply, in all material respects, with existing
environmental laws and regulations. Nevertheless, we cannot assure you that
environmental laws will not result in a curtailment of production or material
increase in the cost of production, development or exploration or otherwise
adversely affect our financial condition and results of operations. Although we
maintain liability insurance coverage for liabilities from pollution,
environmental risks generally are not fully insurable.





In
addition, because we have acquired and may acquire interests in properties that
have been operated in the past by others, we may be liable for environmental
damage, including historical contamination, caused by such former operators.
Additional liabilities could also arise from continuing violations or
contamination not discovered during our assessment of the acquired
properties.




7





Federal Leases. For those
operations on federal oil and gas leases, such operations must comply with
numerous regulatory restrictions, including various non-discrimination statutes,
and certain of such operations must be conducted pursuant to certain on-site
security regulations and other permits issued by various federal agencies. In
addition, on federal lands in the United States, the Minerals Management Service
("MMS") prescribes or severely limits the types of costs that are deductible
transportation costs for purposes of royalty valuation of production sold off
the lease. In particular, MMS prohibits deduction of costs associated with
marketer fees, cash out and other pipeline imbalance penalties, or long-term
storage fees. Further, the MMS has been engaged in a process of promulgating new
rules and procedures for determining the value of crude oil produced from
federal lands for purposes of calculating royalties owed to the government. The
natural gas and crude oil industry as a whole has resisted the proposed rules
under an assumption that royalty burdens will substantially increase. We cannot
predict what, if any, effect any new rule will have on our
operations.




Other Laws and Regulations.
Various laws and regulations often require permits for drilling wells and also
cover spacing of wells, the prevention of waste of natural gas and oil including
maintenance of certain gas/oil ratios, rates of production and other matters.
The effect of these laws and regulations, as well as other regulations that
could be promulgated by the jurisdictions in which we have production, could be
to limit the number of wells that could be drilled on our properties and to
limit the allowable production from the successful wells completed on our
properties, thereby limiting our revenues.





Employees





We have
one employee, who serves as our Chief Executive Officer. For the foreseeable
future, we intend to only add additional personnel as our operational
requirements grow, in the interim, we plan to continue to use the services of
independent consultants and contractors to perform various professional
services, including reservoir engineering, land, legal, environmental and tax
services.





Glossary
of Oil and Natural Gas Terms





The
following is a description of the meanings of some of the oil and natural gas
industry terms used in this report.





bbl. Stock tank barrel, or 42
U.S. gallons liquid volume, used in this report in reference to crude oil or
other liquid hydrocarbons.





bcf. Billion cubic feet of
natural gas.





boe. Barrels of crude oil
equivalent, determined using the ratio of six mcf of natural gas to one bbl of
crude oil, condensate or natural gas liquids.





boe/d. boe per
day.





Completion. The process of
treating a drilled well followed by the installation of permanent equipment for
the production of natural gas or oil, or in the case of a dry hole, the
reporting of abandonment to the appropriate agency.





Condensate. Hydrocarbons
which are in the gaseous state under reservoir conditions and which become
liquid when temperature or pressure is reduced. A mixture of pentanes and higher
hydrocarbons.





Development well. A well
drilled within the proved area of a natural gas or oil reservoir to the depth of
a stratigraphic horizon known to be productive.





Drilling locations. Total
gross locations specifically quantified by management to be included in the
Company’s multi-year drilling activities on existing acreage. The Company’s
actual drilling activities may change depending on the availability of capital,
regulatory approvals, seasonal restrictions, oil and natural gas prices, costs,
drilling results and other factors.





Dry hole. A well found to be
incapable of producing either oil or gas in sufficient quantities to justify
completion as an oil or gas well.





Exploratory well. A well
drilled to find and produce natural gas or oil reserves not classified as
proved, to find a new reservoir in a field previously found to be productive of
natural gas or oil in another reservoir or to extend a known
reservoir.





Field. An area consisting of
either a single reservoir or multiple reservoirs, all grouped on or related to
the same individual geological structural feature and/or stratigraphic
condition.




Formation. An identifiable
layer of rocks named after its geographical location and dominant rock
type.





Lease. A legal contract that
specifies the terms of the business relationship between an energy company and a
landowner or mineral rights holder on a particular tract of land.





Leasehold. Mineral rights
leased in a certain area to form a project area.





mbbls. Thousand barrels of
crude oil or other liquid hydrocarbons.




8





mboe. Thousand barrels of
crude oil equivalent, determined using the ratio of six mcf of natural gas to
one bbl of crude oil, condensate or natural gas liquids





mcf. Thousand cubic feet of
natural gas.





mcfe. Thousand cubic feet
equivalent, determined using the ratio of six mcf of natural gas to one bbl of
crude oil, condensate or natural gas liquids.





mmbbls. Million barrels of
crude oil or other liquid hydrocarbons.





mmboe. Million barrels of
crude oil equivalent, determined using the ratio of six mcf of natural gas to
one bbl of crude oil, condensate or natural gas liquids.





mmbtu. Million British
Thermal Units.





mmcf. Million cubic feet of
natural gas.





Net acres, net wells, or net
reserves. The sum of the fractional working interest owned in gross
acres, gross wells, or gross reserves, as the case may be.





ngl. Natural gas liquids, or
liquid hydrocarbons found in association with natural gas.





Overriding royalty interest.
Is similar to a basic royalty interest except that it is created out of the
working interest. For example, an operator possesses a standard lease providing
for a basic royalty to the lessor or mineral rights owner of 1/8 of 8/8. This
then entitles the operator to retain 7/8 of the total oil and natural gas
produced. The 7/8 in this case is the 100% working interest the operator owns.
This operator may assign his working interest to another operator subject to a
retained 1/8 overriding royalty. This would then result in a basic royalty of
1/8, an overriding royalty of 1/8 and a working interest of 3/4. Overriding
royalty interest owners have no obligation or responsibility for developing and
operating the property. The only expenses borne by the overriding royalty owner
are a share of the production or severance taxes and sometimes costs incurred to
make the oil or gas salable.





Plugging and abandonment.
Refers to the sealing off of fluids in the strata penetrated by a well so that
the fluids from one stratum will not escape into another or to the surface.
Regulations of all states require plugging of abandoned wells.





Present value of future net revenues
(PV-10). The present value of estimated future revenues to be generated
from the production of estimated net proved reserves,  net of
estimated production and future development costs, using the simple 12 month
first of month average price and current costs (unless such prices or costs are
subject to change pursuant to contractual provisions), without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.  While
this measure does not include the effect of income taxes as it would in the use
of the standardized measure calculation, it does provide an indicative
representation of the relative value of the company on a comparative basis to
other companies and from period to period.





Production. Natural
resources, such as oil or gas, taken out of the ground.




Proved reserves. The
quantities of oil, natural gas and natural gas liquids, which, by analysis of
geosciences and engineering data, can be estimated with reasonable certainty to
be economically producible – from a given date forward, from known reservoirs
under existing economic conditions and operating conditions.





Proved developed oil and gas
reserves. Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project or
after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.





Proved undeveloped reserves.
Proved undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves attributable to any acreage for which an application of fluid injection
or other improved recovery technique is contemplated, unless such techniques
have been proved effective by actual tests in the area and in the same
reservoir.




9





Probable Reserves. Probable
reserves are those additional reserves which analysis of geoscience and
engineering data indicate are less likely to be recovered than proved reserves
but more certain to be recovered than possible reserves. It is equally likely
that actual remaining quantities recovered will be greater than or less than the
sum of the estimated proved plus probable reserves (2P). In this context, when
probabilistic methods are used, there should be at least a 50-percent
probability that the actual quantities recovered will equal or exceed the 2P
estimate.





Possible Reserves. Possible
reserves are those additional reserves which analysis of geoscience and
engineering data suggest are less likely to be recoverable than probable
reserves. The total quantities ultimately recovered from the project have a low
probability to exceed the sum of proved plus probable plus possible reserves
(3P), which is equivalent to the high estimate scenario. In this context, when
probabilistic methods are used, there should be at least a 10-percent
probability that the actual quantities recovered will equal or exceed the 3P
estimate.




Productive well. A well that
is found to be capable of producing either oil or gas in sufficient quantities
to justify completion as an oil or gas well.





Project. A targeted
development area where it is probable that commercial gas can be produced from
new wells.





Prospect. A specific
geographic area which, based on supporting geological, geophysical or other data
and also preliminary economic analysis using reasonably anticipated prices and
costs, is deemed to have potential for the discovery of commercial
hydrocarbons.





Recompletion. The process of
re-entering an existing well bore that is either producing or not producing and
completing new reservoirs in an attempt to establish or increase existing
production.





Reserves. Oil, natural gas
and gas liquids thought to be accumulated in known reservoirs.





Reservoir. A porous and
permeable underground formation containing a natural accumulation of producible
nature gas and/or oil that is confined by impermeable rock or water barriers and
is separate from other reservoirs.





Secondary Recovery. A
recovery process that uses mechanisms other than the natural pressure of the
reservoir, such as gas injection or water flooding, to produce residual oil and
natural gas remaining after the primary recovery phase.





Shut-in. A well that has been
capped (having the valves locked shut) for an undetermined amount of time. This
could be for additional testing, could be to wait for pipeline or processing
facility, or a number of other reasons.





Standardized measure. The
present value of estimated future cash inflows from proved oil and natural gas
reserves, less future development, abandonment, production and income tax
expenses, discounted at 10% per annum to reflect timing of future cash flows and
using the same pricing assumptions as were used to calculate PV-10. Standardized
measure differs from PV-10 because standardized measure includes the effect of
future income taxes.





Successful. A well is
determined to be successful if it is producing oil or natural gas, or awaiting
hookup, but not abandoned or plugged.





Undeveloped acreage. Lease
acreage on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and natural gas regardless
of whether such acreage contains proved reserves.





Water flood. A method of
secondary recovery in which water is injected into the reservoir formation to
displace residual oil and enhance hydrocarbon recovery.





Working interest. The
operating interest that gives the owner the right to drill, produce and conduct
operating activities on the property and receive a share of production and
requires the owner to pay a share of the costs of drilling and production
operations.




10


Item
1A. RISK
FACTORS





CAUTIONARY
STATEMENT REGARDING FUTURE RESULTS, FORWARD-LOOKING


INFORMATION
AND CERTAIN IMPORTANT FACTORS





In this
report we make, and from time to time we otherwise make, written and oral
statements regarding our business and prospects, such as projections of
future performance, statements of management’s plans and objectives, forecasts
of market trends, and other matters that are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Statements containing
the words or phrases “will likely result,” “are expected to,” “will continue,”
“is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,”
“intends,” “target,” “goal,” “plans,” “objective,” “should” or similar
expressions identify forward-looking statements, which may appear in documents,
reports, filings with the Securities and Exchange Commission, news releases,
written or oral presentations made by officers or other of our representatives
to analysts, stockholders, investors, news organizations and others, and
discussions with management and other of our representatives. For such
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995.





Our
future results, including results related to forward-looking statements, involve
a number of risks and uncertainties. No assurance can be given that the results
reflected in any forward-looking statements will be achieved. Any
forward-looking statement speaks only as of the date on which such statement is
made. Our forward-looking statements are based upon assumptions that are
sometimes based upon estimates, data, communications and other information from
operators, government agencies and other sources that may be subject to
revision. Except as required by law, we do not undertake any obligation to
update or keep current either (i) any forward-looking statement to reflect
events or circumstances arising after the date of such statement, or
(ii) the important factors that could cause our future results to differ
materially from historical results or trends, results anticipated or planned by
us, or which are reflected from time to time in any forward-looking
statement.





In
addition to other matters identified or described by us from time to time in
filings with the SEC, there are several important factors that could cause our
future results to differ materially from historical results or trends, results
anticipated or planned by us, or results that are reflected from time to time in
any forward-looking statement. Some of these important factors, but not
necessarily all important factors, include the following:





Risks
Related to our Company





Since inception,
we have not had any revenue and have incurred operating losses, and our
accountants expressed doubts about our ability to continue as a going
concern.For the year ended December 31, 2009, our independent
registered public accounting firm expressed substantial doubt about our ability
to continue as a going concern as a result of lack of history of operations,
limited assets, and operating losses since inception.  We will need to
raise additional capital to fund our business in the near term.





We will require
additional capital in order to achieve commercial success and, if necessary, to
finance future losses from operations as we endeavor to build revenue, but we do
not have any commitments to obtain such capital and we cannot assure you that we
will be able to obtain adequate capital as and when required. The
business of oil and gas acquisition, drilling and development is capital
intensive and the level of operations attainable by an oil and gas company is
directly linked to and limited by the amount of available capital. We believe
that our ability to achieve commercial success and our continued growth will be
dependent on our continued access to capital either through the additional sale
of our equity or debt securities, bank lines of credit, project financing or
cash generated from oil and gas operations.





As of
December 31, 2009, we had negative working capital of ($44,228), including
$108,400 of cash and cash equivalents and $20,876 of restricted
cash.  As of December 31, 2009, based on our working capital, we
believe we do not have sufficient working capital to fund our operations and
expected commitments for exploration and development through June 30, 2010 and
we will require additional working capital to fund our operations prior to June
30, 2010.




We will
seek to obtain additional working capital through the sale of our securities
and, subject to the successful deployment of our cash on hand, we will endeavor
to obtain additional capital through bank lines of credit and project
financing.   Consequently, there can be no assurance we will be able
to obtain continued access to capital as and when needed or, if so, that the
terms of any available financing will be subject to commercially reasonable
terms.  If we are unable to access additional capital in significant
amounts as needed, we may not be able to develop our current prospects and
properties, may have to forfeit our interest in certain prospects and may not
otherwise be able to develop our business. In such an event, our stock price
will be materially adversely affected.





We do not have a
significant operating history and, as a result, there is a limited amount of
information about us on which to make an investment decision. In March
2009, Coronado Acquisition, LLC was formed and acquired two drilling rigs. In
January 2010, we acquired our first oil and gas prospects and received our first
revenues from oil and gas production in February 2010. Accordingly, there is
little operating history upon which to judge our business strategy, our
management team or our current operations.




11





We have a history
of losses and cannot assure you that we will be profitable in the foreseeable
future.   Since our inception on March 6, 2009, through
December 31, 2009, we have incurred a net loss from operations of
$29,761,381.  If we fail to generate profits from our operations, we
will not be able to sustain our business. We may never report profitable
operations or generate sufficient revenue to maintain our company as a going
concern.





We have limited
management and staff and will be dependent upon partnering arrangements.
As of March 2010, we have one employee, who serves as our Chief Executive
Officer. We intend to use the services of independent consultants and
contractors to perform various professional services, including reservoir
engineering, land, legal, environmental and tax services. We will also pursue
alliances with partners in the areas of geological and geophysical services and
prospect generation, evaluation and prospect leasing. Our dependence on
third party consultants and service providers creates a number of
risks, including but not limited to:





·
            
            the
      possibility that such third parties may not be available to us as and when
      needed; and·
            
            the
      risk that we may not be able to properly control the timing and quality of
      work conducted with respect to our
  projects.





If we
experience significant delays in obtaining the services of such third parties or
poor performance by such parties, our results of operations and stock price will
be materially adversely affected.





The loss of our
Chief Executive Officer or our Board Chairman could adversely affect us.
We are dependent on the extensive experience of our Chief Executive Officer and
our Board Chairman to implement our acquisition and growth strategy. The loss of
the services of either of these individuals could have a negative impact on our
operations and our ability to implement our strategy.





In addition to
acquiring producing properties, we may also grow our business through the
acquisition and development of exploratory oil and gas prospects, which is the
riskiest method of establishing oil and gas reserves. In addition to
acquiring producing properties, we may acquire, drill and
develop exploratory oil and gas prospects that are profitable to
produce.  Developing exploratory oil and gas properties requires
significant capital expenditures and involves a high degree of financial risk.
The budgeted costs of drilling, completing, and operating exploratory wells are
often exceeded and can increase significantly when drilling costs rise. Drilling
may be unsuccessful for many reasons, including title problems, weather, cost
overruns, equipment shortages, and mechanical difficulties. Moreover, the
successful drilling or completion of an exploratory oil or gas well does not
ensure a profit on investment. Exploratory wells bear a much greater risk of
loss than development wells. We cannot assure you that our exploration,
exploitation and development activities will result in profitable operations. If
we are unable to successfully acquire and develop exploratory oil and gas
prospects, our results of operations, financial condition and stock price will
be materially adversely affected.





Hedging
transactions may limit our potential gains or result in losses. In order
to manage our exposure to price risks in the marketing of our oil and natural
gas, from time to time we may enter into oil and gas price hedging arrangements
with respect to a portion of our proved developed producing production. While
these contracts are intended to reduce the effects of volatile oil and natural
gas prices, they may also limit our potential gains if oil and natural gas
prices were to rise substantially over the price established by the contract. In
addition, such transactions may expose us to the risk of financial loss in
certain circumstances, including instances in which:





·
            
            there
      is a change in the expected differential between the underlying price in
      the hedging agreement and actual prices received;·
            
            our
      production and/or sales of oil or natural gas are less than
      expected;·
            
            payments
      owed under derivative hedging contracts come due prior to receipt of the
      hedged month’s production revenue; or·
            
            the
      other party to the hedging contract defaults on its contract
      obligations.





We cannot
assure you that any hedging transactions we may enter into will adequately
protect us from declines in the prices of oil and natural gas. On the other
hand, where we choose not to engage in hedging transactions in the future, we
may be more adversely affected by changes in oil and natural gas prices than our
competitors who engage in hedging transactions. In addition, the counterparties
under our derivatives contracts may fail to fulfill their contractual
obligations to us.





Our revenue,
profitability, cash flow, future growth and ability to borrow funds or obtain
additional capital, as well as the carrying value of our properties, are
substantially dependent on prevailing prices of oil and natural
gas. If oil and natural gas prices decrease, we may be
required to take write-downs of the carrying values of our oil and natural gas
properties, negatively impacting the trading value of our
securities.  There is a risk that we will be required to write down
the carrying value of our oil and gas properties, which would reduce our
earnings and stockholders’ equity.   The Company follows the full cost
method of accounting for oil and gas operations whereby all costs related to
exploration and development of oil and gas properties are initially capitalized
into a single cost center (“full cost pool”).  The Company records all
capitalized costs into a single cost center as all operations are conducted
within The United States.  Such costs include land acquisition costs,
geological and geophysical expenses carry charges on non-producing properties,
costs of drilling directly related to acquisition and exploration
activities.  Proceeds from property sales are generally credit to the
full cost pool, with no gain or loss recognized, unless such a sale would
significantly alter the relationship between capitalized costs and the proved
reserves attributable to these costs.  A significant alteration would
typically involve a sale of 25% or more of the proved reserves related to a
single full cost pool.





Additional
write downs could occur if oil and gas prices decline or if we have substantial
downward adjustments to our estimated proved reserves, increases in our
estimates of development costs or deterioration in our drilling
results.




12





We may have
difficulty managing growth in our business, which could adversely affect our
financial condition and results of operations.   Significant
growth in the size and scope of our operations could place a strain on our
financial, technical, operational and management resources.  The
failure to continue to upgrade our technical, administrative, operating and
financial control systems or the occurrences of unexpected expansion
difficulties, including the failure to recruit and retain experienced managers,
geologists, engineers and other professionals in the oil and gas industry could
have a material adverse effect on our business, financial condition and results
of operations and our ability to timely execute our business plan.





Unless we find
new oil and gas reserves, our reserves and production will decline, which would
materially and adversely affect our business, financial condition and results of
operations.   Producing oil and gas reservoirs generally are
characterized by declining production rates that vary depending upon reservoir
characteristics and other factors.  Thus, our future oil and gas
reserves and production and, therefore, our cash flow and revenue are highly
dependent on our success in efficiently obtaining reserves and acquiring
additional recoverable reserves.  We may not be able to develop, find
or acquire reserves to replace our current and future production at costs or
other terms acceptable to us, or at all, in which case our business, financial
condition and results of operations would be materially and adversely
affected.





The
unavailability or high cost of drilling rigs, equipment supplies or personnel
could adversely affect our ability to execute our exploration and development
plans.   The oil and gas industry is cyclical and, from time to
time, there are shortages of drilling rigs, equipment, supplies or qualified
personnel.  During these periods, the costs of rigs, equipment and
supplies may increase substantially and their availability may be
limited.  In addition, the demand for, and wage rates of, qualified
personnel, including drilling rig crews, may rise as the number of rigs in
service increases.  The higher prices of oil and gas during the last
several years have resulted in shortages of drilling rigs, equipment and
personnel, which have resulted in increased costs and shortages of equipment in
program areas we operate.  If drilling rigs, equipment, supplies or
qualified personnel are unavailable to us due to excessive costs or demand or
otherwise, our ability to execute our exploration and development plans could be
materially and adversely affected and, as a result, our financial condition and
results of operations could be materially and adversely affected.





Covenants in our
credit agreements impose significant restrictions and requirements on us.
  Our two credit agreements contain a number of covenants imposing
significant restrictions on us, including restrictions on our repurchase of, and
payment of dividends on, our capital stock and limitations on our ability to
incur additional indebtedness, make investments, engage in transactions with
affiliates, sell assets and create liens on our assets.  These
restrictions may affect our ability to operate our business, to take advantage
of potential business opportunities as they arise and, in turn, may materially
and adversely affect our business, financial conditions and results of
operations.





Our credit
agreements mature on December 1, 2010, and our lender may foreclose on the Wilke
Field and Albin Field properties sooner than that.  Our lender
has the right to cause the sale of the Wilke Field properties and the Albin
Field properties and use the proceeds to repay the loans at any time after
October 29, 2010 if the Company has not completed a private equity sale by that
date sufficient to repay each loan in full on or before December 1,
2010.  Failure to complete such an equity sale or to refinance the
loans by October 29, 2010 could result in the loss of the Wilke Field and Albin
Field properties which would adversely affect our business, financial condition
and results of operations.





We are exposed to
operating hazards and uninsured risks.   Our operations are
subject to the risks inherent in the oil and natural gas industry, including the
risks of:





·
            
            fire,
      explosions and blowouts;·
            
            pipe
      failure;·
            
            abnormally
      pressured formations; and·
            
            environmental
      accidents such as oil spills, natural gas leaks, ruptures or discharges of
      toxic gases, brine or well fluids into the environment (including
      groundwater contamination).





These
events may result in substantial losses to us from:





·
            
            injury
      or loss of life;·
            
            severe
      damage to or destruction of property, natural resources and
      equipment;·
            
            pollution
      or other environmental damage;·
            
            clean-up
      responsibilities;·
            
            regulatory
      investigation;·
            
            penalties
      and suspension of operations; or·
            
            attorney's
      fees and other expenses incurred in the prosecution or defense of
      litigation.




13





As is customary in our industry, we
maintain insurance against some, but not all, of these risks.  We
cannot assure you that our insurance will be adequate to cover these losses or
liabilities.  We do not carry business interruption
insurance.  Losses and liabilities arising from uninsured or
underinsured events may have a material adverse effect on our financial
condition and operations.




We
carry well control insurance for our drilling operations.  Our
coverage includes blowout protection and liability protection on domestic
wells.





The
producing wells in which we have an interest occasionally experience reduced or
terminated production.  These curtailments can result from mechanical
failures, contract terms, pipeline and processing plant interruptions, market
conditions and weather conditions.  These curtailments can last from a
few days to many months.





Risks
Relating to the Oil and Gas Industry





Oil and natural
gas and oil prices are highly volatile and have declined significantly since mid
2008, and lower prices will negatively affect our financial condition, planned
capital expenditures and results of operations.  Since
mid 2008, publicly quoted spot oil and natural gas prices have declined
significantly from record levels in July 2008 of approximately $145.31 per
Bbl (West Texas Intermediate) and $13.10 per Mcfe (NYMEX) to approximately
$81.25 per Bbl and $4.10 per Mcfe as of March 24, 2010. In the past, some
oil and gas companies have curtailed production to mitigate the impact of low
natural gas and oil prices. We may determine to shut in a portion of our
production as a result of the decrease in prices. The decrease in oil and
natural gas prices has had a significant impact on our financial condition,
planned capital expenditures and results of operations. Further declines in oil
and natural gas prices or a prolonged period of low oil and natural gas prices
may materially adversely affect our financial condition, liquidity (including
our borrowing capacity under our credit facilities), ability to finance planned
capital expenditures and results of operations.   Oil and natural gas are
commodities and are subject to wide price fluctuations in response to relatively
minor changes in supply and demand. Historically, the markets for oil and
natural gas have been volatile. These markets will likely continue to be
volatile in the future. The prices we receive for our production and the levels
of our production depend on numerous factors beyond our control. These factors
include the following:





·
            
            changes
      in global supply and demand for oil and natural gas;·
            
            the
      actions of the Organization of Petroleum Exporting Countries, or
      OPEC;·
            
            the
      price and quantity of imports of foreign oil and natural
    gas;·
            
            acts
      of war or terrorism;·
            
            political
      conditions and events, including embargoes, affecting oil-producing
      activity;·
            
            the
      level of global oil and natural gas exploration and production
      activity;·
            
            the
      level of global oil and natural gas inventories;·
            
            weather
      conditions;·
            
            technological
      advances affecting energy consumption;·
            
            the
      price and availability of alternative fuels; and·
            
            market
      concerns about global warming or changes in governmental policies and
      regulations due to climate change
initiatives.





Lower oil
and natural gas prices may not only decrease our revenues on a per unit basis
but may also reduce the amount of oil and natural gas that we can produce
economically. A substantial or extended decline in oil or natural gas prices may
materially and adversely affect our future business, financial condition,
results of operations, liquidity or ability to finance planned capital
expenditures.





Our industry is
highly competitive which may adversely affect our performance, including our
ability to participate in ready to drill prospects in our core
areas. We operate in a highly competitive environment. In addition to
capital, the principal resources necessary for the exploration and production of
oil and natural gas are:







·
            
            leasehold
      prospects under which oil and natural gas reserves may be
      discovered;·
            
            drilling
      rigs and related equipment to explore for such reserves;
    and·
            
            knowledgeable
      personnel to conduct all phases of oil and natural gas
      operations.





We must
compete for such resources with both major oil and natural gas companies and
independent operators. Virtually all of these competitors have financial and
other resources substantially greater than ours. We cannot assure you that such
materials and resources will be available when needed. If we are unable to
access material and resources when needed, we risk suffering a number of adverse
consequences, including:





·
            
            the
      breach of our obligations under the oil and gas leases by which we hold
      our prospects and the potential loss of those leasehold
      interests;·
            
            loss
      of reputation in the oil and gas community;·
            
            a
      general slow down in our operations and decline in revenue;
      and·
            
            decline
      in market price of our common
shares.




14





Acquisitions may
prove to be worth less than we paid because of uncertainties in evaluating
recoverable reserves and potential liabilities. Successful acquisitions
require an assessment of a number of factors, including estimates of recoverable
reserves, exploration potential, future oil and gas prices, operating costs and
potential environmental and other liabilities. Such assessments are inexact and
their accuracy is inherently uncertain. In connection with our assessments, we
perform a review of the acquired properties which we believe is generally
consistent with industry practices. However, such a review will not reveal all
existing or potential problems. In addition, our review may not permit us to
become sufficiently familiar with the properties to fully assess their
deficiencies and capabilities. We are generally not entitled to contractual
indemnification for pre-closing liabilities, including environmental
liabilities. Normally, we acquire interests in properties on an “as is” basis
with limited remedies for breaches of representations and warranties. As a
result of these factors, we may not be able to acquire oil and gas properties
that contain economically recoverable reserves or be able to complete such
acquisitions on acceptable terms.





Our reserve
estimates will depend on many assumptions that may turn out to be inaccurate.
Any material inaccuracies in our reserve estimates or underlying assumptions
will materially affect the quantities and present value of our
reserves. The
process of estimating oil and natural gas reserves is complex. It requires
interpretations of available technical data and many assumptions, including
assumptions relating to economic factors. Any significant inaccuracies in these
interpretations or assumptions could materially affect the estimated quantities
and the calculation of the present value of reserves shown in these
reports.





In order
to prepare reserve estimates in its reports, our independent petroleum
consultant projected production rates and timing of development expenditures.
Our independent petroleum consultant also analyzed available geological,
geophysical, production and engineering data. The extent, quality and
reliability of this data can vary and may not be in our control. The process
also requires economic assumptions about matters such as oil and natural gas
prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. Therefore, estimates of oil and natural gas reserves are
inherently imprecise.





Actual
future production, oil and natural gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves will most likely vary from our estimates. Any significant variance
could materially affect the estimated quantities and present value of our
reserves. In addition, our independent petroleum consultant may adjust estimates
of proved reserves to reflect production history, drilling results, prevailing
oil and natural gas prices and other factors, many of which are beyond our
control.





Prospects that we
decide in which to participate may not yield oil or natural gas in commercially
viable quantities or quantities sufficient to meet our targeted rate of
return. A
prospect is a property in which we own an interest and have what we believe,
based on available seismic and geological information, to be indications of oil
or natural gas. Our prospects are in various stages of evaluation, ranging from
a prospect that is ready to be drilled to a prospect that will require
substantial additional seismic data processing and interpretation. There is no
way to predict in advance of drilling and testing whether any particular
prospect will yield oil or natural gas in sufficient quantities to recover
drilling or completion cost or to be economically viable. The use of seismic
data and other technologies and the study of producing fields in the same area
will not enable us to know conclusively prior to drilling whether oil or natural
gas will be present or, if present, whether oil or natural gas will be present
in commercial quantities. We cannot assure you that the analysis we perform
using data from other wells, more fully explored prospects and/or producing
fields will be useful in predicting the characteristics and potential reserves
associated with our drilling prospects.





We are subject to
numerous laws and regulations that can adversely affect the cost, manner or
feasibility of doing business. Our operations are subject
to extensive federal, state and local laws and regulations relating to the
exploration, production and sale of oil and natural gas, and operating safety.
Future laws or regulations, any adverse change in the interpretation of existing
laws and regulations or our failure to comply with existing legal requirements
may result in substantial penalties and harm to our business, results of
operations and financial condition. We may be required to make large and
unanticipated capital expenditures to comply with governmental regulations, such
as:





·
            
            land
      use restrictions;·
            
            lease
      permit restrictions;·
            
            drilling
      bonds and other financial responsibility requirements, such as plugging
      and abandonment bonds;·
            
            spacing
      of wells;·
            
            unitization
      and pooling of properties;·
            
            safety
      precautions;·
            
            operational
      reporting; and·
            
            taxation.





Under
these laws and regulations, we could be liable for:





·
            
            personal
      injuries;·
            
            property
      and natural resource damages;·
            
            well
      reclamation cost; and·
            
            governmental
      sanctions, such as fines and
penalties.




15





Our
operations could be significantly delayed or curtailed and our cost of
operations could significantly increase as a result of regulatory requirements
or restrictions. We are unable to predict the ultimate cost of compliance with
these requirements or their effect on our operations. It is also possible that a
portion of our oil and gas properties could be subject to eminent domain
proceedings or other government takings for which we may not be adequately
compensated. See Item 1 “ Business—Government
Regulations” for a more detailed description of our regulatory
risks.





Our operations
may incur substantial expenses and resulting liabilities from compliance with
environmental laws and regulations. Our oil and natural gas operations
are subject to stringent federal, state and local laws and regulations relating
to the release or disposal of materials into the environment or otherwise
relating to environmental protection. These laws and regulations:





·
            
            require
      the acquisition of a permit before drilling commences;·
            
            restrict
      the types, quantities and concentration of substances that can be released
      into the environment in connection with drilling and production
      activities;·
            
            limit
      or prohibit drilling activities on certain lands lying within wilderness,
      wetlands and other protected areas; and·
            
            impose
      substantial liabilities for pollution resulting from our
      operations.


Failure to comply with these laws and
regulations may result in:





·
            
            the
      assessment of administrative, civil and criminal
  penalties;·
            
            incurrence
      of investigatory or remedial obligations; and·
            
            the
      imposition of injunctive relief.





Changes
in environmental laws and regulations occur frequently and any changes that
result in more stringent or costly waste handling, storage, transport, disposal
or cleanup requirements could require us to make significant expenditures to
reach and maintain compliance and may otherwise have a material adverse effect
on our industry in general and on our own results of operations, competitive
position or financial condition. Under these environmental laws and regulations,
we could be held strictly liable for the removal or remediation of previously
released materials or property contamination regardless of whether we were
responsible for the release or contamination or if our operations met previous
standards in the industry at the time they were performed. Our permits require
that we report any incidents that cause or could cause environmental damages.
See Item 1 “Business—Government
Regulations” for a more detailed description of our environmental
risks.





Risks Relating to our Common
Stock





There
is no active public market for our shares and we cannot assure you that all
active trading market or a specific share price will be established or
maintained.





Our
common stock trades on the OTC BB trading system.  The OTC BB tends to
be highly illiquid, in part because there is no national quotation system by
which potential investors can track the market price of shares except through
information received or generated by a limited number of broker-dealers that
make markets in particular stocks.  There is a greater chance of
market volatility for securities that trade on the OTC BB as opposed to a
national exchange or quotation system.  This volatility may be caused
by a variety of factors including:




•
            the
      lack of readily available price
quotations;


•
            the
      absence of consistent administrative supervision of “bid” and “ask”
      quotations;


•
            lower
      trading volume; and


•
            market
      conditions.





In
      addition, the value of our common stock could be affected
    by:





•
            actual
      or anticipated variations in our operating
  results;


•
            changes
      in the market valuations of other human capital solutions
      companies;


•
            announcements
      by us or our competitors of significant acquisitions, strategic
      partnerships, joint ventures or capital
  commitments;


•
            adoption
      of new accounting standards affecting our
  industry;


•
            additions
      or departures of key personnel;


•
            introduction
      of new services by our competitors or
us;


•
            sales
      of our common stock or other securities in the open
  market;




16





•
            changes
      in financial estimates by securities
analysts;


•
            conditions
      or trends in the market in which we
operate;


•
            changes
      in earnings estimates and recommendations by financial
      analysts;


•
            our
      failure to meet financial analysts’ performance expectations;
      and


•
            other
      events or factors, many of which are beyond our
  control.








In a
volatile market, you may experience wide fluctuations in the market price of our
securities.  These fluctuations may have an extremely negative effect
on the market price of our securities and may prevent you from obtaining a
market price equal to your purchase price when you attempt to sell our
securities in the open market.  In these situations, you may be
required either to sell our securities at a market price which is lower than
your purchase price, or to hold our securities for a longer period of time than
you planned.  An inactive market may also impair our ability to raise
capital by selling shares of capital stock and may impair our ability to acquire
other companies or technologies by using common stock as
consideration.





We
incur increased costs as a result of being an operating public
company.





As a
public company, we incur increased legal, accounting and other costs that we
would not incur as a private company.  The corporate governance
practices of public companies are heavily regulated.  For example,
public companies are subject to the Sarbanes-Oxley Act of 2002, related rules
and regulations of the SEC, as well as the rules and regulations of any exchange
or quotation service on which a company’s shares may be listed or
quoted.  Compliance with these requirements increases our expenses and
makes some activities more time consuming than if we were a private
company.  Such additional costs going forward could negatively impact
our financial results.





Securities
analysts may not initiate coverage of our shares or may issue negative reports,
which may adversely affect the trading price of our shares.





We cannot
assure you that securities analysts will cover our company.  If
securities analysts do not cover our company, this lack of coverage may
adversely affect the trading price of our shares.  The trading market
for our shares will rely in part on the research and reports that securities
analysts publish about us and our business.  If one or more of the
analysts who cover our company downgrades our shares, the trading price of our
shares may decline.  If one or more of these analysts ceases to cover
our company, we could lose visibility in the market, which, in turn, could also
cause the trading price of our shares to decline.  Further, because of
our small market capitalization, it may be difficult for us to attract
securities analysts to cover our company, which could significantly and
adversely affect the trading price of our shares.





Item
1B.  UNRESOLVED
STAFF COMMENTS





As a
smaller reporting company, we are not required to disclose information under
this item.





Item
2. PROPERTIES





Company
Location and Facilities





Our
executive offices are located at 1515 Wynkoop Street, Suite 200, in Denver,
Colorado.





We
currently own two medium depth drilling rigs which we intend to divest during
2010.  During 2009 we wrote down the value of the two drilling rigs
based on market conditions.





We did
not own any oil and gas reserves as of December 31, 2009.  Natural gas
and crude oil reserves and the estimates of the present value of future net
revenues therefrom, will be determined based on the simple 12 first of month
average price and current costs. Since September 21, 2009, we have not filed,
nor were we required to file, any reports concerning our oil and gas reserves
with any federal authority or agency.





Subsequent
to December 31, 2009 we acquired seven producing wells located in the Nebraska
and Colorado portion of the DJ Basin and four producing wells located in the
Nebraska and Wyoming portion of the DJ Basin.  We have not obtained a
third party estimate of reserves for these properties as of the date of this
filing.




17





Our oil and natural gas
drilling and production activities will be subject to numerous risks, many of
which are beyond our control. These risks include the risk of fire, explosions,
blow-outs, pipe failure, abnormally pressured formations and environmental
hazards. Environmental hazards include oil spills, natural gas leaks, ruptures
and discharges of toxic gases. In addition, title problems, weather conditions
and mechanical difficulties or shortages or delays in delivery of drilling rigs
and other equipment could negatively affect our operations. If any of these or
other similar industry operating risks occur, we could have substantial losses.
Substantial losses also may result from injury or loss of life, severe damage to
or destruction of property, clean-up responsibilities, regulatory investigation
and penalties and suspension of operations. In accordance with industry
practice, we have obtained insurance against some, but not all, of the
risks described above. However, we cannot assure you that the
insurance obtained by us will be adequate to cover any losses or
liabilities.





For a
description of our present oil and gas operational activities, please see
“Principal Oil and Gas Interests” in Part I, Item 1 of this report.





Item
3. LEGAL
PROCEEDINGS


There are
no pending legal proceedings to which we or our properties are
subject.





Item
4. RESERVED




18




PART
II


Item
5.  MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES





Recent
Market Prices





Our
common stock trades on the OTC market under the symbol “RECV.OB.”





The
following table shows the high and low reported sales prices of our common stock
for the periods indicated.  Because our stock trades infrequently, we
do not believe that these prices are an accurate reflection of the value of our
stock.





High
            
            
            Low2009:Fourth
      quarter
            
            $
            5.75
            
            
            $
            3.00September
      25, 2009 through September 30, 2009
            
            $
            6.00
            
            
            $
            4.25





Holders





On March
31, 2010, there were approximately 19 owners of record of our common
stock.





Dividends





We have
not paid any cash dividends since our inception and do not contemplate paying
dividends in the foreseeable future. It is anticipated that earnings, if any,
will be retained for the operation of our business.





Securities
Authorized for Issuance Under Equity Compensation Plans





The
following table provides information with respect to our common shares issuable
under various officer employment contracts and under director appointment
agreements as of December 31, 2009:





Number
      of
              Securities
      to be
              Issued
      Upon
              Exercise
      of
              Outstanding
              Options,
      Grants, Warrants
              and
      Rights (a)
            
            
            Weighted-Average
              Exercise
      Price of
              Outstanding
      Options, Grants,
              Warrants
      and Rights (b)
            
            
            Number
      of Securities
              Remaining
      Available
              for
      Future Issuance
              Under
      Equity
              Compensation
      Plans
              (Excluding
      Securities
              Reflected
      in Column (a) (b)Equity
      compensation plans approved by security holders
            
            
            0
            
            
            $
            0
            
            
            
            0Equity
      compensation plans not approved by security holders
            
            
            1,484,200
            
            
            
            0
            
            
            
            0Total
            
            
            1,484,200
            
            
            $
            0
            
            
            
            0





19





Recent
Sales of Unregistered Securities





We have
previously disclosed by way of quarterly reports on Form 10-Q and current
reports on Form 8-K filed with the SEC all sales by us of our unregistered
securities during 2009.





Item
6.  SELECTED
FINANCIAL DATA





As a
smaller reporting company, we are not required to provide this
information.





Item
7.  MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





The following discussion should be
read in conjunction with our financial statements included elsewhere in this
Form 10-K. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors
including those set forth in our “Risk Factors” described
herein.





General





We are an
independent oil and natural gas company engaged in the acquisition, drilling and
production of oil and natural gas properties in the United
States.  Our business strategy is designed to create maximum
shareholder value by leveraging the knowledge, expertise and experience of our
management team along with that of our operating partners. Our targeted oil and
gas properties are located principally in Colorado, Nebraska, Wyoming, Kansas,
Oklahoma, and Texas.





Subsequent
to December 31, 2009 we were successful in acquiring our first producing
properties.  These assets are located in the Colorado, Nebraska and
Wyoming portion of the DJ Basin. We intend to build a balanced portfolio
consisting of producing properties and prospects that are geologically diverse,
including producing properties, secondary enhanced oil recovery projects, and
exploration prospects in our primary area of focus in the Rockies, Mid-Continent
and Gulf Coast regions. This diversity provides projects with varied payout
periods, helping the company remain competitive in volatile markets. We target
low to medium risk projects that have the potential for multiple producing
horizons, and offer repeatable success allowing for meaningful production and
reserve growth.





Results
of Operations





It is our
belief that the exploration and production industry’s most significant value
creation occurs through the drilling of successful development wells and the
enhancement of oil recovery in mature fields given appropriate economic
conditions.  We intend to acquire producing properties based on our
view of the pricing cycles of oil and natural gas and available exploration and
development opportunities of proved, probable and possible
reserves.




From
inception through December 31, 2009





General
and
administrative expenses for the period ended December 31, 2009 totaled
$1,057,306, including non-cash expense $684,778 in compensation expense for
outstanding restricted common stock grants issued to executive officers and
board members.





Our
expense for impairment of equipment held for sale was $2,750,000 for the period
ended December 31, 2009.





Non-cash
expenses related to the fair value of common stock issued in an attempted
property transaction for the period ended December 31, 2009 totaled
$5,075,000.  Additional non-cash expenses for the period ended
December 31, 2009 included $3,329,106 in fair value for warrants issued to third
parties for a commitment to finance a property transaction which did not close,
$200,000 related to 85,000 shares issued in conjunction with the merger and
$17,500,000 related to 5 million shares acquired by our controlling shareholder
group in conjunction with the merger.





Income
for the period ended December 31, 2009 totaled $31 and was comprised of interest
income.




We
incurred a net loss to common stockholders of $29,911,381 for the period ended
December 31, 2009.





20





Plan
of Operations





Our plan
of operations for the next twelve months is to acquire and develop oil and
natural gas prospects, concentrating on those with the lowest development and
lifting costs.   Consistent with that is our gradual structuring
and staffing of our company toward becoming an operator of the acquired
properties.    By becoming an operator, we will have more
control over drilling and developmental decisions and will broaden the spectrum
of exploration prospects we can consider for participation.  As an
operator we should reduce overall finding costs and in the future we may start
to generate exploration prospects.





The
acquisition and development of properties and prospects and the pursuit of fresh
opportunities require that we maintain access to adequate levels of
capital.   We will strive for an optimal balance between our
property portfolio and our capital structuring that will allow for growth and to
the maximum benefit of our shareholders.   The decisions around
the balancing of capital needs and property holdings will be a challenge to us
as well as all companies in the entire energy industry during this time of
continued disruption in the financial markets and an increasing complex global
economic picture.  As a function of balancing properties and capital,
we may decide to monetize certain properties to reduce debt or to allow us to
acquire interest in new prospects or producing properties that may be better
suited to the current economic and energy industry environment.





The
business of oil and natural gas acquisition, exploration and development is
capital intensive and the level of operations attainable by an oil and gas
company is directly linked to and limited by the amount of available capital.
Therefore, a principal part of our plan of operations is to raise the additional
capital required to finance the exploration and development of our current oil
and natural gas prospects and the acquisition of additional
properties.  As explained under “Financial Condition and Liquidity”
below, based on our present working capital, available borrowings under the
credit facility and current rate of cash flow from operations, we believe we
will need to raise additional capital to fund our operations and expected
commitments for exploration and development through, at least, December 31,
2010.  We will seek additional capital through the sale of our
securities and we will endeavor to obtain additional capital through bank lines
of credit and project financing.  However, as described further below,
under the terms of our $10.5 million in credit facilities, we are prohibited
from incurring any additional debt from third parties.  Our ability to
obtain additional capital through new bank lines of credit and project financing
may be subject to the repayment of outstanding sums drawn from the $10.5 million
credit facilities.





We intend
to use the services of independent consultants and contractors to perform
various professional services, including reservoir engineering, land, legal,
environmental, investor relations and tax services.  We believe that
by limiting our management and employee costs, we may be able to better control
total costs and retain flexibility in terms of project
management.





Financial
Condition and Liquidity





As of the
date of this report, we estimate our capital budget for fiscal 2010 to be
approximately $400 thousand, to be deployed for drilling in the Omega and
Comanche prospects.





We generated negative cash flow from
operations of $381,239 in the three months ending December 31,
2009.  As of December 31, 2009, we had total assets of $895,026 and
negative working capital of ($44,228).  Based on our based on our present
working capital and current rate of cash flow from operations, we believe we
will need to raise additional capital to fund our operations and expected
commitments for exploration and development by March 31, 2010.  We
will seek additional capital through the sale of our securities and we will
endeavor to obtain additional capital through bank lines of credit and project
financing.





We will
seek to obtain additional working capital through the sale of our securities
and, subject to the successful deployment of our cash on hand, we will endeavor
to obtain additional capital through bank lines of credit and project
financing.  However, other than our two credit agreements for an
aggregate of $10,500,000, we have no agreements or understandings with any third
parties at this time for additional working capital and we have no history of
generating significant cash from oil and gas operations.  Further,
under the terms of our credit agreements, we are prohibited from incurring any
additional debt from third parties.  Our ability to obtain additional
working capital through bank lines of credit and project financing may be
subject to the repayment of the $10,500,000 credit
agreements.  Consequently, there can be no assurance we will be able
to obtain continued access to capital as and when needed or, if so, that the
terms of any available financing will be subject to commercially reasonable
terms.  If we are unable to access additional capital in significant
amounts as needed, we may not be able to develop our current prospects and
properties, may have to forfeit our interest in certain prospects and may not
otherwise be able to develop our business. In such an event, our stock price
will be materially adversely affected.





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet financing arrangements.


21




Critical
Accounting Policies and Estimates
  The
preparation of our consolidated financial statements in conformity with
generally accepted accounting principles in the United States, or GAAP, requires
our management to make assumptions and estimates that affect the reported
amounts of assets, liabilities, revenues and expenses, as well as the disclosure
of contingent assets and liabilities at the date of our financial statements and
the reported amounts of revenues and expenses during the reporting period. The
following is a summary of the significant accounting policies and related
estimates that affect our financial disclosures.
  Use
of Estimates
 
 The
preparation of our financial statements in conformity with generally accepted
accounting principles requires us to make estimates and judgments that affect
the reported amount of assets, liabilities, revenues and expenses. These
estimates are based on information that is currently available to us and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results could vary significantly from those estimates
under different assumptions and conditions.  Significant estimates
include the valuation of common stock used in various issuances of common stock,
options and warrants and estimated fair value of the asset held for
sale.
 
 Critical
accounting policies are defined as those significant accounting policies that
are most critical to an understanding of a company’s financial condition and
results of operation. We consider an accounting estimate or judgment to be
critical if (i) it requires assumptions to be made that were uncertain at the
time the estimate was made, and (ii) changes in the estimate or different
estimates that could have been selected could have a material impact on our
results of operations or financial condition.
  Oil
and Natural Gas Properties—Full Cost Method of Accounting
  We use
the full cost method of accounting whereby all costs related to the acquisition
and development of oil and natural gas properties are capitalized into a single
cost center referred to as a full cost pool. We record all capitalized cost into
a single cost center as all operations are conducted within the United States.
These costs include land acquisition costs, geological and geophysical expenses,
carrying charges on non-producing properties, costs of drilling and overhead
charges directly related to acquisition and exploration activities.
  Capitalized
costs, together with the costs of production equipment, are depleted and
amortized on the unit-of-production method based on the estimated gross proved
reserves as determined by independent petroleum engineers. For this purpose, we
convert our petroleum products and reserves to a common unit of measure.
  Costs
of acquiring and evaluating unproved properties are initially excluded from
depletion calculations. These unevaluated properties are assessed quarterly to
ascertain whether impairment has occurred. When proved reserves are assigned or
the property is considered to be impaired, the cost of the property or the
amount of the impairment is added to the full cost pool and becomes subject to
depletion calculations.
  Proceeds
from the sale of oil and natural gas properties are applied against capitalized
costs, with no gain or loss recognized, unless the sale would alter the rate of
depletion by more than 25%. Royalties paid, net of any tax credits, received are
netted against oil and natural gas sales.
  In
applying the full cost method, we perform a ceiling test on properties that
restricts the capitalized costs less accumulated depletion from exceeding an
amount equal to the estimated undiscounted value of future net revenues from
proved oil and natural gas reserves, as determined by independent petroleum
engineers. The estimated future revenues are based on sales prices achievable
under existing contracts and posted average reference prices in effect at the
end of the applicable period, and current costs, and after deducting estimated
future general and administrative expenses, production related expenses,
financing costs, future site restoration costs and income taxes. Under the full
cost method of accounting, capitalized oil and natural gas property costs less
accumulated depletion and net of deferred income taxes may not exceed an amount
equal to the present value, discounted at 10%, of estimated future net revenues
from proved oil and natural gas reserves, plus the cost, or estimated fair value
if lower, of unproved properties. Should capitalized costs exceed this ceiling,
we would recognize an impairment.
 
 Impairment
of Long-lived Assets
 
 The
Company accounts for the impairment and disposition of long-lived assets in
accordance with ASC 360, Impairment or Disposal of Long-Lived
Assets. ASC 360 requires that the Company’s long-lived assets, including
its drilling rigs, be assessed for potential impairment in their carrying values
whenever events or changes in circumstances indicate such impairment may have
occurred.  An impairment charge to current operations is recognized when
the estimated undiscounted future net cash flows of the asset are less than its
carrying value. Any such impairment is recognized based on the differences in
the carrying value and estimated fair value of the impaired asset.
 
 Share
Based Compensation
 
 The
Company accounts for share-based compensation in accordance with the provisions
of ASC 718— Stock Compensation which requires companies to estimate the fair
value of share-based payment awards made to employees and directors, including
stock options, restricted stock and employee stock purchases related to employee
stock purchase plans, on the date of grant using an option-pricing
model.  The value of the portion of the award that is ultimately
expected to vest is recognized as an expense ratably over the requisite service
periods.  We estimate the fair value of each share-based award using
the Black-Scholes option pricing model. The Black-Scholes model is highly
complex and dependent on key estimates by management. The estimates with the
greatest degree of subjective judgment are the estimated lives of the
stock-based awards and the estimated volatility of our stock price.
 
 22




Item
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




As a smaller reporting company, we are
not required to provide the information under this item.




Item
8.  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA




Our
financial statements appear immediately after the signature page of this report.
See "Index to Financial Statements" on page 27 of this report.




Item
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE


The
Company filed a Form 8-K on January 21, 2010 notifying a change in the
registrant’s certifying accountants.





Item
9A(T).  CONTROLS
AND PROCEDURES





As
required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"1934 Act"), as of December 31, 2009, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation was carried out by our Chief Executive Officer (our
principal executive/financial officer), who concluded, that because of the
material weakness in our internal control over financial reporting ("ICFR")
described below, our disclosure controls and procedures were not effective as of
December 31, 2008.




Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to our management, including our principal
executive officer and our principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.




Management’s
report on Internal Control Over Financial Reporting




Disclosure
Controls and Procedures





As
required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"1934 Act"), as of December 31, 2009, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation was carried out by our Chief Executive Officer (our
principal executive/financial officer), who concluded, that because of the
material weakness in our internal control over financial reporting ("ICFR")
described below, our disclosure controls and procedures were not effective as of
December 31, 2009.




Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to our management, including our principal
executive officer and our principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.




Internal
Control Over Financial Reporting




Our
management is also responsible for establishing ICFR as defined in
Rules 13a-15(f) and 15(d)-15(f) under the 1934 Act. Our ICFR are intended
to be designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles. Our
ICFR are expected to include those policies and procedures that management
believes are necessary that:




23




(i)
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of
      Recovery;




(ii)
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of Recovery are
      being made only in accordance with authorizations of management and our
      directors; and




(iii)
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of Recovery's assets that
      could have a material effect on the financial
  statements.




Management
recognizes that there are inherent limitations in the effectiveness of any
system of internal control, and accordingly, even effective internal control can
provide only reasonable assurance with respect of financial statement
preparation and may not prevent or detect misstatements. In addition, effective
internal control at a point in time may become ineffective in future periods
because of changes in conditions or due to deterioration in the degree of
compliance with our established policies and procedures.




As of
December 31, 2009, management assessed the effectiveness of our internal control
over financial reporting (ICFR) based on the criteria for effective ICFR
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and SEC guidance on
conducting such assessments by smaller reporting companies and non-accelerated
filers.




Based on
that assessment, management concluded that, during the period covered by this
report, such internal controls and procedures were not effective as of December
31, 2009 and that material weaknesses in ICFR existed as more fully described
below.




As
defined by Auditing Standard No. 5, "An Audit of Internal Control Over
Financial Reporting that is Integrated with an Audit of Financial Statements and
Related Independence Rule and Conforming Amendments," established by the Public
Company Accounting Oversight Board ("PCAOB"), a material weakness is a
deficiency or combination of deficiencies that results in more than a remote
likelihood that a material misstatement of annual or interim financial
statements will not be prevented or detected. In connection with the assessment
described above, management identified the following control deficiencies that
represent material weaknesses as of December 31, 2009:




(1)
            Lack
      of an independent audit committee. Currently we do not have an audit
      committee. It is our intention to establish an audit committee of the
      board that includes a financial expert on our audit committee when we have
      sufficient capital resources and working capital to attract qualified
      independent directors and to maintain such a
  committee.




(2)
            Inadequate
      staffing and supervision within our bookkeeping operations. The relatively
      small number of employees who are responsible for bookkeeping functions
      prevents us from segregating duties within our internal control system.
      The inadequate segregation of duties is a weakness because it could lead
      to the untimely identification and resolution of accounting and disclosure
      matters or could lead to a failure to perform timely and effective
      reviews. During the fiscal year ended December 31, 2009, we had only one
      person, an executive officer, that performed nearly all aspects of our
      financial reporting process, including, but not limited to, access to the
      underlying accounting records and systems, the ability to post and record
      journal entries and responsibility for the preparation of the financial
      statements. This provides for a lack of review over the financial
      reporting process that may result in a failure to detect errors in
      spreadsheets, calculations, or assumptions used to compile the financial
      statements and related disclosures as filed with the SEC.  As we
      had only one full time employee, we also do not have a sufficient
      compliment of personnel with appropriate training and experience in
      generally accepted accounting principles (GAAP) and SEC reporting to fully
      address complex financial reporting
matters.




(3)
            Insufficient
      number of independent directors. At the present time, our Board of
      Directors does not have a majority of independent directors, a factor that
      is counter to corporate governance practices as set forth by the rules of
      various stock exchanges.  During the first quarter of 2010, we
      appointed an additional board member which resulted in four board members
      in total, two of whom are independent
directors.




(4)
            Inadequate
      physical security of certain information technology assets and data. Due
      to space limitations, certain network equipment is stored in common areas,
      which are accessible by unauthorized personnel. In addition, offsite
      backup of data is sporadic. These factors may result in the loss of
      financial data, which could adversely affect the reliability of
      information used to compile the financial statements and related
      disclosures as filed with the SEC.




24





Our
management determined that these deficiencies constituted material weaknesses.
Due to a lack of financial and personnel resources, we are not able to
immediately take any action to remediate these material weaknesses. We will not
be able to do so until we acquire sufficient financing and staff to do so. We
will implement further controls as circumstances, cash flow, and working capital
permit. Notwithstanding the assessment that our ICFR was not effective and that
there were material weaknesses as identified in this report, we believe that our
consolidated financial statements contained in our Annual Report on
form 10-K for the fiscal year ended December 31, 2009, fairly present our
financial position, results of operations and cash flows for the years covered
thereby in all material respects.




This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management's report in this Annual
Report.




There
were no changes in our internal control over financial reporting during the
quarter ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




Item
9B.  OTHER
INFORMATION





None.





PART III





Except as
set forth below, the information required by Items 10 through 14 is set forth
under the captions “Election of Directors,” “Ratification of Independent
Registered Public Accounting Firm,” “Management,” “Executive Compensation,”
“Principal Stockholders” and “Certain Transactions” in Recovery Energy
Inc’s definitive proxy statement for its 2009 annual meeting of
stockholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended, which
sections are incorporated herein by reference as if set forth in full.





Item
10.  DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Code
of Ethics





We have adopted a code of conduct that
applies to our directors and employees (including our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions), and have posted the text
of the policy on our website (www.recoveryenergyco.com). If we make any substantive
amendments to our code of conduct or grant any waiver, including any implicit
waiver, from a provision of the code to our chief executive officer, president,
chief financial officer or chief accounting officer or corporate controller, we
will disclose the nature of such amendment or waiver on that website or in a
report on Form 8-K.





Item
11.  EXECUTIVE
COMPENSATION





Information
required by this item is incorporated by reference to the material appearing in
the Company’s 2010 Proxy Statement.





Information
relating to securities authorized for issuance under our equity compensation
plans is set forth in “Item 5, Market for Registrant’s Common Stock,
Related Stockholder Matters and Issuer Purchases of Equity Securities” above in
this annual report.





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





Information
required by this item is incorporated by reference to the material appearing in
the Company’s 2010 Proxy Statement.





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





See
“Recent Develops and Related Transactions” in the Item 1. Additional information
required by this Item is incorporated herein by reference to the Company’s 2010
proxy statement.





Item
14.  PRINCIPAL
ACCOUNTANT FEES AND SERVICES





Information
required by this item is incorporated by reference to the material appearing in
the Company’s 2010 Proxy Statement.





25




PART
IV
 Item
15.   EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
 
  INDEX
TO FINANCIAL STATEMENTS
 a)
 
 Report
      of Independent  Registered Public Accounting Firm
              
              
              F-1Balance
      Sheet at December 31, 2009
              
              
              F-2Statements
      of Operations for the period from March 6, 2009 (Inception)
      through  December 31, 2009
              
              
              F-3Statements
      of Shareholders' Equity for the period from March 6, 2009 (Inception)
      through December 31, 2009
              
              
              F-4Statements
      of Cash Flows for the period from March 6, 2009 (Inception) through
      December 31, 2009
              
              
              F-5Notes
      to Financial Statements
              
              
              F-7
 
 b) Financial statement
schedules
 Not applicable.
  c) Exhibits
 
 The
following exhibits are either filed herewith or incorporated herein by
reference:
  Exhibit
      No.
              
              Description2.1
              
              Membership
      Unit Purchase Agreement by and among Company, Lanny M. Roof, Judith Lee
      and Michael Hlvasa dated as of September 21, 2009 (incorporated herein by
      reference to Exhibit 2.1 to Company's current report filed on form 8-K
      filed on September 22, 2009).3.1
              
              Articles
      of Incorporation (incorporated herein by reference to Exhibit 3.1 to
      Company's form S-1 filed on July 28, 2008).3.2
              
              Bylaws
      (incorporated herein by reference to Exhibit 3.2 to Company's form S-1
      filed on July 28, 2008).4.1
              
              Warrant
      to Purchase Common Stock dated December 11, 2009 (incorporated by
      reference to Exhibit 4.2 to Company's current report filed on form 8-K
      filed on December 17, 2009).10.1
              
              Membership
      Unit Purchase Agreement by and among the Company, Lanny M. Roof, Judith
      Lee and Michael Hlvasa, dated as of September 21, 2009 (incorporated
      herein by reference to Exhibit 10.1 to Company's current report filed on
      form 8-K filed on September 22, 2009).10.2
              
              Lock-Up
      Agreement with Tryon Capital Ventures, LLC as of September 21, 2009
      (incorporated herein by reference to Exhibit 10.2 to Company's current
      report filed on form 8-K filed on September 22, 2009).10.3
              
              Equipment
      Purchase Agreement, dated May 31, 2009 (incorporated herein by reference
      to Exhibit 10.3 to Company's current report filed on form 8-K filed on
      September 22, 2009).10.4
              
              Agreement
      with New Century Capital Partners dated as of November 16, 2009
      (incorporated herein by reference to Exhibit 10.4 to Company's current
      report filed on form 8-K filed on November 23,
  2009).
  26
  Exhibit
      No.
                
                Description10.5
                
                Purchase
      and Sale Agreement with Edward Mike Davis, L.L.C. for purchase of 100%
      interest in Church field dated as of October 1, 2009 (incorporated herein
      by reference to Exhibit 10.5 to Company's current report filed on form 8-K
      filed on November 13, 2009).10.6
                
                Purchase
      and Sale Agreement with Duane M. Freund Irrevocable Trust 2 for purchase
      of 50% interest in Church field dated as of October 1, 2009 (incorporated
      herein by reference to Exhibit 10.6 to Company's current report filed on
      form 8-K filed on November 13, 2009).10.7
                
                Amended
      and Restated Employment Agreement of Jeffrey Beunier dated December 31,
      2009 (incorporated herein by reference to Exhibit 10.8 to Company's
      current report filed on form 8-K filed on January 7,
  2010).10.8
                
                Amended
      and Restated Independent Director Agreement of James J. Miller dated
      December 31, 2009 (incorporated herein by reference to Exhibit 10.9 to
      Company's current report filed on form 8-K filed on January 7,
      2010).10.9
                
                Amended
      and Restated Non-Executive Director Appointment of Roger A. Parker dated
      December 31, 2009 (incorporated herein by reference to Exhibit 10.10 to
      Company's current report filed on form 8-K filed on January 7,
      2010).10.10
                
                Purchase
      and Sale Agreement with Roger A. Parker for Church field dated effective
      as of October 1, 2009 (incorporated herein by reference to Exhibit 10.11
      to Company's current report filed on form 8-K filed on January 21,
      2010).10.11
                
                Purchase
      and Sale Agreement with Edward Mike Davis, L.L.C. for Wilke Field dated
      effective as of January 1, 2010.10.12
                
                Credit
      Agreement with Hexagon Investments, LLC dated effective as of January 29,
      2010 (incorporated herein by reference to Exhibit 10.12 to Company's
      current report filed on form 8-K filed on March 4,
  2010).10.13
                
                Promissory
      Note for financing with Hexagon Investments, LLC dated as of January 29,
      2010 (incorporated herein by reference to Exhibit 10.13 to Company's
      current report filed on form 8-K filed on March 4,
  2010).10.14
                
                Nebraska
      Mortgage to Hexagon Investments, LLC dated as of January 29, 2010
      (incorporated herein by reference to Exhibit 10.14 to Company's current
      report filed on form 8-K filed on March 4, 2010).10.15
                
                Colorado
      Mortgage to Hexagon Investments, LLC dated as of January 29, 2010
      (incorporated herein by reference to Exhibit 10.15 to Company's current
      report filed on form 8-K filed on March 4, 2010).10.16
                
                Purchase
      and Sale Agreement with Edward Mike Davis, L.L.C. dated effective as of
      April 1, 2010 (incorporated herein by reference to Exhibit 10.16 to
      Company's current report filed on form 8-K filed on March 25,
      2010).10.17
                
                Credit
      Agreement with Hexagon Investments, LLC dated effective as of March 25,
      2010 (incorporated herein by reference to Exhibit 10.17 to Company's
      current report filed on form 8-K filed on March 25,
  2010).10.18
                
                Promissory
      Note for financing with Hexagon Investments, LLC dated as of March 25,
      2010 (incorporated herein by reference to Exhibit 10.18 to Company's
      current report filed on form 8-K filed on March 25,
  2010).10.19
                
                Nebraska
      Mortgage to Hexagon Investments, LLC dated as of March 25, 2010
      (incorporated herein by reference to Exhibit 10.19 to Company's current
      report filed on form 8-K filed on March 25,
  2010).
  27
  Exhibit
      No.
                
                Description10.20
                
                Wyoming
      Mortgage to Hexagon Investments, LLC dated as of March 25, 2010
      (incorporated herein by reference to Exhibit 10.20 to Company's current
      report filed on form 8-K filed on March 25, 2010).14.1
                
                Code
      of Ethics.21.1
                
                List
      of subsidiaries of the registrant (incorporated herein by reference to
      Exhibit 21.1 to Company's current report filed on form S-3 filed on
      January 11, 2010).23.1
                
                Consent
      of Hein & Associates LLP.31.1
                
                Certification
      of President, Chief Executive Officer, Chief Financial Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act
  of  2002.32.1
                
                Certification
      of President, Chief Executive Officer, Chief Financial Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act
  of  2002.
  28
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
   To the
Board of Directors and Shareholders
  Recovery
Energy, Inc.
  
  We have
audited the accompanying consolidated balance sheet of Recovery Energy, Inc. and
subsidiaries (formerly Universal Holdings, Inc.) (a development stage company)
as of December 31, 2009, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for the period from March 6, 2009
(Inception) through December 31, 2009.  These financial statements are
the responsibility of the Company’s management.  Our responsibility is
to express an opinion on these financial statements based on our
audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Recovery Energy, Inc. and
subsidiaries (formerly Universal Holdings, Inc.) as of December 31, 2009, and
the results of their operations and their cash flows for the period from
March 6, 2009 (Inception) through December 31, 2009, in conformity with
U.S. generally accepted accounting principles.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to the consolidated financial statements, the Company has incurred recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern.  The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
  We were
not engaged to examine management’s assessment of the effectiveness of Recovery
Energy, Inc.’s internal control over financial reporting as of December 31,
2009, included in the accompanying Management’s Report on Internal
Control over Financial Reportingand, accordingly, we do not express an
opinion thereon.
   /s/
HEIN& ASSOCIATES LLP
  Denver,
Colorado
  April 14, 2010
  F-1
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 CONSOLIDATED
BALANCE SHEET
 December
31, 2009
 
 AssetsCurrent
      AssetsCash
              
              $
              108,400Restricted
      Cash
              
              
              20,876Accounts
      Receivable
              
              
              100,000Prepaid
      assets
              
              
              55,249Total
      current assets
              
              
              284,525Property
      and Equipment
              
              
              470Other
      assetsRestricted
      cash and deposits
              
              
              110,031Assets
      held for sale, net of impairment of $2,750,000
              
              
              500,000Total
      other assets
              
              
              610,031Total
      assets
              
              $
              895,026Liabilities
      and Shareholders’ EquityCurrent
      LiabilitiesAccounts
      payable
              
              $
              106,355Related
      party payable – production payments
              
              
              70,876Common
      stock issuable
              
              
              100,000Accrued
      liabilities
              
              
              51,523Total
      current liabilities
              
              
              328,754Total
      liabilities
              
              
              328,754Common
      Stock subject to redemption rights, $0.0001 par value;85,000
      shares issued and outstanding
              
              
              172,516Other
      Shareholders’ EquityCommon
      Stock, $0.0001 par value: 100,000,000 shares authorized;10,774,000
      shares issued and outstanding (excluding 85,000 shares subject to
      redemption)as
      of December 31, 2009
              
              
              1,077Additional
      paid-in capital
              
              
              30,304,060Accumulated
      deficit during the development stage
              
              
              (29,911,381
              )Total
      other shareholders’ equity
              
              
              393,756Total
      Liabilities, Common Stock subject to redemption rights and Other
      Shareholders’ Equity
              
              $
              895,026
 
 The
accompanying notes are an integral part of these financial
statements.
  F-2
 
 RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 From
March 6, 2009 (Inception) through December 31, 2009
  ExpensesImpairment
      of equipment
              
              $
              2,750,000Fair
      value of common stock and warrants issued in attempted property
      acquisitions (non-cash consideration)
              
              
              8,404,106General
      and administrative (includes $684,778 in non-cash
      consideration)
              
              
              1,057,306Reorganization
      and merger costs (non-cash consideration)
              
              
              17,700,000Total
      operating expenses
              
              
              29,911,412Interest
      income
              
              
              31Net
      Loss
              
              $
              (29,911,381
              )Net
      loss per common share -basic  and
      diluted
              
              $
              (3.05
              )Weighted
      average shares outstanding -
              
              
              9,815,683basic
      and diluted
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
 From
March 6, 2009 (Inception) through December 31, 2009
  Other
      Shareholders' EquityAccumulatedDeficitCommon
      Stock Subject
                
                
                
                
                
                
                
                
                Additional
                
                
                During theto
      Redemption
                
                
                Common
      Stock
                
                
                Paid-In
                
                
                DevelopmentShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Stage
                
                
                TotalBalance
      at March 6, 2009 (Inception)
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Common
      stock issued in reverse merger, September 21, 2009 at $1.55 and $3.50 per
      share
                
                
                
                
                
                
                
                
                
                
                9,199,000
                
                
                
                920
                
                
                
                20,715,333
                
                
                
                
                
                
                
                20,716,253Common
      stock issued in lock-up agreement, September 21, 2009 at $2.35 per
      share
                
                
                85,000
                
                
                
                172,516
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Common
      stock issued in attempted Church acquisition, November 6, 2009 at $3.00
      per share
                
                
                
                
                
                
                
                
                
                
                250,000
                
                
                
                25
                
                
                
                749,975
                
                
                
                
                
                
                
                750,000Issuance
      of common stock for cash, November 13, 2009  and November 25,
      2009 at $4.00 per share
                
                
                
                
                
                
                
                
                
                
                125,000
                
                
                
                12
                
                
                
                499,988
                
                
                
                
                
                
                
                500,000Common
      stock issued in attempted acquisition, December 4, 2009 at
      $3.50  per share
                
                
                
                
                
                
                
                
                
                
                1,450,000
                
                
                
                145
                
                
                
                5,074,855
                
                
                
                
                
                
                
                5,075,000Restricted
      stock grants and performance options  to employees and directors
      September 2009 and November 2009 at $1.55 and $3.50,
      respectively
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                684,778
                
                
                
                
                
                
                
                684,778Warrants
      issued for financing commitment, December 11, 2009 at $4.44 per
      share
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,329,106
                
                
                
                
                
                
                
                3,329,106Common
      stock reacquired in attempted Church acquisition on December 15, 2009 at
      $3.00 per share
                
                
                
                
                
                
                
                
                
                
                (250,000
                )
                
                
                (25
                )
                
                
                (749,975
                )
                
                
                
                
                
                
                (750,000
                )Net
      Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (29,911,381
                )
                
                
                (29,911,381
                )Balance
      at December 31, 2009
                
                
                85,000
                
                
                $
                172,516
                
                
                
                10,774,000
                
                
                $
                1,077
                
                
                $
                30,304,060
                
                
                $
                (29,911,381
                )
                
                $
                393,756
 
 The
accompanying notes are an integral part of these financial
statements.
  F-4
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 From
March 6, 2009 (Inception) through December 31, 2009
 
  Cash
      flows from operating activitiesNet
      loss
                
                $
                (29,911,381
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Impairment
                
                
                2,750,000Fair
      value of warrants issued
                
                
                3,329,106Stock
      based compensation
                
                
                684,778Non-cash
      reorganization and merger costs
                
                
                17,700,000Loss
      on attempted property acquisitions
                
                
                5,075,000Changes
      in operating assets and liabilities:Accounts
      receivable - production payments
                
                
                (100,000
                )Other
      assets
                
                
                (55,249
                )Restricted
      cash
                
                
                (20,876
                )Accounts
      payable
                
                
                72,469Accrued
      expenses
                
                
                24,038Related
      party payable - production payments
                
                
                70,876Net
      cash used in operating activities
                
                
                (381,239
                )Cash
      flows from investing activitiesSale
      of properties
                
                
                1,500,000Restricted
      cash and operating bonds
                
                
                (110,031
                )Acquisition
      of cash purchased in acquisition
                
                
                140Purchase
      of property and equipment
                
                
                (750,470
                )Net
      cash provided by investing activities
                
                
                639,639Cash
      flows from financing activitiesCommon
      stock reacquired in attempted Church acquisition
                
                
                (750,000
                )Proceeds
      from sale of common stock
                
                
                500,000Common
      stock issuable
                
                
                100,000Net
      cash used in financing activities
                
                
                (150,000
                )Net
      increase in cash and cash equivalents
                
                
                108,400Cash
      and cash equivalents, beginning of period
                
                
                -Cash
      and cash equivalents, end of period
                
                $
                108,400
   The
accompanying notes are an integral part of these financial
statements.
  F-5
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
   Supplemental
      disclosure of non-cash investing and financing activitiesCash
      paid for interest
                
                $
                -Cash
      paid for income taxes
                
                $
                -Non-cash
      transactionsShares
      issued for non-cash settlement of note payable in reverse
      merger
                
                $
                3,250,000Purchase
      of rigs for notes payable
                
                $
                3,250,000Purchase
      of properties for common stock
                
                $
                5,825,000Purchase
      of property for note
                
                $
                2,200,000Default
      on notes in property acquisition
                
                $
                (2,200,000
                )Liabilities
      assumed in reverse merger:Accounts
      payable
                
                $
                1,386Notes
      payable
                
                $
                32,500
   
 The
accompanying notes are an integral part of these financial
statements.
  F-6
 RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
   
 NOTE
1 - ORGANIZATION AND NATURE OF OPERATIONS
 
 Organization
 
 On
September 21, 2009, Universal Holdings, Inc. (“Universal”), a Nevada
corporation, completed the acquisition of Coronado Acquisitions, LLC
(“Coronado”). Under the terms of the acquisition, Coronado was merged into
Universal. On October 12, 2009, Universal changed its name to Recovery Energy,
Inc. (“Recovery”). The Agreement was accounted for as a reverse acquisition with
Coronado being treated as the acquirer for accounting purposes. Accordingly, the
financial statements of Coronado have been adopted as the historical financial
statements of Recovery. See further discussion in Note 3.
 
 Nature of
Operations
 
 Recovery
is a development stage oil and gas exploration and production
company.
 
 Basis of Presentation and
Going Concern
 
 The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (“US
GAAP”), which contemplate our continuation as a going concern, whereby the
realization of assets and liquidation of liabilities are in the ordinary course
of business. We are currently in the development stage as we have not realized
any revenue since inception. Activities have included raising capital and
acquisitions. We have incurred net losses since inception, and as of December,
2009, had an accumulated deficit of $29,911,381, which includes total non-cash
charges from inception of approximately $29.5 million. These conditions raise
substantial doubt as to our ability to continue as a going concern. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be different should we be unable to
continue as a going concern.
 
 Management
recognizes that the Company must generate additional cash resources to enable it
to continue operations. We intend to raise additional financing through equity
financings or through other means that we deem necessary, with a view to
generating operating cash flow from oil and gas producing activities. However,
there is no assurance that we will be successful in raising additional capital.
Further, even if we raise additional capital, there is no assurance that we will
achieve profitability or positive cash flow. If we are unable to raise
additional capital and ultimately unable to achieve profitable operations and
positive cash flows, we will not be able to meet our obligations and may have to
cease operations.
 
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles
of Consolidation
 
 The
accompanying consolidated financial statements include Recovery Energy Inc and
its wholly−owned subsidiaries Recovery Oil and Gas, LLC, Recovery Energy
Services, LLC and Universal Products Marketing,
Inc.   Intercompany accounts and transactions have been
eliminated in consolidation.
 
 Use
of Estimates
 
 The
preparation of our financial statements in conformity with generally accepted
accounting principles requires us to make estimates and judgments that affect
the reported amount of assets, liabilities, revenues and expenses. These
estimates are based on information that is currently available to us and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results could vary significantly from those estimates
under different assumptions and conditions.  Significant estimates
include the valuation of common stock used in various issuance of common stock,
options and warrants and estimated fair value of the asset held for
sale.
 
 Critical
accounting policies are defined as those significant accounting policies that
are most critical to an understanding of a company’s financial condition and
results of operation. We consider an accounting estimate or judgment to be
critical if (i) it requires assumptions to be made that were uncertain at the
time the estimate was made, and (ii) changes in the estimate or different
estimates that could have been selected could have a material impact on our
results of operations or financial condition.
  F-7
 
 RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 
 
 Full
Cost Accounting
 
 The
Company follows the full cost method of accounting for oil and gas operations
whereby all costs related to exploration and development of oil and gas
properties are initially capitalized into a single cost center (“full cost
pool”). The Company records all capitalized costs into a single cost center as
all operations are conducted within The United States. Such costs include land
acquisition costs, geological and geophysical expenses carry charges on
non-producing properties, costs of drilling directly related to acquisition and
exploration activities. Proceeds from property sales are generally credit to the
full cost pool, with no gain or loss recognized, unless such a sale would
significantly alter the relationship between capitalized costs and the proved
reserves attributable to these costs. A significant alteration would typically
involve a sale of 25% or more of the proved reserves related to a single full
cost pool.
 
 Cash
and Cash Equivalents
 
 Cash and
cash equivalents include cash in banks and highly liquid debt securities that
have original maturities of three months or less. Financial instruments that
potentially subject the Company to concentration of credit risk consist
primarily of cash deposits.  Restricted cash consists of production
payments which are payable to others.
 Assets
held for sale
 
 Assets
held for sale are recorded at the lower of cost or estimated net realizable
value.
 
 Impairment
of Long-lived Assets
 
 The
Company accounts for the impairment and disposition of long-lived assets in
accordance with ASC 360, Impairment or Disposal of Long-Lived
Assets. ASC 360 requires that the Company’s long-lived assets, including
its drilling rigs, be assessed for potential impairment in their carrying values
whenever events or changes in circumstances indicate such impairment may have
occurred.  An impairment charge to current operations is recognized when
the estimated undiscounted future net cash flows of the asset are less than its
carrying value. Any such impairment is recognized based on the differences in
the carrying value and estimated fair value of the impaired asset.
 
 At
December 31, 2009 the Company owned two medium depth drill rigs.  The
company assessed the value of the Rigs at December 31, 2009 and concluded that
the rigs were impaired.  Accordingly, the company recognized an
impairment charge of $2,750,000 for the year ended December 31,
2009.
 
 Fair
Value of Financial Instruments
 
 The
Company’s financial instruments, including cash and cash equivalents, accounts
receivable, and accounts payable are carried at cost, which approximates fair
value due to the short term maturity of these instruments.
 
 Revenue
Recognition
 
 Other
than interest income, the Company did not have any revenues for the year ended
2009.   The Company will record the sale of natural gas and oil
as they are produced and sold.
 
 Share
Based Compensation
 
 The
Company accounts for share-based compensation in accordance with the provisions
of ASC 718— Stock Compensation which requires companies to estimate the fair
value of share-based payment awards made to employees and directors, including
stock options, restricted stock and employee stock purchases related to employee
stock purchase plans, on the date of grant using an option-pricing
model.  The value of the portion of the award that is ultimately
expected to vest is recognized as an expense ratably over the requisite service
periods.  We estimate the fair value of each share-based award using
the Black-Scholes option pricing model. The Black-Scholes model is highly
complex and dependent on key estimates by management. The estimates with the
greatest degree of subjective judgment are the estimated lives of the
stock-based awards and the estimated volatility of our stock price.
  F-8
 
 RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 
 
 Loss
per Common Share
 
 Basic
earnings (loss) per share is computed based on the weighted average number of
common shares outstanding during the period presented. In addition to common
shares outstanding, and in accordance with ASC 260 – Earnings per share. Diluted
loss per share is computed using the weighted-average number of common shares
outstanding plus the number of common shares that would be issued assuming
exercise or conversion of all potentially dilutive common shares had been
issued. Potentially dilutive securities, such as stock grants and stock purchase
warrants, are excluded from the calculation when their effect would be
anti-dilutive. For the period ending December 31, 2009, outstanding warrants of
750,000 and 1,484,200 restricted common stock grants have been excluded from the
diluted share calculations as they were anti-dilutive as a result of net losses
incurred. Accordingly, basic shares equal diluted shares for all periods
presented.
 
 Income
Taxes
 
 For tax
reporting, the Company will continue to file its tax returns on an April 30 year
end, which is the tax year end of Universal, the legal acquirer.  The
taxable income of Universal for the period from May 1, 2009 through September
21, 2009, the reverse merger date, has been included in the Company’s accounting
for income taxes as of December 31, 2009.
  The
Company uses the asset liability method in accounting for income taxes. Deferred
tax assets and liabilities are recognized for temporary differences between
financial statement carrying amounts and the tax bases of assets and
liabilities, and are measured using the tax rates expected to be in effect when
the differences reverse. Deferred tax assets are also recognized for operating
loss and tax credit carryforwards. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date. A valuation allowance is used to
reduce deferred tax assets when uncertainty exists regarding their
realization.
 
 On March
6, 2009, the Company adopted the provisions of ASC 740 –Income taxes. ASC 740
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Under ASC 740, we recognize tax benefits only for tax
positions that are more likely than not to be sustained upon examination by tax
authorities.  The amount recognized is measured as the largest amount
of benefit that is greater than 50 percent likely to be realized upon
settlement.  A liability for “unrecognized tax benefits” is recorded
for any tax benefits claimed in our tax returns that do not meet these
recognition and measurement standards.  As of December 31, 2009, the
Company has determined that no liability is required to be recognized due to
adoption of ASC 740.
 
 Our
policy is to recognize any interest and penalties related to unrecognized tax
benefits in income tax expense.  However, we did not accrue interest
or penalties at December 31, 2009, because the jurisdiction in which we have
unrecognized tax benefits does not currently impose interest on underpayments of
tax and we believe that we are below the minimum statutory threshold for
imposition of penalties.  We do not expect that the total amount of
unrecognized tax benefits will significantly increase or decrease during the
next 12 months.  In our major tax jurisdiction, the earliest years
remaining subject to examination are April 20, 2008 and April 30,
2009.
 Recently
Issued Accounting Pronouncements
 
 Recent
accounting pronouncements that the Company has adopted or will be required to
adopt in the future are summarized below:
 
 In June
2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (“ASC 105”). The Accounting Standards Codification (“ASC”)
has become the source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernment entities. It also modifies the GAAP hierarchy to
include only two levels of GAAP; authoritative and
nonauthoritative.  Pursuant to the provisions of ASC 105, the Company
has used the ASC references to GAAP in its financial statements. The adoption of
ASC 105 did not have an impact on the Company’s financial position, results of
operations or cash flows.
 
 In
September 2006, the ASC guidance for fair value measurements was updated to
define fair value, establish a framework for measuring fair value, and expand
disclosures related to fair value. The Company adopted the updated guidance for
assets and liabilities measured at fair value on a recurring basis on March 6,
2009. In February 2008, the FASB issued an update to the guidance, which delayed
the effective date for nonfinancial assets and liabilities, including asset
retirement obligations, that are recognized or disclosed at fair value on a
nonrecurring basis (less frequent than annually). The Company adopted the
updated guidance for nonfinancial assets and liabilities on Effective for the
year ended December 31, 2009.
 F-9
 
 RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 
 In April
2009, the guidance was again updated to provide additional guidance on
determining fair value when the volume and level of activity for the asset or
liability have significantly decreased and identifying circumstances that
indicate when a transaction is not orderly. The Company adopted this guidance
effective for the year ended December 31, 2009. In August 2009, the ASC provided
further guidance related to the fair value of liabilities. This update provides
clarification for circumstances in which: (i) a quoted price in an active market
for the identical liability is not available, (ii) the liability has a
restriction that prevents its transfer, and (iii) the identical liability is
traded as an asset in an active market in which no adjustments to the quoted
price of an asset are required. The Company adopted this update effective for
the year ended December 31, 2009. None of the aforementioned adoptions related
to fair value had a material impact on its financial position, results of
operations or cash flows.
 
 In May
2009, the ASC guidance for subsequent events was updated to establish general
standards of accounting for and disclosures of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. The Company adopted this guidance effective for the year ended
December 31, 2009.  See Note 11 for the Company’s disclosures about
subsequent events.
 
 In June
2008, the ASC guidance was updated to provide clarification as to whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore, need to be included in computing
earnings per share under the two-class method provided under ASC 260 — Earnings
Per Share. The Company adopted this standard effective for the year ended
December 31, 2009. The adoption of this guidance did not have a material impact
on the Company’s financial position, results of operations or cash
flows.
 
 In March
2008, the ASC guidance for derivatives and hedging instruments was updated for
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items (if any) are accounted for,
and how they affect the Company’s financial position, financial performance and
cash flows. The Company adopted the updated guidance effective for the year
ended December 31, 2009. See Note 6 for the Company’s disclosures about its
derivative instruments and hedging activities.
 
 In
November 2007, the ASC guidance for business combinations was updated to provide
new guidance for recognizing and measuring the assets and goodwill acquired and
liabilities assumed in an acquisition. The updated guidance also broadened the
definition of a business combination and requires an entity to recognize
transaction costs separately from the acquisition. The Company adopted the
updated guidance effective for the year ended December 31, 2009.
 
 In
January 2010, the ASC guidance for reporting oil and gas reserves was updated to
align the oil and gas reserve estimation and disclosure requirements with the
requirements in the SEC’s final rule, Modernization of the Oil and Gas Reporting
Requirements. The new guidance expands the definition of reserves, which allows
consideration of new technologies. In addition, oil and gas reserves are
reported using an average, first-day-of-the-month price based on the prior
12-month period, rather than year-end prices. The new rule is effective for
annual reporting periods ending on or after December 31, 2009. The Company
adopted these provisions effective December 31, 2009.
 
 New
Accounting Pronouncements
 In
January 2010, the FASB issued ASC Update No. 2010-06, an additional update to
the ASC guidance for fair value measurements. The new guidance requires
additional disclosures about (1) the different classes of assets and liabilities
measured at fair value, (2) the valuation techniques and inputs used, (3) the
activity in Level 3 fair value measurements, and (4) the transfers between
Levels 1, 2, and 3. The updated guidance is effective for annual and interim
periods beginning December 15, 2009, except for the disclosures about the
activity in Level 3 fair value measurements, for which the new guidance is
effective for fiscal years beginning after December 15, 2010. The adoption of
ASC Update 2010-06 is not expected to have a material impact on the Company’s
financial position, results of operations or cash flows.
 F-10
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
  NOTE
3 - MERGER TRANSACTIONS
  On
September 21, 2009 Recovery Energy, Inc (formerly known as Universal Holdings,
Inc), a non-operating public shell corporation, was merged into Coronado
Resources, LLC (“Coronado”), with Universal Holdings (“Universal”) being the
surviving legal entity.  The primary reason for the merger was to
create an entity which allowed Coronado additional opportunities to raise
capital and to provide investors a long-term, public trading market for their
common shares.
 
 In
connection with the merger, the Company also agreed to convert a note that was
issued by Coronado on May 31, 2009 in the principal amount of $3,250,000 (the
“Coronado Note”).  The Coronado Note was issued by Coronado to an
agent for Capital Asset Lending, Inc., a California corporation, Westmoore
Lending, LLC, a California limited liability company, and Westmoore Lending
Opportunities, LLC, a California limited liability company (collectively, the
“Coronado Noteholders”).  Pursuant to the terms of the Coronado Note,
Coronado, at its option, may pay the principal amount of $3,250,000 in shares of
a publicly listed company at the rate of one dollar and fifty five cents per
share provided the publicly traded company is in current status with its
Securities and Exchange Commission (SEC) filing requirements and at the time of
tender is quoted on the OTCBB.  Accordingly, under the terms of the
Coronado Note, the Company has agreed to issue an aggregate of 2,100,000 shares
of its common stock, par value $0.0001 per share, to the Coronado Noteholders in
full satisfaction of the Coronado Note.  In conjunction with the
merger, Recovery’s controlling shareholders acquired 5,000,000 shares held by
the previous officers of Universal Holdings, Inc.  Recovery recognized
a reorganization and merger costs of $17,500,000 related to the acquisition of
these shares.
  Recovery
issued a total of 2,185,000 shares of its common stock as a result of the
reverse merger.
  As a
result of this merger, Coronado was deemed the acquirer for accounting purposes,
and the transaction was accounted for as a reverse
acquisition.  Further, we followed the current guidance of the SEC
related to reverse mergers between a private company and a public shell company,
and considered the reverse merger as equivalent to a reverse
capitalization.  Accordingly, as per SEC guidance for this type of
transaction, we recorded no goodwill in the merger.
  Assets
acquired and liabilities assumed of Universal by Coronado on September 21, 2009
based on their fair values were as follows:
  Cash
              
              $
              140Accounts
      payable
              
              
              (1,386
              )Note
      payable related party
              
              
              (32,500
              )Net
      liabilities assumed
              
              $
              (33,746
              )
  In the
consolidated statement of operations, expenses include the operations of
Universal since September 21, 2009 which is the acquisition date.  The
following proforma information presents the results of operations for the year
ended December 31, 2009 as if the acquisition had occurred on March 6,
2009:
  (unaudited)Revenue
              
              $
              -Net
      Loss
              
              $
              29,977,280Earnings
      (loss) per share
              
              $
              (3.05
              )
  For all
periods presented, the financial statements of Coronado have been adopted as the
historic financial statements of Recovery.  On October 12, 2009 the
name of the Company was changed to Recovery Energy, Inc.
 F-11
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 
 
 NOTE
4 – ATTEMPTED PROPERTY ACQUISITIONS AND COMMITMENTS
 
 During
the fourth quarter of 2009, the Company pursued a number of acquisition
opportunities.  We entered into two purchase and sale agreements with
Edward Mike Davis, LLC (“Davis”) for the purchase of oil and gas properties, one
effective October 1, 2009 for the Church Field and the other effective December
1, 2009 for the Wilke Field.  Simultaneously with the execution of the
Church Field agreement, we sold 50% of the interests to a third party for
$750,000.
 
 Pursuant
to the Church Field agreement, the Company paid $750,000 in cash and issued
250,000 shares of common stock, which Davis could put back to the Company at its
election for $750,000. The Company sold to IEXCO, LLC, a company controlled by
Roger A. Parker, chairman of our Board of Directors, its remaining 50% interest
in the properties for $750,000 cash. Pursuant to this agreement with IEXCO, LLC,
the Company had the right to repurchase such interest at $825,000 exercisable
until March 15, 2010. The Company did not exercise its repurchase option with
IEXCO, LLC and therefore does not currently own an interest in the Church Field.
Davis also elected to require Recovery to repurchase the 250,000 shares of
common stock issued as part of the purchase for $750,000. Starting in January
2010, Recovery was appointed as the operator for the Church Field and
accordingly Recovery charges the working interest owners operator’s fee for each
well each month. IEXCO, LLC will pay Recovery its share of the operator fee
which is 50% of the monthly per well charge.
 
 Under the
second agreement (Wilke Field), we were required to pay the $2,200,000 cash
portion of the purchase price on December 18, 2009 and issue 1,450,000 shares of
common stock which we valued at $3.50 per share.  As the payment
was not made as of December 31, 2009 the property reverted back to Davis and the
Company retained an option to repurchase the property at Davis’s discretion
through January 15, 2010.   As a result of the default under the
purchase and sale agreement, the Company was not successful in acquiring the
Wilke Field prior to year end and incurred a non-cash expense of $5,075,000
related to the 1,450,000 shares issued in conjunction with the transaction and
retained by the seller.  In January 2010, the Company reacquired the
Wilke property (see Note 11).
 
 As part
of the pursuit of the property acquisitions, the Company issued warrants for
750,000 shares of the Company’s common stock (as more fully described in Note 7)
in exchange for an equity commitment related specifically to a potential
acquisition.  The Company was not the successful bidder for the
acquisition and realized the fair value of the warrants as non-cash expense of
$3,329,106.
 
 For the
period ended December 31, 2009, the Company accrued $100,000 in accounts
receivable and had an offset in payables (including $70,876 to related parties
for production payments) related to the Church acquisition, with no impact on
the statement of operations as this was considered a contingent purchase for
financial reporting.
 NOTE
5 – DRILLING RIGS
  In May
2009, two drilling rigs were contributed to the Company for a note of
$3,250,000.  These rigs were recorded at estimated fair value as this
was lower than their predecessor cost basis.  The note holder
subsequently converted the note for 2,100,000 shares of common stock (Note
3).  These rigs require certain capital improvements prior to their
ability to be functional in operations.
  New
management has determined that future drilling operations are not part of their
strategic plans.  Therefore, the rigs are currently held for
sale.
  Subsequent
to year end, the Company received a letter of intent (LOI) to sell the rigs for
$700,000 under which the Company would receive $100,000 cash and the balance in
a five-year note.  Management has estimated the net realizable value
to be $500,000; therefore, an impairment has been recorded of
$2,750,000.  The LOI is subject to various terms and conditions and
has not yet closed.  Any gain will be recognized on a cost recovery
basis in the future.
 F-12
 
 RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
  
 NOTE
6 - FINANCIAL INSTRUMENTS AND DERIVATIVES
 
 As of
December 31, 2009, we had no commodity swaps. During March 2010, the Company
entered into two commodity derivative financial instruments intended to hedge
our exposure to market fluctuations of oil prices.  As of April 15,
2010, we had commodity swaps for the following oil volumes:
 
 Barrels
      per
                quarter
              
              
              Barrels
      per
                Day
              
              
              Price
      per
                barrel2010Second
      quarter
              
              
              7,200
              
              
              
              80
              
              
              $
              83.20Third
      quarter
              
              
              6,300
              
              
              
              70
              
              
              $
              83.20Fourth
      quarter
              
              
              5,400
              
              
              
              60
              
              
              $
              83.202011First
      quarter
              
              
              4,500
              
              
              
              50
              
              
              $
              83.20
 
 2010Second
      quarter
              
              
              7,200
              
              
              
              80
              
              
              $
              81.25Third
      quarter
              
              
              6,300
              
              
              
              70
              
              
              $
              81.25Fourth
      quarter
              
              
              5,400
              
              
              
              60
              
              
              $
              81.252011First
      quarter
              
              
              4,500
              
              
              
              50
              
              
              $
              81.25
 
 NOTE
7 - SHARE BASED COMPENSATION
 
 Recovery
has not adopted a Stock Incentive Plan for its management team.  Each
member of the board of directors and the management team was awarded restricted
stock grants in their respective appointment or employment
agreements.
 
 Recovery
accounts for stock based compensation arrangements in accordance with the
provisions of  ASC
718 Compensation – Stock Compensation.  ASC 718 requires measurement
and recording to the financial statements of the costs of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award, recognized over the period during which an employee is
required to provide services in exchange for such award. Recovery has
implemented ASC 718 effective March 6, 2009.
 
 On
September 21, 2009, we granted 464,200 shares of restricted common stock to our
new Chief Executive Officer. 20% of the shares vest on January 1, 2011 with the
remaining 371,360 shares vesting quarterly in equal amounts on April 1, July 1,
October 1, and January 1, 2011, 2012, 2013 and 2014. The fair value of these
shares was $719,510 based on the price we obtained for the restricted stock
private placements prior to or concurrent with the stock grants.
 
 On
November 12, 2009 we granted 1,000,000 shares of restricted common stock, to our
new Chairman of the Board. These shares vest on January 1, 2011. The fair value
of these shares was $3,500,000 based on the price we obtained for the restricted
stock private placements prior to or concurrent with the stock
grants.
 
 On
November 16, 2009 we granted 20,000 shares of restricted common stock to a board
member. 12,500 shares of the stock vest on January 1, 2011 and the remaining
7,500 shares vest in equal amounts quarterly on April 1, July 1, and September
1, 2011.  The fair value of these shares was $70,000 based on the
price we obtained for private placements prior to or concurrent with the
restricted stock grants. Preferred shares may be issued by the board of
directors in such series and preferences as determined by the board of
directors.
 
 We
recognized stock compensation expense of $684,778 for the year ended December
31, 2009.
  F-13
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
  A summary
of stock grant activity for the year ended December 31, 2009 is presented
below:
  SharesUnregistered
      restricted stock grants outstanding at March 6, 2009
              
              
              -Granted
              
              
              1,484,200Vested
              
              
              -Outstanding
      at December 31, 2009
              
              
              1,484,200
 
 Total
unrecognized compensation cost related to non-vested stock granted was
$3,804,733 as of December 31, 2009. The cost at December 31, 2009 is expected to
be recognized over a weighted-average remaining service period of 1.22
years.
  A summary
of warrant activity for the year ended December 31, 2009 is presented
below:
  Weighted-AverageShares
              
              Exercise
      PriceOutstanding
      at March 6, 2009
              
              
              -
              
              
              
              -Granted
              
              
              750,000
              
              
              $
              3.50Exercised,
      forfeited, or expired
              
              
              -
              
              
              
              -Outstanding
      at December 31, 2009
              
              
              750,000
              
              
              $
              3.50Exercisable
      at December 31, 2009
              
              
              750,000
              
              
              $
              3.50
 
 The
aggregate intrinsic value of warrants as of December 31, 2009 was $1,500,000
based on the Company’s December 31, 2009 closing common stock price of $5.50;
and the weighted average remaining contract life was 4.92 years.  The
Company utilized an average risk free rate of 1.49%, a dividend yield of 0%,
expected volatility of 230%, and an expected term of 5 years to calculate the
fair value of the warrants.
 
 In
conjunction with the merger, Recovery’s controlling shareholders acquired
5,000,000 shares held by the previous officers of Universal Holdings,
Inc.  Recovery recognized a non-cash reorganization and merger expense
of $17,500,000 related to the acquisition of these shares.  The fair
value of the shares was calculated at $3.50 as this was the price per share for
the most recent private placement completed by the Company.
  NOTE
8 - SHAREHOLDERS’ EQUITY
 
 On
September 21, 2009 Coronado Resources, LLC merged with Recovery Energy, Inc
(f/k/a Universal Holdings, Inc).  Coronado assumed all existing assets
and liabilities of Recovery.  Recovery issued 85,000 additional shares
in conjunction with the reverse merger under a lock-up agreement and Recovery
exchanged an existing $3,250,000 note payable into 2,100,000 shares simultaneous
with the reverse merger.  The controlling shareholder group acquired 5
million shares previously owned by Universal Holdings, Inc’s executives in
conjunction with the merger.  During the fourth quarter, Recovery
issued 1,825,000 shares, of which 250,000 were reacquired by the company under a
contractual repurchase requirement.
 
 As of
December 31, 2009 Recovery has 100,000,000 shares of common stock and 10,000,000
shares of preferred stock authorized, of which 11,024,000 of common shares were
issued and 10,774,000 of common shares were outstanding (not including the
85,000 shares issued and outstanding under a lock-up agreement).  No
preferred shares were issued or outstanding, such shares, however, may be issued
in such series and preferences as determined by the Board of
Directors.  85,000 shares of common stock were issued and outstanding
under a lock-up agreement that has terms which may result in the Company
reacquiring the shares due to circumstances outside of the Company’s control and
therefore the shares are preferential to common shares.  The 85,000
shares covered by the lock-up agreement are treated as temporary equity and
reported separately from other shareholders’ equity.
  F-14
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
  As part
of the lock-up agreement, the holder of the shares has the right to put the
shares back to Recovery based on certain valuations of the shares at specific
dates.  The holder of the shares may require Recovery to repurchase
42,500 shares on September 21, 2010 at $0.59 per share ($25,000) if the market
value of the shares is less than $25,000 (First Lock-Up
period).  Additionally, the holder of the shares may require Recovery
to repurchase 42,500 shares on March 21, 2011 at $0.59 per share ($25,000) if
the market value of the shares is less than $25,000 (Second Lock-Up period). To
properly account for the option held by the holder of the shares in accordance
with ASC 815 and ASR 99-1, Recovery calculated the fair value of the put
agreement for each lock-up period utilizing Black-Scholes and recorded a
liability equal to the fair value of the put options.  Additionally,
Recovery recorded the difference between the fair value of the put options and
the agreed upon value of the shares as temporary equity.
 
 To
calculate the fair value of the put option utilizing Black-Scholes, the Company
utilized a price of stock at issuance $5.00, expected volatility of 230%, a
strike price of  $0.59 ($25,000/42,500 shares = $0.59), an expected
term of 12 months (9/21/2010) for one-half (1/2) of the Shares and eighteen
months for  one-half (1/2) of the Shares (3/21/2011), a risk free
rate: 0.88%, and a dividend yield: 0%.  The Company realized the fair
value of the non-cash expense and liability associated with put option rights of
$27,484 included within accrued expenses and classified the equity related
to these shares as $172,516 in temporary equity.
 
 In
December 2009, the Company sold 66,667 shares at $1.50 per share to a major
shareholder, but has yet to receive the signed agreement.  This amount
is reflected as common stock issuable as of December 31,
2009.
 NOTE
9 - INCOME TAXES
 
 The tax
effects of temporary differences that gave rise to the deferred tax liabilities
and deferred tax assets as of December 31, 2009 were:
  2009Deferred
      tax assets:Net
      operating loss carry-forward
                
                $
                2,670,740Share-based
      compensation
                
                
                1,022,045Accrued
      compensation
                
                
                4,386Property
      and equipment
                
                
                1,045,275Total  deferred
      tax asset
                
                
                4,742,446
  Valuation
      allowance
                
                
                (4,742,446)Net
      deferred tax asset
                
                $
                -
 Reconciliation
of Company’s effective tax rate to the expected federal tax rate
is:
  2009Effective
      federal tax rate
                
                
                35.00%Effect
      of permanent differences
                
                
                (20.40%)State
      tax rate
                
                
                3.01%Other
                
                
                (1.76%)Valuation
      allowance
                
                
                (15.85%)Net
                
                
                0%
  At
December 31, 2009, Recovery had net operating loss carry-forwards for federal
income tax purposes of approximately $6,800,000 that may be offset against
future taxable income. Recovery has established a valuation allowance for the
full amount of the deferred tax assets as management does not currently believe
that it is more likely than not that these assets will be recovered in the
foreseeable future. To the extent not utilized, the net operating loss
carry-forwards will expire in 2029.
 
  F-15
 
 RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
  NOTE
10 - COMMITMENTS and CONTINGENCIES
 
 Environmental
and Governmental Regulation – At December 31, 2009 there were no known
environmental or regulatory matters which are reasonably expected to result in a
material liability to the Company.  Many aspects of the oil and gas
industry are extensively regulated by federal, state, and local governments in
all areas in which the Company has operations. Regulations govern such things as
drilling permits, environmental protection and pollution control, spacing of
wells, the unitization and pooling of properties, reports concerning operations,
royalty rates, and various other matters including taxation.  Oil and
gas industry legislation and administrative regulations are periodically changed
for a variety of political, economic, and other reasons.  As of
December 31, 2009, the Company has not been fined or cited for any violations of
governmental regulations that would have a material adverse effect upon the
financial condition of the Company.
 
 Legal
Proceedings – The Company may from time to time be involved in various
other legal actions arising in the normal course of business.  In the
opinion of management, the Company’s liability, if any, in these pending actions
would not have a material adverse effect on the financial positions of the
Company.  The Company’s general and administrative expenses would
include amounts incurred to resolve claims made against the
Company.
 
 Potential
Stock Grants under Employment/Appointment Agreements - The employment
agreement for our chief executive officer and the appointment agreement for our
chairman of the board contain provisions which provide these individuals
additional stock grants if the Company achieves certain market capitalization
miles stones.
  Each of
our chief executive officer and our chairman are entitled to:
 
 (1)
              Upon
      the Company’s attainment of market capitalization of $100,000,000 or more,
      100,000 shares of fully-vested Common
Stock;
 (2)
              Upon
      the Company’s attainment of market capitalization of at least $200,000,000
      or more, the shares specified under subsection (1) to the extent not yet
      issued, plus 200,000 shares of fully-vested Common
  Stock;
 (3)
              Upon
      the Company’s attainment of market capitalization of $300,000,000 or more,
      the shares specified under subsections (1) and (2) to the extent not yet
      issued, plus 300,000 shares of fully-vested Common
  Stock;
 (4)
              Upon
      the Company’s attainment of market capitalization of $400,000,000 or more,
      the shares specified under subsections (1), (2) and (3) to the extent not
      yet issued, plus 400,000 shares of fully-vested Common Stock;
      and
 (5)
              Upon
      the Company’s attainment of market capitalization of $500,000,000 or more,
      the shares specified under subsections (1), (2), (3) and (4) to the extent
      not yet issued, plus 500,000 shares of fully-vested Common
      Stock.
  No shares
have been issued under these agreements, however under ASC 718
Compensation—Stock Compensation, the Company recorded $200,000 of expense during
the period ending December 31, 2009.
 F-16
  RECOVERY
ENERGY, INC.
 (A
Development Stage Company)
 
  NOTE
11 - SUBSEQUENT EVENTS
  In
January, 2010 the Company reacquired the Wilke Field from Davis for $4,500,000
effective as of January 1, 2010.  Included in the acquisition were
seven producing wells and a 50% working interest in two development prospects
located in Nebraska and Colorado.  In February, 2010 the Company
entered into a credit agreement with Hexagon Investments, LLC to finance 100% of
the repurchase of the Wilke Field properties.   The loan bears annual
interest of 15%, will mature on December 1, 2010 and is collateralized by
mortgages on the Wilke Field properties.  Hexagon Investments received
1,000,000 shares of the Company's common stock in connection with the
financing.  Hexagon Investments has the right to cause the sale of the
Wilke Field properties and use the proceeds to repay the loan at any time after
October 29, 2010 if the Company has not completed a private equity sale by that
date sufficient to repay the loan in full on or before December 1,
2010.  The credit agreement contained customary terms such as
representations and warranties and indemnification.
 
 In March,
2010 the Company acquired the Albin Field properties from Davis for $6,000,000
and 550,000 shares of our common stock.  We simultaneously entered
into a loan agreement with Hexagon Investments to finance 100% of the cash
portion of the purchase price.  The loan bears annual interest of 15%,
will mature on December 1, 2010 and is collateralized by mortgages on the Albin
Field properties.  Hexagon Investments received 750,000 shares of the
Company’s common stock in connection with the financing.  Hexagon
Investments has the right to cause the sale of the Albin Field properties and
use the proceeds to repay the loan at any time after October 29, 2010 if the
Company has not completed a private equity sale by that date sufficient to repay
the loan in full on or before December 1, 2010.  The credit agreement
contains customary terms such as representations and warranties and
indemnification.
 
 In
January, 2010 the Company filed a registration statement for 1,450,000 shares
issued under the first purchase agreement for the Wilke field described
above.  The statement has not become effective as of the date of this
filing.
 
 Subsequent
events were evaluated up to the filing with the SEC of these financial
statements.
 F-17




SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.








RECOVERY
      ENERGY INCDate: April
      14, 2010
            By:
            /s/ Jeffrey
      A BeunierJeffrey
      A BeunierChief
      Executive Officer
              (Authorized
      Signatory)





Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and the
capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/
      Roger A. Parker
            
            Chairman
      of the Board
            
            April
      14, 2010Roger
      A Parker/s/
      Jeffrey A Beunier
            
            Chief
      Executive Officer
            
            April
      14, 2010Jeffrey
      A Beunier
            
            (Principal
      Executive Officer)/s/
      Jeffrey A Beunier
            
            Chief
      Financial Officer
            
            April
      14, 2010Jeffrey
      A Beunier
            
            (Principal
      Financial Officer)/s/
      Jeffrey A Beunier
            
            Chief
      Accounting Officer
            
            April
      14, 2010Jeffrey
      A Beunier
            
            (Principal
      Accounting Officer)/s/
      James J Miller
            
            Director
            
            April
      14, 2010James
      J Miller/s/
      Jeffrey A Beunier
            
            Director
            
            April
      14, 2010Jeffrey
      A Beunier