UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549







FORM 10-Q





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





For the quarterly period ended September 30, 2013


or





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





For the transition period from_____________ to ___________________





Commission File Number 000-24688





Radiant Oil & Gas, Inc.


(Exact name of registrant as specified in its charter)





Nevada
27-2425368(State or other jurisdiction of Incorporation or organization)
(I.R.S. Employer Identification No.)9700 Richmond Avenue, Suite 124
77042Houston, Texas
(Zip Code)(Address of principal executive offices)





Registrant’s telephone number, including area code:(832) 242-6000





NONE


(Former name, former address and former fiscal year, if changed since last report.)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes o No x[­See Explanatory Note]





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes o No x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
o
Accelerated filer
oNon-accelerated filer
o(Do not check if a smaller reporting company)
Smaller reporting company
x





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


Yes o Nox





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





Class
Outstanding as of January 16, 2014Common Stock
16,219,408





EXPLANATORY NOTE: The registrant filed a Comprehensive 10-K report on January 22, 2014 for the periods ending December 31, 2012 and 2011. This comprehensive 10-K included business and financial information, as well as certain disclosures of subsequent events pertaining to material events occurring up until the date of filing of the Comprehensive Form 10-K.




For a more complete understanding of the matters involving the Company, this Form 10-Q should be read together with the Comprehensive 10-K as well as the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013, that were filed simultaneously with this Form 10-Q.




Table of Contents





TABLEOF CONTENTS




PART I - FINANCIAL INFORMATIONItem 1.
Financial StatementsConsolidated Balance Sheets (Unaudited)
1Consolidated Statements of Operations (Unaudited)
2Consolidated Statement of Changes in Stockholders' Deficit (Unaudited)
3Consolidated Statements of Cash Flows (Unaudited)
4Notes to Condensed Financial Statements (Unaudited)
5Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17Item 3.
Quantitative and Qualitative Disclosures About Market Risk
22Item 4.
Controls and Procedures
22PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
23Item 1A.
Risk Factors
23Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
23Item 3.
Defaults Upon Senior Securities
23Item 4.
Mine Safety Disclosures
23Item 5.
Other Information
23Item 6.
Exhibits
23Signatures
24





Table of Contents





CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION





This quarterly report on Form 10-Q of Radiant Oil & Gas, Inc. contains forward-looking statements relating to Radiant’s operations that are based on management’s current expectations, estimates and projections about the petroleum, chemicals and other energy-related industries.  Words such as “anticipates,” “expects,” “intends,” “plans,” “targets,” “projects,” “believes,” “seeks,” “schedules,” “estimates,” “budgets” and similar expressions are intended to identify such forward-looking statements.  These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond the company’s control and are difficult to predict.  Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.  The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this report.  Unless legally required, Radiant undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.





Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are: changing crude oil and natural gas prices; changing refining, marketing and chemical margins; actions of competitors or regulators; timing of exploration expenses; timing of crude oil liftings; the competitiveness of alternate-energy sources or product substitutes; technological developments; the results of operations and financial condition of equity affiliates; the inability or failure of the company’s joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from existing and future crude oil and natural gas development projects; potential delays in the development, construction or start-up of planned projects; the potential disruption or interruption of the company’s net production or manufacturing facilities or delivery/transportation networks due to war, accidents, political events, civil unrest, severe weather or crude oil production quotas that might be imposed by the Organization of Petroleum Exporting Countries; the potential liability for remedial actions or assessments under existing or future environmental statutes, regulations and litigation; the potential liability resulting from other pending or future litigation; the company’s future acquisition or disposition of assets and gains and losses from asset dispositions or impairments; government-mandated sales, divestitures, recapitalizations, industry-specific taxes, changes in fiscal terms or restrictions on scope of company operations; foreign currency movements compared with the U.S. dollar; the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies; and the factors set forth under the heading “Risk Factors” on page 14 of the company’s Comprehensive Form 10-K.  In addition, such statements could be affected by general domestic and international economic and political conditions.  Other unpredictable or unknown factors not discussed in this report could also have material adverse effects on forward-looking statements.





CERTAIN TERMS USED IN THIS REPORT





When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Radiant Oil & Gas, Inc. “SEC” refers to the Securities and Exchange Commission.





Table of Contents




PART I - FINANCIAL INFORMATION





Item1.
Financial Statements





RADIANT OILAND GAS, INC.


Consolidated Balance Sheets


(Unaudited)





September 30, 2013


December 31, 2012ASSETSCURRENT ASSETSCash and cash equivalents

$
117,100


$
162,330Prepaid Expenses


79,540



-Other current assets


115,266



115,029Due from related parties


364,122



366,277TOTAL CURRENT ASSETS


676,028



643,636PROPERTY AND EQUIPMENTUnevaluated property, accounted for using the full cost method of accounting


57,190



-Property and equipment, net of accumulated depreciation of$185,727 and $183,933, respectively


587



3,278TOTAL PROPERTY AND EQUIPMENT


57,777



3,278TOTAL ASSETS

$
733,805


$
646,914LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIESAccounts payable and accrued expenses

$
1,457,404


$
1,353,160Cash advance on acquisition option


55,565



55,565Notes payable


3,537,387



3,497,081Convertible notes payable


142,500



142,500Accrued interest


1,122,140



862,092Due to related parties


980,316



914,968Derivative liabilities


1,066,697



455,348TOTAL CURRENT LIABILITIES


8,362,009



7,280,714Deferred gain


927,831



887,076Asset retirement obligations


100,000



100,000TOTAL LIABILITIES


9,389,840



8,267,790Commitments and contingencies


50,000



50,000STOCKHOLDERS' DEFICITCommon stock, $0.01 par value, 100,000,000 shares authorized,

12,024,769 and 11,847,813 shares issued and outstanding

respectively as of September 30, 2013 and December 31,2012


120,248



118,478Additional paid-in capital


3,660,956



3,401,328Accumulated deficit


(12,487,239
)


(11,190,682
)TOTAL STOCKHOLDERS' DEFICIT


(8,706,035
)


(7,670,876
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
733,805


$
646,914





The accompanying footnotes are an integral part of these unaudited financial statements




1
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RADIANTOIL AND GAS, INC.


Consolidated Statements of Operations


(Unaudited)





Three months ended


Nine months endedSeptember 30,


September 30,2013


2012


2013


2012OPERATING EXPENSES:Depreciation, depletion, and amortization

$
897


$
897


$
2,691


$
2,790General and administrative expense


293,634



396,610



982,155



718,846TOTAL OPERATING EXPENSES


294,531



397,507



984,846



721,636OPERATING LOSS


(294,531
)


(397,507
)


(984,846
)


(721,636
)OTHER (INCOME) EXPENSE:Loss (gain) on derivative liabilities


(53,292
)


36,081



(138,208
)


122,018Loss on warrant derivative


149,557



-



149,557



-Other income


-



-



-



(250,000
)Interest expense


128,974



78,694



300,362



233,516Total other (income) expenses


225,239



114,775



311,711



105,534NET LOSS

$
(519,770
)

$
(512,282
)

$
(1,296,557
)

$
(827,170
)LOSS PER SHARE - Basic and diluted

$
(0.04
)

$
(0.04
)

$
(0.11
)

$
(0.07
)WEIGHTED AVERAGE SHARES OUTSTANDING -Basic and diluted


12,024,769



11,847,813



12,000,891



11,668,134





The accompanying footnotes are an integral part of these unaudited financial statements





2
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RADIANTOIL AND GAS, INC.


Consolidated Statements of Stockholders’ Deficit


For the nine month period ended September 30, 2013


(Unaudited)




Additional





TotalCommon Stock


Paid-in


Accumulated


Stockholders'Shares


Amount


Capital


Deficit


DeficitBalance at December 31, 2012


11,847,813


$
118,478


$
3,401,328


$
(11,190,682
)

$
(7,670,876
)Common stock issued for cash


176,956



1,770



143,230



-



145,000Stock based compensation


-



-



116,398



-



116,398Net loss


-



-



-



(1,296,557
)


(1,296,557
)Balance at September 30, 2013


12,024,769


$
120,248


$
3,660,956


$
(12,487,239
)

$
(8,706,035
)





The accompanying footnotes are an integral part of these unaudited financial statements





3
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RADIANTOIL AND GAS, INC.


Consolidated Statements of Cash Flows


(Unaudited)




For Nine Months EndedSeptember 30,2013


2012CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(1,296,557
)

$
(827,170
)Adjustments to reconcile net loss to net cash flow from operating activities:Depreciation, depletion & amortization


2,691



2,790Amortization of deferred financing charges


-



649Amortization of debt discount


39,452



-Loss (gain) on derivative liabilities


(138,208
)


122,018Loss on warrant derivative issued in connection with debt


149,557



-Stock-based compensation


116,398



184,368Changes in operating assets and liabilities:Decrease (increase) in prepaid expenses


(79,540
)


-Decrease (increase) in other current assets


(237
)


(1,843
)Decrease (increase) in due from related parties


2,155



3,116Increase in accounts payable and accrued expenses


365,146



316,351Increase (decrease) in deferred income


40,755



587,354Increase (decrease) in due to related party


-



(132,008
)Net cash provided by (used in) operating activities


(798,388
)


255,625CASH FLOWS FROM INVESTING ACTIVITIES:Investments in unevaluated oil and gas properties


(57,190
)


-Purchase of equipment


-



(1,893
)Net cash provided by (used in) investing activities


(57,190
)


(1,893
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock and notes payable


600,000



900Payments on notes payable


-



(1,435
)Proceeds from borrowings from related parties


67,346



59,274Payments on borrowings from related parties


(1,998
)


(340,550
)Proceeds from issuance of common stock


145,000



79,000Net cash provided by financing activities


810,348



(202,811
)INCREASE (DECREASE) IN CASH


(45,230
)


50,921CASH, BEGINNING OF PERIOD


162,330



12,004CASH, END OF PERIOD

$
117,100


$
62,925SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCASH PAID DURING THE PERIOD FORIncome taxes

$
-


$
-Interest

$
862


$
503NON-CASH INVESTING AND FINANCING ACTIVITIESDebt discount related to warrants granted

$
600,000


$
-





The accompanying footnotes are an integral part of these unaudited financial statements




4
 Table of Contents




Note1 – General Organization and Business and Summary of Significant Accounting Policies




General Organization and Business





The accompanying unaudited interim consolidated financial statements of Radiant have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2012, as reported in Form 10-K, have been omitted.




Recent Accounting Pronouncements




The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flows.





Going Concern




As reflected in the accompanying financial statements, the Company has a working capital deficit of $7,685,981 and an accumulated deficit of $12,487,239 as of September 30, 2013.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management plans to raise funds through the issuance of debt, the sale of common stock, merger with another company or the sale of partial interests in our projects to other industry participants.





The Company’s ability to continue as a going concern is dependent upon its ability to raise capital through the issuance of debt, the sale of common stock, the consummation of a merger, or the sale of partial interests in its projects to other industry participants.  If it does not raise capital sufficient to fund its business plan, Radiant may not survive.  The consolidated financial statements do not include any adjustments that might be necessary if the Company was unable to continue as a going concern.




Note 2 – Oil and Gas Properties





Project Descriptions – Existing Oil & Gas Properties





Shallow Oil - Black Gold





On March 1, 2012, the Company entered into a project agreement (the “Shallow Oil Phase 1 Agreement”) with Black Gold, Inc. (“Black Gold”) for joint acquisition and exploration of certain oil and gas leases and related assets located in St. Mary Parish, Louisiana (the “Phase 1 Lease”).  According to this agreement, Black Gold agrees to acquire a 50% undivided interest in the leases and participate in drilling and exploitation if these leases. Radiant agrees to acquire related leases, provide drilling services and has an overriding royalty interest in drilled wells. The cost of acquiring leases was paid by Black Gold.  Black Gold paid $150,000 ("Initial Project Costs") to the Company in March 2012 for acreage acquisition, brokerage and other costs to secure acreage.  Black Gold was to participate in the drilling of up to five more wells (the "Phase 1 Initial Wells") and agreed to pre-fund $1,500,000 (the "Phase 1 Initial Drilling Commitment") to the Company within 10 days of the issuance of either a Phase 1 or Phase 2 well. Black Gold did not fund its Phase 1 Initial Drilling Commitment and no drilling commenced. In accordance with the Shallow Oil Phase 1 Agreement, the Company issued to Black Gold 150,000 shares of its common stock at $.50 per share.




5
 Table of Contents





On June 1, 2012, the Company entered into another project agreement (the “Shallow Oil Phase 2 Agreement”) with Black Gold, for joint acquisition and exploration of certain oil and gas leases and related assets located in St. Mary Parish, Louisiana (the “Phase 2 Lease”).  According to this agreement, Black Gold agrees to acquire a 50% undivided interest in the leases and participate in drilling and exploitation if these leases. Radiant agrees to acquire related leases, provide drilling services and has a overriding royalty interest in drilled wells. The cost of acquiring leases was paid by Black Gold.  Black Gold paid $250,000 ("Phase 2 Initial Project Costs") to the Company in May 2012 for acreage acquisition, brokerage and other costs to secure acreage.  Black Gold was to participate in the drilling of up to five more wells (the "Phase 2 Initial Wells") and agreed to pre-fund $1,450,000 (the "Phase 2 Initial Drilling Commitment") to the Company within 45 days of issuance of the Phase 1 Initial Drilling Commitment.  Black Gold did not fund its Phase 1 Initial Drilling Commitment and no drilling commenced. In accordance with the Shallow Oil Phase 2 Agreement, the Company issued to Black Gold 250,000 shares of its common stock at $.50 per share.





In January and February 2013, Black Gold funded $90,000 as part of its drilling commitment. In accordance with the Shallow Oil Phase 2 Agreement, the Company issued to Black Gold 90,000 shares of its common stock at $.50 per share.





The Company and Black Gold agreed to each retain a 50% working interest share in the Phase 1 and 2 Leases.





As of September 30, 2013, $245,000 of the amount received from Black Gold is shown as deferred gain in the consolidated balance sheet. This amount was recorded as deferred gain due to the fact that Black Gold did not fully fund its commitment and therefore did not receive ownership of the Shallow Oil properties.





Shallow Oil - Grand Synergy





Effective June 1, 2012, the Company entered into a project agreement (the “Shallow Oil Phase 3 and 4 Agreement”) with Grand Synergy Petroleum, LLC (“Grand”) for joint acquisition and exploration of certain oil and gas leases and related assets located in St. Mary Parish, Louisiana (the “Phase 3 and 4 Leases”).  As a result of this agreement, two new Louisiana entities were formed, Charenton Oil Company, LLC (“Charenton”) on May 8, 2012 and Radiant Synergy Operating, LLC (“Synergy”) on June 28, 2012. Charenton is a wholly owned subsidiary of Radiant and Synergy is owned 50%/50% by Radiant and Grand. According to this agreement, Radiant had to acquire related leases, provide drilling services and had a carried interest in drilled wells. Grand agrees to acquire an 80% undivided interest in the leases and participate in drilling and exploitation of the leases. Grand is to be delievered a net revenue interest of no less than 75% proportionately reduced to the working interest. Grand agreed to a non-refundable prospect fee of $250,000 covering previously incurred G&G analysis and other costs. Grand additionally agreed to fund up to $300,000 ("Phase 3 & 4 Initial Project Costs") for the acquisition of up to 1,000 acres in the purchase area of working interest rights and title. The leases were acquired in the name of Charenton. Currently all lease acreage is still in the name of Charenton and no lease assignments have been made to Grand or to Synergy. Grand additionally committed to fund $3,000,000 (the "Phase 3 and 4 Initial Drilling Commitment”) to pay for drilling of as many wells (expected to be ten wells) as can be drilled from such funds. Grand agreed to carry Radiant for its 20% interest to the tanks in the wells. Grand has fulfilled its commitment as it relates to payment of prospect fee of $250,000 and initial project costs of $300,000. However, only $1,000,000 of initial drilling commitment was funded by Grand on November 2012.





The non-refundable prospect fee of $250,000 received from Grand in June 2012 was recorded as Other Income on the Income Statement for the year ended December 31, 2012. The initial project cost of $300,000 received from Grand in July 2012 and the $1,000,000 received from Grand in November 2012 for drilling costs are recorded a deferred gain and related drilling costs of $617,169 was netted in this deferred gain balance as of September 30, 2013. This amount was recorded as deferred gain due to the fact that Grand Synergy did not fully fund its commitment and therefore did not receive ownership of the Shallow Oil properties. At the time the remaining funds are received from Grand, the Company will transfer the ownership of the leases to Charenton and will recognize the gross amount received, less the $300,000 as drilling revenue. The $300,000 will be recognized as revenue from the sale of leases. Related costs, including the amount currently deferred, will be recognized as drilling cost and leasehold costs, respectively.




6
 Table of Contents





Vidalia Properties





As stated in “Subsequent Events” section on this 10Q, effective October 9, 2013, the Company closed on the purchase of oil and gas properties located in Louisiana and Mississippi for approximately $19,000,000 (Vidalia properties).  The  acquired  properties  contain  over  eighty (80)  wells  in  Louisiana  and  Mississippi.  The Louisiana properties include over 39 wells and numerous leases located in Catahoula, Concordia, La Salle and St. Mary's Parishes. The Mississippi properties include over 41 wells and numerous leases located in Adams, Amite, Franklin, and Wilkinson Counties. The properties include up to 24 productive wells and up to 36 shut-in wells.





In connection with this pending acquisition, the Company incurred various legal and professional expenses totaling $57,190, which were capitalized as part of acquisition as of September 30, 2013.




Note 3 – Notes Payable and Convertible Notes Payable





Notes payable as of September 30, 2013 and December 31, 2012 consisted of the following:





September 30,

2013


December 31,

2012Senior credit facility (AE)

$
2,032,188


$
2,032,188Senior credit facility (RLE)


818,309



818,309Fermo Jaeckle note


475,000



475,000Debentures (JTBOF)


150,000



150,000Bridge loan


600,000



-Line of credit (Capital One Bank)


22,438



21,584Total notes payable


4,097,935



3,497,081Less: unamortized discount


(560,548
)


-Less: current portion


(3,537,387
)


(3,497,081
)Long-term portion

$
-


$
-





Senior Credit Facility of Amber (“Amber Credit Facility”)





As of September 30, 2013 and December 31, 2012, the Company had the outstanding balance on its Amber Credit Facility of $2,032,188. The Amber Credit Facility contained restrictive financial covenants. In 2010 and through the amendment of the credit facility, the Company was not in compliance with certain of the financial covenants contained within the credit facility. As a result, outstanding balance of the Amber Credit Facility was in default as of September 30, 2013 and December 31, 2012. For the nine months ended September 30, 2013 and 2012, the Company recognized interest expense on the Amber Credit Facility of $50,816 and $50,268, respectively.





Senior Credit Facility of RLE (“RLE Credit Facility”)





As of September 30, 2013 and December 31, 2012, the Company had an outstanding balance on its RLE Credit Facility of $818,309.  Accrued interest related to this credit facility amounted to $326,736 and $240,472 as of September 30, 2013 and December 31, 2012, respectively. The RLE Credit Facility contained restrictive financial covenants. The Company is not in compliance with certain of the financial covenants contained within the credit facility. Interest is accrued at the default interest rate of 11.25% during 2013 and 2012.  During the nine months ended September 30, 2013 and 2012, the Company recognized interest expense on the RLE Credit Facility of $86,264 and $84,154, respectively.





Fermo Jaeckle  Note





In February 2011, the Company issued a convertible promissory note to Fermo Jaeckle (“10% Convertible Note”) in the principal amount of $475,000.  Additionally, the Company issued to Mr. Jaeckle 475,000 shares of its common stock.  The note bears interest at 10% per annum and matured on July 31, 2011.  At the holder’s option, the note may be converted into the Company’s Series A convertible redeemable preferred stock at a conversion price of $30 per share. The conversion right ends at maturity. This note was not converted prior to maturity on July 31, 2011 and therefore is not considered convertible as of September 30, 2013.




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The Company determined the fair value of the common stock issued to be $237,500, and that no beneficial conversion feature exists.  This amount was recorded as a discount upon issuance of the 10% Convertible Note, and the discount was amortized over the term of the note.   As of September 30, 2013 and December 31, 2012, the discount has been fully amortized.





JTBOF 12% Debentures





In May 2011, the Company issued convertible promissory notes to John Thomas Bridge & Opportunity Fund L.P. (“JTBOF”) and John Thomas Bridge & Opportunity Fund II, L.P. (“JTBOF II) (collectively, the “JTBOF 12% Debentures”) in the principal amount of $75,000 each.  Additionally, the Company issued warrants to purchase 150,000 shares of its common stock each to JTBOF and JTBOF II.  Warrants to purchase 50,000 shares of its common stock each to JTBOF and JTBOF II have an exercise price of $2.50 per share and a term of up to 2 years, $3.00 per share and a term of up to 3 years, and $4.00 per share and a term of up to 4 years.  Upon the issuance of the Asher convertible notes and as a consequence of its floating rate feature, the warrants became tainted and had to be considered a derivative liability (see Note 4 – Derivative Liabilities for more detail).





The notes bear interest at 12% per annum and were both due on December 31, 2011.





John Thomas Bridge & Opportunity Fund (“JTBOF”) is a significant stockholder.  See Note 10 for related party discussions.





Bridge Loan





In August 2013, the Company entered into a Bridge Loan Agreement with various individuals whereby the Company borrowed $600,000 at an annual interest rate of 12% accruing until maturity. The final maturity is 12 months from the date of the receipt of cash proceeds in the aggregate amount of $3,000,000 or greater from subsequent financings. The Company has issued to the note holder warrants to purchase 1,500,000 shares of Radiant common stock at a purchase price of $0.01 per share. The warrants were considered a derivative liability (see Note 5 – Derivative Liabilities for more detail).





Line of Credit





The Company has a line of credit from the Capital One Bank for up to $25,000 that carries a 7% interest rate.  As of September 30, 2013 and December 31, 2012, the outstanding balance on the line of credit was $22,438 and $21,584, respectively.





Convertible Debt





Convertible notes payable as of June 30, 2013 and December 31, 2012 consisted of the following:





September 30,

2013


December 31,

2012Asher Note # 1

$
90,000


$
90,000Asher Note # 2


52,500



52,500Total convertible notes payable


142,500



142,500Less: current portion


(142,500
)


(142,500
)Long-term portion

$
-


$
-





Asher Convertible Notes





On June 27, 2011 and July 2011, the Company issued convertible promissory notes to Asher Enterpises Inc. (“Asher Convertible Notes”), in which Asher loaned $60,000 (“Asher Note # 1”) and $35,000 (“Asher Note # 2), respectively, at 8% interest, both convertible into Company’s common stock. The loans are convertible after 180 days from the date of issuance and until the later of maturity date or the date of payment of default amount. The conversion price equals to 61% of the average of the lowest 3 trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. Because of this floating rate feature, these notes are considered a derivative liability – see Note 5 for more detail.




8
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The notes are unsecured and originally matured on March 29, 2012 and April 26, 2012, respectively. Both notes defaulted on November 16, 2011.  According to provisions of the credit agreement, in case of a default, the principal of the notes increases 150%. As such, the total principal of the notes increased from $95,000 to $142,500 as of September 30, 2013 and December 31, 2012. Accrued interest was $49,287 and $19,257 as of September 30, 2013 and December 31, 2012, respectively.





Note 4 – Derivative Liabilities




Agent Warrants





In November 2010, John Thomas Financial, Inc. (“JTF”) received warrants to purchase 121,500 shares of the Company’s common stock at an exercise price of $1.05. The warrants were given as an additional compensation for placing an offering of the common stock. The warrants had a contractual term of 5 years and vested immediately. The warrants had an exercise price reset provision clause that triggered derivative accounting under ASC 815.  The fair value of these warrants was calculated as $53,717 and $60,663 at the balance sheet dates of September 30, 2013 and December 31, 2012, respectively.





Tainted Warrants





In May 2011, the Company issued convertible promissory notes to JTBOF and JTBOF II in the principal amount of $75,000 each (see more detail in Note 4).  Additionally, the Company issued warrants to purchase 150,000 shares of its common stock each to JTBOF and JTBOF II.  Warrants to purchase 50,000 shares of its common stock each to JTBOF and JTBOF II have an exercise price of $2.50 per share and a term of up to 2 years, $3.00 per share and a term of up to 3 years, and $4.00 per share and a term of up to 4 years.  Upon the issuance of Asher convertible notes and as a consequence of its floating rate feature, these warrants and other existing warrants previously classified as equity have became tainted and considered a derivative liability. The fair value of these warrants was calculated as $180,534 and $304,186 at the balance sheet dates of September 30, 2013 and December 31, 2012, respectively.





The following is a summary of the assumptions used in the Lattice option pricing model to estimate the fair value of the total Company’s warrant derivative liabilities as of balance sheet dates at September 30, 2013 and December 31, 2012, respectively:




September 30,


December 31,2013


2012Common stock issuable upon exercise of warrants




633,750





633,750Estimated market value of common stock on measurement date

$



0.50


$



50Exercise price

$
0.12

-
4.00


$
0.12

-
4.00Risk free interest rate (1)


0.04

-
0.33
%


0.11

-
0.36
%Expected dividend yield





0
%





0
%Expected volatility (2)


240

-
277
%


309

-
445
%Expected exercise term in years


0.63

-
2.04



0.38

-
2.87




(1)
The risk-free interest rate was determined by management using the Treasury bill yield as of September 30, 2013 and December 31, 2012.





(2)
The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have sufficient trading history to determine our historical volatility.




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Asher Convertible Notes





The Asher Convertible Notes are convertible at 61% of the average lowest three-day trading price of common stock during the during the ten trading day period ending on the latest complete trading day prior to the conversion date. The Company analyzed these conversion options under ASC 815, and determined that these instruments should be classified as liabilities and recorded at fair value due to there being no explicit limit as to the number of shares to be delivered upon settlement of the aforementioned conversion options.





As of September 30, 2013 and December 31, 2012, the fair value of the derivatives was $83,004 and $90,499, respectively.  As of September 30, 2013 and December 31, 2012, the discount on the Asher Convertible Notes has been fully amortized.





The fair value of derivative liabilities related to the conversion options of the Asher Convertible Notes at inception has been estimated as of September 30, 2013 using the Lattice option pricing model, under the following assumptions:





Asher


AsherNote # 1


Note # 2Common stock issuable upon exercise of warrants


128,297



74,840Estimated market value of common stock on measurement date

$
0.50


$
0.50Exercise price

$
0.46


$
0.46Risk free interest rate (1)


0.03
%


0.03
%Expected dividend yield


0
%


0
%Expected volatility (2)


161
%


161
%Expected exercise term in years


0.00



0.00





(1)
The risk-free interest rate was determined by management using the one month Treasury bill yield as of the issuance dates.





(2)
The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have sufficient trading history to determine our historical volatility.





Bridge Loan Warrants





In August 2013, the Company entered into a bridge loan agreement with various individuals, totaling $600,000, along with warrants to purchase 1,500,000 shares of the Company’s common stock at $0.01 per share.  The related proceeds were received by the Company on September 6, 2013, and as such, the aforementioned warrants were deemed to be issued on that date.  The warrants have a contractual term of 5 years and vest immediately.  The warrants were tainted and considered a derivative.  The fair value of these warrants was calculated as $749,557 on the initial valuation date of September 6, 2013 and $749,442 at the balance sheet date of September 30, 2013, respectively.  The initial valuation exceeded the principal loan amount by $149,557 and was recorded as loss on note payable.




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The following is a summary of the assumptions used in the Lattice option pricing model to estimate the fair value of the total Company’s warrant derivative liabilities as of the balance sheet date at September 30, 2013 and on the initial valuation date at September 6, 2013, respectively:





September 30,


September 6,2013


2012Common stock issuable upon exercise of warrants


1,500,000



1,500,000Estimated market value of common stock on measurement date

$
0.50


$
0.50Exercise price

$
0.01


$
0.01Risk free interest rate (1)


1.39
%


1.77
%Expected dividend yield


0
%


0
%Expected volatility (2)


247
%


254
%Expected exercise term in years


4.93



5.00




(1)
The risk-free interest rate was determined by management using the Treasury bill yield as of September 30, 2013 and September 6, 2013.





(2)
The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have sufficient trading history to determine our historical volatility.





The following tables set forth the changes in the fair value measurements of our Level 3 derivative liabilities during the nine months ended September 30, 2013:





Increase(Decrease) inActivity


Fair Value ofDecember 31,


during the


Derivative


September 30,2012


period


Liability


2013Derivative liability - warrants

$
60,663


$
-


$
(6,946
)

$
53,717Derivative liability - tainted warrants


304,186



-



(123,652
)


180,534Derivative liability - convertible debt


90,499



-



(7,495
)


83,004Derivative liability  bridge loan


-



749,557



(115
)


749,442$
455,348


$
749,557


$
(138,208
)

$
1,066,697





Note 5 - Fair Value Measurements





The Company measures fair value in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).


FASB ASC 820 describes three levels of inputs that may be used to measure fair value:





Level 1 – Quoted prices in active markets for identical assets or liabilities.





Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.





Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.




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If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.





The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013 and December 31, 2012:





Fair Value Measurements at September 30, 2013Description

Quoted Prices

In Active

Markets for

Identical

Assets

(Level 1)


Significant

Other

Observable

Inputs

(Level 2)


Significant

Unobservable

Inputs

(Level 3)


Total

Carrying

Value as of

September

30,2013Derivative liability - agent warrants

$
-


$
-


$
53,717


$
53,717Derivative liability - tainted warrants


-



-



180,534



180,534Derivative liability - convertible debt


-



-



83,004



83,004Derivative liability  bridge loan


-



-



749,442



749,442Total

$
-


$
-


$
1,066,697


$
1,066,697




Fair Value Measurements at December 31, 2012Description

Quoted Prices

In Active

Markets for

Identical

Assets

(Level 1)


Significant

Other

Observable

Inputs

(Level 2)


Significant

Unobservable

Inputs

(Level 3)


Total

Carrying

Value as of

December

31, 2012Derivative liability - agent warrants

$
-


$
-


$
60,663


$
60,663Derivative liability - tainted warrants


-



-



304,186



304,186Derivative liability - convertible debt


-



-



90,499



90,499Derivative liability - bridge loan


-



-



-



-Total

$
-


$
-


$
455,348


$
455,348





The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as level 3 in the fair value hierarchy:





Significant Unobservable Inputs (Level 3)Nine Months EndedSeptember 30,2013


2012Beginning balance

$
(455,348
)

$
(277,013
)Total gains (losses)


138,208



(122,018
)Settlements


-



-Additions


(749,557
)


-Transfers


-



-Ending balance

$
(1,066,697
)

$
(399,031
)Change in unrealized gains included inearnings relating to derivatives still heldas of June 30, 2013 and 2012

$
138,208


$
(122,018
)




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Note 6 – Asset Retirement Obligation





The following table reflects the changes in the asset retirement obligation (“ARO”) during nine months ended September 30, 2013:





AmountAsset retirement obligation as of December 31, 2012

$
100,000Additions


-Current period revision to previous estimates


-Costs for abandonment of wells


-Current period accretion


-Asset retirement obligation  as of September 30, 2013

$
100,000





In 2012, the Company acquired several leases for Shallow Oil project and two wells were drilled in the area (for more detail on Shallow Oil project, see Note 3 - Oil and Gas Properties). Based on extensive experience in this area, the Company’s reserve engineering staff estimated an amount of ARO for each well to be $50,000. The Company is planning to plug these wells in early 2014. Because of such short life of these wells, no present value calculations were applied in order to estimate ARO liability.





Note 7 – Stockholders’ Deficit





As of September 30, 2013, there were 12,024,769 shares of common shares issued and outstanding.





Sale of Common Stock





In January and February 2013, the Company received $45,000 from Black Gold for the sale of common stock, in accordance with Shallow Oil agreement (see Note 3 - Oil & Gas Properties). In accordance with provisions of Shallow Oil agreement, the Company issued 90,000 shares of its stock to Black Gold at a price of $0.50 per share.





In February 2013, the Company received $100,000 from a third party investor for the sale of 86,956 shares of common stock at a price of $1.15 per share and warrants to purchase additional 96,956 shares of common stock at a price of $1.16. Warrants expire on February 21, 2016.




2010 Equity Incentive Plan





The Company’s 2010 Equity Incentive Plan (the “2010 Plan”) provides for the grant of incentive stock options and stock warrants to employees, directors and consultants of the Company. The 2010 Plan provides for the issuance of both non-statutory and incentive stock options and other awards to acquire, in the aggregate, up to 3,000,000 shares of the Company’s common stock.





Stock Options





Stock option activity summary covering options granted to the Company’s employees and consultants is presented in the table below:





Weighted-averageRemaining


AggregateNumber of


Weighted-average


Contractual


IntrinsicShares


Exercise Price


Term (Years)


ValueOutstanding at December 31, 2012


694,122


$
1.00



7.60


$
-Granted


-



-



-Exercised


-



-



-Forfeited


-



-



-Outstanding at September 30, 2013


694,122


$
1.00



6.85


$
-




All of the above employee options outstanding are vested and exercisable at September 30, 2013.   During the nine months ended September 30, 2013, the Company recognized stock-based compensation expense of approximately $149,557 related to stock options.  As September 30, 2013, there was no unrecognized compensation cost.




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Warrants





A summary of information regarding common stock warrants outstanding is as follows:





Weighted-averageRemaining


AggregateNumber of


Weighted-average


Contractual


IntrinsicShares


Exercise Price


Term (Years)


ValueOutstanding at December 31, 2012


755,250


$
1.83



1.76


$
-Issued


86,956


$
1.16



2.42


$
-Exercised


-


$
-



-


$
-Expired


(100,000
)

$
2.50



-


$
-Outstanding at June 30, 2013


742,206


$
1.73



1.83


$
-




Note 8 – Related Party Transactions





Related parties include (i) MAC, the owner of 49% equity interest in Amber, (ii) John Jurasin, the Company’s CEO and formerly the sole stockholder of JOG, (iii) JTBOF, David R. Strawn, and David M. Klausmeyer, the Company’s stockholders, and (iv) Robert M. Gray, the Company’s director and former employee, and Timothy N. McCauley, the Company’s former officer. Related party balances as of September 30, 2013 and December 31, 2012 are as follows:





September 30,


December 31,2013


2012Due from related parties:MAC

$
358,232


$
358,232John Jurasin


3,878



6,033Other


2,012



2,012$
364,122


$
366,277Due to related parties:John Jurasin

$
905,324


$
839,976Gray


50,606



50,606Klausmeyer


12,193



12,193Strawn


12,193



12,193$
980,316


$
914,968





MAC





Amber is partially owned by MAC, an affiliate of the Company’s lender, MBL, and Radiant uses the proportionate consolidation method to consolidate Amber. JOG, Radiant’s wholly owned subsidiary, pays for goods and services on behalf of Amber and passes those charges on to Amber through intercompany billings. Periodically, Amber will reimburse JOG for these expenses, or potentially pays for goods and services on behalf of JOG. These transactions are recorded as a due to/from Amber in JOG’s records and as a due to/from JOG in Amber’s records. Due to the fact that Radiant only consolidates its proportionate share of balance sheet and income statement amounts, the portion of the due from Amber related to the other interest owner does not eliminate and is carried as a due from Amber until the balance is settled through a cash payment. Due from related party was $358,232 as of September 30, 2013 and December 31, 2012.




14
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John Jurasin





Effective March 2010, the Company assigned certain legacy overriding royalty interests (“ORRI”) in various projects, including the Baldwin AMI, the Coral, Ruby and Diamond Project, the Aquamarine Project, and the Ensminger Project to a related party entity owned by John M. Jurasin.  The Company retained its working interests in these projects.  Additionally, the Company assigned its working interest in a project, Charenton, to the related party entity. We did not receive any proceeds for the conveyances and the interests assigned had a historical cost basis of $0.





During the years ended December 31, 2011 and 2012 John Jurasin advanced the Company various amounts in order to pay operating expenses, with no formal repayment terms. The total balance due on these advances was $212,026 and $146,678 as of September 30, 2013 and December 31, 2012, respectively.





Additionally, two notes totaling $1,049,000 were issued to Mr. Jurasin in lieu of payment of dividends from JOG, which in turn represented funds advanced by JOG to its subsidiaries Amber and RLE to fund operations.  Interest is accrued at a rate of 4% per year.  The first note of $884,000, issued on August 5, 2010, matures upon the earlier of (i) May 31, 2013 or (ii) the date on which the Company closes any equity financing in which the Company receives gross proceeds of at least $10 million. The additional note for $165,000, issued on October 12, 2010, is due and payable on demand at any time subsequent to the repayment in full of all outstanding indebtedness of the Credit Facilities (Note 4). The Company made partial repayments on these notes of $15,152 during the year ended December 31, 2010 and $340,550 during the years ended December 31, 2012.  The balance due on these notes totaled $693,298 as of September 30, 2012 and December 31, 2012. Accrued interest on these notes was $143,527 and $131,585 as of September 30, 2013 and December 31, 2012, respectively.




David R. Strawn and David M. Klausmeyer





Mr. Strawn and Mr. Klausmeyer, shareholders of the Company, each loaned the Company total of $12,193 between March 2002 and June 2005. The notes accrue interest at 8% per annum. The total accrued interest was $34,853 and $31,424 as of September 30, 2013 and December 31, 2012, respectively.





Robert M. Gray and Timothy N. McCauley





Mr. Gray, a director of the Company and employee until March 2011, and Mr. McCauley, vice president of the Company until December 2011, were owed $26,042 and $26,042 in salaries at September 30, 2013 and December 31, 2012, respectively.  These balances are included in accounts payable and accrued expenses.  Additionally, at September 30, 2013 and December 31, 2012, Mr. Gray was owed $50,606, included in due to related parties, for consulting services rendered prior to becoming an employee of Radiant.





Note 9 – Subsequent Events





Effective October 4, 2013, the Company, through its wholly-owned subsidiary Radiant Acquisitions 1, LLC (“Radiant Acquisitions”), entered into a First Lien Credit Agreement (the “Credit Agreement”) with various financial institutions (the “Lenders”).  The maximum aggregate commitment of the Lenders to advance loans under this Agreement was $39,788,000, and the maximum aggregate principal amount to be repaid by the Borrower in respect thereof is $40,600,000 and for any given loan, the amount of funds advanced by any Lender shall be ninety-eight percent (98%) of the amount of principal required to be repaid by the Borrower in respect of such Loan.  The Credit Agreement has a stated maturity date of September 30, 2018 (the “maturity date”).  The outstanding principal balance of the Loans (as may have been advanced from time to time) bears interest at a per annum rate of twelve percent (12%).  Any outstanding indebtedness from the Credit Agreement was collateralized by substantially all of the assets of Radiant Acquisitions. In addition, the Company pledged its ownership interest in Radiant Acquisitions and executed a parent company as additional security.  The Credit Facility contained restrictive financial covenants.  The proceeds from the Credit Agreement were used to fund the closing of its recent acquisition of oil and gas properties located in  Louisiana and Mississippi, as well as to develop multiple re­ entry,  work-over  and  drilling  opportunities   on  acquired   acreage  throughout  south Louisiana and Mississippi.




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Concurrent with the closing of the Credit Agreement, a total of $27,050,428 was disbursed.





Effective October 9, 2013, the Company closed on the purchase of oil and gas properties located in Louisiana and Mississippi for approximately $19,000,000.  As a result of this acquisition, the Company issued 1,615,102 shares of common stock as well as 1,500,201 warrants with an exercise price of $2.02 per share. Warrants expire on October 8, 2016. The  acquired  properties  contain  over  eighty (80)  wells  in  Louisiana  and  Mississippi.     The Louisiana properties include over 39 wells and numerous leases located in Catahoula, Concordia, La Salle and St. Mary's Parishes. The Mississippi properties include over 41 wells and numerous leases located in Adams, Amite, Franklin, and Wilkinson Counties. The properties include up to 24 productive wells and up to 36 shut-in wells that have been evaluated for work-over and behind pipe opportunities which is expected to provide for cost-effective near-term production increases.


Effective October 9, 2013, Radiant Oil & Gas, Inc. entered into employment contracts with three individuals, a geophysicist, a petroleum engineer and a financial analyst to help in the operation of the oil and gas properties acquired.  The employment contracts provide for incentive payments based on financial performance of the Company and, in addition, for two of the employees include stock option agreements, considered together, provide for the purchase of up to a total of 4.5% of the fully diluted shares outstanding at the time of the closing of the financing at an option price of $1.16 per share.  As to each, the option shares vest at the rate of one third of the total amount per year beginning on the first anniversary of their employment.  The shares are exercisable at any time from the vesting date for a period of five years from the commencement of their employment.





In December 2013, the Company issued 69,537 shares at $2.00 per share in order to settle accounts payable of $139,074 with two third party service providers.





On December 28, 2013, the Company entered into an agreement (the “Patriot Agreement”) with Patriot Bridge & Opportunity Fund, L.P. (f/k/a John Thomas Bridge & Opportunity Fund, L.P.) and Patriot Bridge & Opportunity Fund II, L.P., together referred to as the “Funds,” Patriot 28, LLC, the Managing Member of the Funds, and George Jarkesy, individually and as Managing Member of Patriot 28. The Patriot 28 Agreement restructured the outstanding $150,000 due to the Funds in the form of general liability promissory note. The maturity date of the Note shall be the earlier of an equity infusion of not less than ten million ($10,000,000) dollars or December 1, 2014. Interests shall be paid monthly at the rate of six percent (6%) per annum.





To the extent any payments are not made timely in accordance with the repayment schedule described in the Patriot 28 Agreement, the Company shall issue 500 shares of Company stock to Fund I and 500 shares of Company stock to Fund II for each default occurrence. This provision does not apply if the Company cures its default within ten (10) days following receipt of written notice that a payment has not been timely made.





The Company, upon execution and delivery of the Patriot Agreement, shall pay to the Funds the sum of Fifteen Thousand ($15,000.00) dollars in reimbursement for all legal fees and expenses of the Funds related to the Loan and the January 1, 2014 payment for fourteen thousand one hundred fourteen dollars and eighty-nine one hundredths ($14,114.89) dollars.





As part of the Patriot Agreement, due to a variety of factors, including the wind down of the Funds, the outstanding obligations under the Loan from the Company to the Funds and other considerations, Mr. Jarkesy has resigned from the Board of Directors of the Company on December 30, 2013.





In January 2014, the Company issued 50,000 shares of common stock at $.50 per share to Black Gold in accordance with Shallow Oil agreement.


16
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Item2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations





The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this report.





Overview and Going Concern





We are an independent oil and gas exploration and production company that operates in the Gulf Coast region of the United States of America, specifically, onshore and the state waters of Louisiana, USA and the federal waters offshore Texas in the Gulf of Mexico.  We currently have oil and gas lease interests throughout Louisiana and Mississippi.





Going Concern





In the course of our development and well reactivation initiatives, we have sustained losses and expect such losses to continue until such time that we reach critical mass and at least for the next twelve months.   We expect to finance our operations primarily through future financings. However, there exists substantial doubt about our ability to continue as a going concern, because we will be required to obtain additional capital in the future to continue our operations, and there is no assurance that we will be able to obtain such capital, through equity or debt financing, or any combination thereof, or on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our ultimate capital needs and to support our growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, our operations would be materially negatively impacted.   Therefore, there is substantial doubt as to our ability to continue as a going concern for at least the next twelve months. Additionally, our independent auditors included an explanatory paragraph in their report on our consolidated financial statements included in this report that raises substantial doubt about our ability to continue as a going concern.  Our ability to complete additional rounds of financing is dependent on the state of the debt and/or equity markets at the time of any proposed offering, and such market’s reception of the Company and offering terms. In addition, our ability to complete an offering may be dependent on the status of our oil and gas well re-activation activities, which cannot be predicted. There is no assurance that capital in any form will be available to us, and if available, on terms and conditions that are acceptable.





Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which implies we will continue to meet our obligations and continue our operations for the next twelve months.  Realization values may be substantially different from carrying values as shown, and our consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amount and classification of liabilities that might be necessary as a result of this uncertainty.





Liquidity and Capital Resources





At September 30, 2013, we have current assets of $676,028, current liabilities of $8,362,009 and a working capital deficit of $7,685,981.  In early 2013, we took an initiative to become current in our public company compliance reporting requirements which we believe will permit us to raise capital and effect acquisitions through equity and/or convertible debt transactions at more favorable terms than we might otherwise achieve.





We may seek to raise additional funds through public or private sale of our equity or debt securities, borrowing funds from private or institutional lenders, the sale of our interests in certain oil and gas properties, or farm out of oil and gas interests.  If we raise additional funds through the issuance of debt securities, these securities would have rights that are senior to holders of our common stock and could contain covenants that restrict our operations. Any additional equity financing would likely be substantially dilutive to our stockholders, particularly given the prices at which our common stock has been recently trading. In addition, if we raise additional funds through the sale of equity securities, new investors could have rights superior to our existing stockholders. This could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity.




17
 Table of Contents





If we raise funds through a farm-out or sale of any of our rights, we may be required to relinquish, on terms that are not favorable to us, our interests in those projects.  Our need to raise capital soon may require us to accept terms that may harm our business or be disadvantageous to our current stockholders, particularly in light of the current illiquidity. There can be no assurance that we will be successful in obtaining additional funding, or selling or farming-out assets, in sufficient amounts or on terms acceptable to us, if at all.





If we are unable to raise sufficient additional funds when needed, we would be required to further reduce operating expenses by, among other things, curtailing significantly or delaying or eliminating part or all of our operations and properties.





Our ability to obtain additional financing is dependent on the state of the debt and/or equity markets, and such markets’ reception of us and our offering terms. In addition, our ability to obtain financing may be dependent on the status of our oil and gas exploration activities, which cannot be predicted. There is no assurance that capital in any form will be available to us, and if available, that it will be on terms and conditions that are acceptable.





Recent Developments





In August 2013, we entered into a Bridge Loan Agreement with various individuals whereby we borrowed $600,000, and also issued to the note holder warrants to purchase 1,500,000 shares of our common stock at a purchase price of $0.01 per share.





On October 4, 2013, we, through our wholly-owned subsidiary Radiant Acquisitions 1, LLC (“Radiant Acquisitions”), entered into a First Lien Credit Agreement (the “Credit Agreement”) with various financial institutions (the “Lenders”).  The maximum aggregate commitment of the Lenders to advance loans under this Agreement was $39,788,000, and the maximum aggregate principal amount to be repaid by the Borrower in respect thereof is $40,600,000 and for any given loan, the amount of funds advanced by any Lender shall be ninety-eight percent (98%) of the amount of principal required to be repaid by the Borrower in respect of such Loan.  The proceeds from the Credit Agreement were used to fund the closing of our recent acquisition of oil and gas properties located in  Louisiana and Mississippi, as well as to develop multiple re­ entry,  work-over  and  drilling  opportunities   on  acquired   acreage  throughout  south Louisiana and Mississippi.





Concurrent with the closing of the Credit Agreement, a total of $27,050,428 was disbursed.





On October 9, 2013, we completed the purchase of oil and gas properties located in Louisiana and Mississippi for cash and common shares. The  acquired  properties  contain  over  eighty (80)  wells  in  Louisiana  and  Mississippi.  The Louisiana properties include over 39 wells and numerous leases located in Catahoula, Concordia, La Salle and St. Mary's Parishes. The Mississippi properties include over 41 wells and numerous leases located in Adams, Amite, Franklin, and Wilkinson Counties. The properties include up to 24 productive wells and up to 36 shut-in wells that have been evaluated for work-over and behind pipe opportunities which is expected to provide for cost-effective near-term production increases.





Results of Operations





Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012





Depreciation, depletion and amortization expense for three months ended September 30, 2013 stayed the same as for the three months ended September 30, 2012 and was $897.





General and administrative expenses for the three months ended September 30, 2013 decreased by $102,976 or 26% compared to the three months ended September 30, 2012.  The decrease was primarily due to decreased compensation and fees for consulting, and legal services for the 2013 period when compared to the prior 2012 period.




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Gain on derivative liabilities for the three months ended September 30, 2013 was $53,292 compared to a loss on derivative liabilities of $36,081 for the three months ended September 30, 2012.  The change in fair value of our derivative liabilities was due to market price fluctuations.





Loss on warrant derivative for the three months ended September 30, 2013 was $149,557 compared to $-0- for the three months ended September 30, 2012. The increase was due to warrants issued in connection with Bridge loan (see “Recent Developments” section above) were valued at $749,557. $600,000 of this amount was applied to principal of the loan (see Footnote 3 to financial statements “Notes Payable”) and the excess was recorded as loss on note payable in the income statement. There was no such transaction in prior period in 2012.





Interest expense for the three months ended September 30, 2013 increased by $50,280 or 63% compared to the three months ended September 30, 2012.  The increase was mainly due to increased interest rate on Asher note that defaulted in November 2012 and amortization of discount on Asher note.





The above mentioned factors resulted in a net loss for the three months ended September 30, 2013 of $519,770 compared to a net loss of $512,282 for three months ended September 30, 2012.





Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012





Depreciation, depletion and amortization expense for the nine months ended September 30, 2013 was $2,691 compared to $2,790 for the nine months ended September 30, 2012.  The decrease in depreciation, depletion and amortization expense was due to several office furniture items became fully depreciated in late 2012.





General and administrative expenses for the nine months ended September 30, 2013 increased by $263,309 or 37% compared to the nine months ended September 30, 2012.  The increase was primarily due to increased compensation and fees for consulting, legal, and accounting services for the 2013 period when compared to the prior 2012 period.





Gain on derivative liabilities for the nine months ended September 30, 2013 was $138,208 compared to a loss on derivative liabilities of $122,018 for the nine months ended September 30, 2012.  The change in fair value of our derivative liabilities was due to market price fluctuations.





Loss on warrant derivative for the nine months ended September 30, 2013 was $149,557 compared to $-0- for the nine months ended September 30, 2012. The increase was due to warrants issued in connection with Bridge loan (see “Recent Developments” section above) were valued at $749,557. $600,000 of this amount was applied to principal of the loan (see Footnote 3 to financial statements “Notes Payable”) and the excess was recorded as loss on note payable in the income statement. There was no such transaction in prior period in 2012.





Other income for the nine months ended September 30, 2013 decreased by $250,000 as compared to the nine months ended September 30, 2012.  The decrease was due to a non-refundable prospect fee of $250,000 paid by Grand Synergy was recorded in prior period. This related to a “Shallow Oil Agreement” with Grand Synergy (see annual report on the form of 10K for the year ended December 31, 2012 for detailed description of this transaction). There was no such income in 2013.





Interest expense for the nine months ended September 30, 2013 increased by $66,846 or 29% compared to the nine months ended September 30, 2012.  The increase was mainly due to increased interest rate on Asher note that defaulted in November 2012 and amortization of discount on Asher note.





The above mentioned factors resulted in a net loss for the nine months ended September 30, 2013 of $1,296,557 compared to a net loss of $827,170 for nine months ended September 30, 2012.





Off-Balance Sheet Arrangements





For the nine months ended September 30, 2013, the Company did not have any off-balance sheet arrangements.




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Critical Accounting Policies





We prepare our consolidated financial statements in accordance with generally accepted accounting principles of the United States (“U.S. GAAP”).  U.S. GAAP represents a comprehensive set of accounting and disclosure rules and requirements.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions, however, in the past the estimates and assumptions have been materially accurate and have not required any significant changes. Should we experience significant changes in the estimates or assumptions that would cause a material change to the amounts used in the preparation of our financial statements, material quantitative information will be made available to investors as soon as it is reasonably available.





We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:





Use of Estimates





The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Estimates that are particularly significant to the consolidated financial statements include estimates of oil reserves, future cash flows from oil properties, depreciation, depletion, amortization, impairment of oil properties, asset retirement obligations, and calculations related to derivative liabilities.





Oil and Natural Gas Properties





We account for our oil and natural gas producing activities using the full cost method of accounting, as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.





Costs associated with unevaluated properties are capitalized as oil and natural gas properties, but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization. We evaluate unevaluated properties for inclusion in the amortization base at least annually.  We assess properties on an individual basis, or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and are then subject to amortization.





Capitalized costs included in the amortization base are depleted using the units of production method based on proved reserves. Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.




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We include our pro rata share of assets and proved reserves associated with an investment that is accounted for on a proportional consolidation basis with assets and proved reserves that the Company directly owns in the appropriate cost center. We calculate the depletion and net book value of the assets based on the cost center’s aggregated values. Accordingly, the ratio of production to reserves, depletion and impairment associated with a proportionally consolidated investment does not represent a pro rata share of the depletion, proved reserves, and impairment of the proportionally consolidated venture.





The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.





Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.





Impairment of Long-Lived Assets





We periodically review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.





Asset Retirement Obligation





We record the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived asset and the cost is subsequently allocated to expense using a systematic and rational method. We record an asset retirement obligation to reflect its legal obligations related to future plugging and abandonment of our oil and natural gas wells and gas gathering systems. We estimate the expected cash flow associated with the obligation and discounts the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary. We evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), we will accordingly update our assessment.  Additional retirement obligations increase the liability associated with new oil and natural gas wells and gas gathering systems as these obligations are incurred.





Derivative Financial Instruments




For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to non-operating income. For warrants and convertible derivative financial instruments, we use the Black-Scholes model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period, in accordance with FASB ASC Topic 815, Derivatives and Hedging. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.




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Income Taxes





We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.





FASB ASC-740 establishes a more-likely-than-not threshold for recognizing the benefits of tax return positions in the financial statements. Also, the statement implements a process for measuring those tax positions which meet the recognition threshold of being ultimately sustained upon examination by the taxing authorities. There are no uncertain tax positions taken by us on our tax returns.





Item3.
Quantitative and Qualitative Disclosures About Market Risk





We are a smaller reporting company and therefore not required to provide this information.





Item4.
Controls and Procedures





There were no changes to the Company’s internal controls during the quarter ended September 30, 2013.




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PART II. OTHER INFORMATION





Item1.
Legal Proceedings.





From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.





Item1A.
Risk Factors.





As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.





Item2.
Unregistered Sales of Equity Securities and Use of Proceeds.





None.





Item3.
Defaults Upon Senior Securities.





None.





Item4.
Mine Safety Disclosures





Not Applicable.





Item5.
Other Information.





None.





Item6.
Exhibits





(a) Exhibits




Exhibit

Number

Description31.1

Certification of Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS

XBRL Instance Document101.SCH

XBRL Taxonomy Extension Schema Document101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document101.DEF

XBRL Taxonomy Extension Definition Linkbase Document101.LAB

XBRL Taxonomy Extension Label Linkbase Document101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document


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SIGNATURES





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





RADIANT OIL & GAS, INC.Date: January 22, 2014
By:
/s/ John M. JurasinJohn M. Jurasin, Chairman of the Board,Chief Executive Officer (Duly Authorized, Principal Executive

Officer and Principal Financial Officer)










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