10-K 1 v373376_10k.htm FORM 10-K

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, 2013

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

For the transition period from to

Commission File Number 000-52590

WORTHINGTON ENERGY, INC.

(Exact name of registrant as specified in its charter)

Nevada		20-1399613
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

145 Corte Madera Town Center #138

Corte Madera, California 94925

(775)450-1515

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.001

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

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

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

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 (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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. ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2013, based on the closing sales price of the common stock as quoted on the OTC Bulletin Board was $7,593,834. For purposes of this computation, all officers, directors, and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.

As of April 9, 2013, there were 258,922,616 shares of registrant’s common stock outstanding.

TABLE OF CONTENTS

		PAGE
PART I

Item 1.	Business	4
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	14
Item 3.	Legal Proceedings	14
Item 4.	Mine Safety Disclosures	16

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 8.	Financial Statements and Supplementary Data	F-1
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	28
Item 9A.	Controls and Procedures	29
Item 9B.	Other Information	30

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	31
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	37
Item 13.	Certain Relationships and Related Transactions, and Director Independence	37
Item 14.	Principal Accounting Fees and Services	39

PART IV

Item 15.	Exhibits	40

	Signatures	48

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements.” Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets, business strategies, future cash flows, financing plans, plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts. These risks and others described under “Risk Factors” may not be exhaustive.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Annual Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report on Form 10-K and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report on Form 10-K.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

This Annual Report on Form 10-K includes the accounts of Worthington Energy, Inc. (“Worthington”) and its wholly-owned subsidiary, as follows, collectively referred to as “we”, “us” or the “Company”: PaxAcq Inc., a Louisiana corporation (“PacAcq”).

Glossary of Oil and Gas Terms

The following are the meanings of some of the oil and gas industry terms that may be used in this Annual Report.

Bbl: a barrel of 42 U.S. gallons of oil.

Bcf: One billion cubic feet of natural gas.

Bcfe: One billion cubic feet of natural gas equivalent, using a ratio of six Mcf to one Bbl of crude oil.

Block: Subdivision of an area for the purpose of licensing to a company or companies for exploration/production rights.

Bopd: Barrels of oil per day.

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

Crude oil: A general term for unrefined petroleum or liquid petroleum.

Developed reserves: Reserves of any category that can be expected to be recovered through existing wells with existing equipment and operating methods or for which the cost of required equipment is relatively minor when compared to the cost of a new well.

Dry hole: A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production would exceed production expenses and taxes.

Exploration: The initial phase in petroleum operations that includes generation of a prospect or play or both, and drilling of an exploration well. Appraisal, development and production phases follow successful exploration.

Exploratory well: A well drilled to find and produce oil and gas reserves that is not a development well.

Farm-in or farm-out: An agreement under which the owner of a working interest in an oil and natural gas lease assigns the working interest or a portion of the working interest to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a “farm-in” while the interest transferred by the assignor is a “farm-out.”

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 the geographical location of its first discovery and dominant rock type.

Gross acres or gross wells: The total acres or wells, as the case may be, in which a working interest is owned.

Hydrocarbon: A naturally occurring organic compound comprising hydrogen and carbon. Hydrocarbons can be as simple as methane [CH₄], but many are highly complex molecules, and can occur as gases, liquids or solids. The molecules can have the shape of chains, branching chains, rings or other structures. Petroleum is a complex mixture of hydrocarbons. The most common hydrocarbons are natural gas, oil and coal.

MBoe: One thousand barrels of oil equivalent.

MCF: Thousand cubic feet.

MMBoe: One million barrels of oil equivalent.

MMscf/d: One million standard cubic feet of natural gas per day.

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

Net revenue interest (NRI): The portion of oil and gas production revenue remaining after the deduction of royalty and overriding royalty interests.

Operator: The individual or company responsible for the exploration and/or exploitation and/or production of an oil or gas well or lease.

Participation interest: The proportion of exploration and production costs each party will bear and the proportion of production each party will receive, as set out in an operating agreement.

Play: A group of oil or gas fields or prospects in the same region that are controlled by the same set of geological circumstances.

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 or PV-10: When used with respect to oil and natural gas reserves, present value or PV-10 means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development costs, using prices and costs in effect at the determination date, without giving effect to non-property related expenses such as general and administrative expenses, debt service and future income tax expense or to depreciation, depletion and amortization, discounted using an annual discount rate of 10%.

Probable reserves: Reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

Production: The phase that occurs after successful exploration and development and during which hydrocarbons are drained from an oil or gas field.

Productive well: A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.

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.

Proved developed reserves: Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and natural 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 responses that increased recovery will be achieved.

Proved properties: Properties with proved reserves.

Proved reserves: The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (a) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, and (b) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the “proved” classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based.

Proved undeveloped reserves: 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 are 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. Proved undeveloped reserves may not include estimates 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.

Recompletion: After the initial completion of a well, the action and technique of re-entering the well and repairing the original completion or completing the well in a different formation to restore the well’s productivity.

Reserves: Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible as of a given date by application of development prospects to known accumulations.

Reservoir: A subsurface, porous, permeable rock formation in which oil and gas are found.

Royalty interest: An ownership interest in the portion of oil, gas and/or minerals produced from a well that is retained by the lessor upon execution of a lease or to one who has acquired possession of the royalty rights, based on a percentage of the gross production from the property free and clear of all costs except taxes.

Seismic: Pertaining to waves of elastic energy, such as that transmitted by P-waves and S-waves, in the frequency range of approximately 1 to 100 Hz. Seismic energy is studied by scientists to interpret the composition, fluid content, extent and geometry of rocks in the subsurface. "Seismic," used as an adjective, is preferable to "seismics," although "seismic" is used commonly as a noun.

Shut-in: Not currently producing.

Unproved properties: Properties with no proved reserves.

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.

PART I

Item 1. Business

Worthington Energy, Inc. is an oil and gas exploration and production company with assets in Texas and properties in the Gulf of Mexico. Our assets in Texas consist of a minority working interest in limited production and drilling prospects in the Cooke Ranch area of La Salle County, Texas, and Jefferson County, Texas, all operated by Bayshore Exploration L.L.C. The Texas asset had limited revenues and substantial losses, which we expect for the foreseeable future. In May 2011, we acquired our assets in the Gulf of Mexico referred to as Vermilion 179 (“VM 179”) consisting of a leasehold working interest in certain oil and gas leases located offshore from Louisiana, upon which no drilling or production has commenced as of yet. On February 28, 2014 this property was returned to the seller and convertible debt holders in exchange for forgiveness of all liabilities (the “VM 179 Settlement”).

We are seeking to make additional acquisitions that are currently producing oil in the United States as a way to increase our cash flow. Other than as disclosed herein, we currently do not have any contracts or agreements to acquire additional companies and/or working interests in existing wells, and no assurances can be given that we will identify or acquire such additional acquisitions on terms acceptable to us, if at all. Additional acquisitions will likely require the issuance of equity or debt securities, either directly or indirectly to raise funds for such acquisitions.

Organization

We were organized under the laws of the State of Nevada on June 30, 2004 under the name Paxton Energy, Inc. During August 2004, shareholder control of our company was transferred, a new board of directors was elected and new officers were appointed. These officers and directors managed us until March 17, 2010 when a new board of directors was elected and new officers were appointed. Effective January 27, 2012, we changed our name to Worthington Energy, Inc.

Business Strategy

The execution of any strategy for the future benefit of the company will require additional funds, which we do not currently possess. The principal components of our business strategy are:

Rely on the Exploration Expertise of Others. We will continue to rely on the technical expertise and experience of a variety of oil and gas experts and consultants in order to reduce our ongoing general and administrative expenses;

Focus on the Acquisition of Existing Production and Development Opportunities. We believe our experience in the oil and gas industry will allow us to generate and evaluate opportunities to acquire existing production; and

Balance Our Opportunities. We intend to diversify and balance our production acquisition with exploration opportunities in areas in which we might be able to team with operators having experience and expertise.

ADR Acquisition

On March 21, 2014, the Company entered into an Asset Sale Agreement (the “ASA”) with American Dynamic Resources, Inc., a Nevada Corporation (“ADR”). Pursuant to the ASA, the Company purchased from ADR certain oil and gas interests located in Montgomery, Labette and Wilson counties, Kansas. The acquired interests include, but are not limited to oil and gas leases, wells, structures, hydrocarbons, and licenses. The purchase price for these assets is $50,000 and 35,000,000 shares of the Company’s common stock valued at $87,500.

In connection with the ASA, the Company and ADR entered into an intellectual property contribution and assignment agreement (the “Intellectual Property Agreement), dated March 21, 2014, pursuant to which the Company acquired the right, title and interest to certain intellectual property rights owned by ADR in exchange for 35,000,000 shares of the Company’s common stock and $75.00 in cash.

VM 179

The oil and gas leases are located in the VM 179, which is in the shallow waters of the Gulf of Mexico offshore from Louisiana, adjacent to Exxon's VM 164 #A9 well. No drilling or production has commenced as of yet, and we have the option of being the operator at VM 179 or engaging another party as operator.

VM 179 is at 85’ water depth approximately 46 miles offshore Louisiana in the Gulf of Mexico. Virgin Offshore USA acquired the 547 acre lease in May 2004. Much of VM 179 is impacted by a large regional salt dome. Salt domes are geologic features that are commonly associated with the presence of oil and gas reserves in the U.S. Gulf Coast and Gulf of Mexico, and production in the blocks adjacent to VM 179 is largely from the flanks of that same regional salt dome. Cumulative production from VM Block 178, to the east of VM 179, totals approximately 56.1 Bcfe and 232 MBoe. Cumulative production from VM Block 164, to the north of VM 179, totals approximately 19 MMBoe and 91 Bcfe.

In December 2011, Montecito filed a lawsuit in the Civil District Court for the Parish of Orleans of the State of Louisiana against the Company by filing a Petition to Rescind Sale. In this action, Montecito is seeking to rescind the asset sale transaction, as described in the previous paragraph. Pursuant to a Release and Settlement Agreement dated February 12, 2014 that has been signed and notarized by all parties involved, the matter has been settled. The operative terms of the settlement were recited into the record in open court on the day of trial. The result is that a judicially recognized compromise has been perfected under Louisiana law, which has the effect of extinguishing the underlying obligations the compromise is premised on. The Company’s obligations expected to be extinguished include a secured note payable in the amount of $500,000 to Montecito Offshore, LLC and convertible debentures of $2,453,032. However, recording the conveyance of the lease interest and cancelling mortgages and UCC-1’s by the debt holders has not occurred. The debt holders have delayed in performing these obligations because they want to first undertake a degree of internal restructuring before accepting the royalty interest they negotiated to receive as a part of the settlement. The debt holders have indicated that, after they have formed an entity to receive the royalty interest, they will cancel the outstanding mortgages and UCC-1’s along with recording the documents conveying the various interests in the public records. The Company will account for the transaction in 2014 upon final settlement as an exchange of the oil and gas asset for the debt and an extinguishment of the related derivative liability.

Previous Exploration of Cook Ranch Wells

Prior to the VM 179 Settlement , we owned minority working interest and drilling prospects in the Cooke Ranch area of La Salle County, Texas, and Jefferson County, Texas. Our working interests ranged from 4% to 31.75% (net revenue interests ranging from 3% to 23.8125%) in the various wells in which we have participated. Several of these wells were previously producing, including as recently as 2011, however, all of the wells are now shut-in. These wells were operated by Bayshore. We are unaware of Bayshore’s intentions on these wells, including whether it will commence any work-over operations.

A productive well is an exploratory well, development well, producing well or well capable of production, but does not include a dry well. A dry well, or a hole, is an exploratory or a development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.

A gross well is a well in which a working interest is owned, and a net well is the result obtained when the sum of fractional ownership working interests in gross wells equals one. The number of gross wells is the total number of wells in which a working interest is owned, and the number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof. The “completion” of a well means the installation of permanent equipment for the production of oil or gas, or, in the case of a dry hole, to the reporting of abandonment to the appropriate agency.

As of December 31, 2013, we had no productive wells.

During 2013, the Company participated in the drilling of no new wells.

We are not obligated to provide oil or gas in fixed quantities or at fixed prices under existing contracts.

Proved Undeveloped Reserves

The technical person in charge of the preparation and oversight of our reserve estimates is James E. Hubbard, a petroleum engineer who founded and is the president of a multi-disciplined engineering firm that offers a total package of services to the oil and gas industry in Gulf of Mexico and Alabama, Alaska, Colorado, Louisiana, Michigan, New Mexico, Oklahoma, Texas and Wyoming. He has over 40 years of experience in the oil and gas industry. A graduate of Washington State University, he worked four years at Hibernia Bank, 12 years for Exxon Company, USA, 13 years at Schlumberger Technology Corporation and Graham Resources, Inc. before forming his own engineering firm. He is a member of the Society of Petroleum Engineers. He is a registered petroleum engineer in the state of Louisiana. He has extensive experience in economic and reservoir evaluation for acquisitions, producing properties and undeveloped prospects. He is not an employee of ours and does not have an equity position in our oil and gas development. We believe his independence allows him to be objective in the preparation and oversight of our reserve estimates.

The process for preparation of our oil and gas reserves estimates is completed in accordance with our prescribed internal control procedures, which include verification of data provided for the report and review of the independent third party reserves report. The technical employee responsible for overseeing the process for preparation of the reserves estimates is our Chief Executive Officer, Charles F. Volk, Jr. Mr. Volk has been involved with the oil and gas industry for over 20 years, including serving as the general partner of various oil & gas drilling and exploration partnerships and as President and Chairman of two oil and gas companies, including ours. He is the sole person in our company that reviews and approves the reserve estimates.

Oil and Gas Leases

The properties in which we have and are likely to obtain interests in Texas are and will likely be held under oil and gas leases standard in the oil and gas industry. Such leases provide for the payment of royalty to the property owner and generally govern the manner in which activities are to be conducted. We believe the operations on the leases in which we have an interest comply with all material provisions of such regulations.

Title to Properties

As is customary in the oil and gas industry, only a preliminary title examination is conducted at the time we acquire leases or enter into other agreements to obtain control over interests in acreage believed to be suitable for drilling operations. In many instances, our partners have acquired rights to the prospective acreage and we have a contractual right to have our interests in that acreage assigned to us. In some cases, we are in the process of having those interests so assigned. Prior to the commencement of drilling operations, a thorough title examination of the drill site tract is conducted by independent attorneys. Once production from a given well is established, the operator will prepare a division order title report indicating the proper parties and percentages for payment of production proceeds, including royalties. We believe that titles to our leasehold properties are good and defensible in accordance with standards generally acceptable in the oil and gas industry.

Production, Transportation, and Marketing

Our share of the oil produced is sold at posted field prices to an unaffiliated purchaser. Posted prices are generally competitive among crude oil purchasers. Either party may terminate our crude oil sales upon 30 days’ prior notice.

Operational Hazards and Insurance

We intend to acquire properties with existing oil and gas production, explore, drill for, and produce oil and gas, and as such, our operations are subject to the usual hazards incident to the industry. These hazards include blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, pollution, releases of toxic gas, and other environmental hazards and risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage, and suspension of operations.

We currently do not maintain insurance to cover operational hazards, but rely on the insurance that the operators are required to maintain under our agreements. We cannot assure that we could obtain or that the operators or our contractors will be able to continue to obtain insurance coverage for current or future activities. Further, we cannot assure that any insurance obtained will provide coverage customary in the industry, be comparable to the insurance now maintained, or be on favorable terms or at premiums that are reasonable.

The insurance maintained by the operators or our contractors does not cover all of the risks involved in oil and gas exploration, drilling, and production and, if coverage does exist, may not be sufficient to pay the full amount of such liabilities. We may not be insured against all losses or liabilities that may arise from all hazards because such insurance may not be available at economical rates, the respective insurance policies may have limited coverage and other factors. For example, insurance against risks related to violations of environmental laws is not maintained. The occurrence of a significant adverse event that is not fully covered by insurance could have a materially adverse effect on us. Further, we cannot assure that adequate levels of insurance will be maintained for our benefit in the future at rates we consider reasonable.

Regulations

General

Our business is affected by numerous laws and regulations, including energy, environmental, conservation, tax and other laws and regulations relating to the energy industry. Most of our drilling operations will require permit or authorizations from federal, state or local agencies. Changes in any of these laws and regulations or the denial or vacating of permits could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations.

We believe that our operations comply in all material respects with applicable laws and regulations. There are no pending or threatened enforcement actions related to any such laws or regulations. We further believe that the existence and enforcement of such laws and regulations will have no more restrictive an effect on our operations than on other similar companies in the energy industry.

Proposals and proceedings that might affect the oil and gas industry are pending before Congress, the Federal Energy Regulatory Commission (“FERC”), state legislatures and commissions and the courts. We cannot predict when or whether any such proposals may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by various agencies will continue indefinitely. Notwithstanding the foregoing, we do not anticipate that compliance with existing federal, state and local laws, rules and regulations will have a material adverse effect upon our capital expenditures, earnings, or competitive position.

Federal Regulation of Sales and Transportation of Natural Gas

Historically, the transportation and sale of natural gas and its component parts in interstate commerce has been regulated under several laws enacted by Congress and the regulations passed under these laws by FERC. Our sales of natural gas, including condensate and liquids, may be affected by the availability, terms, and cost of transportation. The price and terms of access to pipeline transportation are subject to extensive federal and state regulation. From 1985 to the present, several major regulatory changes have been implemented by Congress and FERC that affect the economics of natural gas production, transportation and sales. In addition, FERC is continually proposing and implementing new rules and regulations affecting those segments of the natural gas industry, most notably interstate natural gas transmission companies that remain subject to FERC’s jurisdiction. These initiatives may also affect the intrastate transportation of gas under certain circumstances. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the natural gas industry.

The ultimate impact of the complex rules and regulations issued by FERC cannot be predicted. In addition, many aspects of these regulatory developments have not become final but are still pending judicial and final FERC decisions. We cannot predict what further action FERC will take on these matters. Some of FERC’s more recent proposals may, however, adversely affect the availability and reliability of interruptible transportation service on interstate pipelines. We do not believe that we will be affected by any action taken materially differently than other natural gas producers, gatherers and marketers with whom we compete.

State Regulation

Our operations are also subject to regulation at the state and in some cases, county, municipal and local governmental levels. Such regulation includes requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or operate wells and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandonment of wells, and the disposal of fluids used and produced in connection with operations. Our operations are also subject to various conservation laws and regulations pertaining to the size of drilling and spacing units or proration units and the unitization or pooling of oil and gas properties.

State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements, but, except as noted above, does not generally entail rate regulation. These regulatory burdens may affect profitability, but we are unable to predict the future cost or impact of complying with such regulations.

Environmental Matters

Our operations are subject to numerous federal, state and local laws and regulations controlling the generation, use, storage, and discharge of materials into the environment or otherwise relating to the protection of the environment. These laws and regulations may require the acquisition of a permit or other authorization before construction or drilling commences; restrict the types, quantities, and concentrations of various substances that can be released into the environment in connection with drilling, production, and natural gas processing activities; suspend, limit or prohibit construction, drilling and other activities in certain lands lying within wilderness, wetlands, and other protected areas; require remedial measures to mitigate pollution from historical and on-going operations such as use of pits and plugging of abandoned wells; restrict injection of liquids into subsurface strata that may contaminate groundwater; and impose substantial liabilities for pollution resulting from our operations. Environmental permits required for our operations may be subject to revocation, modification, and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations and permits, and violations are subject to injunction, civil fines, and even criminal penalties. We believe that we are in substantial compliance with current environmental laws and regulations, and that we will not be required to make material capital expenditures to comply with existing laws.

Nevertheless, changes in existing environmental laws and regulations or interpretations thereof could have a significant impact on us as well as the crude oil and natural gas industry in general, and thus we are unable to predict the ultimate cost and effects of future changes in environmental laws and regulations.

We are not currently involved in any administrative, judicial or legal proceedings arising under domestic or foreign federal, state, or local environmental protection laws and regulations, or under federal or state common law, which would have a material adverse effect on our consolidated financial position or results of operations. Moreover, we maintain insurance against costs of clean-up operations, but we are not fully insured against all such risks. A serious incident of pollution may result in the suspension or cessation of operations in the affected area.

Superfund

The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as "Superfund," and comparable state statutes impose strict, joint, and several liability on certain classes of persons who 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 a release occurred and companies that generated, disposed, or arranged for the disposal of the hazardous substances released at the site. Under CERCLA, such persons or companies may be retroactively liable 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 common for neighboring land owners and other third parties to file claims for personal injury, property damage, and recovery of response costs allegedly caused by the hazardous substances released into the environment. In the course of our operations, we may generate waste that may fall within CERCLA's definition of a "hazardous substance." We may be jointly and severally liable under CERCLA or comparable state statutes for all or part of the costs required to clean up sites at which these wastes have been disposed. Although CERCLA currently contains a "petroleum exclusion" from the definition of “hazardous,” state laws affecting our operations impose cleanup liability relating to petroleum related products, including crude oil cleanups. In addition, although RCRA regulations currently classify certain wastes which are uniquely associated with field operations as "non-hazardous," such exploration, development and production wastes could be reclassified by regulation as hazardous wastes thereby administratively making such wastes subject to more stringent handling and disposal requirements.

We currently own or lease, and have in the past owned or leased, numerous properties that for many years have been used for the exploration and production of natural gas and crude oil. Although we utilized standard industry operating and disposal practices at the time, hydrocarbons or other wastes may have been disposed of or released on or under the properties we owned or leased or on or under other locations where such wastes have been taken for disposal. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes was not under our control. These properties and the wastes disposed thereon may be subject to CERCLA, the Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), and analogous state laws. Under these laws, we could be required to remove or remediate previously disposed wastes, including wastes disposed or released by prior owners or operators; to clean up contaminated property, including contaminated groundwater; or to perform remedial operations to prevent future contamination.

Oil Pollution Act of 1990

United States federal regulations also require certain owners and operators of facilities that store or otherwise handle crude oil, such as us, to prepare and implement spill prevention, control and countermeasure plans and spill response plans relating to possible discharge of crude oil into surface waters. The federal Oil Pollution Act ("OPA") contains numerous requirements relating to prevention of, reporting of, and response to crude oil spills into waters of the United States. For facilities that may affect state waters, OPA requires an operator to demonstrate $10 million in financial responsibility. State laws mandate crude oil cleanup programs with respect to contaminated soil. A failure to comply with OPA's requirements or inadequate cooperation during a spill response action may subject a responsible party to civil or criminal enforcement actions. We are not aware of any action or event that would subject us to liability under OPA, and we believe that compliance with OPA's financial responsibility and other operating requirements will not have a material adverse effect on us.

U.S. Environmental Protection Agency

U.S. Environmental Protection Agency regulations address the disposal of crude oil and natural gas operational wastes under three federal acts more fully discussed in the paragraphs that follow. The RCRA provides a framework for the safe disposal of discarded materials and the management of solid and hazardous wastes. The direct disposal of operational wastes into offshore waters is also limited under the authority of the Clean Water Act. When injected underground, crude oil and natural gas wastes are regulated by the Underground Injection Control program under the Safe Drinking Water Act. If wastes are classified as hazardous, they must be properly transported, using a uniform hazardous waste manifest, documented, and disposed of at an approved hazardous waste facility. We have coverage under the applicable Clean Water Act permitting requirements for discharges associated with exploration and development activities.

Resource Conservation Recovery Act

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 crude 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 crude 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.

Clean Water Act

The 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 Environmental Protection Agency 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 for 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.

Safe Drinking Water Act

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. In Texas, no underground injection may take place except as authorized by permit or rule. 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.

Air Emissions and Climate Change

The federal Clean Air Act (“CAA”) imposes permit requirements and operational restrictions on certain sources of emissions used in our operations. In April 2012, the EPA issued a final rule amending its New Source Performance Standards (“NSPS”) and National Emissions Standards for Hazardous Air Pollutants (“NESHAPs”) for oil and natural gas facilities. The purpose of the new rule is to limit emissions of volatile organic compounds (“VOCs”), sulfur dioxide (SO₂), and hazardous air pollutants (HAPs) from a variety of sources within natural gas processing plants, oil and natural gas production facilities, and natural gas transmission compressor stations. The rule also regulates emissions from certain hydraulically fractured gas wells, which previously were subject to such standards.

The rule requires all new hydraulically fractured wells, and existing wells that are refractured, to control emissions of VOCs released during well completion. Prior to January 1, 2015, all such wells have the option of either combusting these emissions, or capturing them using a “green completion” device capable of separating VOCs and natural gas (methane) from the flowback fluid. After January 1, 2015 and subject to a potential one year extension, wells will be required to utilize green completion devices. As the new rule went into effect in October 2012, we are still reviewing the potential impact on our business and operations.

The issue of climate change has received increasing regulatory attention in recent years. The EPA has issued regulations governing carbon dioxide, methane and other greenhouse gas (“GHG”) emissions citing its authority under the CAA. Several of these regulations have been challenged in litigation that is currently pending before the federal D.C. Circuit Court of Appeals. In December 2011, the EPA issued amendments to a final rule issued in 2010 requiring reporting of GHG emissions from the oil and natural gas industry. Under this rule, we are obligated to report to the EPA certain GHG emissions from our operations. We do not expect that the costs of this new reporting will be material to us. In a late 2011 report, the DOE Shale Gas Subcommittee recommended that the EPA expand reporting requirements for GHG emissions from shale gas emission sources, and include methane in reporting requirements. More generally, several proposals to regulate GHG emissions have been proposed in the U.S. Congress, and various states have taken steps to regulate GHG emissions. The adoption and implementation of regulations or legislation imposing restrictions or other regulatory obligations on emissions of GHGs from oil and natural gas operations could require us to obtain permits or allowances for our GHG emissions, install new pollution controls, increase our operational costs, limit our operations or adversely affect demand for the oil and natural gas produced from our lands.

Regulation of Hydraulic Fracturing

Our industry uses hydraulic fracturing to recover oil and natural gas in deep shale and other previously inaccessible subsurface geological formations. Hydraulic fracturing (or “fracking”) is a process to significantly increase production in drilled wells by creating or expanding cracks, or fractures, in underground formations by injecting water, sand and other additives into formations at high pressures. Like others in our industry, we may use this process as a means to increase the productivity of our wells. Although hydraulic fracturing has been an accepted practice in the oil and natural gas industry for many years, its use has dramatically increased in the last decade, and concerns over its potential environmental effects have received increasing attention from regulators and the public.

Under the Safe Drinking Water Act (“SDWA”), the EPA is prohibited from regulating the injection of fracking fluids through its underground injection control program, except in limited circumstances (for example, the EPA has asserted that it has authority to regulate when diesel is a component of the fluids). Waters produced from fracking operations must be disposed of in accordance with federal and state regulations. As discussed above, the EPA has announced an intention to propose pre-treatment standards for produced waters that are to be disposed of at third-party wastewater treatment plants. Separately, the EPA is studying the effects of fracking on drinking water as a result of Congressional and public concern over fracking’s potential to impact groundwater supplies, and the EPA has indicated that it expects to issue its findings later this year.

In that regard, the EPA recently issued a study indicating that contamination may have resulted from certain fracking operations in Wyoming. The operator of the wells has challenged the EPA’s findings, contending that other activities may be to blame for contaminated groundwater in the area, but the EPA’s findings can be expected to draw increased attention to potential groundwater impacts from fracking. In late 2011, the DOE Shale Gas Subcommittee recommended further study and coordination of federal, state and local efforts to determine and monitor potential groundwater impacts from fracking activities.

Other federal agencies, including the DOE and the Department of Interior, and the U.S. Congress are also investigating the potential impacts of fracking. In addition, bills have been introduced in the U.S. Congress to amend the SWDA to allow the EPA to regulate the injection of fracking fluids, which could require our and similar operations to meet federal permitting and financial assurance requirements, adhere to certain construction and testing specifications, fulfill monitoring, reporting, and recordkeeping obligations, and meet plugging and abandonment requirements. In addition, the federal Bureau of Land Management is developing draft regulations that would require companies drilling on federal land to disclose details of chemical additives, test the integrity of wells and report on water use and waste management. In November 2011, the EPA announced that it would solicit public input on possible reporting requirements for chemicals used in fracking under the authority of the federal Toxic Substances Control Act.

States, which traditionally have been the primary regulators of exploration and production wells, are also considering or have recently adopted, or may in the future adopt, additional regulations governing fracking activities. For example, North Dakota adopted regulations, effective April 1, 2012, to require disclosure of the chemical components of hydraulic fracturing fluids. We believe that compliance with any new reporting requirements will not have a material adverse impact on us. Nonetheless, these disclosures could make it easier for third parties who oppose fracking to initiate legal proceedings based on allegations that chemicals used in fracking could contaminate groundwater.

In addition, concerns have been raised about the potential for fracking to cause earthquakes through the disposal of produced waters into Class II underground injection control (“UIC”). The EPA’s current regulatory requirements for such wells do not require the consideration of seismic impacts when issuing permits. Some environmentalists have asked the EPA to consider reversing an exemption that excludes such wastewaters from hazardous waste rules, which would subject the wastes to more stringent management and disposal requirements. We cannot predict the EPA’s future actions in this regard. Certain states, such as Ohio, where earthquakes have been alleged to be linked to fracking activities, have proposed regulations that would require mandatory reviews of seismic data and related testing and monitoring as part of the future permitting process for UIC wells. In addition, certain other states, including New York, New Jersey and Vermont have sought to place moratoria on fracking or subject it to more stringent permitting and well construction and testing requirements.

Naturally Occurring Radioactive Materials ("NORM")

NORM are materials not covered by the Atomic Energy Act, whose radioactivity is enhanced by technological processing such as mineral extraction or processing through exploration and production conducted by the crude oil and natural gas industry. NORM wastes are regulated under the RCRA framework, but primary responsibility for NORM regulation has been a state function. Standards have been developed for worker protection; treatment, storage and disposal of NORM waste; management of waste piles, containers and tanks; and limitations upon the release of NORM contaminated land for unrestricted use. We believe that our operations are in material compliance with all applicable NORM standards established by the State of Texas.

Abandonment Costs

All of our crude oil and natural gas wells will require proper plugging and abandonment when they are no longer producing. We post bonds with most regulatory agencies to ensure compliance with our plugging responsibility. Plugging and abandonment operations and associated reclamation of the surface production site are important components of our environmental management system. We plan accordingly for the ultimate disposition of properties that are no longer producing.

Competition

We operate in a highly competitive environment. The principal resources necessary for the exploration and production of crude oil and natural gas are leasehold prospects where crude oil and natural gas reserves may be discovered, drilling rigs and related equipment to explore for such reserves and knowledgeable personnel to conduct operations. We must compete for such resources with both major oil and gas companies and independent operators. Many of these competitors have financial and other resources substantially greater than ours. Although we believe our current operating and financial resources are adequate to preclude any significant disruption of our operations in the immediate future, we cannot assure you that such resources will be available to us indefinitely.

Employees

As of April 9, 2014, we had one full time employee, which were our Chief Executive Officer. From time to time, we may engage technical consultants. None of our employees are represented by a labor union, and we believe that our relations with our employees are good.

Changes in Capital Structure

Designation of Preferred Stock

On April 10, 2013, the Board of Directors approved a Certificate of Designation to the Company’s Articles of Incorporation (the “Certificate of Designation”), specifying the rights, privileges, preferences, and restrictions of the Series A Preferred Stock. On April 17, 2013, the Company filed the Certificate of Designation with the Secretary of State of Nevada designating one million shares of Series A Preferred Stock.

The Series A Preferred Stock shall be convertible and for every share of Series A Preferred Stock converted, the holder shall be entitled to receive one (1) share of the Company’s common stock. Shares of Series A Preferred Stock shall be entitled to voting rights with respect to any vote to be held by the holders of the Company’s Common Stock. Every share of Series A Preferred Stock shall be entitled to 750 votes for each share of common stock that each share of Series A Preferred Stock is convertible into.

Issuance of Preferred Stock

On April 10, 2013, the Company’s Board of Directors authorized the sale and issuance of one million shares of Series A Preferred Stock to Charles Volk, the Company’s chief executive officer in exchange for the conversion of $50,000 of accrued salary owing to Mr. Volk. Subsequently, on April 17, 2013, the Company sold one million shares of Series A Preferred Stock to Mr. Volk on the terms authorized by the board of directors.

Amendments to Articles of Incorporation

On April 17, 2013, the Company filed a Certificate of Amendment to its Articles of Incorporation (the “First Amendment”) to increase the authorized shares of common stock from 500 million to 1.49 billion. The increase of authorized shares was approved by the Board of Directors on April 17, 2013 and by stockholders holding a majority of the voting rights of the Common Stock of the Company.

On May 8, 2013, the Company filed a Certificate of Amendment to its Articles of Incorporation (the “Second Amendment” and, together with the First Amendment, the “Amendments”) to increase the authorized common stock from 1.49 billion to 2.49 billion. The increase of authorized shares was approved by the Board of Directors on April 17, 2013 and by stockholders holding a majority of the voting rights of the Common Stock of the Company.

On June 24, 2013, the Company filed a Certificate of Amendment to its Articles of Incorporation (the “Third Amendment” and, together with the First and Second Amendment, the “Amendments”) to increase the authorized common stock from 2.49 billion to 6.49 billion. The increase of authorized shares was approved by the Board of Directors on June 25, 2013 and by stockholders holding a majority of the voting rights of the Common Stock of the Company.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties

Our principal executive offices are located at 145 Corte Madera Town Center #138, Corte Madera, California 94925. Our telephone number is (775)450-1515.

Our property and equipment consisted of the following at December 31, 2013 and 2012:

	2013			2012

Office equipment	$	8,113		$	7,247
Leasehold improvements		0			13,507
Less accumulated depreciation		0	)		(6,184	)

Property and equipment, net	$	8,113		$	14,570

Item 3. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. 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. Except as disclosed below, we are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

Montecito Offshore Litigation

On or about December 5, 2011, Montecito Offshore, LLC filed a lawsuit in the Civil District Court for the Parish of Orleans of the State of Louisiana against the Company by filing a Petition to Rescind Sale. The case is Montecito Offshore, LLC v. Paxton Energy, Inc. and Paxacq, Inc., Case No. 2011-12640. In this action, the plaintiff sought to rescind the asset sale transaction, whereby Montecito sold us interests in certain oil and gas leases in exchange for a $500,000 promissory note and 30,000 shares of the Company’s common stock. The Company filed a motion to dismiss the case on the grounds that plaintiff’s petition states no cause of action for contractual rescission of the asset sale transaction.

The operative terms of the settlement were recited into the record in open court on the day of trial. The result is that a judicially recognized compromise has been perfected under Louisiana law, which has the effect of extinguishing the underlying obligations the compromise is premised on. The Company’s obligations expected to be extinguished include a secured note payable in the amount of $500,000 to Montecito Offshore, LLC and convertible debentures of approximately $2,450,000. However, recording the conveyance of the lease interest and cancelling mortgages and UCC-1’s by the debt holders has not occurred. The debt holders have delayed in performing these obligations because they want to first undertake a degree of internal restructuring before accepting the royalty interest they negotiated to receive as a part of the settlement. The debt holders have indicated that, after they have formed an entity to receive the royalty interest, they will cancel the outstanding mortgages and UCC-1’s along with recording the documents conveying the various interests in the public records. The Company will account for the transaction in 2014 upon final settlement as an exchange of the oil and gas asset for the debt and an extinguishment of the related derivative liability.

Ironridge Global IV, Ltd. v. Worthington Energy, Inc.,

In March 2012, Ironridge Global IV, Ltd. (“Ironridge”) filed a complaint against the Company for the payment of $1,388,407 in outstanding accounts payable, accrued compensation, accrued interest, and notes payable of the Company (the “Claim Amount”) that Ironridge had purchased from various creditors of the Company. The lawsuit was filed in the Superior Court of the State of California for the County of Los Angeles Central District, and the case was Ironridge Global IV, Ltd. v. Worthington Energy, Inc.,Case No. BC 480184. On March 22, 2012, the court approved an Order for Approval of Stipulation for Settlement of Claims (the "Order").

The Order provided for the immediate issuance by the Company of 20,300 shares of common stock (the “Initial Shares”) to Ironridge towards settlement of the Claim Amount. The Order also provided for an adjustment in the total number of shares which may be issuable to Ironridge based on a calculation period for the transaction, defined as that number of consecutive trading days following the date on which the Initial Shares were issued (the "Issuance Date") required for the aggregate trading volume of the common stock, as reported by Bloomberg LP, to exceed $4.2 million (the "Calculation Period"). Pursuant to the Order, Ironridge would retain 2,000 shares of the Company's common stock as a fee, plus that number of shares (the "Final Amount") with an aggregate value equal to (a) the $1,358,135 plus reasonable attorney fees through the end of the Calculation Period, (b) divided by 70% of the following: the volume weighted average price ("VWAP") of the Common Stock over the length of the Calculation Period, as reported by Bloomberg, not to exceed the arithmetic average of the individual daily VWAPs of any five trading days during the Calculation Period. The Company has calculated that the Calculation Period ended during the year ended December 31, 2012 and calculated that the Final Amount to be issued under the Order is 856,291 shares of common stock. Additionally, during the year ended December 31, 2012 when the Final Amount was determined, the Company calculated the fair value of the original liability to Ironridge Global IV, Ltd to be $1,981,312, that amount which when discounted to 70% of the VWAP and multiplied by the Final Amount, would equal $1,358,135 plus reasonable attorney fees. In so doing, the Company recognized an expense for the excess of the fair value of the resultant liability to Ironridge Global IV, Ltd. in excess of the original carrying amount of the liabilities acquired by Ironridge and adjusted the liability to Ironridge Global IV, Ltd. for the fair value adjustment.

Pursuant to the Order, for every 8,400 shares of the Company's common stock that traded during the Calculation Period, or if at any time during the Calculation Period a daily VWAP is below 90% of the closing price on the day before the Issuance Date, the Company was to immediately issue additional shares (each, an "Additional Issuance"), subject to the limitation in the paragraph below. Since the issuance of the Initial Shares, the Company has issued an additional 194,200 shares of common stock during the nine months ended December 31, 2012 plus an additional 510,000 shares of common stock during the nine months ended September 30, 2013. At the end of the Calculation Period, (a) if the sum of the Initial Shares and any Additional Issuance is less than the Final Amount, the Company shall immediately issue additional shares to Ironridge, up to the Final Amount, and (b) if the sum of the Initial Shares and any Additional Issuance is greater than the Final Amount, Ironridge shall promptly return any remaining shares to the Company and its transfer agent for cancellation. However, the Order also provides that under no circumstances shall the Company issue to Ironridge a number of shares of common stock in connection with the settlement of claims which, when aggregated with all shares of common stock then owned or beneficially owned or controlled by Ironridge and its affiliates, at any one time exceed 9.99% of the total number of shares of common stock of the Company then issued and outstanding.

The Company has issued a total of 6,764,500 shares to Ironridge and had reduced the original liability of $1,388,407 to $68,028. However, on February 24, 2014 a judge awarded Ironridge a third order enforcing prior order for approval of stipulation for settlement claim by requiring the Company to reserve 1,095,950,732 shares of the Company’s common stock until the balance of the claim in paid. Ironridge claimed that the Company’s failure to comply with prior order and stipulation has caused them harm. Ironridge claims that it is still owed $241,046. The Company has increased the balance due to Ironridge to $241,046 at December 31, 2013.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities.

Price Range of Common Stock

Our common stock is currently quoted on the Pink Sheets under the symbol “WGAS.” Prior to August 6, 2012, our common stock was quoted on the Over-the-Counter Bulletin Board under the symbol “WGAS.” Prior to February 3, 2012, our common stock was quoted on the Over-the-Counter Bulletin Board under the symbol “PXTE.” For the periods indicated, the following table sets forth the high and low closing prices per share of common stock for the quarters indicated.

	Fiscal Year 2013
	High		Low
First Quarter	$	1.95	$	0.23
Second Quarter	$	0.36	$	0.01
Third Quarter	$	0.02	$	0.01
Fourth Quarter	$	0.12	$	0.00

	Fiscal Year 2012
	High		Low
First Quarter	$	1.45	$	0.281
Second Quarter	$	0.35	$	0.07
Third Quarter	$	0.20	$	0.036
Fourth Quarter	$	0.15	$	0.0165

On April 10, 2014, the closing sale price of our common stock, as reported by the OTCBB, was $0.0019 per share. On April 10, 2014, there were 192 holders of record of our common stock. On October 2, 2013 the Company affected a 1-for-50 reverse common stock split. All references in these condensed consolidated financial statements and related notes to numbers of shares of common stock, prices per share of common stock, and weighted average number of shares of common stock outstanding prior to the reverse stock split have been adjusted to reflect the reverse stock splits on a retroactive basis for all periods presented, unless otherwise noted.

Dividend Policy

We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board deems relevant.

Recent Sales of Unregistered Securities

During the fourth quarter of 2013, we made the foregoing stock issuances that were not previously disclosed on a Current Report on Form 8K. Each of the issuances was made in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

On October 2, 2013, the Company issued 1,646,740 shares to La Jolla Cover Investors for $5,600 cash and a conversion of debt of $560.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 6. Selected Financial Data

Not required under Regulation S-K for “smaller reporting companies.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.

Company Overview

In Texas, we have working interests ranging from 4% to 31.75% (net revenue interests ranging from 3% to 23.8125%) in the various wells in which we have participated. In the Gulf of Mexico, we have a 70% leasehold working interest, with a net revenue interest of 51.975% of certain oil and gas leases in the Vermillion 179 tract. VM 179 is adjacent to Exxon's VM 164 #A9 well.

Organization

Background

Black Cat Acquisition

On March 9, 2012, we acquired certain assets from Black Cat Exploration & Production LLC (“Black Cat”) pursuant to an amended Purchase and Sale Agreement for Oil & Gas Properties and Related Assets (the “Black Cat Agreement”). We acquired a 2% override interest in the Mustang Island 818-L lease, covering 1,400 acres in the Gulf of Mexico, with a 10.35% carried interest in the recently drilled I-1 well, located on the lease. We paid $175,000 in cash, issued a note for $1,075,000 and agreed to issue 90,000 shares of common stock, of which 45,000 shares were issued to Black Cat at the time of closing and the remaining 45,000 shares were issued on August 30, 2012 pursuant to when the well was connected to the main offshore pipeline of the Six Pigs Processing facility. The leasehold interest was capitalized in the amount of $2,305,987, representing $1,250,000 in cash and promissory note, $855,000 for the initial common stock issued in March 2012 (based on a closing price of $19.00 per share on the closing date), $157,500 for the second issuance of common stock in August 2012 (based on the most recent closing price of $3.50 per share at the time of connecting the well), and $43,487 in acquisition and well costs.

On November 1, 2012, we sold its 2% overriding royalty interest in the Mustang Island 818-L lease for $500,000. The sale reduced the carrying cost of the lease and well to $1,805,987. Proceeds from the sale were used to reduce the principal balance of the junior secured promissory note with Black Cat by $200,000 and the remaining $300,000 was used by us for working capital purposes.

On January 25, 2013, we entered into a Settlement Agreement and Mutual Release of Claims (the “Settlement Agreement”) with Mr. Anthony Mason and Black Cat. Pursuant to the terms of the Settlement Agreement, we agreed to pay Black Cat and/or Mr. Mason $125,000 in 10 equal payments, with the first payment due March 11, 2013 and the remaining payments every 30 days thereafter until paid in full. We have paid $10,000 to Mr. Mason resulting in a remaining liability of $115,000 at December 31, 2013. In the event that we obtain a credit facility in an amount equal to or greater than $3,500,000, the full amount of the settlement payment then outstanding will become immediately due and payable. In addition, we agreed to transfer to Black Cat all title and interest we owned in the I-1 well, Mustang Island 818-L lease and other assets acquired from Black Cat pursuant to the Black Cat Agreement. Furthermore, all production from the I-1 well, from the date the well went online was transferred to Black Cat in connection with the Settlement Agreement. In return, Black Cat agreed to return to us for cancellation the 90,000 shares of our common stock it received in connection with the Black Cat Agreement and to release us from all of its claims, which included the balance of the promissory note and accrued interest, unpaid compensation and other miscellaneous amounts. Further, in connection with the Settlement Agreement, Mr. Mason agreed to resign as President, Chief Executive Officer and a Director of our company.

In connection with its accounting for the year ended December 31, 2012, we evaluated the accounting effects of the Settlement Agreement and concluded that estimated impairment in the approximate amount of $750,000 should be recorded as of December 31, 2012 by further reducing the carrying cost of the properties to $1,055,987. In January 2013, we accounted for the Settlement Agreement by removing the carrying value of the property; removed the released liabilities for the promissory note in the amount of $850,000; removed current liabilities for amounts owed to Mr. Mason, Black Cat, and others for accrued interest, accrued compensation, lease operating expenses, and other expenses in the aggregate amount of $265,364; recorded the fair value of the common stock returned to the Company for cancelation in the amount of $54,000; recorded a liability to Mr. Mason of $125,000; and recognized additional impairment expense of $11,623.

VM 179

We are proposing a single well on VM 179 to capture reserves in (i) the Lentic K-2 Sand, which is currently being produced by the Exxon VM Block 164 and (ii) the 7400’ Sand, which was encountered by a previously drilled well in the area. Exxon drilled the VM Block 164 #A9ST2, adjacent to our proposed lease line well location, in September 2005, completing the well in the K2 Sand in November 2005. It is believed that the Exxon well will be limited in its capacity to capture all of the reserves in the K-2 Sand because of its structural location in the reservoir, which is below, or “down dip,” of the proposed lease line well in the K-2 Sand.

In December 2011, Montecito filed a lawsuit in the Civil District Court for the Parish of Orleans of the State of Louisiana against the Company by filing a Petition to Rescind Sale. In this action, Montecito is seeking to rescind the asset sale transaction, as described in the previous paragraph. The Company has entered into settlement discussions and has reached a preliminary settlement, but final document remain to be signed as of the date of this Report. Pursuant to a Release and Settlement Agreement dated February 12, 2014 that has been signed and notarized by all parties involved, the matter has been settled. The operative terms of the settlement were recited into the record in open court on the day of trial. The result is that a judicially recognized compromise has been perfected under Louisiana law, which has the effect of extinguishing the underlying obligations the compromise is premised on. The Company’s obligations expected to be extinguished include a secured note payable in the amount of $500,000 to Montecito Offshore, LLC and convertible debentures of approximately $2,450,000. However, recording the conveyance of the lease interest and cancelling mortgages and UCC-1’s by the debt holders has not occurred. The debt holders have delayed in performing these obligations because they want to first undertake a degree of internal restructuring before accepting the royalty interest they negotiated to receive as a part of the settlement. The debt holders have indicated that, after they have formed an entity to receive the royalty interest, they will cancel the outstanding mortgages and UCC-1’s along with recording the documents conveying the various interests in the public records. The Company will account for the transaction in 2014 upon final settlement as an exchange of the oil and gas asset for the debt and an extinguishment of the related derivative liability.

Kansas Properties

On March 17, 2014, we purchased oil and gas leases located in Montgomery, Labette and Wilson counties, Kansas. The purchase price for these oil and gas leases was $50,000 plus 35,000,000 shares of our common stock valued at $87,500.

Change in Management

Effective January 31, 2013, we appointed Mr. David E. T. Pinkman to the board of directors and we reappointed Mr. Charles F. Volk as the our Chief Executive Officer and President. Mr. Volk was currently serves as our Chairman of the Board of Directors.

Capital Structure

On April 10, 2013, the Board of Directors approved a Certificate of Designation to the Company’s Articles of Incorporation (the “Certificate of Designation”), specifying the rights, privileges, preferences, and restrictions of the Series A Preferred Stock. On April 17, 2013, we filed the Certificate of Designation with the Secretary of State of Nevada designating one million shares of Series A Preferred Stock.

The Series A Preferred Stock shall be convertible and for every share of Series A Preferred Stock converted, the holder shall be entitled to receive one (1) share of our common stock. Shares of Series A Preferred Stock shall be entitled to voting rights with respect to any vote to be held by the holders of our Common Stock. Every share of Series A Preferred Stock shall be entitled to 750 votes for each share of common stock that each share of Series A Preferred Stock is convertible into.

On April 10, 2013, our Board of Directors authorized the sale and issuance of one million shares of Series A Preferred Stock to Charles Volk, the Company’s chief executive officer. These shares were valued at $250,000 which includes a premium for the voting preferences described above. Also on April 17, 2013, we issued one million shares of Series A Preferred Stock to Mr. Volk on the terms authorized by the board of directors.

On April 17, 2013, we filed a Certificate of Amendment to its Articles of Incorporation (the “First Amendment”) to increase the authorized shares of common stock from 500 million to 1.49 billion. The increase of authorized shares was approved by the Board of Directors on April 17, 2013 and by stockholders holding a majority of the voting rights of our Common Stock.

On May 8, 2013, we filed a Certificate of Amendment to its Articles of Incorporation (the “Second Amendment” and, together with the First Amendment, the “Amendments”) to increase the authorized common stock from 1.49 billion to 2.49 billion. The increase of authorized shares was approved by the Board of Directors on April 17, 2013 and by stockholders holding a majority of the voting rights of our Common Stock.

On June 24, 2013, we filed a Certificate of Amendment to its Articles of Incorporation (the “Third Amendment” and, together with the First and Second Amendment, the “Amendments”) to increase the authorized common stock from 2.49 billion to 6.49 billion. The increase of authorized shares was approved by the Board of Directors on June 25, 2013 and by stockholders holding a majority of the voting rights of our Common Stock.

On October 12, 2012, we affected a 1-for-10 reverse common stock split and on October 2, 2013 we affected a 1-for-50 reverse common stock split. All references in the consolidated financial statements and related notes to numbers of shares of common stock, prices per share of common stock, and weighted average number of shares of common stock outstanding prior to the reverse stock split have been adjusted to reflect the reverse stock splits on a retroactive basis for all periods presented, unless otherwise noted.

Results of Operations

Comparison of the years ended December 31, 2013 and 2012

Oil and Gas Revenues

Our oil and gas revenue was $0 for the years ended December 31, 2013 and 2012. Bayshore has ceased to report to us the amounts of our respective share in oil and gas revenues and we understand that the oil wells are shut in and not producing. The historical level of oil and gas production has not been significant. Because the level of oil and gas production has not been significant in the past, we continue to be characterized as an exploration-stage company.

Cost and Operating Expenses

Our costs and operating expenses were $1,861,829 for the year ended December 31, 2013 compared to $3,599,991 for the year ended December 31, 2012, representing a decrease of $1,738,162. The decrease in our costs and operating expenses are primarily a result of decreases in general and administrative expenses, impairment of oil and gas properties, as well as in share-based compensation charges, as discussed below.

Lease Operating Expenses – Lease operating expenses were $0 for the year ended December 31, 2013 and $15,569 for the year ended December 31, 2012. Bayshore has ceased to report to us the amounts of our respective share of lease operating expenses and we understand that the oil wells are shut in and not producing.

Impairment loss on oil and gas properties – During the year ended December 31, 2012, we recognized an impairment loss of $750,000 on our Mustang Island 818-L lease and the I-1 well and recognized an impairment loss of $487,866 on our Texas properties. As part of a Settlement Agreement, we transferred to Black Cat all of the title and interest that we owned in the Mustang Island 818-L lease and the I-1 well. We have evaluated the accounting effects of the settlement agreement and concluded that impairment in the approximate amount of $750,000 should be recorded, which has been reflected in the accompanying consolidated financial statements as of December 31, 2012 by reducing the carrying cost of the properties to $1,055,987. During the year ended December 31, 2013, the impairment was only $111,623.

General and Administrative Expense – General and administrative expense was $1,750,206 for the year ended December 31, 2013 as compared to $2,346,308 for the year ended December 31, 2012, representing a decrease of $596,102. The decrease in general and administrative expense during the year ended December 31, 2013 is principally related to decreases of: (1) $112,219 for consulting services; (2) $81,246 for outside services; and (3) share-based compensation of $145,695; and (4) $295,789 in salaries and wages; offset by a writeoff of an earnest deposit of $100,000 during the year ended December 31, 2013. The reduction in consulting services represents a decrease in payments related to investor relations, energy, financing, and general business services as a result of a general decreased need for such consulting services. The decrease in the costs of outside services principally relates to the decreased use temporary office personnel.

Other Income (Expense)

Change in fair value of derivative liabilities – We issued convertible promissory notes commencing in April 2010 which contain a variable conversion price and anti-dilution reset provisions. In addition, during the quarter ended June 30, 2011, we issued convertible debentures and warrants that contain price ratchet anti-dilution protection. These embedded conversion features are treated as embedded derivatives under generally accepted accounting principles and are required to be accounted for at fair value. We have estimated the fair value of the embedded conversion features of the convertible promissory notes, the convertible debentures, and the related warrants using multinomial lattice models. The fair value of these derivative liabilities was estimated to be $7,908,415 and $7,795,335 as of December 31, 2013 and 2012, respectively. We recognized a gain (loss) from the change in fair value of these derivative liabilities of $971,995 and $(4,344,508) for the years ended December 31, 2013 and 2012, respectively.

Interest Expense – We incurred interest expense of $593,907 and $820,175 for the years ended December 31, 2013 and 2012, respectively. The decrease in interest expense is primarily due to the decrease in the amount of our unsecured convertible debt in 2013 as compared to 2012.

Amortization of discount on convertible notes and other debt – We have issued convertible promissory notes and debentures to several individuals or entities, commencing in April 2010. In each case, the notes and debentures have a favorable conversion price in comparison to the market price of our common stock on the date of the issuance of the notes. Additionally, the convertible debentures and certain of the convertible promissory notes contain price ratchet anti-dilution reset provisions. The fair value of these embedded conversion features is measured on the issue date of the notes. Generally, a discount is recorded for these embedded conversion features and amortized over the term of the note or debenture as a non-cash charge to the statement of operations. We have amortized $1,468,516 and $3,671,035 of discount on convertible notes and debentures for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013, there is $135,745 of recorded, but unamortized, discount on the convertible promissory notes that will be amortized and recorded as a non-cash expense over the remaining terms of the respective notes.

Amortization of deferred financing costs –The deferred financing costs was recorded in connection with the issuance of convertible debentures. These deferred financing costs were amortized over the one year term of the debentures using the effective interest method. We amortized deferred financing costs in the amount of $370,000 and $224,451 for the year ended December 31, 2013 and 2012, respectively.

Although the net changes with respect to our revenues and our costs and operating expenses for the year ended December 31, 2013 and 2012, are summarized above, the trends contained therein are limited and should not be viewed as a definitive indication of our future results.

Liquidity and Capital Resources

From our inception our principal sources of liquidity consisted of proceeds from the sale of unsecured convertible promissory notes and proceeds from the sale of common stock and warrants. During the year ended December 31, 2013, we received $80,391 and $156,600 from the proceeds from the sale convertible notes and common stock, respectively, and during the year ended December 31, 2012, we received $1,508,668 and $95,000 from the proceeds from the sale convertible notes and common stock, respectively. From our inception we received $5,893,391 and $3,380,570 from the proceeds from the sale convertible notes and common stock, respectively.

At December 31, 2013, we had $166 in cash and we had a working capital deficit of $14,914,490, as compared to a deficit of $15,800,966 as of December 31, 2012. The working capital deficit is principally the result of historical losses with operations and oil and gas property acquisitions financed through trade creditors and through the use of short-term debt. The decrease in the working capital deficit for the year ended December 31, 2013, is principally due to the issuance of common stock for debt during the year. In addition, we have total stockholders’ deficit of $9,228,482 at December 31, 2013, compared to total stockholders’ deficit of $8,484,524 at December 31, 2012, an increase in the stockholders’ deficit of $743,958. The increase in the stockholders’ deficit for the year ended December 31, 2013, is principally due to net loss incurred during the year offset by certain debt and accrued interest being converted into shares of common stock.

Our operations used net cash of $228,024 during the year ended December 31, 2013, compared to $1,348,778 of net cash used during the year ended December 31, 2012. Net cash used in operating activities during the year ended December 31, 2013, consisted of our net loss of $3,122,257, less non-cash expenses for the impairment loss on oil and gas properties, share-based compensation, amortization of deferred financing costs and discount on convertible notes, and depreciation expense, and further reduced by non-cash changes in working capital, plus the non-cash gain for the change in fair value of derivative liabilities.

We had minimal investing activities that used cash during the year ended December 31, 2013, compared to cash provided by investing activity of $176,623 for the year ended December 31, 2012. Investing activities during the year ended December 31, 2012 principally included cash received of $500,000 from the sale of oil and gas properties, cash paid of $214,425 toward the acquisition of oil and gas properties and deposit of $100,000.

Financing activities provided $220,991 of cash during the year ended December 31, 2013, compared to $1,178,668 during the year ended December 31, 2012. Cash flows from financing activities during the year ended December 31, 2013, relate to 1) the receipt of proceeds from the placement of unsecured convertible promissory notes in the amount of $80,391 and 2) proceeds from issuance of common stock and warrants for $150,600. Cash flows from financing activities during the year ended December 31, 2012, relate to 1) the receipt of proceeds from the placement of unsecured convertible promissory notes in the amount of $1,508,668 and 2) proceeds of $250,000 from the issuance of a bridge loan promissory note.

We are currently seeking debt and equity financing to fund potential acquisitions and other expenditures, although we do not have any contracts or commitments for either at this time. We will have to raise additional funds to continue operations and, while we have been successful in doing so in the past, there can be no assurance that we will be able to do so in the future. Our continuation as a going concern is dependent upon our ability to obtain necessary additional funds to continue operations and the attainment of profitable operations.

We have historically financed our operations from the issuance of unsecured convertible promissory notes payable, secured notes payable and convertible debentures.

Below is a summary of our unsecured convertible promissory notes payable, secured notes payable and convertible debentures.

	Unpaid		Unamortized		Carrying
	Principal		Discount		Value

Asher Enterprises, Inc.	$	111,900	$	7,473	$	104,427
GEL Properties, LLC		149,000		13,486		135,514
Prolific Group, LLC		79,900		11,849		68,051
Various Other Individuals and Entities		3,750		-		3,750
Haverstock Master Fund, LTD and Common Stock, LLC		289,906		-		289,906
Magna Group, LLC		-		-		-
Hanover Holdings I, LLC		-		-		-
Five Individuals		206,250		-		206,250
JMJ Financial		25,000		11,233		13,767
Charles Volk (related party)		125,000		53,596		71,404
Tomer Tal		50,000		13,105		36,895

	$	1,040,706	$	110,742	$	929,964

The unsecured convertible promissory notes payable are generally due within one year from the date of issuance bear interest at rates ranging from 8% to 12% and are convertible into shares of our common stock at discounts ranging from 30% to 50%. Most of our unsecured convertible promissory notes payable are in default at December 31, 2013. Additionally, the notes have generally contained a reset provision that provides that if the Company issues or sells any shares of common stock for consideration per share less than the conversion price of the notes, that the conversion price will be reduced to the amount of consideration per share of the stock issuance.

Secured Notes Payable outstanding at December 31, 2013:

	Unpaid		Unamortized		Carrying
	Principal		Discount		Value

Montecito Offshore, LLC	$	500,000	$	-	$	500,000
Bridge Loan Settlement Note		40,000		-		40,000
What Happened LLC		21,575		-		21,575
La Jolla Cove Investors, Inc.		83,940		25,003		58,937

	$	645,515	$	25,003	$	620,512

The secured notes payable are generally secured with oil and gas properties, bear interest at rates ranging from 4.75% to 9% and some are convertible into shares of our common stock at discount of 93%. Our secured notes payable are in default at December 31, 2013. The Montecito Offshore LLC note is secured by a second lien mortgage, subordinated to the convertible debentures discussed below. See discussion below about the Release and Settlement Agreement dated February 12, 2014. Certain contained a reset provision that provides that if the Company issues or sells any shares of common stock for consideration per share less than the conversion price of the notes, that the conversion price will be reduced to the amount of consideration per share of the stock issuance.

Convertible Debentures outstanding at December 31, 2013:

	Unpaid		Unamortized		Carrying
	Principal		Discount		Value

Tranche 1	$	2,036,282	$	-	$	2,036,282
Tranche 2		285,500		-		285,500
Tranche 3		131,250		-		131,250

	$	2,453,032	$	0	$	2,453,032

In May 2011 we sold units to certain investors for aggregate cash proceeds of $2,550,000. The convertible debentures were issued in three tranches, matured one year after issuance on May 5, 2012, May 13, 2012, and May 19, 2012, and originally accrued interest at 9% per annum. The debentures were convertible at the holder’s option at any time into common stock at a conversion price originally set at $150.00 per share. The debentures contain price ratchet anti-dilution protection. In addition, the conversion price shall be adjusted if the conversion price of securities in a subsequent offering by us is adjusted pursuant to a make good provision. We are in default under the convertible debentures because it has not made the interest payments that were due beginning July 1, 2011 and has not repaid the principal which matured on May 19, 2012. As such, we are in default on all unpaid principal and total accrued interest. The default interest rate is 18% per annum. We are currently working to resolve the default on these debentures. Pursuant to a Release and Settlement Agreement dated February 12, 2014 that has been signed and notarized by all parties involved, the matter has been settled. The operative terms of the settlement were recited into the record in open court on the day of trial. The result is that a judicially recognized compromise has been perfected under Louisiana law, which has the effect of extinguishing the underlying obligations the compromise is premised on. Our obligations under these convertible debentures and a secured note payable in the amount of $500,000 to Montecito Offshore, LLC as mentioned in the previous table are expected to be extinguished. However, recording the conveyance of the lease interest and cancelling mortgages and UCC-1’s by the debt holders has not occurred. The debt holders have delayed in performing these obligations because they want to first undertake a degree of internal restructuring before accepting the royalty interest they negotiated to receive as a part of the settlement. The debt holders have indicated that, after they have formed an entity to receive the royalty interest, they will cancel the outstanding mortgages and UCC-1’s along with recording the documents conveying the various interests in the public records.

Contractual Obligations

Our significant contractual obligations as of December 31, 2013 are as follows:

	Payments due by Period
	Less than		One to		Three to		More Than
	One Year		Three Years		Five Years		Five Years		Total
Unsecured convertible notes payable	$	1,040,706	$	-	$	-	$	-	$	1,040,706
Secured notes payable		645,515		-		-		-		645,515
Convertible debentures		2,453,032		-		-		-		2,453,032
Interest payable		1,782,985		-		-		-		1,782,985
Total	$	5,922,238	$	-	$	-	$	-	$	5,922,238

Critical Accounting Policies

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Notes to the December 31, 2013 Financial Statements. Note that our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Stock-based Compensation

We calculate the fair value of all share-based payments to employees and non-employee directors, including grants of stock options and stock awards and amortize these fair values to share-based compensation in the statement of operations over the respective vesting periods of the underlying awards. Share-based compensation related to stock options is computed using the Black-Scholes option pricing model. We estimate the fair value of stock option awards using assumptions about volatility, expected life of the awards, risk-free interest rate, and dividend yield rate. The expected volatility in this model is based on the historical volatility of our common stock. The risk-free interest rate is based on the U.S. Treasury constant maturities rate for the expected life of the related options. The expected life of the options granted is equal to the average of the vesting period and the term of the option, as allowed for under the simplified method prescribed by Staff Accounting Bulletin 107. The expected dividend rate takes into account the absence of any historical payments and management’s intention to retain all earnings for future operations and expansion. We estimate the fair value of restricted stock awards based upon the closing market price of our common stock at the date of grant. We charge the fair value of non-restricted awards to share-based compensation upon grant.

We account for equity instruments issued in exchange for the receipt of goods or services from other than employees and non-employee directors in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. The fair value of the equity instrument is charged directly to share-based compensation expense and credited to paid-in capital.

Convertible Debt and Derivative Accounting

For convertible debt that is issued with embedded conversion features, we perform an allocation of the proceeds of the convertible note between the principal amount of the note and the fair value of the embedded conversion feature. The fair value of the embedded conversion feature is recorded as a discount to the principal amount of the note, but not in excess of the principal amount of the note. The discount is amortized over the period from the issuance date to the maturity date or the date of conversion, whichever occurs earlier, as a non-cash charge to the statement of operations. Upon the issuance of the note, an assessment is made of the embedded conversion feature to determine whether the embedded conversion feature should be accounted for as equity or liability. In the case of a variable conversion price or anti-dilution reset provisions, the features are accounted for as a derivative liability and carried at fair value on the balance sheet. The fair value of the derivative liability is remeasured each reporting period and the change in fair value to recorded in the statement of operations.

For convertible debentures and various warrants which contain price ratchet anti-dilution protection, we have determined that the convertible debentures and warrants are subject to derivative liability treatment and are required to be accounted for at their fair value. We estimated the fair value of the price ratchet anti-dilution protection of the convertible debentures and the warrants using a probability weighted average Black-Scholes-Merton pricing model. Accordingly, the fair value of the price ratchet anti-dilution protection of the convertible debentures and warrants as determined using the lattice models is affected by our stock price on the date of issuance as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the debentures and warrants, actual and projected redemptions and conversion price resets. Expected volatility is based primarily on the historical volatility of other comparable oil and gas companies.

We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. 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 in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton pricing model to value the derivative instruments on December 31, 2013. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. 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.

Revenue Recognition

Historically, all revenues have been derived from the sale of produced crude oil and natural gas. Revenue and related production taxes and lease operating expenses are recorded in the month the product is delivered to the purchaser. Typically, payment for the revenue, net of related taxes and lease operating expenses, is received from the operator of the well approximately 45 days after the month of delivery. Accounts receivable are stated at the amount management expects to collect. Management provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance based on its assessment of the collectability of the receivable.

Income Taxes

Provisions for income taxes are based on taxes payable or refundable and deferred taxes. Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and tax operating loss carryforwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Impairment of Long-Lived Assets

Long-lived assets, including oil and gas properties, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to estimated future undiscounted net cash flows of the related asset or group of assets over their remaining lives. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent of other groups of assets. The impairment of long-lived assets requires judgments and estimates. If circumstances change, such estimates could also change.

Inflation

We do not believe that inflation has had a material effect on our Company’s results of operations.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of:

Worthington Energy, Inc.

We have audited the accompanying consolidated balance sheets of Worthington Energy, Inc. (an exploration stage company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Worthington Energy, Inc. as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

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 is in the exploration stage, has not had significant revenue from operations, has experienced recurring operating losses and negative operating cash flows since inception, has a significant portion of its debt in default, and has financed its working capital requirements through the recurring sale of its debt and equity securities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Weinberg & Company, P.A.

Los Angeles, California

April 15, 2014

F-1

WORTHINGTON ENERGY, INC.

(AN EXPLORATION-STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

	December 31,
	2013			2012
ASSETS
Current Assets:
Cash and cash equivalents	$	166		$	8,065
Prepaid expenses and other current assets		-			36,431
Total Current Assets		166			44,496

Property and Equipment, net of accumulated depreciation		10,123			14,570
Oil and gas properties		5,698,563			6,854,550
Deferred financing costs		-			370,000
Earnest money deposit		-			100,000
Other assets		14,610			14,610

Total Assets	$	5,723,462		$	7,398,226

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable	$	863,702		$	412,327
Accrued liabilities		1,782,985			1,432,850
Payable to Ironridge Global IV, Ltd.		241,046			1,489,623
Payable to former officer		115,000			-
Unsecured convertible promissory notes payable, net of discount, in default		929,964			663,054
Secured notes payable, net of discount, in default		620,512			1,502,273
Convertible debentures in default		2,453,032			2,550,000
Derivative liabilities		7,908,415			7,795,335
Total Current Liabilities		14,914,656			15,845,462

Long-Term Liabilities
Long-term asset retirement obligation		37,288			37,288

Total Liabilities		14,951,944			15,882,750

Stockholders' Deficiency:
Undesignated preferred stock, $0.001 par value; 9,000,000 share authorized,
none issued and outstanding		-			-
Series A convertible preferred stock, $0.001 par value; 1,000,000 shares authorized,
1,000,000 and none shares; issued and outstanding, respectively		1,000			-
Common stock, $0.001 par value; 6,490,000,000 shares authorized,
47,476,265 and 1,142,244 shares issued and outstanding, respectively		47,476			1,141
Additional paid-in capital		26,435,670			23,904,706
Deficit accumulated during the exploration stage		(35,712,628	)		(32,390,371	)
Total Stockholders' Deficiency		(9,228,482	)		(8,484,524	)

Total Liabilities and Stockholders' Deficiency	$	5,723,462		$	7,398,226

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

F-2

WORTHINGTON ENERGY, INC.

(AN EXPLORATION-STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS


							For the Period
							from
							June 30, 2004
							(Date of
							Inception)
							through
	Years Ended December 31,						December 31,
	2013			2012			2013
							(unaudited)

Oil and gas revenues, net	$	-		$	-		$	370,437

Costs and Operating Expenses
Lease operating expenses					15,569			164,381
Impairment loss on oil and gas properties		111,623			1,237,886			5,196,701
Accretion of asset retirement obligations		-			228			8,982
General and administrative expense (including shares based compensation of
$284,214, $429,909, and $8,198,057, respectively)		1,750,206			2,346,308			15,958,239
Total costs and operating expenses		1,861,829			3,599,991			21,328,303

Loss from operations		(1,861,829	)		(3,599,991	)		(20,957,866	)

Other income (expense)
Interest income		-			-			63,982
Change in fair value of derviative liabilities		971,995			(4,344,508	)		(3,217,153	)
Gain on transfer of common stock from Bayshore Exploration, L. L. C.		-			-			24,000
Interest expense		(593,907	)		(820,175	)		(2,245,533	)
Amortization of discount on convertible debentures and notes and other debt		(1,468,516	)		(3,671,035	)		(7,658,435	)
Interest expense - Ironridge Global IV, Ltd					(594,935	)		(594,935	)
Amortization of deferred financing costs		(370,000	)		(224,451	)		(926,688	)
Total other income (expense)		(1,460,428	)		(9,655,104	)		(14,554,762	)

Net loss	$	(3,322,257	)	$	(13,255,095	)	$	(35,512,628	)

Basic and Diluted Loss Per Common Share	$	(0.14	)	$	(32.00	)

Basic and Diluted Weighted-Average Common Shares Outstanding		23,927,265			412,959

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

F-3

WORTHINGTON ENERGY, INC.

(AN EXPLORATION-STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

														Deficit
														Accumulated
											Additional			During the			Total
	Series A Preferred Stock				Common Stock						Paid in			Exploration			Stockholders'
	Shares		Amount		Shares			Amount			Capital			Stage			(Deficit)
Balance - June 30, 2004 (Date of Inception)		-	$	-		-		$	-		$	-		$	-		$	-
																		-
Stock-based compensation for services of founder, June 2004, $36.10 per share						2,770			3			99,997						100,000
Issuance of shares for cash, June 2004, $36.10 per share						1,385			1			49,999						50,000
Issuance of shares for cash, June 2005, $1,264.26 per share, less offering costs of $14,188						123			-			140,693						140,693
Issuance of shares in connection with acquisition of oil and gas property, June 2005, $2,716.07 per share						140			-			380,250						380,250
Stock-based compensation for services during 2005, $1,264.26 per share						263			-			332,500						332,500
Issuance of shares to the chief executive officer for 2005 compensation liability, January 2006, $1,264.26 per share						97			-			122,500						122,500
Issuance of beneficial conversion features and shares in conjunction with the issuance of secured convertible notes and other debt, February 2006						62			-			967,468						967,468
Conversion of secured convertible notes into shares, April 2006, $1,264.26 per share						727			1			918,999						919,000
Issuance of shares and 126,925 warrants for cash, less offering and registration costs of $375,848 and derivative liability of $1,467,704, April 2006, $1,799.08 per share						679			1			1,221,572						1,221,573
Issuance of shares in connection with acquisition of oil and gas properties, March 2006, $7,500.00 per share						28			-			210,000						210,000
Issuance of shares in connection with acquisition of oil and gas properties, June 2006, $8,493.98 per share						83			-			705,000						705,000
Stock-based compensation for services, March 2006, $9,821,43 per share						7			-			68,750						68,750
Stock-based compensation for options granted, July 2006						-			-			522,825						522,825
Reclassification of warrants subject to registration payment arrangement from derivative liability, October 1, 2006						-			-			1,067,704						1,067,704
Cumulative-effect adjustment of change in accounting method for registration payment arrangements, October 1, 2006						-			-			-						(1,066,295	)
Stock-based compensation for services, August to November 2007, $1,660.70 to $3,249.20 per share						169			-			444,500						444,500
Common stock contributed to the Company by Bayshore Exploration L.L.C., September 2008						(83	)		-			(24,000	)					(24,000	)
Common stock contributed to the Company by Chief Operating Officer, September 2008						(83	)		-			-						-
Common stock issued in connection with the issuance of notes payable, September 2008						166			-			38,710						38,710
Cumulative effect of reclassification of warrants to derivative liability, January 1, 2009						-			-			-			(1,066,803	)		(508	)
Issuance of common stock in settlement of accrued registration rights penalties and interest, June 2010, $60.17 per share						11,602			12			698,080						698,092
Issuance of common stock to directors, June 2010, $108.22 per share						499			-			54,000						54,000
Issuance of common stock in exchange for cancelation of common stock options and warrants, June 2010, $102.65 per share						1,366			1			140,219						140,220
Issuance of common stock in satisfaction of payable to former officers and consultant, September 2010, $70.72 per share						3,000			3			212,160						212,163
Issuance of common stock for services, September 2010, $45.50 and $20.00 per share						6,450			6			319,994						320,000
Issuance of common stock and warrants for cash, September 2010 to December 2010, $75.00 per unit						2,200			2			164,998						165,000
Issuance of common stock and warrants upon conversion of notes payable and accrued interest, October 2010 to December 2010						9,036			9			287,382						287,391
Issuance of beneficial conversion features related to unsecured convertible promissory notes payable, April 2010 to December 2010						-			-			491,676						491,676
Share-based compensation from grant of common stock options and issuance of common stock warrants to officers, directors and consultants						-			-			1,732,744						1,732,744
Net loss															(11,170,921	)		(11,170,921	)


Balance - December 31, 2010		-		-		40,686			39			11,368,720			(12,237,724	)		(868,965	)

Issuance of common stock and warrants for cash, January 2011, $75.00 per unit						1,200			1			89,999						90,000
Issuance of common stock and warrants upon conversion of notes payable and accrued interest, January 2011 to November 2011, $8.10 to $31.25 per share						22,813			23			699,834						699,857
Issuance of common stock in connection with the Montecito Asset Sale Agreement, May 2011, $122.50 per share						30,000			30			3,674,970						3,675,000
Issuance of common stock for legal and consulting services, May 2011 to September 2011, $17.45 to $125.00 per share						2,400			2			102,398						102,400
Issuance of common stock in settlement of liabilities, August 2011, $75.00 per share						800			1			59,999						60,000
Share-based compensation from grant of common stock options and issuance of common stock warrants to officers, directors and consultants						-			-			346,314						346,314
Share-based compensation from issuance of common stock to officers, June 2011, $95.00 per share						31,500			32			2,992,468						2,992,500
Net loss															(6,897,552	)		(6,897,552	)


Balance - December 31, 2011		-		-		129,399			128			19,334,702			(19,135,276	)		199,554

Issuance of common stock upon conversion of notes payable and accrued interest, February 2012 to December 2012, $0.435 to $16.10 per share						601,090			601			2,472,188						2,472,789
Issuance of common stock in connection with the Black Cat Purchase and Sale Agreement, March 2012 at $19.00 per share and August 2012 at $3.50 per share						90,000			90			1,012,410						1,012,500
Issuance of common stock for fees in connection with Ironridge settlement transaction, March 2012, $20.00 per share						2,000			2			39,998						40,000
Issuance of common stock to Ironridge in settlement of liabilities, March 2012 to December 2012, $2.315 per share						212,500			213			491,476						491,689
Issuance of common stock to La Jolla Cove Investors, Inc. upon conversion of convertible debenture and common stock purchased under an Equity Investment Agreement, September 2012 and December 2012, weighted average of $2.05 per share						40,239			40			101,590						101,630
Issuance of common stock to Charles Volk and other persons designated by Mr. Volk pursuant to the Change of Control and Recapitalization Agreement, August 2012, $3.50 per share						20,000			20			69,980						70,000
Issuance of common stock for services, June to November 2012, $3.80 to $4.90 per share						18,125			18			86,026						86,044
Issuance of common stock to officers and directors in satisfaction of certain amounts owed to them, August 2012, $2.25 per share						18,889			19			42,481						42,500
Issuance of common stock and warrants for cash, October 2012, $2.00 per unit						10,000			10			19,990						20,000
Fractional shares issued pursuant to reverse stock split						2			-			-						-
Share-based compensation from grant of common stock options and issuance of common stock warrants to officers, directors and consultants						-			-			233,865						233,865
Net loss															(13,255,095	)		(13,255,095	)


Balance - December 31, 2012		-	$	-		1,142,244		$	1,141		$	23,904,706		$	(32,390,371	)	$	(8,484,524	)

Issuance of common stock upon conversion of notes payable and accrued interest - weighted average of $0.018 per share						36,737,987			36,738			634,362						671,100
Issuance of common stock to Ironridge in settlement of liabilities, January 2013 to June 2013, $0.217 per share						6,550,000			6,550			1,415,045						1,421,595
Issuance of common stock to La Jolla Cove Investors, Inc. upon conversion of convertible debentures weighted average of $0.004 per share						2,157,575			2,158			6,402						8,560
Issuance of common stock to La Jolla under an equity imvestment agreement - weighted average of $0.391 per share						206,887			207			80,623						80,830
Issuance of common stock and warrants for cash, February 2013, $0.607 per unit						641,600			642			90,358						91,000
Issuance of common stock to chief executive officer in satisfaction of certain amounts owed to him, February 2013, $0.25 per share						100,000			100			24,900						25,000
Issuance of common stock for services, February 2013 - weighted avearage of $0.673 per share						30,000			30			20,170						20,200
Return and cancelation of common stock in connection with the Settlement Agreement with
Black Cat Exploration & Production, LLC and former officer, January 25, 2013, valued at $0.60 per share						(90,000	)		(90	)		(53,910	)					(54,000	)
Share-based compensation from grant of common stock options and issuance of common stock warrants to officers, directors and consultants						-			-			64,014						64,014
Issuance of Series A Preferred Stock for accrued compensation		1,000,000		1,000								249,000						250,000

Net Loss															(3,322,257	)		(3,322,257	)


Balance - December 31, 2013		1,000,000	$	1,000		47,476,293		$	47,476		$	26,435,670		$	(35,712,628	)	$	(9,228,482	)

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

F-4

WORTHINGTON ENERGY, INC.

(AN EXPLORATION-STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

							For the Period
							from
							June 30, 2004
							(Date of
							Inception)
							through
	Years Ended December 31,						December 31,
	2013			2012			2013
							(unaudited)
Cash Flows From Operating Activities
Net loss	$	(3,322,257	)	$	(13,255,095	)	$	(35,512,628	)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment loss on oil and gas properties		111,623			1,237,886			5,196,701
Share-based compensation for services		284,214			429,908			8,198,056
Amortization of deferred financing costs and discount on
convertible debentures and notes and other debt		1,838,516			3,895,486			8,585,123
Interest expense - Ironridge Global IV, Ltd.		-			594,935			594,935
Gain on transfer of common stock from Bayshore Exploration, L.L.C.		-			-			(24,000	)
Accretion of asset retirement obligation		-			228			8,982
Depreciation expense		5,313			4,531			16,659
Change in fair value of derivative liabilities		(971,995	)		4,344,508			3,217,153
Change in assets and liabilities:
Prepaid expense and other current assets		36,431			(16,155	)		16,818
Other assets		100,000			-			85,390
Accounts payable and accrued liabilities		1,517,113			1,414,990			5,186,195
Payable to Ironridge Global IV, Ltd		173,018			-			173,018
Net Cash Used In Operating Activities		(228,024	)		(1,348,778	)		(4,257,598	)

Cash Flows From Investing Activities
Proceeds from the sale of oil and gas properties		-			500,000			500,000
Acquisition of oil and gas properties		-			(218,487	)		(3,658,565	)
Earnest money deposit		-			(100,000	)		(100,000	)
Purchase of property and equipment		(866	)		(4,890	)		(26,782	)
Net Cash Used in Investing Activities		(866	)		176,623			(3,285,347	)

Cash Flows From Financing Activities
Proceeds from the issuance of common stock and warrants,
net of registration and offering costs		150,600			95,000			3,380,570
Proceeds from issuance of convertible notes and other debt, and related
beneficial conversion features and common stock, less amount held in
attorney's trust accounts		80,391			1,508,668			3,163,391
Proceeds from issuance of convertible debentures		-			-			2,550,000
Proceeds from related parties for issuance of secured convertible notes and other
debt, and related beneficial conversion features and common stock		-			-			180,000
Payment of deferred financing costs		-			(100,000	)		(506,000	)
Payment of payable to Bayshore Exploration, L.L.C.		-			-			(489,600	)
Payment of principal on notes payable stockholder		-			-			(325,000	)
Payment on principal on notes payable		(10,000	)		(325,000	)		(410,250	)
Net Cash Provided By Financing Activities		220,991			1,178,668			7,543,111

Net Increase (Decrease) In Cash and Cash Equivalents		(7,899	)		6,513			166
Cash and Cash Equivalents At Beginning Of Period		8,065			1,552			-
Cash and Cash Equivalents At End Of Period	$	166		$	8,065		$	166

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	13,650			61,300
Cash paid during the period for taxes	$	-		$	-

NON CASH INVESTING AND FINANCING ACTIVITIES
Valuation discounts recorded as derivative liabilities	$	1,085,227		$	2,574,419
Common stock issued for conversion of notes and accrued interest	$	679,560			-
Common stock issued for Ironridge Global IV Ltd settement	$	1,421,595			531,689
Common and preferred stock issued for executive compensation	$	75,000			112,500
Common stock issued in connection with Black Cat Exploration & Production, LLC purchase		-			1,012,500
Cancelation of common stock in connection with Black Cat Exploration & Production, LLC settlement	$	54,000			-

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

F-5

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Note 1 - Organization and Significant Accounting Policies

Organization – Paxton Energy, Inc. was organized under the laws of the State of Nevada on June 30, 2004. On January 27, 2012, Paxton Energy, Inc. changed its name to Worthington Energy, Inc. (the “Company”). On October 12, 2012, the Company’s stockholders approved a 1-for-10 reverse common stock split. In addition, on October 2, 2013 the Company affected a 1-for-50 reverse common stock split. All references in these consolidated financial statements and related notes to numbers of shares of common stock, prices per share of common stock, and weighted average number of shares of common stock outstanding prior to the reverse stock splits have been adjusted to reflect the reverse stock splits on a retroactive basis for all periods presented, unless otherwise noted.

Nature of Operations – As further described in Note 2 to these consolidated financial statements, the Company commenced acquiring working interests in oil and gas properties in June 2005. We are in the business of acquiring, exploring and developing oil and gas-related assets The Company is considered to be in the exploration stage due to the lack of significant revenues.

Going Concern – The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not had significant revenue and is still considered to be in the exploration stage. The Company incurred losses of $3,322,257 for year ended December 31, 2013 and $13,255,095 for the year ended December 31, 2012. The Company also used cash of $228,024 and $1,348,778 in its operating activities during the year ended December 31, 2013 and 2012, respectively, and a significant portion of the Company’s debt is in default. At December 31, 2013, the Company has a working capital deficit of $14,914,490 and a stockholders’ deficiency of $9,228,482. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. As a result, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2013 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

The Company is currently seeking debt and equity financing to fund potential acquisitions and other expenditures, although it does not have any contracts or commitments for either at this time. The Company will have to raise additional funds to continue operations and, while it has been successful in doing so in the past, there can be no assurance that it will be able to do so in the future. The Company’s continuation as a going concern is dependent upon its ability to obtain necessary additional funds to continue operations and the attainment of profitable operations. The Company hopes that working capital will become available via financing activities currently contemplated with regards to its intended operating activities. There can be no assurance that such funds, if available, can be obtained on terms reasonable to the Company. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty.

Principles of Consolidation – The accompanying consolidated financial statements present the financial position, results of operations, and cash flows of Worthington Energy, Inc. and of PaxAcq Inc., a wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates – In preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s consolidated financial statements relate to the valuation of long-lived assets, accrued other liabilities, and valuation assumptions related to share-based payments and derivative liability.

Property and Equipment – Property and equipment are recorded at cost, and consist of office equipment and leasehold improvements. Depreciation of property and equipment is charged to operations on a straight-line basis over useful lives range from 3 to 5 years. Property and equipment consisted of the following at December 31, 2013 and 2012:

	2012			2012

Office equipment	$	8,113		$	7,247
Leasehold improvements		13,507			13,507
Less accumulated depreciation		(11,497	)		(6,184	)

Property and equipment, net	$	10,123		$	14,570

Depreciation expense was $5,313 and $4,531 for the years ended December 31, 2013 and 2012, respectively.

F-6

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Oil and Gas Properties – The Company follows the full cost method of accounting for oil and gas properties. Under this method, all costs associated with acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs and related asset retirement costs, are capitalized. Costs capitalized include acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties, and costs of drilling and equipping productive and nonproductive wells. Drilling costs include directly related overhead costs. Capitalized costs are categorized either as being subject to amortization or not subject to amortization.

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, will be amortized, on the unit-of-production method using estimates of proved reserves. At December 31, 2013 and 2012, there were no capitalized costs subject to amortization. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is charged to operations. The Company has not yet obtained a reserve report on its producing properties in Texas because the properties are considered to be in the exploration stage, management has not completed an evaluation of the properties, and the properties have had limited oil and gas exploration and production.

In addition, properties subject to amortization will be subject to a “ceiling test,” which basically limits such costs to the aggregate of the “estimated present value,” based on the projected future net revenues from proved reserves, discounted at 10% per annum to present value of future net revenues from proved reserves, based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the results of operations. Abandonments of properties are accounted for as adjustments of capitalized costs with no loss recognized.

Asset Retirement Obligation - The Company accounts for its future asset retirement obligations (“ARO”) by recording the fair value of the liability during the period in which it was incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The increase in carrying value of a property associated with the capitalization of an ARO is included in proven oil and gas properties in the balance sheets. The ARO consists of costs related to the plugging of wells, removal of facilities and equipment, and site restoration on its oil and gas properties. The asset retirement liability is accreted to operating expense over the useful life of the related asset. As of December 31, 2013 and 2012, the Company had an ARO of $37,288.

Impairment of Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to estimated future undiscounted net cash flows of the related asset or group of assets over their remaining lives. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent of other groups of assets. The impairment of long-lived assets requires judgments and estimates. If circumstances change, such estimates could also change. During the years ended December 31, 2013 and 2012, the Company recorded impairment charges of $111,623 and $1,237,866, respectively, related to its oil and gas properties that were not subject to the “ceiling test”.

Revenue Recognition – All revenues are derived from the sale of produced crude oil and natural gas. Revenue and related production taxes and lease operating expenses are recorded in the month the product is delivered to the purchaser. Normally, payment for the revenue, net of related taxes and lease operating expenses, is received from the operator of the well approximately 45 days after the month of delivery. However, during the years ended December 31, 2013 and 2012, our operator has retained any such payments to offset the amounts owed by it from the Company. Accounts receivable, if any, are stated at the amount management expects to collect. Management provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance based on its assessment of the collectability of the receivable. At December 31, 2013 and 2012, there are no accounts receivable, and accordingly, no allowance for doubtful accounts was necessary.

Stock-Based Compensation - The Company recognizes compensation expense for stock-based awards to employees expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value. The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees and non-employee directors in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration for other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. The fair value of the equity instrument is charged directly to share-based compensation expense and credited to paid-in capital.

F-7

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Income Taxes – Provisions for income taxes are based on taxes payable or refundable and deferred taxes. Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and tax operating loss carryforwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of general and administrative expense.

Basic and Diluted Loss per Common Share – Basic loss per common share amounts are computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share amounts are computed assuming the issuance of common stock for potentially dilutive common stock equivalents. All outstanding stock options, warrants, stock awards, convertible promissory notes, and other obligations to be satisfied with the issuance of common stock are currently antidilutive due to our net loss and have been excluded from the diluted loss per share calculations. As such, options, warrants, and stock awards to acquire 2,521,670 and 141,594 shares of common stock outstanding as of December 31, 2013 and 2012, respectively, and promissory notes and debentures convertible into an aggregate of 1,452,804,120 and 9,140,456 shares of common stock at December 31, 2013 and 2012, respectively were excluded in the computation of diluted loss per share at December 31, 2013 and 2012 as their effect would have been anti-dilutive.

Fair Values of Financial Instruments – The carrying amounts reported in the consolidated balance sheets for accounts payable, payable to Ironridge Global IV, Ltd., and payable to former officer approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts reported for unsecured convertible promissory notes payable, secured notes payable, and convertible debentures approximate fair value because the underlying instruments are at interest rates which approximate current market rates. The fair value of derivative liabilities are estimated based on a probability weighted average Black Scholes-Merton pricing model.

For assets and liabilities measured at fair value, the Company uses the following hierarchy of inputs:

	●	Level one — Quoted market prices in active markets for identical assets or liabilities;

	●	Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

	●	Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Liabilities measured at fair value on a recurring basis at December 31, 2013 are summarized as follows:

	Level 1		Level 2		Level 3		Total

Derivative liability - conversion feature of debentures and related warrants	$	-	$	5,467,223	$	-	$	5,467,223

Derivative liability - embedded conversion feature and reset provisions of notes	$	-	$	2,441,192	$	-	$	2,441,192

Liabilities measured at fair value on a recurring basis at December 31, 2012 are summarized as follows:

	Level 1		Level 2		Level 3		Total

Derivative liability - conversion feature of debentures and related warrants	$	-	$	5,460,914	$	-	$	5,460,914

Derivative liability - embedded conversion feature and reset provisions of notes	$	-	$	2,334,421	$	-	$	2,334,421

F-8

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Derivative Financial Instruments – The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. 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 in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton pricing model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. 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.

Recently Issued Accounting Statements – The FASB has issued ASU No. 2013-04, Liabilities (Topic 405), “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforward in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years. The company does not expect the adoption of this standard to have a material impact on the Company’s financial position and results of operations.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

Note 2 - Oil and Gas Properties

Summary of Oil and Gas Properties

At December 31, 2013 and 2012, oil and gas properties, net of impairment losses recognized, consist of the following:

	2013		2012

Leasehold interest costs - Vermillion 179	$	5,698,563	$	5,698,563
Leasehold interest costs - Mustang Island		-		1,055,987
Leasehold interest costs - Texas		-		100,000

	$	5,698,563	$	6,854,550

Montecito Asset Sale Agreement (Vermillion 179)

On May 6, 2011, the Company completed its acquisition of certain assets pursuant to an Asset Sale Agreement (the Montecito Agreement) with Montecito Offshore, L.L.C. (Montecito). The assets consist of certain oil and gas leases located in the Vermillion 179 tract, which is in the shallow waters of the Gulf of Mexico offshore from Louisiana. Pursuant to the terms of the Montecito Agreement, as amended, Montecito agreed to sell the Company a 70% leasehold working interest, with a net revenue interest of 51.975%, of certain oil and gas leases owned by Montecito, for $1,500,000 in cash, a subordinated promissory note in the amount of $500,000, and 30,000 shares of common stock. The leasehold interest has been capitalized in the amount of $5,698,563, representing $2,000,000 in cash and promissory note, $3,675,000 for the common stock based on a closing price of $2.45 per share on the closing date, and $23,563 in acquisition costs. No drilling or production has commenced as of December 31, 2013. Consequently, the oil and gas properties have not been subjected to amortization of the full cost pool.

F-9

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

In December 2011, Montecito filed a lawsuit in the Civil District Court for the Parish of Orleans of the State of Louisiana against the Company by filing a Petition to Rescind Sale. In this action, Montecito is seeking to rescind the asset sale transaction, as described in the previous paragraph. Pursuant to a Release and Settlement Agreement dated February 12, 2014 that has been signed and notarized by all parties involved, the matter has been settled. The operative terms of the settlement were recited into the record in open court on the day of trial. The result is that a judicially recognized compromise has been perfected under Louisiana law, which has the effect of extinguishing the underlying obligations the compromise is premised on. The Company’s obligations expected to be extinguished include a secured note payable in the amount of $500,000 to Montecito Offshore, LLC (see Note 6) and convertible debentures of $2,453,032 (see Note 7). However, recording the conveyance of the lease interest and cancelling mortgages and UCC-1’s by the debt holders has not occurred. The debt holders have delayed in performing these obligations because they want to first undertake a degree of internal restructuring before accepting the royalty interest they negotiated to receive as a part of the settlement. The debt holders have indicated that, after they have formed an entity to receive the royalty interest, they will cancel the outstanding mortgages and UCC-1’s along with recording the documents conveying the various interests in the public records. The Company will account for the transaction in 2014 upon final settlement as an exchange of the oil and gas asset for the debt and an extinguishment of the related derivative liability (see Note 13).

Black Cat Purchase and Sale Agreement (Mustang Island)

On March 9, 2012, the Company acquired certain assets from Black Cat Exploration & Production LLC (“Black Cat”) pursuant to an amended Purchase and Sale Agreement for Oil & Gas Properties and Related Assets (the “Black Cat Agreement”). The Company acquired a 2% override interest in the Mustang Island 818-L lease, covering 1,400 acres in the Gulf of Mexico, with a 10.35% carried interest in the recently drilled I-1 well, located on the lease. The Company paid $175,000 in cash, issued a note for $1,075,000 and agreed to issue 90,000 shares of common stock, of which 45,000 shares were issued to Black Cat at the time of closing and the remaining 45,000 shares were issued on August 30, 2012 pursuant to when the well was connected to the main offshore pipeline of the Six Pigs Processing facility. The leasehold interest was capitalized in the amount of $2,305,987, representing $1,250,000 in cash and promissory note, $855,000 for the initial common stock issued in March 2012 (based on a closing price of $19.00 per share on the closing date), $157,500 for the second issuance of common stock in August 2012 (based on the most recent closing price of $3.50 per share at the time of connecting the well), and $43,487 in acquisition and well costs.

On November 1, 2012, the Company sold its 2% overriding royalty interest in the Mustang Island 818-L lease for $500,000. The sale reduced the carrying cost of the lease and well to $1,805,987. Proceeds from the sale were used to reduce the principal balance of the junior secured promissory note with Black Cat by $200,000 and the remaining $300,000 was used by the Company for working capital purposes.

On January 25, 2013, the Company entered into a Settlement Agreement and Mutual Release of Claims (the “Settlement Agreement”) with Mr. Anthony Mason and Black Cat. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay Black Cat and/or Mr. Mason $125,000 in 10 equal payments, with the first payment due March 11, 2013 and the remaining payments every 30 days thereafter until paid in full. The Company has paid $10,000 to Mr. Mason resulting in a remaining liability of $115,000 at December 31, 2013. In the event that the Company obtains a credit facility in an amount equal to or greater than $3,500,000, the full amount of the settlement payment then outstanding will become immediately due and payable. In addition, the Company agreed to transfer to Black Cat all title and interest the Company owned in the I-1 well, Mustang Island 818-L lease and other assets acquired from Black Cat pursuant to the Black Cat Agreement. Furthermore, all production from the I-1 well, from the date the well went online was transferred to Black Cat in connection with the Settlement Agreement. In return, Black Cat agreed to return to the Company for cancellation the 90,000 shares of the Company’s common stock it received in connection with the Black Cat Agreement and to release the Company from all of its claims, which included the balance of the promissory note and accrued interest, unpaid compensation and other miscellaneous amounts. Further, in connection with the Settlement Agreement, Mr. Mason agreed to resign as President, Chief Executive Officer and a Director of the Company.

In connection with its accounting for the year ended December 31, 2012, the Company evaluated the accounting effects of the Settlement Agreement and concluded that estimated impairment in the approximate amount of $750,000 should be recorded as of December 31, 2012 by further reducing the carrying cost of the properties to $1,055,987. In January 2013, the Company accounted for the Settlement Agreement by removing the carrying value of the property; removed the released liabilities for the promissory note in the amount of $850,000; removed current liabilities for amounts owed to Mr. Mason, Black Cat, and others for accrued interest, accrued compensation, lease operating expenses, and other expenses in the aggregate amount of $265,364; recorded the fair value of the common stock returned to the Company for cancelation in the amount of $54,000; recorded a liability to Mr. Mason of $125,000; and recognized additional impairment expense of $11,623.

F-10

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Texas Oil and Gas Operations

Commencing in the year ended December 31, 2005 and continuing into the year ended December 31, 2009, the Company participated in oil and gas exploration and development activities in Texas, principally with Bayshore Exploration L.L.C. (“Bayshore”) in La Salle County, Texas. During 2005, the Company acquired from Bayshore a 31.75% working interest (23.8125% net revenue interest) in the Cooke Ranch prospect, consisting of approximately 8,883 acres. During 2006, the Company entered into an agreement with Bayshore to acquire a 50% working interest in approximately 3,200 acres of oil and gas leases and oil and gas lease options located in La Salle County, Texas, for the purpose of oil and gas exploration and production. The Company was also granted an option to increase its working interest in the leases to 75% within 90 days of the date of the agreement, on the same terms and conditions. On June 13, 2006, the Company exercised its option to increase its working interest to 75% (56.25% net revenue interest). To date, the Company has acquired a 75% working interest in approximately 2,268 acres. Additionally during 2006, the Company entered into a Joint Exploration Agreement with Bayshore covering the 8,883 acres of the Cooke Ranch prospect. The Exploration Agreement provides for the Company and Bayshore to join together for the purpose of drilling exploratory wells and performing studies of the Cooke Ranch prospect acreage and acquiring additional prospective oil and gas properties on which to explore for, develop, and produce oil and gas. During 2008, Bayshore entered into a lease of 220 acres in LaSalle County, Texas within the area of mutual interest covered by the exploration agreement. The Company exercised its right to purchase its proportionate share (31.75%) of that lease and paid Bayshore for the Company’s share of the lease bonus and related expenses. In connection with that new lease, the Company entered into a participation in a farm out whereby the Company retained approximately a 4% fully carried working interest in the Cartwright No. 3 well drilled on the new lease by third parties.

During the period of time commencing with the year ended December 31, 2005 and continuing into the year ended December 31, 2009, the Company participated with Bayshore in the drilling of ten wells and participated with another entity in the drilling of a well in another county in Texas. Three of these wells were determined to be dry and were plugged and abandoned. The Company has sold all or part of its interests in two wells to Bayshore in order to reduce its indebtedness to Bayshore. At December 31, 2013, the Company has remaining interests in six wells in Texas with working interests ranging from 4.0% to 31.75%. Management of the Company has the understanding that the six wells are currently shut in and not producing. At December 31, 2013, given that the Company is still considered to be in the exploration stage, a determination has not been made about the extent of oil reserves that should be classified as proved reserves. Consequently, the oil and gas properties have not been subjected to amortization of the full cost pool.

Each year, the management of the Company has performed evaluations of its producing oil and gas properties to determine whether oil and gas properties are impaired. Management has also considered the market value of its nonproducing properties. During 2006, 2008, and 2009, the Company determined that capitalized costs for wells drilled, for leasehold interests, and other related costs were in excess of the present value of estimated future cash flows from those properties, and recognized impairment losses in the total amount of $3,847,192 during those years. During the years ended December 31, 2013 and 2012, the management of the Company also performed evaluations of its producing oil and gas properties and determined that their oil and gas properties were impaired, and recognized an impairment loss of $100,000 and $487,886, respectively. As such, carrying value of the Company’s oil and gas properties after recognizing the impairment losses were zero and $100,000 at December 31, 2013 and 2012, respectively.

Note 3 - Accrued Liabilities

Accrued liabilities consisted of the following at December 31, 2013 and 2012:

	2013		2012

Accrued salaries	$	255,867	$	352,038
Accrued payroll taxes		104,899		85,323
Accrued directors fees		64,969		69,033
Accrued interest		1,340,122		909,606
Accrued registration rights penalties and interest		14,628		14,350
Other accrued expenses		2,500		2,500

Total accrued liabilities	$	1,782,985	$	1,432,850

F-11

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Note 4 – Payable to Ironridge Global IV, Ltd.

In March 2012, Ironridge Global IV, Ltd. (“Ironridge”) filed a complaint against the Company for the payment of $1,388,407 in outstanding accounts payable, accrued compensation, accrued interest, and notes payable of the Company (the “Claim Amount”) that Ironridge had purchased from various creditors of the Company. The lawsuit was filed in the Superior Court of the State of California for the County of Los Angeles Central District, and the case was Ironridge Global IV, Ltd. v. Worthington Energy, Inc., Case No. BC 480184 . On March 22, 2012, the court approved an Order for Approval of Stipulation for Settlement of Claims (the "Order").

The Order provided for the immediate issuance by the Company of 20,300 shares of common stock (the “Initial Shares”) to Ironridge towards settlement of the Claim Amount. The Order also provided for an adjustment in the total number of shares which may be issuable to Ironridge based on a calculation period for the transaction, defined as that number of consecutive trading days following the date on which the Initial Shares were issued (the "Issuance Date") required for the aggregate trading volume of the common stock, as reported by Bloomberg LP, to exceed $4.2 million (the "Calculation Period"). Pursuant to the Order, Ironridge would retain 200 shares of the Company's common stock as a fee, plus that number of shares (the "Final Amount") with an aggregate value equal to (a) the $1,358,135 plus reasonable attorney fees through the end of the Calculation Period, (b) divided by 70% of the following: the volume weighted average price ("VWAP") of the Common Stock over the length of the Calculation Period, as reported by Bloomberg, not to exceed the arithmetic average of the individual daily VWAPs of any five trading days during the Calculation Period. The Company has calculated that the Calculation Period ended during the year ended December 31, 2012 and calculated that the Final Amount to be issued under the Order is 856,291 shares of common stock. Additionally, during the year ended December 31, 2012 when the Final Amount was determined, the Company calculated the fair value of the original liability to Ironridge Global IV, Ltd to be $1,981,312, that amount which when discounted to 70% of the VWAP and multiplied by the Final Amount, would equal $1,358,135 plus reasonable attorney fees. In so doing, the Company recognized an expense for the excess of the fair value of the resultant liability to Ironridge Global IV, Ltd. in excess of the original carrying amount of the liabilities acquired by Ironridge and adjusted the liability to Ironridge Global IV, Ltd. for the fair value adjustment.

Since the issuance of the Initial Shares, the Company issued an additional 194,200 shares of common stock during the year ended December 31, 2012 (for an aggregate value of $531,689) which has been accounted for as the reduction of a proportionate amount of the calculated fair value of the original liability to Ironridge. Accordingly, the amount of the liability to Ironridge reported in the accompanying consolidated balance sheet is $1,489,623 at December 31, 2012. During the year ended December 31, 2013 the Company issued an additional 6,550,000 shares of common stock to Ironridge with an aggregate value of $1,421,595. At that time, the Company believed it had a remaining obligation to Ironridge of $68,028. However, on February 24, 2014 after Ironridge claimed that the Company’s failure to comply with prior order and stipulation has caused them harm and claimed that it was still owed $241,046. A judge awarded Ironridge a third order enforcing a prior order for approval of stipulation for settlement claim by requiring the Company to reserve 1,095,950,732 shares of the Company’s common stock until the balance of the claim in paid. The Company has increased the balance due to Ironridge to $241,046 at December 31, 2013.

Note 5 - Unsecured Convertible Promissory Notes Payable (In default)

A summary of unsecured convertible promissory notes at December 31, 2013 and 2012 is as follows:

	2013						2012
	Unpaid		Unamortized		Carrying		Unpaid		Unamortized		Carrying
	Principal		Discount		Value		Principal		Discount		Value

Asher Enterprises, Inc.	$	111,900	$	7,473	$	104,427	$	133,000	$	69,821	$	63,179
GEL Properties, LLC		149,000		13,486		135,514		167,762		84,690		83,072
Prolific Group, LLC		79,900		11,849		68,051		64,150		38,123		26,027
Haverstock Master Fund, LTD
and Common Stock, LLC		289,906		-		289,906		344,102		107,591		236,511
Five Individuals		206,250		-		206,250		206,250		960		205,290
Charles Volk (related party)		125,000		53,596		71,404		-		-		-
Various Other Individuals and Entities		78,750		24,338		54,412		110,500		61,525		48,975

	$	1,040,706	$	110,742	$	929,964	$	1,025,764	$	362,710	$	663,054

Asher Enterprises, Inc.

At various dates commencing in April 2010 and continuing through December 31 2013, the Company has issued fourteen unsecured convertible promissory notes to Asher Enterprises, Inc. (Asher), an unaffiliated entity. The convertible promissory notes bear interest at 8% per annum. The principal and unpaid accrued interest are generally due approximately nine months after the issuance date. Certain of these notes are currently in default. In general, the notes are convertible until maturity at a variable conversion price equal to 50% of the average of the lowest three closing bid prices from the ten trading days prior to the date of the conversion notice. Additionally, the notes have generally contained a reset provision that provides that if the Company issues or sells any shares of common stock for consideration per share less than the conversion price of the notes, that the conversion price will be reduced to the amount of consideration per share of the stock issuance. During the year ended December 31, 2013, the Company received notices of conversion of notes totaling $120,350 and accrued interest of $5,500, which were converted into 4,997,164 shares of common stock, or a weighted-average conversion price of $0.025 per share. This variable conversion price and the anti-dilution reset provision constitute an embedded derivative under generally accepted accounting principles and are required to be recorded as liabilities and valued at fair value. The fair value of these embedded conversion features is recorded as discounts to the carrying amount of the convertible promissory notes. In the event the fair value of the embedded conversion feature exceeds the face amount of the note, the excess is amortized immediately as interest expense. The remaining discounts are amortized over the period from the issuance dates to the maturity dates or to the conversion dates, whichever is earlier. The Company recognized interest expense from the amortization of the discounts in the amount of $273,655 and $400,938 for the years ended December 31, 2013 and 2012, respectively. The carrying amount of these convertible promissory notes was $104,427 at December 31, 2013, representing their unconverted face amount of $111,900 less the unamortized discount of $7,473. The carrying amount of these convertible promissory notes was $63,179 at December 31, 2012, representing their unconverted face amount of $133,000 less the unamortized discount of $69,821.

F-12

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

GEL Properties, LLC and Prolific Group, LLC

At various dates commencing in August 2011 and continuing through December 31, 2013, the Company received proceeds pursuant to seven unsecured convertible promissory notes to GEL Properties, LLC (“GEL”), an unaffiliated entity. Additionally, in August 2012, GEL purchased the rights to $75,000 of principal of a secured bridge loan note held by a noteholder of the Company and in February 2013, GEL purchased the rights to $37,500 of principal of a secured note held by What Happened LLC. These acquired rights were restated to be consistent with other notes held by GEL. The convertible promissory notes bear interest at 6% per annum. The principal and unpaid accrued interest are generally due approximately one year after the issuance date. Certain of these notes are currently in default. The notes are convertible until maturity at a variable conversion price equal to 70% of the lowest closing bid price from the five trading days prior to the date of the conversion notice. During the year ended December 31, 2013, the Company received notices of conversion of notes totaling $181,262 and accrued interest of $7,451, which were converted into 12,624,392 shares of common stock, or a weighted-average conversion price of $0.015 per share. This variable conversion price constitutes an embedded derivative under generally accepted accounting principles and is required to be recorded as liabilities and valued at fair value. The fair value of these embedded conversion features is recorded as discounts to the carrying amount of the convertible promissory notes. In the event the fair value of the embedded conversion feature exceeds the face amount of the note, the excess is amortized immediately as interest expense. The remaining discounts are amortized over the period from the issuance dates to the maturity dates or to the conversion dates, whichever is earlier. The Company recognized interest expense from the amortization of the discounts in the amount of $376,264 and $292,278 for the years ended December 31, 2013 and 2012, respectively. The carrying amount of these convertible promissory notes was $135,514 at December 31, 2013, representing their unconverted face amount of $149,000 less the unamortized discount of $13,486. The carrying amount of these convertible promissory notes is $83,072 at December 31, 2012, representing their unconverted face amount of $167,762 less the unamortized discount of $84,690.

In September 2012 and February 2013, the Company received proceeds pursuant to two unsecured convertible promissory notes to Prolific Group, LLC (“Prolific”), an unaffiliated entity. Additionally, 1) in July 2012 Prolific acquired the rights to three unsecured convertible promissory notes from one of the Company’s noteholders, 2) in September 2012 Prolific purchased the rights to $40,000 of principal of a secured bridge loan note held by another noteholder of the Company, and 3) in February 2013 Prolific purchased the rights to $50,000 of principal of a secured note held What Happened LLC. These acquired rights were restated such that all notes held by Prolific bear interest at 6% per annum and the principal and unpaid accrued interest are generally due approximately one year after the issuance date. Certain of these notes are currently in default. The notes are convertible until maturity at a variable conversion price equal to 70% of the lowest closing bid price from the five trading days prior to the date of the conversion notice. During the year ended December 31, 2013, the Company received notices of conversion of notes totaling $59,250 and accrued interest of $1,272, which were converted into 3,207,002 shares of common stock, or a weighted-average conversion price of $0.019 per share. This variable conversion price constitutes an embedded derivative under generally accepted accounting principles and is required to be recorded as liabilities and valued at fair value. The fair value of these embedded conversion features are recorded as discounts to the carrying amount of the convertible promissory notes. In the event the fair value of the embedded conversion feature exceeds the face amount of the note, the excess is amortized immediately as interest expense. The remaining discounts are amortized over the period from the issuance dates to the maturity dates or to the conversion dates, whichever is earlier. The Company recognized interest expense from the amortization of the discounts in the amount of $187,608 and $328,272 for the years ended December 31, 2013 and 2012, respectively. The carrying amount of these convertible promissory notes was $68,051 at December 31, 2013, representing their unconverted face amount of $79,900 less the unamortized discount of $11,849. The carrying amount of these convertible promissory notes is $26,027 at December 31, 2012, representing their unconverted face amount of $64,150 less the unamortized discount of $38,123.

F-13

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Five Individuals

On July 31, 2012, the Company received proceeds of $100,000 pursuant to an unsecured promissory note and issued a warrant to purchase 2,000 shares of common stock of the Company to two individuals. The promissory note requires the repayment of $115,000 of principal (including interest of $15,000) by October 31, 2012. The warrant has an exercise price of $5.00 per share and expires on July 31, 2015. Proceeds from the note were used to pay down $100,000 on the Bridge Loan Note that is discussed in further detail in Note 6 to these consolidated financial statements. As of December 31, 2013, this note is in default.

On August 9, 2012, the Company received proceeds of $25,000 pursuant to an unsecured promissory note and issued a warrant to purchase 500 shares of common stock of the Company to an individual. The promissory note requires the repayment of $28,750 of principal (including interest of $3,750) by November 9, 2012. The warrant has an exercise price of $5.00 per share of common stock and will be exercisable until October 9, 2015. As of December 31, 2013, this note is in default.

On October 8, 2012, the Company received proceeds of $50,000 pursuant to an unsecured promissory note and issued a warrant to purchase 1,000 shares of common stock of the Company to two individuals. The promissory note requires the repayment of $62,500 of principal (including interest of $12,500) by January 7, 2013. The warrant has an exercise price of $5.00 per share of common stock and will be exercisable until October 8, 2015. As of December 31, 2013, this note is in default.

The fair value of the warrants and the amounts of stated interest were recorded as discounts to these notes and are amortized over the terms of the notes. The Company recognized interest expense from the amortization of the discounts in the amount of $960 and $33,450 for the years ended December 31, 2013 and 2012, respectively. The aggregate carrying amount of these promissory notes is $206,250 at December 31, 2013, representing their face amount. The carrying amount of these promissory notes is $205,290 at December 31, 2012, representing their face amount of $206,250 less the unamortized discount of $960.

Charles Volk (Related Party)

On June 4, 2013, the Company issued an unsecured convertible promissory notes to Charles Volk, the Company’s CEO, (“Volk”). The convertible promissory bear at 10% per annum and contains a $25,000 original issue discount. The convertible note was issued in exchange for $100,000 of accrued compensation due to Volk. The principal and unpaid accrued interest due one year after the issuance date. The notes are convertible at a variable conversion price equal to 50% of the current market price of the Company’s common stock. In addition, the conversion price also included an anti-dilution provision that allows for the automatic reset of the conversion price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current conversion price of the convertible promissory note. The Company determined that the variable conversion price and the anti-dilution reset provision caused the conversion feature to be bifurcated from the convertible promissory notes, and are required to be recorded as a liability and valued at fair value. The fair value of these embedded conversion features and the original issue discount are recorded as discounts to the carrying amount of the convertible promissory note. In addition to the issuance of the convertible note, in the same transaction, the Company issued to Volk a warrant to purchase 1,250,000 shares of the Company’s common stock at $0.05 per share. The fair value of the warrant at the date of issuance was $37,116 and is considered a discount to the note. The fair value was calculated using the Black-Scholes model with the following assumptions: volatility - 307%; terms – 3 years; dividend yield – 0% and risk free interest rate – 0.14%. In the event the discount to the note exceeds the face amount of the note, the excess is amortized immediately as interest expense. The remaining discounts are amortized over the period from the issuance dates to the maturity dates or to the conversion dates, whichever is earlier. The Company recognized interest expense from the amortization of the discounts in the amount of $236,823 for the year ended December 31, 2013. The carrying amount of this convertible promissory note was $71,404 at December 31, 2013, representing their unconverted face amount of $125,000 less the unamortized discount of $53,596.

Various Other Individuals and Entities

As of December 31, 2013 and 2012, the Company had outstanding various unsecured convertible promissory notes to various unaffiliated entities or individuals. These notes are currently in default. In general, the notes were convertible until maturity at a variable conversion price equal to 50% of the average of the lowest three closing bid prices from the ten trading days prior to the date of the conversion notice. This variable conversion price constituted an embedded derivative under generally accepted accounting principles and was required to be recorded as liabilities and valued at fair value. The fair value of these embedded conversion features was recorded as discounts to the carrying amount of the convertible promissory notes. In the event the fair value of the embedded conversion feature exceeded the face amount of the note, the excess was amortized immediately as interest expense. The remaining discounts were amortized over the period from the issuance dates to the maturity dates or to the conversion dates, whichever was earlier. During the year ended December 31, 2013, the Company received notices of conversion on notes totaling $110,500 and accrued interest of $3,124 which were converted into 8,730,588 shares of common stock, or a weighted-average conversion price of $0.013per share. The balance of the notes outstanding as of December 31, 2013 was $78,750. The Company recognized interest expense from the amortization of the discounts in the amount of $191,216 and $490,964 for the years ended December 31, 2013 and 2012, respectively. The carrying amount of the notes was $54,412 at December 31, 2013, representing their unconverted face amount of $78,750 less the unamortized discount of $24,338. The carrying amount of the notes was $48,975 at December 31, 2012, representing their unconverted face amount of $110,500 less the unamortized discount of $61,525.

F-14

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Note 6 - Secured Notes Payable (In default)

A summary of secured notes payable at December 31, 2013 and 2012:

	2013						2012
	Unpaid		Unamortized		Carrying		Unpaid		Unamortized		Carrying
	Principal		Discount		Value		Principal		Discount		Value
Black Cat Exploration & Production LLC	$	-	$	-	$	-	$	850,000	$	-	$	850,000
Montecito Offshore, LLC		500,000		-		500,000		500,000		-		500,000
Bridge Loan Settlement Note		40,000		-		40,000		40,000		-		40,000
What Happened LLC		21,575		-		21,575		125,000		-		125,000
La Jolla Cove Investors, Inc.		83,940		25,003		58,937		92,500		105,227		(12,727	)
	$	645,515	$	25,003	$	620,512	$	1,607,500	$	105,227	$	1,502,273

Black Cat Exploration & Production, LLC (Mustang Island)

As further described in Note 2 to these consolidated financial statements, on March 9, 2012, the Company acquired certain assets from Black Cat pursuant to the Black Cat Agreement, as amended. Pursuant to the terms of the Black Cat Agreement the Company issued a junior secured promissory note in the amount of $1,075,000 as partial consideration for the purchase. $100,000 of the junior secured promissory note was due on May 31, 2012 and the balance was payable at the later of (i) June 25, 2012 or (ii) 30 days after production commenced from the Mustang Island Well, which was deemed to have occurred on August 29, 2012 when the well was connected to the main offshore pipeline of the Six Pigs Processing facility. The Company paid $25,000 toward the principal of this note during the three months ended June 30, 2012 and paid an additional $200,000 in November 2012, resulting in a balance of $850,000 at December 31, 2012. The note accrued interest at 11% per annum, was secured by a second lien mortgage on the properties acquired from Black Cat, and was subordinated to the bridge loan note described below.

As more fully described in Note 2 to these consolidated financial statements, on January 25, 2013, the Company and Black Cat entered into a Settlement Agreement and Mutual Release of Claims with Mr. Mason and Black Cat which, among other things, released the Company from its obligation to repay this promissory note and related accrued interest.

Montecito Offshore, L.L.C. (Vermillion 179)

As further described in Note 2, on May 6, 2011, the Company acquired a leasehold interest in oil and gas properties from Montecito Offshore, L.L.C. (Montecito). Pursuant to the terms of the agreement, as amended, the Company issued a subordinated promissory note in the amount of $500,000 as partial consideration for the purchase. The note is secured by a second lien mortgage, subordinated to the convertible debentures issued in May 2011, as further described in Note 7 to these consolidated financial statements. The note bears interest at 9% per annum. The note and unpaid interest were originally due ninety days after the date of the promissory note, but the due date was extended to August 15, 2011. The note came due on August 15, 2011 and has not been paid. The Company’s failure to repay the note when due constitutes an event of default under the note. Upon the occurrence of an event of default, the note holder has the right to exercise its rights under the security agreement associated with the note. These rights include, among other things, the right to foreclose on the collateral if necessary. The Company is exploring alternatives for a partial sale, a farm-in, or the refinancing of the Vermillion 179 tract in order to pay off this note, with accrued interest.

F-15

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Bridge Loan Note

On March 6, 2012, the Company received proceeds of $250,000 under a secured bridge loan note. The Company agreed to pay the note holder $277,500 by the maturity date of May 5, 2012 and issued a warrant to purchase 2,500 shares of common stock of the Company, exercisable at $75.00 per share and expiring March 6, 2017. This note is currently in default. The bridge loan note was secured by a deed of trust on certain oil and gas properties acquired from Black Cat as described in Note 2 to these consolidated financial statements. In the event of default, the note holder was entitled to 80% of the proceeds from the sale of production from the collateral property and the principal amount due under the note was to be increased by $27,500. This note was not repaid by May 5, 2012 and was in default. Accordingly, the principal amount of the note was increased by $27,500 to $305,000. In June 2012, the noteholder sold a 50% interest in this note to an entity related to the noteholder. As described in Note 5 to these consolidated financial statements, proceeds from an unsecured promissory note were used to reduce the balance by $100,000, resulting in a combined balance on the notes of $205,000. During the period from July to December 2012, the noteholders sold the remaining principal balance of the notes to GEL ($75,000), Prolific ($40,000), and Magna ($90,000), all as disclosed in Note 5 to these consolidated financial statements.

Upon issuance, the Company determined the fair value of the warrants was $8,639 and recorded a corresponding discount to the note payable. The Company also recorded $27,500 as the original issue discount on this note. The total discount of $36,139 has been amortized over the sixty day term of the note.

On December 12, 2012, the Company and these noteholders entered into a Settlement Agreement and Mutual Release of Claims in order to settle any and all claims that may have existed between the parties. In connection with this settlement agreement, the Company issued an unsecured promissory note in the amount of $40,000 to settle unpaid accrued interest, certain legal costs, and other unspecified amounts. The note bears interest at 6% per annum and is due on or before June 12, 2013. This note is currently in default. Additionally, the Company issued a warrant to acquire 20,000 shares of the Company’s common stock which expired on December 12, 2013.

What Happened LLC

On April 19, 2012, the Company issued a secured promissory note in the principal face amount of $100,000 in exchange for $100,000 from What Happened LLC. Pursuant to a deed of trust, security agreement and financing statement covering as extracted collateral, the Company granted the investor a security interest in all of the Company’s prospective 6% working interest in the Alvey Lease. The Company agreed to repay $125,000 on June 18, 2012, plus interest at the rate of 11% per annum. The secured promissory note was not repaid by the due date and is in default. Proceeds from the secured promissory note were used to pay an earnest money deposit in 2012 that was written off in 2013 when the purchase was not completed.

In lieu of repayment in cash, the investor has the option of converting the obligation represented by the secured promissory note into a 3.75% carried working interest in the Alvey Lease, which the investor was required to advise the Company of whether it intended to exercise such option on or prior to the maturity of the secured note. Although the period for exercise of the option has expired, the Company and the investor have had discussions to extend the date to exercise such option to any time prior to repayment. As disclosed in Note 5 to these consolidated financial statements, What Happened LLC has sold $87,500 of the secured promissory note to GEL and Prolific, leaving a balance of $37,500 which is also expected to be sold. During the year ended December 31, 2013, the Company received notices of conversion of notes totaling $15,925, which were converted into 1,000,000 shares of common stock, or a weighted-average conversion price of $0.016 per share. The carrying amount of this note payable was $21,575 and $125,000 at December 31, 2013 and December 31, 2102, respectively. Upon completion of the sale of this note, the option will expire and the Company will retain the 3.75% carried working interest in settlement of the earning money deposit.

La Jolla Cove Investors, Inc.

The Company and La Jolla Cove Investors, Inc. (La Jolla) entered into a Securities Purchase Agreement (the SPA) dated as of April 30, 2012 (the Closing Date). Pursuant to the SPA, the Company issued La Jolla a Convertible Debenture in the amount of $200,000 (the Convertible Debenture) and an Equity Investment Agreement (the Equity Investment Agreement – see note 9) in exchange for $100,000 in cash and a Secured Promissory Note (the Promissory Note) from La Jolla in the amount of $100,000 which is due on demand by the Company at any time after April 30, 2013. La Jolla was required to prepay the Promissory Note on January 25, 2013 if certain conditions were met at that date. However, the conditions were not met.

Pursuant to the Convertible Debenture, the Company agreed to pay La Jolla the principal sum of $200,000 (subject to adjustment as provided in the Convertible Debenture) on April 30, 2014 or such earlier date as required by the Convertible Debenture. Interest on the outstanding Convertible Debenture accrues at a rate of 4.75% per annum. The number of shares into which the Convertible Debenture can be converted is equal to the dollar amount being converted, divided by the quotient of the Conversion Price divided by 10, plus the dollar amount of the Convertible Debenture being converted divided by the Conversion Price. The Conversion Price is defined as equal to the lesser of (i) $225.00 or (ii) 75% of the three lowest volume weighted average prices (“VWAPs”) during the 21 days prior to the date of the conversion notice submitted by La Jolla. If on the date La Jolla delivers a conversion notice, the applicable conversion is below $10.00 (the “Floor Price”), the Company shall have the right exercisable within two business days after the Company’s receipt of the Conversion Notice to prepay that portion of the Convertible Debenture that La Jolla elected to convert. Any such prepayment shall be made in an amount equal to 120% of the sum of (i) the principal amount to be converted as specified in the applicable conversion notice plus (ii) any accrued and unpaid interest on any such principal amount.

F-16

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

During the year ended December 31, 2013, the Company received notices of conversion from La Jolla of its Convertible Debenture totaling $8,560, which were converted into 2,157,575 shares of common stock, or a weighted-average conversion price of $0.004 per share.

Among the conditions that constitute an event of default is the situation where the average VWAP per share of the Company’s common stock for any period of three consecutive trading days during the term of the Convertible Debenture is less than $5.00 per share. This condition initially occurred in early June 2012 and has continued through December 31, 2013. On June 14, 2012, La Jolla notified the Company of the event of default and that it was accelerating the repayment of the Convertible Debenture (net of the $100,000 note receivable), repayment premium, and accrued interest in the aggregate amount of $120,586. However, in July 2012, La Jolla withdrew its notification. But, since an event of default has occurred, and has not been cured by the Company or the requirement has not been waived by La Jolla, the Convertible Debenture continues to be callable by La Jolla. As such, the Convertible Debenture is classified among the current liabilities of the Company and is presented net of the $100,000 note receivable.

In connection with the issuance of the Convertible Debenture, Charles F. Volk, Jr., Anthony Mason and Samuel J. Butero issued a Secured Continuing Personal Guaranty pursuant to which they guaranteed the Company’s obligations under the Equity Investment Agreement and the Convertible Debenture, up to a total of $100,000.

The variable conversion price constitutes an embedded derivative under generally accepted accounting principles and is required to be valued at fair value. The fair value of the embedded conversion feature has been recorded as a discount to the carrying amount of the Convertible Debenture. The discount is being amortized over the period from the issuance date to the maturity date or to the conversion date, whichever is earlier. The Company recognized interest expense from the amortization of the discounts in the amount of $80,224 for the year ended December 31, 2013. The carrying amount of this Convertible Debenture is $58,937 at December 31, 2013, representing the unconverted face amount of $184,500, less the unamortized discount of $25,003 and less the note receivable due from La Jolla in the amount of $100,000. The carrying amount of this Convertible Debenture is $(12,727) at December 31, 2012, representing the unconverted face amount of $192,500, less the unamortized discount of $105,227 and less the note receivable due from La Jolla in the amount of $100,000.

Note 7 - Convertible Debentures and Related Warrants (In Default)

In May 2011 the Company sold units to certain investors for aggregate cash proceeds of $2,550,000 at a price of $30,000 per unit. Each unit consisted of a secured convertible debenture in the principal amount of $30,000 and a warrant to purchase 400 shares of the Company’s common stock. The convertible debentures were issued in three tranches, matured one year after issuance on May 5, 2012, May 13, 2012, and May 19, 2012, and originally accrued interest at 9% per annum. The debentures were convertible at the holder’s option at any time into common stock at a conversion price originally set at $150.00 per share. The debentures will automatically be redeemed with a 30% premium upon a Change of Control or Listing Event (each as defined in the convertible debenture). Interest on the debentures is payable quarterly in arrears in cash. The Company is in default under the convertible debentures because it has not made the interest payments that were due beginning July 1, 2011 and has not repaid the principal which matured on May 19, 2012. As such, the Company is in default on all unpaid principal and total accrued interest of $1,123,110 as of December 31, 2013. The default interest rate is 18% per annum. Interest on the convertible debentures has been accrued at 18% in the accompanying consolidated financial statements commencing on July 1, 2011, the date when the Company first defaulted on an interest payment. To date, such default has not been either cured by the Company or waived by the holders of the convertible debentures. Upon the occurrence of an event of default, the debenture holders have the right to exercise their rights under the Mineral Mortgage associated with the debentures. These rights include, among other things, the right to foreclose on the collateral if necessary. The Company is currently working to resolve the default on these debentures. Pursuant to a Release and Settlement Agreement dated February 12, 2014 that has been signed and notarized by all parties involved, the matter has been settled. The operative terms of the settlement were recited into the record in open court on the day of trial. The result is that a judicially recognized compromise has been perfected under Louisiana law, which has the effect of extinguishing the underlying obligations the compromise is premised on. The Company’s obligations expected to be extinguished include a secured note payable in the amount of $500,000 to Montecito Offshore, LLC (see Note 6) and the convertible debentures. However, recording the conveyance of the lease interest and cancelling mortgages and UCC-1’s by the debt holders has not occurred. The debt holders have delayed in performing these obligations because they want to first undertake a degree of internal restructuring before accepting the royalty interest they negotiated to receive as a part of the settlement. The debt holders have indicated that, after they have formed an entity to receive the royalty interest, they will cancel the outstanding mortgages and UCC-1’s along with recording the documents conveying the various interests in the public records (See Notes 2 and 13)

The debentures contain price ratchet anti-dilution protection. In addition, the conversion price shall be adjusted if the conversion price of securities in a subsequent offering by the Company is adjusted pursuant to a make good provision. The shares of common stock issuable upon conversion of the debentures are entitled to piggyback registration rights. The Company has determined that this anti-dilution reset provision caused the conversion feature to be bifurcated from the debentures, treated as a derivative liability, and accounted for as a valuation discount at its fair value. Upon issuance, the Company recorded a corresponding discount to the convertible debentures. During the year ended December 31, 2013 and 2012, the conversion of certain unsecured convertible promissory notes and related issuance of common stock triggered the reset of the conversion price of the convertible debentures pursuant to the price ratchet anti-dilution protection provisions of these agreements. As of December 31, 2013 and 2012, the reset conversion price of the debentures is $0.014 and $0.44 per share, respectively, based on the lowest of the conversion prices. The conversion price of these debentures has been further adjusted subsequent to December 31, 2013 pursuant to the price ratchet anti-dilution protection provisions. During the year ended December 31, 2013, a debenture holder sent the Company notices of conversion of $96,968 of convertible debentures and $36,532 of the accrued interest. Pursuant to these notices, the Company issued 2,239,181 shares of common stock at a weighted average price of $0.06 per share.

F-17

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

In connection with this placement of convertible debentures, the Company issued warrants to acquire 34,000 shares of the Company’s common stock to the debenture holders. The warrants were originally exercisable for a period of five years at an exercise price of $150.00 per hare. The warrants became exercisable on a cashless basis after issuance because there was not an effective registration statement registering for resale the shares issuable upon exercise of the warrants. The shares of common stock issuable upon exercise of the warrants are entitled to piggyback registration rights. The warrants contain price ratchet anti-dilution protection. The Company has determined that this anti-dilution reset provision of the warrants is subject to derivative liability treatment and is required to be accounted for at its fair value. Upon issuance, the Company determined the fair value of the warrants and recorded a corresponding discount to the convertible debentures which was amortized over the life of the notes. During the years ended December 31, 2013 and 2012, the conversion of certain unsecured convertible promissory notes and related issuance of common stock triggered the reset of the exercise price of these warrants pursuant to the price ratchet anti-dilution protection provisions of these agreements. As of December 31, 2013 and December 31, 2012, the reset exercise price of the warrants is $0.014 and $0.44 per share, respectively, based on the lowest of the conversion prices.

The total discount to the debentures of $2,367,194 has been amortized over the one year term of the debentures using the effective interest method and was fully amortized as of December 31, 2012. The carrying amount of the convertible debentures is $2,453,032 at December 31, 2013 and $2,550,000 at December 31, 2012, representing their unconverted face amount since the discount is now fully amortized.

In connection with this sale of convertible debentures and warrants, the Company 1) incurred a placement fee with its placement agent of $356,000, 2) issued five-year warrants to its placement agent to acquire 3,400 shares of common stock and 3) paid $50,000 for legal services in connection with the issuance of these convertible debentures and warrants. The warrants issued to the placement agent were originally exercisable at $150.00 per share, may be exercised on a cashless basis, and contain price ratchet anti-dilution protection. The Company has determined that this anti-dilution reset provision of the warrants is subject to derivative liability treatment and is required to be accounted for at its fair value. Upon issuance, the Company determined the fair value of the warrants and recorded a corresponding charge to deferred financing costs. During the year ended December 31, 2013 and during the year ended December 31, 2012, the conversion of certain unsecured convertible promissory notes and related issuance of common stock triggered the reset of the exercise price of these warrants pursuant to the price ratchet anti-dilution protection provisions of these agreements. As of December 31, 2013 and 2012, the reset exercise price of the warrants is $0.014 and $0.44 per share, respectively, based on the lowest of the conversion prices.

Total deferred financing costs recorded for the issuance of convertible debentures was $531,688. Deferred financing costs have been amortized over the one year term of the debentures using the effective interest method, and therefore, no further interest expense was recognized on the amortization of these costs during the year ended December 31, 2013.

Pursuant to the debentures and warrants, no holder may convert or exercise such holder’s debenture or warrant if such conversion or exercise would result in the holder beneficially owning in excess of 4.99% of our then issued and outstanding common stock. A holder may, however, increase or decrease this limitation (but in no event exceed 9.99% of the number of shares of common stock issued and outstanding) by providing the Company with 61 days’ notice that such holder wishes to increase or decrease this limitation.

Pursuant to a Mineral Mortgage between the Company and the purchasers of the debentures and warrants, the Company granted a first priority lien on all assets acquired from Montecito Offshore, LLC, as further discussed in Note 2 to these consolidated financial statements.

Note 8 - Derivative Liabilities

Under the authoritative guidance of the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. All of the notes described in Notes 5, 6 and 7 that contain a reset provision or have a conversion price that is a percentage of the market price contain embedded conversion features which are considered derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations. The conversion feature of the Company’s Debentures (described in Note 7), and the related warrants, do not have fixed settlement provisions because their conversion and exercise prices, respectively, may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the holders of the Debentures from the potential dilution associated with future financings. In accordance with the FASB authoritative guidance, the conversion feature of the Debentures was separated from the host contract (i.e., the Debentures) and recognized as a derivative instrument.

F-18

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

As of December 31, 2013 and 2012, the derivative liabilities were valued using a probability weighted average Black Scholes-Merton pricing model with the following assumptions:

	2013			2012
Conversion feature:
Risk-free interest rate		0.13	%		0.24	%
Expected Volatility		425	%		249	%
Expected life (in years)		.04 to .62			1.0
Expected dividend yield		0	%		0	%

Warrants:
Risk-free interest rate		0.13	%		0.80	%
Expected Volatility		425	%		233	%
Expected life (in years)		1.6 to 3.6			3.1
Expected dividend yield		0	%		0	%

Fair Value
Conversion feature	$	7,896,892		$	7,768,138
Warrants		11,523			27,197
	$	7,908,415		$	7,795,335

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the convertible debentures and notes was determined by the maturity date of the notes. The expected life of the warrants was determined by their expiration dates. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

At December 31, 2013 and December 31, 2012, the fair value of the aggregate derivative liability of the conversion features and warrants was $7,908,415 and $7,795,335, respectively. For the years ended December 31, 2013 and 2012, the Company recorded a change in fair value of the derivative liability of $971,995 and $4,344,508, respectively. During the years ended December 31, 2013 and 2012, we recognized additional derivative liabilities of $1,085,075 and $2,226,531, respectively, related to the issuances of convertible promissory notes payable and warrants as described under Note 5 and 6.

Note 9 – Preferred and Common Stock

Authorized shares

On April 17, 2013, pursuant to an Action by Written Consent of the Stockholders of the Company, the Company’s certificate of incorporation was amended to increase the Company’s authorized common stock from 500 million to 1.49 billion shares of common stock. On May 8, 2013, pursuant to an Action by Written Consent of the Stockholders of the Company, the Company’s certificate of incorporation was amended again to increase the Company’s authorized common stock from 1.49 billion to 2.49 billion shares of common stock. On June 24, 2013, pursuant to an Action by Written Consent of the Stockholders of the Company, the Company’s certificate of incorporation was amended again to increase the Company’s authorized common stock from 2.49 billion to 6.49 billion shares of common stock.

Issuance of Series A Preferred Stock

On April 17, 2013, the board of directors authorized the Company to file a certificate of designation authorizing 1,000,000 shares of Series A Preferred Stock and authorized the sale and issuance of 1,000,000 shares of Series A Preferred Stock to Charles Volk, the Company’s chief executive officer. These shares were valued at $250,000 which includes a premium for the voting preference described below based on the Company's total market capitalization (i.e., the number of issued and outstanding shares of common stock multiplied by the market value). On April 17, 2013, the certificate of designation was filed with the Secretary of State of Nevada. Among the designations are that 1) one share of Series A Preferred Stock is convertible into one share of common stock and 2) each share of Series A Preferred Stock is entitled to 750 votes for each share of common stock.

F-19

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Issuance of Common Stock for Services

On June 1, 2012, the Company issued 1,125 shares of common stock to a consulting firm and its owner as compensation for consulting services rendered to the Company. For accounting purposes, this issuance has been recorded at $5,343, or $4.75 per share, the closing price of the common stock on the date the issuance was made.

On June 21, 2012, the Company issued 6,000 shares of common stock to a consulting firm as compensation for consulting services rendered to the Company. For accounting purposes, this issuance has been recorded at $29,400, or $4.90 per share, the closing price of the common stock on the date the issuance was made.

On November 7, 2012, the Company entered into a consulting contract for investment advisory services. The contract provided for the issuance of 10,000 shares of common stock to the consultant. For accounting purposes, this issuance has been recorded at $47,500, or $4.75 per share, the closing price of the common stock on the date of the contract.

In connection with a consulting agreement dated February 1, 2013 with David Pinkman, a newly-appointed member of the board of directors, the Company issued 20,000 shares of common stock to Mr. Pinkman for consulting services to the Company. For accounting purposes, this issuance has been recorded at $5,200, or $0.26 per share, the closing price of the common stock on the date the issuance was made.

On February 6, 2013, the Company issued 10,000 shares of common stock to an employee as bonus compensation for services rendered. For accounting purposes, this issuance has been recorded at $15,000, or $1.50 per share, as valued by the Company.

Issuance of Common Stock to Chief Executive Officer and Other Employees

On August 22, 2012, the Company issued 1,000 shares of common stock to an employee as bonus compensation for services rendered. For accounting purposes, this issuance has been recorded at $3,800, or $3.80 per share, the closing price of the common stock on the date the issuance was made.

On June 6, 2012, the Board of Directors authorized the issuance of common stock to certain officers and directors in satisfaction for monies owed to them. Pursuant to this authorization, the Company issued 18,889 shares of common stock to five individuals. The stock was valued at $42,500, or $2.25 per share, the amounts stated in the Board resolution.

On February 6, 2013, the board of directors authorized the issuance of common stock to the chief executive officer in satisfaction of certain amounts owed to him. Pursuant to this authorization, the Company issued 100,000 shares of common stock to the chief executive officer. The stock was valued at $25,000, or $0.25 per share, the amount stated in the unanimous consent of the board of directors.

Issuance of Common Stock and Warrants for Cash

On October 23, 2012, the Company entered into a Unit Purchase Agreement with a trust and sold 10,000 shares of common stock and issued warrants to purchase 10,000 shares of common stock at $5.00 per share. Proceeds from the sale were $20,000, which were allocated $10,206 to the common stock and $9,794 to the warrants based on their relative fair values. The warrants expire in October 2015.

During 2013 the Company entered into various common stock and warrant purchase agreements and sold 641,600 shares of common stock at prices ranging from $0.025 per share to $0.87 per share, and issued warrants to purchase 600,000 shares of common stock. Proceeds from the sale were $91,000. The warrants are exercisable at prices ranging from $.025 to $2.50 per share and expire in various dates through 2016.

Equity Investment Agreement

Pursuant to the Equity Investment Agreement as described in Note 6, La Jolla, has the right from time to time during the term of the agreement to purchase up to $2,000,000 of the Company’s Common Stock in accordance with the terms of the agreement. Beginning October 27, 2012 and for each month thereafter, La Jolla shall purchase from the Company at least $100,000 of common stock, at a price per share equal to 125% of the VWAP on the Closing Date, provided, however, that La Jolla shall not be required to purchase common stock if (i) the VWAP for the five consecutive trading days prior to the payment date is equal to or less than $10.00 per share or (ii) an event of default has occurred under the SPA, the Convertible Debenture or the Equity Investment Agreement. Pursuant to the Equity Investment Agreement, La Jolla has the right to purchase, at any time and in any amount, at La Jolla’s option, common stock from the Company at a price per share equal to 125% of the VWAP on the Closing Date.

During the year ended December 31, 2013, the Company also received notices of purchase from La Jolla under the Equity Investment Agreement totaling $80,830, pursuant to which the Company issued 206,887 shares of common stock at a weighted average price of $0.391 per share.

F-20

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Note 10 - Stock Options and Warrants

Stock Options and Compensation-Based Warrants

On September 29, 2010, the stockholders of the Company approved the adoption of the 2010 Stock Option Plan. The Plan provides for the granting of incentive and nonqualified stock options to employees and consultants of the Company. Generally, options granted under the plan may not have a term in excess of ten years. Upon adoption, the Plan reserved 40,000 shares of the Company’s common stock for issuance there under.

Generally accepted accounting principles for stock options and compensation-based warrants require the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements, is measured based on the grant date fair value of the award, and requires the compensation expense to be recognized over the period during which an employee or other service provider is required to provide service in exchange for the award (the vesting period). No income tax benefit has been recognized for share-based compensation arrangements and no compensation cost has been capitalized in the accompanying consolidated balance sheet.

A summary of stock option and compensation-based warrant activity for the years ended December 31, 2013 and 2012 is presented below:

						Weighted
	Shares			Weighted		Average
	Under			Average		Remaining		Aggregate
	Option or			Exercise		Contractual		Intrinsic
	Warrant			Price		Life (in years)		Value

Outstanding at December 31, 2011		36,100		$	106.50		6.1	$	-
Granted or issued		40,900			15.00
Expired or forfeited		(2,700	)		75.00
Outstanding at December 31, 2012		74,300			40.50		2.9	$	7,910
Granted or issued		38,000			3.50
Expired or forfeited		(20,000	)		5.00
Outstanding at December 31, 2013		92,300		$	33.52		2.9	$	-

Exercisable at December 31, 2013		92,300		$	33.52		2.9	$	-

During the year ended December 31, 2013, the Company granted options and issued compensation-based warrants to certain consultants and individuals to acquire an aggregate of 38,000 shares of common stock at exercise prices ranging from $2.50 to $5.00 per share. All of these options and compensation-based warrants vested immediately.

During the year ended December 31, 2012, the Company granted options and issued compensation-based warrants to certain consultants to acquire an aggregate of 59,000 shares of common stock at exercise prices ranging from $7.50 to $12.50 per share. Of these options and compensation-based warrants, 47,000 vested immediately and 12,000 vest over twelve months.

The fair value of these stock options and compensation-based warrants was estimated on the date of grant or issuance using the Black-Scholes option pricing model. The weighted-average fair value of the stock options granted and compensation based warrants issued during the year ended December 31, 2013 was $1.01 per share. The weighted-average assumptions used for the options granted and compensation-based warrants issued during the year ended December 31, 2013 were risk-free interest rate of 0.27%, volatility of 425%, expected life of 2.0 years, and dividend yield of zero. The weighted-average fair value of the stock options granted and compensation based warrants issued during the year ended December 31, 2012 was $1.41 per share. The weighted-average assumptions used for the options granted and compensation-based warrants issued during the year ended December 31, 2012 were risk-free interest rate of 0.31%, volatility of 219%, expected life of 2.0 years, and dividend yield of zero.

For the years ended December 31, 2013 and 2012, the Company reported compensation expense related to stock options, compensation-based warrants, and stock awards of $64,014 and $115,054, respectively. As of December 31, 2013, there was no unrecognized compensation cost related to stock options and compensation-based warrants that will be recognized in future periods.

F-21

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Other Stock Warrants

A summary of other stock warrant activity for the years ended December 31, 2013 and 2012 is presented below:

				Weighted		Average
	Shares			Average		Remaining		Aggregate
	Under			Exercise		Contractual		Intrinsic
	Warrant			Price		Life (in years)		Value

Outstanding at December 31, 2011		46,194		$	162.00		3.9	$	-
Granted or issued		21,100			30.00
Expired or forfeited		-			-
Outstanding at December 31, 2012		67,294			37.00		3.3	$	21,261
Granted or issued		2,350,000			0.10
Expired or forfeited		(7,924	)		225.00
Outstanding at December 31, 2013		2,409,370		$	0.38		2.4	$	-

Exercisable at December 31, 2013		2,409,370		$	0.38		2.4	$	-

As discussed more fully in Note 7 to these consolidated financial statements, the Company issued warrants to purchase 34,630 shares of common stock at $150.00 per share principally during May 2011 in connection with the issuance of convertible debentures, plus the Company issued compensation-based warrants in September 2011 to purchase 14,000 shares of common stock at $90.00 per share that contain price ratchet anti-dilution protection. During the year ended December 31, 2013 and during the year ended December 31, 2012, the conversion of certain unsecured convertible promissory notes and related issuance of common stock triggered the reset of the exercise price of these warrants pursuant to the price ratchet anti-dilution protection provisions of these agreements. As of December 31, 2013 and December 31, 2012, the reset exercise price of the warrants is $0.014 and $0.44 per share, respectively, based on the lowest of the conversion prices.

NOTE 11 – RELATED-PARTY AND OTHER TRANSACTIONS

Payable to Related Parties

Warren Rothouse was appointed to be a director of the Company in October 2012. Mr. Rothouse is Senior Partner of Surety Financial Group, LLC (Surety). Surety has provided investor relations services to the Company in recent years. On November 7, 2012, the Company entered into a new agreement with Surety to provide investor relations services for the fifteen month period commencing December 1, 2012 and continuing through February 28, 2014. The agreement provided for monthly payments of $6,500 for Surety’s services. In addition, Surety was issued 10,000 shares of restricted common stock of the Company’s common stock and warrants to purchase 15,000 shares of the Company’s common stock. The exercise price of the warrants is $5.00 per share and the warrants are exercisable on a cashless basis. The term of the warrants is three years. On February 27, 2013, the Company amended the November 7, 2012 agreement. Under the amended agreement, Surety will provide investor relations services for the fifteen month period commencing March 1, 2013 and continuing through May 31, 2014 and Surety will receive monthly payments of $10,000 for its services. Compensation to Surety under the agreements was $227,000 for the year ended December 31, 2013, of which $113,300 remained outstanding and included on the Company’s Accounts payable balance as of the year then ended.

Effective January 31, 2013, David Pinkman was appointed to the Board of Directors of the Company. On February 1, 2013, the Company entered into a consulting agreement with Mr. Pinkman. The term of the agreement is for twelve months and provides for monthly compensation of $8,330. As additional compensation, the Company issued 20,000 shares of restricted common stock to Mr. Pinkman and issued him a warrant to acquire 20,000 shares of the Company’s common stock at $2.50 per share. Compensation earned by Mr. Pinkman under the consulting agreement was $17,121 for the year ended December 31, 2013, of which approximately $7,000 remained outstanding and included on the Company’s Accounts payable balance as of the year then ended.

F-22

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

NOTE 12 – INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss carryforwards. The significant components of net deferred tax assets and liabilities were as follows at December 31, 2013 and 2012:

	2013			2012

Operating loss carry forwards	$	4,849,254		$	3,950,488
Oil and gas properties		1,000,179			962,227
Accrued compensation		197,069			272,415
Stock-based compensation		261,572			239,807
Property and equipment		152			237
Valuation allowance		(6,308,226	)		(5,425,174	)

Net Deferred Tax Asset	$	-		$	-

The valuation allowance increased by $883,052 and $1,523,908 for the years ended December 31, 2013 and 2012, respectively.

The following is a reconciliation of the income tax benefit computed at the statutory federal rate of 34% to income tax expense included in the accompanying financial statements for the years ended December 31, 2013 and 2012:

	2013			2012

Income tax benefit at statutory rate	$	(1,061,568	)	$	(4,506,732	)
Share-based compensation		6,848			50,499

Interest expense – Ironridge Global IV, Ltd.		-			202,278
Amortization of discount on convertible debt and other notes		499,295			1,243,834
Change in fair value of derivative liabilities		(330,465	)		1,477,133
Other non-deductible expenses and adjustments		2,808			9,080
Change in valuation allowance		883,082			1,523,908
Income Tax Expense	$	-		$	-

The Company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under these rules, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. These accounting rules also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2013 and 2012, no liability for unrecognized tax benefits was required to be recorded.

As of December 31, 2013, the Company has operating loss carryforwards of approximately $10.5 million. The operating losses expire, if not used, from 2025 through 2033. The utilization of the net operating losses is dependent upon the tax laws in effect at the time such losses can be utilized. A significant change of ownership control of the Company could cause the utilization of net operating losses to be limited.

The Company files tax returns in the U.S. Federal jurisdiction and in the states of Texas and California. The Company is no longer subject to U.S. federal tax examinations for tax years before and including December 31, 2009. During the years ended December 31, 2013 and 2012, the Company did not recognize interest and penalties.

F-23

WORTHINGTON ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2012

Note 13 - Subsequent Events

Subsequent to December 31, 2013 the Company issued four convertible debentures to investors totaling $99,000. The convertible promissory notes bear interest at 8% per annum. The principal and unpaid accrued interest are generally due approximately nine months after the issuance date. In general, the notes are convertible until maturity at a variable conversion price equal to 50% of the average of the lowest three closing bid prices from the ten trading days prior to the date of the conversion notice.

Subsequent to December 31, 2013 the Company issued 40,097,839 shares of common stock as a result of the conversion of $28,900 of principal and $1,300 of accrued interest.

On March 17, 2014, the Company purchased oil and gas leases located in Montgomery, Labette and Wilson counties, Kansas. The purchase price for these oil and gas leases was $50,000 plus 35,000,000 shares of the Company’s common stock valued at $87,500.

On May 6, 2011, the Company acquired certain assets from Montecito (see Notes 2, 6, and 7). The assets consist of certain oil and gas leases located in the Vermillion 179 tract, which is in the shallow waters of the Gulf of Mexico offshore from Louisiana. Pursuant to the terms of the Montecito Agreement, as amended, Montecito agreed to sell the Company a 70% leasehold working interest, with a net revenue interest of 51.975%, of certain oil and gas leases owned by Montecito, for $1,500,000 in cash, a subordinated promissory note in the amount of $500,000, and 30,000 shares of common stock. The leasehold interest has been capitalized in the amount of $5,698,563, representing $2,000,000 in cash and promissory note, $3,675,000 for the common stock based on a closing price of $2.45 per share on the closing date, and $23,563 in acquisition costs. No drilling or production has commenced as of December 31, 2013. Consequently, the oil and gas properties have not been subjected to amortization of the full cost pool. In December 2011, Montecito filed a lawsuit in the Civil District Court for the Parish of Orleans of the State of Louisiana against the Company by filing a Petition to Rescind Sale. In this action, Montecito is seeking to rescind the asset sale transaction, as described above. Pursuant to a Release and Settlement Agreement dated February 12, 2014 that has been signed and notarized by all parties involved, the matter has been settled and the operative terms of the settlement were recited into the record in open court on the day of trial. The result is that a judicially recognized compromise has been perfected under Louisiana law, which has the effect of extinguishing the underlying obligations the compromise is premised on. The Company’s obligations extinguished include a secured notes payable in the amount of $500,000 (see Note 6) and convertible debentures of approximately $2,450,000 (see Note7). However, recording the conveyance of the lease interest and cancelling mortgages and UCC-1’s by the debt holders has not occurred as of April 15, 2014. The debt holders have delayed in performing these obligations because they want to first undertake a degree of internal restructuring before accepting the royalty interest they negotiated to receive as a part of the settlement. The debt holders have indicated that, after they have formed an entity to receive the royalty interest, they will cancel the outstanding mortgages and UCC-1’s along with recording the documents conveying the various interests into the public records. The Company believes the conveyances will occur and that the matter has been settled. Below is an unaudited pro forma balance sheet that shows the impact of this settlement on the Company’s December 31, 2013 balance sheet as if the settlement had occurred on December 31, 2013:

	As filed			Adjustments			Proforma
ASSETS							(Unaudited)
Current Assets:
Cash and cash equivalents	$	166		$			$	166
Total Current Assets		166						166

Property and Equipment, net of accumulated depreciation		10,123						10,123
Oil and gas properties		5,698,563			(5,698,563	)		-
Other assets		14,610						14,610

Total Assets	$	5,723,462		$	(5,698,563	)	$	24,899

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable	$	863,702		$			$	863,702
Accrued liabilities		1,782,985			(1,242,699	)		540,286
Payable to Ironridge Global IV, Ltd.		241,046						241,046
Payable to former officer		115,000						115,000
Unsecured convertible promissory notes payable, net of discount, in default		929,964						929,964
Secured notes payable, net of discount, in default		620,512			(500,000	)		120,512
Convertible debentures in default		2,453,032			(2,453,032	)		-
Derivative liabilities		7,908,415			(5,466,805	)		2,441,610
Total Current Liabilities		14,914,656			(9,662,536	)		5,252,120

Long-Term Liabilities
Long-term asset retirement obligation		37,288			(37,288	)		-

Total Liabilities		14,951,944			(9,699,824	)		5,252,120

Stockholders' Deficiency:
Series A convertible preferred stock		1,000						1,000
Common stock		47,476						47,476
Additional paid-in capital		26,235,670						26,235,670
Deficit accumulated during the exploration stage		(35,512,628	)		4,001,261			(31,511,367	)
Total Stockholders' Deficiency		(9,228,482	)		4,001,261			(5,264,509	)

Total Liabilities and Stockholders' Deficiency	$	5,723,462		$	(5,698,563	)	$	24,899

F-24

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

During the period of this Annual Report and for the two years prior to this Report, there were no changes in or disagreements with our accountants except as disclosed below.

Resignation of Hansen, Barnett and Maxwell

Effective September 3, 2013, Hansen, Barnett and Maxwell (“HBM”) resigned as the independent registered public accounting firm of the Company. HBM’s reports on the financial statements for the fiscal years ended December 31, 2012 and 2011 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to audit scope or accounting, except that the report contained an explanatory paragraph stating that there was substantial doubt about the Company’s ability to continue as a going concern as a result of the Company’s continuing losses and need of operating capital. The Company has authorized HBM to respond fully to the inquiries of the successor accountant

During the registrant’s two most recent fiscal terms and the period through September 3, 2013, there were no disagreements with HBM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of HBM, would have caused it to make reference to the subject matter of the disagreements in connection with its report. Further, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K occurring during the registrant’s two most recent fiscal terms and the period through September 3, 2013.

Engagement of Weinberg & Company

On September 18, 2013, the registrant engaged Weinberg & Company as its new independent registered public accounting firm beginning with the quarterly period ended June 30, 2013 and for our fiscal year ended December 31, 2013. The change in our independent registered public accounting firm was approved by the Audit Committee of the board of directors of the Company. During the two most recent fiscal years and through September 18, 2013, neither we nor anyone on our behalf consulted with Weinberg & Company regarding any of the following:

(i) The application of accounting principles to a specific transaction, either completed or proposed;

(ii) the type of audit opinion that might be rendered on our financial statements by Weinberg & Company in either case where written or oral advice provided by Weinberg & Company would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues; or

(iii) any matter that was subject of a disagreement between us and our former auditor, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as described in Item 304(a)(1)(v) of Regulation S-K.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2013, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:

We did not have sufficient personnel in our accounting and financial reporting functions. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis;

We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of U.S. generally accepted accounting principles (“U.S. GAAP”) commensurate with our complexity and our financial accounting and reporting requirements. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result; and

We lack a system to administratively review, audit or verify the reporting by Bayshore of revenues and expenditures in connection with the oil and gas properties on which we conduct activities. Similarly, we have not obtained units of production or similar third-party purchaser confirmation of the details of our oil and gas production. There is a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis without the ability to independently review and verify the results of our revenue and expenses related to our operations.

The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weaknesses had any effect on the accuracy of our financial statements for the current reporting period.

We are committed to improving our financial organization. As part of this commitment, we hope to create a segregation of duties consistent with control objectives and will look to increase our personnel resources and technical accounting expertise within the accounting function by the end of fiscal 2013 to resolve non-routine or complex accounting matters. In addition, when funds are available to us, which we hope to occur by the end of fiscal 2013, we will take the following action to enhance our internal controls: Hiring additional knowledgeable personnel with technical accounting expertise to further support our current accounting personnel, which management estimates will cost approximately $75,000 per annum. We have in the past, and will continue to engage outside consultants in the future as necessary in order to ensure proper treatment of non-routine or complex accounting matters. In addition, management is working to establish a system to administratively review, audit or verify the reporting by Bayshore of revenues and expenditures in connection with the oil and gas properties on which we conduct activities.

Management believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the following material weaknesses: (A) lack of sufficient personnel in our accounting and financial reporting functions to achieve adequate segregation of duties; and (B) insufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of US GAAP commensurate with our complexity and our financial accounting and reporting requirements.

Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists solely a Chief Executive Officer, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c) Management’s report on internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was ineffective as of December 31, 213 for the reasons discussed above.

This annual report does not include an attestation report by Weinberg & Company, our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

Item 9B. Other Information

None.

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The names of our executive officers and directors and their age, title, and biography as of April 9, 2014 are set forth below:

Name	Age	Title
Charles F. Volk, Jr.	54	Chief Executive Officer and President, Chairman of the Board of Directors
Warren Rothouse	52	Director
David Pinkman	57	Director

Directors are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their successors are elected. Officers are elected annually and serve at the discretion of the Board of Directors.

Charles F. Volk, Jr. has been our Chief Executive Officer, Chairman of the Board of Directors since March 2010. Mr. Volk has been the Chairman of Bermuda Segregated Funds, Ltd. an open end Mutual Fund in Bermuda since March 2008. Mr. Volk has also served as the Chairman and President of Osage Energy Corporation from 2004 to 2007, as the Managing Director of Cyril Petrochemical Corporation, as the Managing Director of Norman Capital, Inc. from 1992 to 1997, as a business development consultant to Asset Growth Partners, Inc. from 1991 to 1992, as President of Gold Circle Mines, Inc. from 1983 to 1991, and as General Partner of Oil & Gas Partnerships from 1981 to 1993. In addition, Mr. Volk participated in the management and marketing of Esilux Corporation, an international marketer and distributor of specialized industrial safety systems. Mr. Volk received his B.S. degree in Business Administration from the Menlo School of Business Administration in Menlo Park, CA in 1981.

Warren Rothouse has been a Director since October 2012. Since February 2003, Mr. Rothouse has been Managing Director of Surety Financial Group. From 1997 to 2003, Mr. Rothouse was owner of Country Stove & Chimney Shoppe. From 1989 to 1997 Mr. Rothouse was a Sales Manager at Thulman Eastern Corporation, a sub-contractor to the building industry. From 1986 to 1989 Mr. Rothouse was a Sales Representative at Thulman Eastern Corporation. Mr. Rothouse attended Towson State University.

David Pinkman has been a Director since January 2013. Mr. Pinkman is CFO and a director of Saccharum Energy Corp., a TSX Venture Exchange-listed junior oil and gas exploration company, and has held these positions since October, 2009. He is also currently a director of Red Rock Energy Inc., a TSX Venture Exchange-listed junior uranium exploration and oil and gas exploration company, and has held that position since April, 2005. Previously, he was CFO and a director of PanWestern Energy Inc., a listed junior oil and gas company, and served in those roles from November, 2001 to April, 2010. He was also President and a director of Explorator Resources Inc., a CPC company, and held those positions from September 2005 to January, 2007. Prior to that, he was Vice President and a director of Powermax Energy Inc., a TSXV-listed oil and gas issuer, from January 2002 until September, 2005. He was also a director of Renewable Power & Light Plc., an AIM-listed independent power production company, from June, 2006 to October, 2007. From January 2001 to November 2001, Mr. Pinkman was Vice President, International, of Maxim Power Corp. (formerly Jupiter Power International Inc.) (TSXV listed). He was executive Chairman and a director of Jupiter Power International Inc. prior thereto and from August 1993 until December 2000.

Mr. Pinkman was a partner at the law firm Pinkman, McArdle, Barristers and Solicitors from 1991 until December 2000. Called to the bar in 1985, as a lawyer he has practiced primarily in the areas of corporate and securities law. He has served on the boards of a number of public and private companies carrying on business in the resource and other industries. In addition, Mr. Pinkman has served on the boards of a variety of local volunteer organizations, and continues to serve as a director and Vice-President of Wild Rose Motocross Association, a non-profit association registered under the Societies Act (RSA 1980, as amended). Mr. Pinkman obtained a BA degree from the University of Calgary in 1980, and an LLB degree from the University of British Columbia in 1984.

Director Qualifications

The Board believes that each of our directors is highly qualified to serve as a member of the Board. Each of the directors has contributed to the mix of skills, core competencies and qualifications of the Board. When evaluating candidates for election to the Board, the Board seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment, and leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success in what we believe are highly relevant positions.

Family Relationships

None.

Board Independence

We are not required to have any independent members of the Board of Directors. The board of directors has determined that (i) Charles Volk and David Pinkman have relationships which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is not an “independent director” as defined in the Marketplace Rules of The NASDAQ Stock Market and (ii) Warren Rothouse is an independent director as defined in the Marketplace Rules of The NASDAQ Stock Market.

Meetings and Committees of the Board of Directors

During the fiscal year ended December 31, 2012, our board of directors held 7 meetings and approved certain actions by unanimous written consent. We currently do not have any board committees. The board as a whole carries out the functions of the audit, compensation and nominating committees. We expect our directors to attend all board meetings and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities.

Involvement in Certain Legal Proceedings

Our Directors and Executive Officers have not been involved in any of the following events during the past ten years:

any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;

being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Section 16(a) Beneficial Owner Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish our company with copies of all Section 16(a) reports they file.

Based solely on our review of the copies of such reports received by us and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that with respect to the fiscal year ended December 31, 2012, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements.

Code of Ethics

We have adopted a Code of Ethics and Business Conduct that applies to all of our directors, officers and employees. A copy of the Code of Ethics is incorporated by reference as an exhibit.

Committees

We have not formed an Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee as of the filing of this Annual Report. Our Board of Directors performs the principal functions of an Audit Committee. We currently do not have an audit committee financial expert on our Board of Directors. We believe that an audit committee financial expert is not required because the cost of hiring an audit committee financial expert to act as one of our directors and to be a member of an Audit Committee outweighs the benefits of having an audit committee financial expert at this time. However, we intend to implement a comprehensive corporate governance program, including establishing various board committees and adopting a Code of Ethics in the future. In addition, we have secured Directors and Officers insurance consistent with the Company’s and Board of Director’s mandates.

Item 11. Executive Compensation

Summary Compensation Table

The following table sets forth all information concerning the compensation received for the fiscal years ended December 31, 2013 and 2012 for services rendered to us by persons who served as our principal executive officer our two most highly compensated executive officers (other than the principal executive officer) who were serving as executive officers at the end of the last completed fiscal year, and two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of the smaller reporting company at the end of the last completed fiscal year. Aside from the salary amounts as described below, none of our officers are entitled to any additional compensation. No amounts have been paid or accrued to any named executive officer pursuant to a plan or arrangement in connection with any termination or change of control.

Name and Principal Position	Fiscal Year Ended 12/31		Salary Paid or Accrued ($) (4)		Bonus Paid or Accrued ($)		Stock Awards ($)			All Other Compensation ($) (5)		Total ($)
Charles Volk (1)		2013	$	240,000	$	0	$	200,000	(7)	$	9,380	$	449,380
Chairman, Chief Executive Officer, President and Director		2012	$	240,000	$	13,884	$	70,000	(6)	$	9,380	$	333,264

Anthony Mason (2) Chief Executive Officer,		2013	$	0	$	0	$	0		$	0	$	0
President and Director		2012	$	163,333	$	0	$	0		$	0	$	163,333

Tomer Tal (3) Secretary		2013	$	0	$	0	$	0		$	0	$	0
		2013	$	0	$	0	$	0		$	0	$	0

(1)

Mr. Volk was appointed Chairman of the Board, President and Chief Executive Officer on March 17, 2010, resigned as President and Chief Executive Officer on April 26, 2012 and was re-appointed President and Chief Executive Officer on January 31, 2013.

(2)

Mr. Mason was appointed President and Chief Executive Officer on April 26, 2012, appointed to the Board on October 12, 2012 and resigned such positions on January 31, 2013.

(3)

Tomer Tal was appointed as Secretary on October 2012. Effective April 11, 2013, Tomer Tal resigned for personal reasons, effective immediately, as Secretary of the Company. In submitting his resignation, Mr. Tal did not express any disagreement with the Company on any matter relating to the registrant’s operations, policies or practices.

(4)

This column represents the aggregate amounts accrued under the named executive officer’s employment contract. Of the amounts accrued for Mr. Volk, he received payments of $197,420 and $218,755 during the years ended December 31, 2012 and 2011, respectively. Of the amounts accrued for Mr. Mason, he received payment of $71,000 during the year ended December 31, 2012. Of the amounts accrued for Mr. Burden, he received payment of $4,500 during the year ended December 31, 2012. The balance of Mr. Volk’s, Mr. Mason’s and Mr. Burden’s accrued compensation is included in accrued liabilities in the accompanying consolidated balance sheet at December 31, 2012.

(5)

On May 10, 2011, the Board of Directors authorized Mr. Volk to join clubs in furtherance of the interests of the Company. Club dues paid were $9,380 and $7,791 for the years ended December 31, 2013 and 2012, respectively.

(6)

This represents the issuance date fair value of 20,000 shares issued to Mr. Volk or his designees pursuant to a Change of Control and Recapitalization Agreement, originally entered into on March 17, 2010.

(7)

This represents the issuance date fair value of 1,000,000 shares of Series A Preferred Stock issued to Mr. Volk on April 10, 2013.

Option/SAR Grants in Fiscal Year Ended December 31, 2013

None.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of December 31, 2013.

Option Awards

Name

Option
Grant Date

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable

Option
Exercise
Price
($)

Option
Expiration
Date

Charles F. Volk, Jr.

5/18/2010

6,000

120.00

5/17/2020

Equity Compensation Plan Information

The following table sets forth information, as of December 31, 2013, about the shares of our common stock that may be issued upon the exercise of options granted to employees under the 2010 Stock Option Plan, which was approved by the Board of Directors and shareholders.

Plan category	Number of securities to be issued upon exercise of outstanding options (a)		Weighted- average exercise price of outstanding options (b)		Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		17,600	$	126.00		22,400
Equity compensation plans not approved by security holders		-		-		-
Total		17,600	$	126.00		22,400

Employment Contracts and Termination of Employment and Change-In-Control Arrangements

Chairman of the Board

Effective April 1, 2010, we entered into an employment agreement with Mr. Volk. This employment agreement’s initial term was from April 1, 2010 through December 31, 2012, and renews automatically for one-year periods thereafter. The annual base compensation under the agreement is $240,000.

Additionally, the agreement provides for aggregate incentive compensation for Mr. Volk equal to 1.75% of the gross transaction value of any acquisition of oil or gas assets or 1.75% of the gross transaction value of any sale or merger transaction, other than those acquisitions contemplated under the Change of Control Agreement executed in March 2010. Furthermore, our compensation committee may adopt an incentive bonus plan for management based upon the occurrence of various other milestones.

As additional compensation, the agreement provided for us to recommend to the administrative committee that Mr. Volk be granted options to acquire 6,000 shares of our common stock. On May 18, 2010, our Board of Directors approved the grant of options to acquire a total of 300,000 shares of common stock at an exercise price of $120.00 per share. The options have a term of ten years and vested upon the grant date. However, these options were subject to the approval of the shareholders of both reverse common stock splits and the approval of the 2010 Stock Option Plan, which approvals were received on June 29, 2010.

The employment agreement can be terminated at any time for cause and can be terminated by the employee with four months written notice. We may terminate the agreement without cause upon six months written notice and upon the payment of a severance amount equal to one year’s base salary and the payment of any incentive compensation based on transactions that are under an agreement or signed letter of intent, subject to their closing within six months of the effective date of termination. In the event of the death of the officer, we are obligated to pay the severance amount described above.

Mr. Volk resigned as Chief Executive Officer and President on April 26, 2012, and remains as the Company’s Chairman of the Board of Directors. Effective April 26, 2012, the employment agreement between the Company and Mr. Volk was amended (the “Amendment”).

Pursuant to the Amendment, the term of the employment agreement was extended January 31, 2014 and the initial base salary under the employment agreement shall be increased when the Company achieves production of certain barrel of oil equivalent per day (“BOEPD”) as follows:

Base Salary (per annum)		BOEPD

$	300,000		500
$	420,000		2,000
$	540,000		4,000

Furthermore, upon the Company achieving 500 BOEPD, Mr. Volk shall be entitled to use of a Company-leased Jaguar XJ or other comparable lease. In addition, Mr. Volk shall also receive health insurance paid for by the Company.

Director Agreements

We entered into a one year consulting agreement with Mr. Pinkman on February 1, 2013 under which Mr. Pinkman provides us with specific expertise relating to our oil and gas projects, specifically the VM 179 oil prospect. In addition, the agreement required Mr. Pinkman as to join our Board of Directors. For those services listed above, we pay Mr. Pinkman a fee of $8,333.33 per month, granted Mr. Pinkman 20,000 shares of common stock and issued him a 5 year warrant to purchase 20,000 shares of common stock at an exercise price of $2.50 per share.

Director Compensation

The following table sets forth summary information concerning the total compensation paid to our non-employee directors in 2013 for services to our company.

Name	Fees Earned or Paid in Cash ($)		Total ($)
Warren Rothouse (1)	$	0	$	0
David Pinkman (2)	$	0	$	0
Total:	$	0	$	0

(1)

Mr. Rothouse was appointed a director on October 12, 2012.

(2)

Mr. Pinkman was appointed a director on January 31, 2013.

(3)

Mr. Rothouse was appointed a director on October 12, 2012.

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

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 10, 2014 for: (i) each of our directors; (ii) each of our executive officers: (iii) all of our directors and executive officers as a group; and (iv) all persons, to our knowledge, are the beneficial owners of more than five percent (5%) of the outstanding shares of common stock. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to the securities.

Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o Worthington Energy, Inc., 145 Corte Madera Town Center #138, Corte Madera, California 94925.

Name of Owner	Title of Class	Number of Shares Beneficially Owned (1)		Percentage of Outstanding Shares of Common Stock (2)		Percentage of Voting Rights

Charles F. Volk, Jr.	Common Stock	2,387,112	(4)	0.82	%	72.42	%

Warren Rothouse	Common Stock	0		0	%	0	%

David Pinkman	Common Stock	20,000			*	*

Offers and Directors as a Group (3 persons)	Common Stock	2,407,112		0.82	%	72.42	%

(1)	Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of April 10, 2014 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

(2)	Based on 258,922,616 shares of the Company’s common stock issued and outstanding as of April 10, 2014.
(3)	Mr. Volk beneficially owns 1,131,112 shares, which includes: (i) 2,000 shares of common stock held by Mr. Volk; (ii) 129,112 shares of common stock owned by the Charles Volk Revocable Family Trust, of which Mr. Volk is the Trustee and has investment and voting control over the shares held by the trust; (iii) options to acquire 6,000 shares of common stock; (iv) warrants ot purchase 1,250,000 shares of common stock and (v) 1,000,000 shares issuable upon the conversion of 1,000,000 shares of Series A Preferred Stock owned by Mr. Volk. Charles Volk, as the Trustee of the Charles Volk Revocable Family Trust has investment and voting control over the shares held by the trust.

* Denotes less than 1%

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

Other than as disclosed below, during the last two fiscal years, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5% of the outstanding common, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.

Warren Rothouse was appointed to be a director in October 2012. Mr. Rothouse is Senior Partner of Surety Financial Group, LLC (“Surety”). Surety has provided us with investor relations services in recent years. On November 7, 2012, we entered into a new agreement with Surety to provide investor relations services for the fifteen month period commencing December 1, 2012 and continuing through February 28, 2014. The agreement provides for monthly payments of $6,500 for Surety’s services. In addition, Surety was issued 10,000 shares of our restricted common stock and warrants to purchase 15,000 shares of our common stock. The exercise price of the warrants is $5.00 per share and the warrants are exercisable on a cashless basis. The term of the warrants is three years.

Issuance of Series A Preferred Stock

On April 10, 2013, the board of directors authorized the Company to file a certificate of designation authorizing one million shares of Series A Preferred Stock and authorized the sale and issuance of one million shares of Series A Preferred Stock to Charles Volk, the Company’s chief executive officer in exchange for the conversion of $50,000 of accrued salary owing to Mr. Volk. On April 17, 2013, the certificate of designation was filed with the Secretary of State of Nevada. Among the designations are that 1) one share of Series A Preferred Stock is convertible into one share of common stock and 2) each share of Series A Preferred Stock is entitled to 750 votes for each share of common stock.

Convertible Promissory Notes

On June 4, 2013, the Company issued an unsecured convertible promissory notes to Charles Volk, the Company’s President and CEO). The convertible promissory bear at 10% per annum and contains a $25,000 original issue discount. The convertible note was issued in exchange for $100,000 of accrued compensation due to Volk. The principal and unpaid accrued interest due one year after the issuance date. The notes are convertible at a variable conversion price equal to 50% of the current market price of the Company’s common stock. In addition, the conversion price also included an anti-dilution provision that allows for the automatic reset of the conversion price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current conversion price of the convertible promissory note. The Company determined that the variable conversion price and the anti-dilution reset provision caused the conversion feature to be bifurcated from the convertible promissory notes, and are required to be recorded as a liability and valued at fair value. The fair value of these embedded conversion features and the original issue discount are recorded as discounts to the carrying amount of the convertible promissory note. In addition to the issuance of the convertible note, in the same transaction, the Company issued to Volk a warrant to purchase 1,250,000 shares of the Company’s common stock at $0.05 per share. The fair value of the warrant at the date of issuance was $37,116 and is considered a discount to the note. The fair value was calculated using the Black-Scholes model with the following assumptions: volatility - 307%; terms – 3 years; dividend yield – 0% and risk free interest rate – 0.14%. In the event the discount to the note exceed the face amount of the note, the excess is amortized immediately as interest expense. The remaining discounts are amortized over the period from the issuance dates to the maturity dates or to the conversion dates, whichever is earlier. The Company recognized interest expense from the amortization of the discounts in the amount of $236,823 for the year ended December 31, 2013. The carrying amount of this convertible promissory note was $71,404 at December 31, 2013, representing their unconverted face amount of $125,000 less the unamortized discount of $53,596.

On September 4, 2013, the Company issued an unsecured convertible promissory notes to Tomer Tal (“Tal”). The convertible promissory bear at 10% per annum and contains a $10,000 original issue discount. The convertible note was issued in exchange for $40,000 of accounts payable due to Tal. The principal and unpaid accrued interest due one year after the issuance date. The notes are convertible at a variable conversion price equal to 50% of the current market price of the Company’s common stock. In addition, the conversion price also included an anti-dilution provision that allows for the automatic reset of the conversion price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current conversion price of the convertible promissory note. The Company determined that the variable conversion price and the anti-dilution reset provision caused the conversion feature to be bifurcated from the convertible promissory notes, and are required to be recorded as a liability and valued at fair value. The fair value of these embedded conversion features and the original issue discount are recorded as discounts to the carrying amount of the convertible promissory note. In addition to the issuance of the convertible note, in the same transaction, the Company issued to Tal a warrant to purchase 500,000 shares of the Company’s common stock at $0.05 per share. The fair value of the warrant at the date of issuance was $14,846 and is considered a discount to the note. The fair value was calculated using the Black-Scholes model with the following assumptions: volatility - 307%; terms – 3 years; dividend yield – 0% and risk free interest rate – 0.14%. In the event the discount to the note exceed the face amount of the note, the excess is amortized immediately as interest expense. The remaining discounts are amortized over the period from the issuance dates to the maturity dates or to the conversion dates, whichever is earlier. The Company recognized interest expense from the amortization of the discounts in the amount of $103,063 for the year ended December 31, 2013. The carrying amount of this convertible promissory note was $36,895 at December 31, 2013, representing their unconverted face amount of $50,000 less the unamortized discount of $13,105.

Item 14. Principal Accountant Fees and Services.

	Fiscal year ended December 31,
	2013		2012
Audit fees	$	110,000	$	82,900
Audit-related fees	$	—	$	—
Tax fees	$	—	$	9,000
All other fees	$	—	$	—

Audit Fees

We were billed $110,000 for professional services rendered for the audit and reviews of our 2013 annual and interim financial statements. We were billed $82,900 for professional services rendered for the audit and reviews of our 2012 annual and interim financial statements.

Audit Related Fees

For our fiscal years ended December 31, 213 and 2012, we did not incur any audit related fees.

Tax Fees

During our fiscal years ended December 31, 2013 and 2012, we were billed $0 and $9,000 respectively, for professional services rendered for tax compliance.

Audit and Non-Audit Service Preapproval Policy

In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder, the board of directors has, as of May 19, 2008, adopted an informal approval policy that it believes will result in an effective and efficient procedure to preapprove services performed by the independent registered public accounting firm. Prior to adoption of this approval policy, audit and non-audit services performed by the independent registered public accounting firm were preapproved primarily at the discretion of the principal executive officer at the time who was also the principal financial and accounting officer.

Audit Services. Audit services include the annual financial statement audit (including quarterly reviews) and other procedures required to be performed by the independent registered public accounting firm to be able to form an opinion on our financial statements. The board of directors preapproves specified annual audit services engagement terms and fees and other specified audit fees. All other audit services must be specifically preapproved by the board of directors. The board of directors monitors the audit services engagement and may approve, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope or other items.

Audit-Related Services. Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements which historically have been provided to us by the independent registered public accounting firm and are consistent with the SEC’s rules on auditor independence. The board of directors preapproves specified audit-related services within preapproved fee levels. All other audit-related services must be preapproved by the board of directors.

Tax Services. The board of directors preapproves specified tax services that the Audit Committee believes would not impair the independence of the independent registered public accounting firm and that are consistent with SEC rules and guidance. The board of directors must specifically approve all other tax services.

All Other Services. Other services are services provided by the independent registered public accounting firm that do not fall within the established audit, audit-related, and tax services categories. The board of directors preapproves specified other services that do not fall within any of the specified prohibited categories of services.

Procedures. All proposals for services to be provided by the independent registered public accounting firm, which must include a detailed description of the services to be rendered and the amount of corresponding fees, are submitted to the board of directors and the Chief Financial Officer. The Chief Financial Officer authorizes services that have been preapproved by the board of directors. If there is any question as to whether a proposed service fits within a preapproved service, the board of directors is consulted for a determination. The Chief Financial Officer submits requests or applications to provide services that have not been preapproved by the board of directors, which must include an affirmation by the Chief Financial Officer and the independent registered public accounting firm that the request or application is consistent with the SEC’s rules on auditor independence, to the board of directors (or its Chair or any of its other members pursuant to delegated authority) for approval.

PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibit Number*	Title of Document	Location

3.01	Articles of Incorporation	Incorporated by reference to the Registration Statement on Form SB-2 filed on August 1, 2006, SEC File No. 333-136199.
3.02	Amended and Restated Articles of Incorporation of Paxton Energy, Inc.	Incorporated by reference to the Registration Statement on Form SB-2/A (Amendment No. 1) filed on December 21, 2006, SEC File No. 333-136199.
3.03	Bylaws of Paxton Energy, Inc. (as amended and restated October 1, 2005)	Incorporated by reference to the Registration Statement on Form SB-2 filed on August 1, 2006, SEC File No. 333-136199.
3.04	Certificate of Amendment of Articles of Incorporation	Incorporated by reference to the Quarterly Report of Form 10-Q filed on August 23, 2010, SEC File No. 000-52590.
3.05	Certificate of Amendment of Articles of Incorporation	Incorporated by reference to the Current Report on Form 8-K filed on February 8, 2012.
3.06	Certificate of Amendment of Articles of Incorporation	Incorporated by reference to the Current Report on Form 8-K filed on November 1, 2012.
3.07	Certificate of Amendment of Articles of Incorporation dated April 18, 2013	Incorporated by reference to the Current Report on Form 10-Q filed on May 30, 2013.
3.08	Certificate of Amendment of Articles of Incorporation dated May 8, 2013	Incorporated by reference to the Current Report on Form 10-Q filed on May 30, 2013.
3.09	Certificate of Designations of Series A Preferred Stock dated April 17, 2013	Incorporated by reference to the Current Report on Form 10-Q filed on May 30, 2013.

4.01	Specimen stock certificate	Incorporated by reference to the Registration Statement on Form SB-2 filed on August 1, 2006, SEC File No. 333-136199.
10.01	Employment Agreement between the Company and Charles F. Volk, Jr.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 23, 2010.
10.02	2010 Stock Option Plan adopted by shareholders at Special Meeting held June 29, 2010.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 23, 2010.
10.03	Asset Sale Agreement, dated as of March 28, 2011, by and between Montecito Offshore, L.L.C. and Paxton Energy, Inc.	Incorporated by reference to the Annual Report on Form 10-K filed on April 1, 2011.
10.04	First Addendum to Asset Sale Agreement dated April 7, 2011, between Montecito Offshore, L.L.C. and Paxton Energy, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on April 11, 2011.
10.05	Agreement of Merger dated April 29, 2011, between Paxton Energy, Inc., PaxAcq Inc., Virgin Oil Company, Inc., and Virgin Offshore U.S.A., Inc.	Incorporated by reference to the Current Report on Form 8-K filed on May 2, 2011.
10.06	Form of Subscription Agreement, dated May 5, 2011	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2011.
10.07	Form of Convertible Secured Debenture, dated May 5, 2011	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2011.
10.08	Form of Warrant, dated May 5, 2011	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2011.
10.09	Form of Mortgage, Assignment, Security Agreement and Financing Statement, dated May 5, 2011	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2011.
10.10	Second Addendum to Asset Sale Agreement dated May 2, 2011, between Montecito Offshore, L.L.C. and Paxton Energy, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on May 12, 2011.
10.11	Form of Subordinated Promissory Note	Incorporated by reference to the Current Report on Form 8-K filed on May 12, 2011.
10.12	Form of Assignment and Assumption Agreement.	Incorporated by reference to the Current Report on Form 8-K filed on May 12, 2011.
10.13	Employment Agreement, dated June 15, 2011, by and between Paxton Energy, Inc. and Robert Fulton Smith, Jr.	Incorporated by reference to the Current Report on Form 8-K filed on July 1, 2011.
10.14	Securities Purchase Agreement, dated as of February 7, 2011, by and between Paxton Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 15, 2011.
10.15	Form of Convertible Promissory Note, issued February 7, 2011	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 15, 2011.
10.16	Securities Purchase Agreement, dated as of April 5, 2011, by and between Paxton Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 15, 2011.
10.17	Form of Convertible Promissory Note, issued April 5, 2011	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 15, 2011.
10.18	Amended and Restated 2010 Incentive Stock Option Plan	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 15, 2011.

10.19	Securities Purchase Agreement, dated as of August 12, 2011, by and between Paxton Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on August 24, 2011.
10.20	Form of Convertible Promissory Note, issued August 12, 2011	Incorporated by reference to the Current Report on Form 8-K filed on August 24, 2011.
10.21	Form of Asset Sale Agreement, dated as of October 25, 2011, by and between Paxton Energy, Inc. and Black Sands Energy, LLC	Incorporated by reference to the Current Report on Form 8-K filed on October 31, 2011.
10.22	Convertible Redeemable Secured Note, dated August 10, 2011, issued by Paxton Energy, Inc. to GEL Properties, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on November 14, 2011.
10.23	Purchase and Sale Agreement dated November 14, 2011, between Paxton Energy, Inc. and Black Cat Exploration & Production, LLC	Incorporated by reference to the amended Current Report on Form 8-K/A filed on November 22, 2011.
10.24	Securities Purchase Agreement, dated as of November 14, 2011, by and between Paxton Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on November 22, 2011.
10.25	Form of Convertible Promissory Note, issued November 14, 2011	Incorporated by reference to the Current Report on Form 8-K filed on November 22, 2011.
10.26	Subscription Agreement, dated as of November 21, 2011, by and between Paxton Energy, Inc. and What Happened LLC	Incorporated by reference to the Current Report on Form 8-K filed on November 22, 2011.
10.27	Form of Convertible Promissory Note, issued November 21, 2011	Incorporated by reference to the Current Report on Form 8-K filed on November 22, 2011.
10.28	Subscription Agreement, dated as of December 19, 2011, by and between Paxton Energy, Inc. and Luis Urroz	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.29	Form of Convertible Promissory Note, issued December 19, 2011	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.30	Form of Common Stock Purchase Warrant, issued December 19, 2011	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.31	Subscription Agreement, dated as of December 19, 2011, by and between Paxton Energy, Inc. and John Reed	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.32	First Amendment to Subscription Agreement, dated as of December 23, 2011, by and between Paxton Energy, Inc. and John Reed	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.33	Form of Convertible Promissory Note, issued December 23, 2011	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.34	Form of Common Stock Purchase Warrant, issued December 23, 2011	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.35	Securities Purchase Agreement, dated as of December 20, 2011, by and between Paxton Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.36	Form of Convertible Promissory Note, issued December 20, 2011	Incorporated by reference to the Current Report on Form 8-K filed on January 11, 2012.
10.37	Form of Subscription Agreement, dated as of December 1, 2011	Incorporated by reference to the Current Report on Form 8-K filed on March 14, 2012.

10.38	Form of Convertible Promissory Note, issued December 1, 2011	Incorporated by reference to the Current Report on Form 8-K filed on March 14, 2012.
10.39	Form of Common Stock Purchase Warrant, issued December 1, 2011	Incorporated by reference to the Current Report on Form 8-K filed on March 14, 2012.
10.40	Form of Subscription Agreement	Incorporated by reference to the Current Report on Form 8-K filed on March 14, 2012.
10.41	Form of Convertible Promissory Note	Incorporated by reference to the Current Report on Form 8-K filed on March 14, 2012.
10.42	Form of Common Stock Purchase Warrant	Incorporated by reference to the Current Report on Form 8-K filed on March 14, 2012.
10.43	First Amendment to Purchase and Sale Agreement, dated as of March 5, 2012 by and between Worthington Energy, Inc. and Black Cat Exploration & Production LLC	Incorporated by reference to the Current Report on Form 8-K filed on March 14, 2012.
10.44	Convertible Note, dated August 10, 2011, issued to GEL Properties, Inc.	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.45	Form of Deed of Trust, Security Agreement and Financing Statement Covering as Extracted Collateral, dated March 6, 2012 by PaxAcq, Inc. in favor of Sanjay Kapoor	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.46	Form of Secured Promissory Note, issued March 6, 2012 to Sanjay Kapoor	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.47	Form of Common Stock Purchase Warrant, issued March 9, 2012 to Anna Rancher	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.48	Form of Subscription Agreement, dated as of March 14, 2012 by and between Worthington Energy, Inc. and Sean Whalen	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.49	Form of Convertible Promissory Note, issued March 14, 2012 to Sean Whalen	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.50	Form of Common Stock Purchase Warrant, issued March 14, 2012 to Sean Whalen	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.51	Form of Subscription Agreement, dated as of March 26, 2012 by and between Worthington Energy, Inc. and New Rock Capital, LLC	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.52	Form of Convertible Promissory Note, issued March 26, 2012 to New Rock Capital, LLC	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.53	Form of Common Stock Purchase Warrant, issued March 26, 2012 to New Rock Capital, LLC	Incorporated by reference to the Annual Report on Form 10-K filed on April 16, 2012.
10.54	Form of Subscription Agreement, dated as of March 2, 2012, by and between Worthington Energy, Inc. and What Happened LLC	Incorporated by reference to the Current Report on Form 8-K filed on April 27, 2012.
10.55	Form of Convertible Promissory Note, issued March 2, 2012 to What Happened LLC	Incorporated by reference to the Current Report on Form 8-K filed on April 27, 2012.

10.56	Form of Common Stock Purchase Warrant, issued March 2, 2012 to What Happened LLC	Incorporated by reference to the Current Report on Form 8-K filed on April 27, 2012.
10.57	Securities Purchase Agreement, dated as of March 5, 2012, by and between Worthington Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on April 27, 2012.
10.58	Form of Convertible Promissory Note, issued March 5, 2012 to Asher Enterprises, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on April 27, 2012.
10.59	Purchase and Sale Agreement, between Worthington Energy, Inc. and D Bar Leasing Inc., dated April 26, 2012.	Incorporated by reference to the Current Report on Form 8-K filed on April 27, 2012.
10.60	Employment Agreement, between Worthington Energy, Inc. and Anthony Mason, dated April 26, 2012.	Incorporated by reference to the Current Report on Form 8-K filed on April 27, 2012.
10.61	Form of Subscription Agreement, filed as an exhibit to the Current Report on Form 8-K, filed with the Securities and Exchange Commission (the “Commission”) on March 14, 2012 and incorporated herein by reference.	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.62	Form of Convertible Promissory Note, filed as an exhibit to the Current Report on Form 8-K, filed with the Commission on March 14, 2012 and incorporated herein by reference.	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.63	Form of Common Stock Purchase Warrant, filed as an exhibit to the Current Report on Form 8-K, filed with the Commission on March 14, 2012 and incorporated herein by reference.	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.64	Securities Purchase Agreement, dated April 30, 2012, between Worthington Energy, Inc. and La Jolla Cove Investors, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.65	Form of 4 3/4 % Secured Convertible Debenture, issued April 30, 2012 to La Jolla Cove Investors, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.66	Equity Investment Agreement, dated April 30, 2012, between Worthington Energy, Inc. and La Jolla Cove Investors, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.67	Secured Continuing Personal Guaranty, dated April 30, 2012, issued by Charles F. Volk, Jr. Anthony Mason and Samuel J. Butero in favor of La Jolla Cove Investors, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.68	Amendment to Employment Agreement, dated April 26, 2012, by and between Worthington Energy, Inc. and Charles Volk	Incorporated by reference to the Current Report on Form 8-K filed on May 9, 2012.
10.69	Securities Purchase Agreement, dated as of May 14, 2012, by and between Worthington Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.70	Form of Convertible Promissory Note, issued May 14, 2012 to Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.71	Convertible Note, dated May 1, 2012, issued to GEL Properties, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.72	Securities Purchase Agreement, dated as of June 7, 2012, by and between Worthington Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.73	Form of Convertible Promissory Note, issued June 7, 2012 to Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.

10.74	Form of Subscription Agreement, dated as of June 22, 2012 by and between Worthington Energy, Inc. and Common Stock, LLC	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.75	Form of Convertible Promissory Note, issued June 22, 2012 to Common Stock, LLC	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.76	Securities Purchase Agreement, dated as of July 17, 2012, by and between Worthington Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.77	Form of Convertible Promissory Note, issued July 17, 2012 to Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.78	Form of Subscription Agreement, dated as of July 31, 2012 by and between Worthington Energy, Inc. and Claudell and Nancy LeBlanc	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.79	Form of Convertible Promissory Note, issued July 31, 2012 to Claudell and Nancy LeBlanc	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.80	Form of Common Stock Purchase Warrant, issued July 31, 2012 to Claudell and Nancy LeBlanc	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.81	Committed Equity Facility Agreement, dated June 22, 2012 by and between Worthington Energy, Inc. and Haverstock Master Fund, Ltd.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.82	Form of Convertible Debenture, issued June 22, 2012 to Haverstock Master Fund, Ltd.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.83	Form of Secured Convertible Promissory Note, issued April 19, 2012 to What Happened, LLC	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.84	Form of Convertible Promissory Note, issued August 9, 2012 to Ronald W. Moeckel	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.85	Form of Common Stock Purchase Warrant, issued August 9, 2012 to Ronald W. Moeckel	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.86	Form of $100,000 Convertible Promissory Note, issued July 24, 2012 to GEL Properties, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.87	Form of $75,000 Convertible Promissory Note, issued July 24, 2012 to GEL Properties, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.88	Form of $75,000 Secured Promissory Note, issued July 24, 2012 by GEL Properties, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.89	Form of $75,000 Secured Promissory Note, issued July 24, 2012 by GEL Properties, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on August 20, 2012.
10.90	Form of $50,000 Convertible Redeemable Note, issued September 5, 2012 to GEL Properties, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on September 7, 2012.
10.91	Form of $50,000 Convertible Redeemable Secured Note, issued September 5, 2012 to GEL Properties, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on September 7, 2012.

10.92	Form of $50,000 Secured Promissory Note, issued September 5, 2012 by GEL Properties, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on September 7, 2012.
10.93	Securities Purchase Agreement, dated as of September 13, 2012, by and between Worthington Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Quarterly Report on Form 10-Q filed on November 19, 2012.
10.94	Form of Convertible Promissory Note, issued September 13, 2012	Incorporated by reference to the Quarterly Report on Form 10-Q filed on November 19, 2012.
10.95	Form of Convertible Promissory Note, issued September 27, 2012	Incorporated by reference to the Quarterly Report on Form 10-Q filed on November 19, 2012.
10.96	Form of Subscription Agreement, by and between Worthington Energy, Inc. and Stephen K. and Nancy B. Rush	Incorporated by reference to the Quarterly Report on Form 10-Q filed on November 19, 2012.
10.97	Form of Promissory Note, issued October 8, 2012 to Stephen K. and Nancy B. Rush	Incorporated by reference to the Quarterly Report on Form 10-Q filed on November 19, 2012.
10.98	Form of Common Stock Purchase Warrant, issued October 8, 2012 to Stephen K. and Nancy B. Rush	Incorporated by reference to the Quarterly Report on Form 10-Q filed on November 19, 2012.
10.99	Settlement Agreement and Mutual Release of Claims, dated January 25, 2013, by and among Worthington Energy, Inc., Black Cat Exploration & Productions, LLC and Anthony Mason.	Incorporated by reference to the Current Report on Form 8-K filed on February 7, 2013.
10.100	Consulting Agreement between Worthington Energy, Inc. and David Pinkman dated February 1, 2013.	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.101	Common Stock and Warrant Purchase Agreement between Worthington Energy, Inc. and Al Kau dated February 25, 2013.	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.102	Common Stock and Warrant Purchase Agreement between Worthington Energy, Inc. and Aaron Shrira dated February 25, 2013.	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.103	Form of Warrant to purchase 2,500,000 shares issued to Al Kau.	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.104	Form of Warrant to purchase 2,500,000 shares issued to Aaron Shrira.	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.105	Securities Purchase Agreement, dated as of February 27, 2013, by and between Worthington Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.106	Form of Convertible Promissory Note issued February 27, 2013 to Asher Enterprises, Inc.	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.107	Form of Convertible Promissory Note issued February 28, 2013 to the Prolific Group, LLC	Incorporated by reference to the Current Report on Form 8-K filed on March 19, 2013.
10.108	Securities Purchase Agreement, dated as of October 19, 2012, by and between Worthington Energy, Inc. and Asher Enterprises, Inc.	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.109	Form of Convertible Promissory Note, issued October 19, 2012 to Asher Enterprises, Inc.	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.

10.110	Securities Purchase Agreement, dated as of November 26, 2012, by and between Worthington Energy, Inc. and Hanover Holdings I, LLC	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.111	Form of Convertible Promissory Note, issued November 26, 2012 to Hanover Holdings I, LLC	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.112	Securities Purchase Agreement, dated as of December 17, 2012, by and between Worthington Energy, Inc. and Hanover Holdings I, LLC	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.113	Form of Convertible Promissory Note, issued December 17, 2012 to Hanover Holdings I, LLC	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.114	Form of Amended Secured Promissory Note, issued to GEL Properties, LLC on August 9, 2012	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.115	Form of Promissory Note, issued to Prolific Group, LLC on November 26, 2012	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.116	Form of Promissory Note, issued to Magna Group, LLC on December 11, 2012	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
10.117	Series A Preferred Stock Purchase Agreement dated April 17, 2013 between Charles Volk and the Company	Incorporated by reference to the Current Report on Form 10-Q filed on May 30, 2013.
14.01	Code of Ethics	Incorporated by reference to the Annual Report on Form 10-K filed on April 1, 2011.
23.01	Consent of James F. Hubbard Consultant	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
31.01	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
32.01	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
99.01	Reserve Report of James F. Hubbard Consultant	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
99.02	Resignation Letter from Tomer Tal	Incorporated by reference to the Annual Report on Form 10-K filed on April 17, 2013.
101 INS	XBRL Instance Document	Filed herewith.
101 SCH	XBRL Taxonomy Extension Schema Document	Filed herewith.
101 CAL	XBRL Taxonomy Calculation Linkbase Document	Filed herewith.
101 LAB	XBRL Taxonomy Labels Linkbase Document	Filed herewith.
101 PRE	XBRL Taxonomy Presentation Linkbase Document	Filed herewith.
101 DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WORTHINGTON ENERGY, INC.

Date: April 15, 2014	By:	/s/ CHARLES F. VOLK, JR.
		Charles F. Volk, Jr.
		Chief Executive Officer (Principal
		Executive Officer, Principal Financial
		Officer and Principal Accounting
		Officer)

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

Name	Position	Date

/s/ CHARLES F. VOLK, JR.	Director	April 15, 2014
Charles F. Volk, Jr.

/s/ WARREN ROTHOUSE	Director	April 15, 2014
Warren Rothouse

/s/ DAVID PINKMAN	Director	April 15, 2014
David Pinkman