The answer to this question is C.
The reason that this is because in the sentence "Mike said 'that he was sorry.'", as you can see, it is is supposed to be an Indirect Quotation. However, an indirect quotaition does NOT have any quotation marks. (") If it did have any quotation marks, then the answer would be A. However, because of the quotation marks, the answer is therefore C. incorrect punctuation.