0001537834 2010-12-31 0001537834 rich:HewittPetroleumIncMember 2011-01-01 2011-03-31 0001537834 rich:FreedomOilGasIncMember 2011-01-01 2011-03-31 0001537834 rich:FreedomOilGasIncMember us-gaap:WarrantMember 2011-01-01 2011-03-31 0001537834 rich:HewittPetroleumIncMember 2011-03-31 0001537834 rich:FreedomOilGasIncMember 2011-03-31 0001537834 rich:FreedomOilGasIncMember us-gaap:WarrantMember 2011-03-31 0001537834 rich:MackovInvestmentsLimitedMember us-gaap:MinimumMember 2011-03-31 0001537834 rich:MackovInvestmentsLimitedMember us-gaap:MaximumMember 2011-03-31 0001537834 2011-07-01 2011-09-30 0001537834 2011-01-01 2011-09-30 0001537834 rich:SaltLakeCityMember 2011-01-01 2011-09-30 0001537834 2011-09-30 0001537834 2011-01-01 2011-12-31 0001537834 rich:MackovInvestmentsLimitedMember 2011-01-01 2011-12-31 0001537834 2011-12-31 0001537834 rich:MackovInvestmentsLimitedMember 2011-12-31 0001537834 rich:NotePayable1Member 2011-12-31 0001537834 rich:NotePayable2Member 2011-12-31 0001537834 rich:NotePayable3Member 2011-12-31 0001537834 rich:NotePayable4Member 2011-12-31 0001537834 rich:NotePayable5Member 2011-12-31 0001537834 rich:NotePayable6Member 2011-12-31 0001537834 rich:NotePayable7Member 2011-12-31 0001537834 rich:NotePayable8Member 2011-12-31 0001537834 rich:NotePayable9Member 2011-12-31 0001537834 rich:NotePayable10Member 2011-12-31 0001537834 rich:NotePayable11Member 2011-12-31 0001537834 rich:NotePayable12Member 2011-12-31 0001537834 rich:NotePayable13Member 2011-12-31 0001537834 rich:NotePayable14Member 2011-12-31 0001537834 rich:NotePayable15Member 2011-12-31 0001537834 rich:NotePayable16Member 2011-12-31 0001537834 rich:NotePayable17Member 2011-12-31 0001537834 rich:NotePayable18Member 2011-12-31 0001537834 rich:DouglasCHewittMember 2011-12-31 0001537834 us-gaap:CommonStockMember 2011-12-31 0001537834 us-gaap:WarrantMember 2011-12-31 0001537834 rich:AdditionalPaidInCapitalCommonStockMemberMember 2011-12-31 0001537834 us-gaap:PreferredStockMember 2011-12-31 0001537834 us-gaap:RetainedEarningsMember 2011-12-31 0001537834 rich:AdditionalPaidInCapitalPreferredStockMemberMember 2011-12-31 0001537834 rich:FountainGreenProjectMember 2012-01-03 0001537834 rich:Liberty1WellMember 2012-01-03 0001537834 rich:FountainGreenProjectMember 2012-01-01 2012-01-03 0001537834 rich:Liberty1WellMember 2012-01-01 2012-01-03 0001537834 rich:Moroni1AxzhWellMember rich:ZionsEnergyCorporationMember 2012-02-08 2012-02-10 0001537834 rich:Moroni1AxzhWellMember rich:ZionsEnergyCorporationMember 2012-02-19 2012-02-21 0001537834 rich:Koelsch251WellMember rich:MackovInvestmentsLimitedMember 2012-02-27 2012-02-29 0001537834 rich:FountainGreenProjectMember 2012-03-30 0001537834 rich:Moroni1AxzhWellMember rich:ZionsEnergyCorporationMember 2012-03-28 2012-03-30 0001537834 rich:Koelsch251WellMember rich:ZionsEnergyCorporationMember 2012-03-28 2012-03-30 0001537834 rich:FountainGreenProjectMember 2012-03-28 2012-03-30 0001537834 rich:JDavidGowdyMember 2012-04-28 2012-04-30 0001537834 rich:FountainGreenProjectMember 2012-05-15 0001537834 rich:Moroni1AxzhWellMember 2012-05-15 0001537834 rich:PrescottLeaseMember rich:DivestituresUnAffliatedInvestosMember us-gaap:WarrantMember 2012-05-17 0001537834 rich:FountainGreenProjectMember 2012-05-14 2012-05-17 0001537834 rich:PrescottLeaseMember rich:DivestituresUnAffliatedInvestosMember us-gaap:WarrantMember 2012-05-14 2012-05-17 0001537834 rich:Moroni1AxzhWellMember rich:ZionsEnergyCorporationMember 2012-05-31 0001537834 rich:JDavidGowdyMember 2012-05-31 0001537834 rich:Moroni1AxzhWellMember rich:ZionsEnergyCorporationMember 2012-05-29 2012-05-31 0001537834 rich:JDavidGowdyMember 2012-05-29 2012-05-31 0001537834 rich:Moroni1AxzhWellMember 2012-06-28 0001537834 rich:IndependenceProjectMember rich:SkylineOilLLCMember 2012-06-28 0001537834 rich:NewIndependenceProjectMember 2012-06-28 0001537834 rich:PerthProjectMember 2012-06-30 0001537834 rich:PerthProjectMember us-gaap:MaximumMember 2012-06-30 0001537834 rich:PerthProjectMember us-gaap:MinimumMember 2012-06-30 0001537834 rich:PerthProjectMember rich:ThreeUnaffiliatedInvestorsMember 2012-06-30 0001537834 rich:SaltWaterDisposalWellMember 2012-06-30 0001537834 rich:SkylineOilLLCMember 2012-06-27 2012-06-30 0001537834 rich:Moroni1AxzhWellMember rich:SkylineOilLLCMember 2012-06-27 2012-06-30 0001537834 rich:ZionsEnergyCorporationMember 2012-08-31 0001537834 rich:AfterPayoutMember rich:LibertyNo1WellAndLibertyProjectMember 2012-08-31 0001537834 rich:ThirdPartiesTransactionMember 2012-08-31 0001537834 rich:BeforePayoutMember rich:MountainHomePetroleumBusinessTrustMember 2012-08-31 0001537834 rich:ZionsEnergyCorporationMember 2012-08-29 2012-08-31 0001537834 2012-07-01 2012-09-30 0001537834 2012-01-01 2012-09-30 0001537834 rich:NotePayable4Member 2012-01-01 2012-09-30 0001537834 rich:NotePayable12Member 2012-01-01 2012-09-30 0001537834 rich:JosephPTateMember 2012-01-01 2012-09-30 0001537834 rich:NotePayable15Member 2012-01-01 2012-09-30 0001537834 us-gaap:WarrantMember 2012-01-01 2012-09-30 0001537834 rich:Koelsch251WellMember rich:ZionsEnergyCorporationMember 2012-01-01 2012-09-30 0001537834 us-gaap:RetainedEarningsMember 2012-01-01 2012-09-30 0001537834 us-gaap:CommonStockMember 2012-01-01 2012-09-30 0001537834 rich:NotePayable1Member 2012-01-01 2012-09-30 0001537834 us-gaap:WarrantMember us-gaap:MinimumMember 2012-01-01 2012-09-30 0001537834 rich:SaltLakeCityMember 2012-01-01 2012-09-30 0001537834 rich:AdditionalPaidInCapitalCommonStockMemberMember 2012-01-01 2012-09-30 0001537834 rich:AdditionalPaidInCapitalPreferredStockMemberMember 2012-01-01 2012-09-30 0001537834 rich:NotePayable7Member 2012-01-01 2012-09-30 0001537834 rich:TxHoldingsIncVHewittEnergyGroupLlcMember 2012-01-01 2012-09-30 0001537834 rich:DMackTrustMember 2012-01-01 2012-09-30 0001537834 rich:NotePayable6Member 2012-01-01 2012-09-30 0001537834 rich:NotePayable2Member 2012-01-01 2012-09-30 0001537834 rich:NotePayable9Member 2012-01-01 2012-09-30 0001537834 us-gaap:PreferredStockMember 2012-01-01 2012-09-30 0001537834 rich:NotePayable10Member 2012-01-01 2012-09-30 0001537834 rich:NotePayable8Member 2012-01-01 2012-09-30 0001537834 us-gaap:SeriesAPreferredStockMember 2012-01-01 2012-09-30 0001537834 rich:NostraTerraOilAndGasCompanyVRichfieldOilGasCompanyMember 2012-01-01 2012-09-30 0001537834 us-gaap:WarrantMember us-gaap:MaximumMember 2012-01-01 2012-09-30 0001537834 rich:MackovInvestmentsLimitedMember 2012-01-01 2012-09-30 0001537834 rich:NotePayable5Member 2012-01-01 2012-09-30 0001537834 rich:NotePayable11Member 2012-01-01 2012-09-30 0001537834 2012-09-30 0001537834 rich:MackovInvestmentsLimitedMember us-gaap:MinimumMember 2012-09-30 0001537834 rich:MackovInvestmentsLimitedMember us-gaap:MaximumMember 2012-09-30 0001537834 rich:SaltLakeCityMember 2012-09-30 0001537834 rich:MackovInvestmentsLimitedMember 2012-09-30 0001537834 rich:NotePayable1Member 2012-09-30 0001537834 rich:NotePayable2Member 2012-09-30 0001537834 rich:NotePayable3Member 2012-09-30 0001537834 rich:NotePayable4Member 2012-09-30 0001537834 rich:NotePayable5Member 2012-09-30 0001537834 rich:NotePayable6Member 2012-09-30 0001537834 rich:NotePayable7Member 2012-09-30 0001537834 rich:NotePayable8Member 2012-09-30 0001537834 rich:NotePayable9Member 2012-09-30 0001537834 rich:NotePayable10Member 2012-09-30 0001537834 rich:NotePayable11Member 2012-09-30 0001537834 rich:NotePayable12Member 2012-09-30 0001537834 rich:NotePayable13Member 2012-09-30 0001537834 rich:NotePayable14Member 2012-09-30 0001537834 rich:NotePayable15Member 2012-09-30 0001537834 rich:NotePayable16Member 2012-09-30 0001537834 rich:NotePayable17Member 2012-09-30 0001537834 rich:NotePayable18Member 2012-09-30 0001537834 rich:DouglasCHewittMember 2012-09-30 0001537834 us-gaap:CommonStockMember 2012-09-30 0001537834 us-gaap:WarrantMember 2012-09-30 0001537834 rich:AdditionalPaidInCapitalCommonStockMemberMember 2012-09-30 0001537834 us-gaap:PreferredStockMember 2012-09-30 0001537834 us-gaap:RetainedEarningsMember 2012-09-30 0001537834 rich:AdditionalPaidInCapitalPreferredStockMemberMember 2012-09-30 0001537834 rich:JosephPTateMember 2012-09-30 0001537834 rich:NostraTerraOilAndGasCompanyVRichfieldOilGasCompanyMember 2012-09-30 0001537834 rich:DMackTrustMember 2012-09-30 0001537834 rich:NotePayable18Member us-gaap:ConvertibleNotesPayableMember 2012-09-30 0001537834 rich:NotePayable16Member us-gaap:ConvertibleNotesPayableMember 2012-09-30 0001537834 rich:AdditionalWarrantIssuedMember 2012-09-30 0001537834 rich:NotePayable13Member us-gaap:ConvertibleNotesPayableMember 2012-09-30 0001537834 rich:NotePayable14Member us-gaap:ConvertibleNotesPayableMember 2012-09-30 0001537834 rich:GlennGMacneilHisSpouseMember 2012-09-30 0001537834 rich:NotePayable17Member us-gaap:ConvertibleNotesPayableMember 2012-09-30 0001537834 rich:NotePayable15Member us-gaap:ConvertibleNotesPayableMember 2012-09-30 0001537834 rich:June2014Member 2012-09-30 0001537834 rich:LibertyNo1WellAndLibertyProjectMember rich:MackovInvestmentsLimitedMember 2012-09-30 0001537834 rich:NotePayable12Member us-gaap:ConvertibleNotesPayableMember 2012-09-30 0001537834 rich:UtahWyomingMember 2012-09-30 0001537834 rich:KansasOklahomaMember 2012-09-30 0001537834 rich:BeforePayoutMember rich:RichfieldOilGasCompanyMember 2012-09-30 0001537834 rich:AfterPayoutMember rich:RichfieldOilGasCompanyMember 2012-09-30 0001537834 rich:AfterPayoutMember rich:LibertyNo1WellAndLibertyProjectMember 2012-09-30 0001537834 rich:Moroni1AxzhWellMember 2012-09-30 0001537834 rich:FountainGreenProjectMember rich:KoelschFieldMember 2012-09-30 0001537834 us-gaap:SeriesAPreferredStockMember 2012-09-30 0001537834 rich:Koelsch251WellMember rich:MountainHomePetroleumBusinessTrustMember 2012-09-30 0001537834 rich:Prescott256WellMember rich:MountainHomePetroleumBusinessTrustMember 2012-09-30 0001537834 rich:UnaffiliatedInvestorMember 2012-10-30 0001537834 rich:MackovRelatedPartyMember 2012-10-01 2012-10-30 0001537834 2012-11-14 xbrli:shares iso4217:USD iso4217:USDxbrli:shares utr:acre xbrli:pure iso4217:CADxbrli:shares RICHFIELD OIL & GAS Co 0001537834 --12-31 Smaller Reporting Company rich 28758363 10-Q false 2012-09-30 Q3 2012 31333 12170 37157 151754 341568 514587 295829 445134 16245 813 690799 1112288 3998069 4963637 11936824 422865 10191552 702982 862442 15231911 14292747 197615 211049 156565 179806 41050 31243 30018 0 15993778 15436278 1478493 1499053 879484 842169 2277497 323898 1945060 1452560 35479 27929 27934 0 245740 14865 6889687 4160474 30143 1817142 15748 0 348742 350243 349826 0 380000 7285821 6707442 396134 2546968 0 0 27089 125000 12133 153280 187000 28623 31232334 35287488 -22551466 -26587275 8707957 27089 31232334 0 -22551466 0 8728836 28623 35287488 0 -26587275 0 15993778 15436278 0 192332 0.001 0.001 0.001 0.001 50000000 45000000 5000000 0 0 1.00 0.001 2.50 2.50 2.50 2.50 0.001 2.50 250000000 250000000 27088744 28624110 185910 579953 217852 666750 0 6017 0 0 185910 585970 217852 666750 244320 851159 214664 580679 11517 35718 7915 24069 99258 167617 28239 108638 3768 117064 7261 21431 47511 133217 72824 186506 4841290 7846134 778812 3643019 380 90794 7954 433849 5247284 9060115 1101761 4130493 -5061374 -8474145 -883909 -3463743 0 522878 3570 20769 186301 435983 238516 644773 0 0 31 52338 -186301 86895 -234915 -571666 -5247675 -8387250 -1118824 -4035409 0 0 0 400 -5247675 -8387250 9613034 -1118824 -4035809 -4035809 0 0 0 0 -0.22 -0.41 -0.04 -0.14 24039369 20458505 28584164 28138646 27088744 0 28624110 0 520333 0 208 520125 0 0 208133 0 1379000 383200 0 555 1378445 0 0 1363000 555200 0 545200 1764750 0 100000 790 18000 500000 1763960 0 0 11509 520333 2500 118000 790275 200000 0 208133 1000 151365 47200 118000 0 47 117953 0 0 47200 0 2500 0 1 2499 0 0 1000 0 375000 0 151 374849 0 0 151365 0 11509 0 7 11502 0 0 7193 0 -62500 0 -25 -62475 0 0 -25000 0 -500000 0 -200 -499800 0 0 -200000 0 448096 448096 0 0 448096 0 0 1017301 40893 133218 61208 187560 561158 522878 17164 35 85597 8456 38482 83256 0 221467 0 -62500 69778 58728 6999297 1411010 -492313 153458 51723 0 45572 112111 116899 486824 51482 -115342 19658 27934 60021 -61246 -953242 -2292868 1485 0 495628 1344976 0 13434 68494 2271678 -425649 913268 496250 100000 96639 649461 101000 50000 0 304909 21299 23298 880416 1764750 1359728 1494197 -19163 114597 24217 84758 233704 0 320500 547363 5535 230000 0 539277 0 180000 2276227 550000 283824 186229 0 1328000 0 1117500 46015 0 89171 0 0 152657 1461644 0 5973819 0 <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 1&#160;&#160;&#160;&#160;&#160;ORGANIZATION AND NATURE OF BUSINESS</b></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Richfield Oil &amp; Gas Company (the &#8220;Company,&#8221; &#8220;Richfield&#8221; or &#8220;RFO&#8221;) is a Nevada corporation headquartered in Salt Lake City, Utah which was incorporated on April 8, 2011. The Company is engaged in the exploration, development and production of oil and gas in the states of Kansas, Oklahoma, Utah and Wyoming.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Contemporaneously with RFO&#8217;s incorporation, the Company merged (the &#8220;HPI Merger&#8221;) with its predecessor company, Hewitt Petroleum, Inc., a Delaware corporation which was incorporated on May 17, 2008 (&#8220;HPI&#8221;). In connection with the HPI Merger, HPI was merged out of existence and the Company assumed all of the assets and liabilities of HPI and the Company became the parent company of HPI&#8217;s two wholly owned subsidiaries, Hewitt Energy Group, Inc., a Texas corporation (&#8220;HEGINC&#8221;), Hewitt Operating, Inc., a Utah corporation (&#8220;HOPIN&#8221;). The Plan of Merger required that all HPI common stock be exchanged on a one-for-one basis for RFO common stock and that RFO assume all of the liabilities of HPI as of the effective date of the HPI Merger. As a result, the Company&#8217;s historical financial statements are a continuation of the financial statements of HPI. In addition, effective March 31, 2011, HPI entered into a Stock Exchange Agreement with Freedom Oil &amp; Gas, Inc., a Nevada corporation (&#8220;Freedom&#8221;), which called for the exchange of stock in HPI for all of the outstanding stock of Freedom (the &#8220;Freedom Acquisition&#8221;). Upon completion of the Freedom Acquisition, it became a wholly owned subsidiary of the Company from March 31, 2011 until June 20, 2011 when Freedom was merged into RFO with RFO being the surviving entity.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On July 27, 2012 the Company formed a new wholly owned subsidiary, HR Land Group, LLC, a Utah Limited Liability Company, (&#8220;HR Land&#8221;). HR Land&#8217;s purpose is to acquire oil and gas leases and there was no activity in this company as of September 30, 2012.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Hewitt Energy Group, Inc., a Texas corporation (&#8220;HEGINC&#8221;), Hewitt Operating, Inc., a Utah corporation (&#8220;HOPIN&#8221;), and HR Land. All significant intercompany transactions and balances have been eliminated in consolidation.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has been involved in leasing, exploring and drilling in Kansas, Oklahoma, Utah and Wyoming since its formation. The Company is participating in over 33,000 acres of leasehold, seismic surveys, and numerous drilling projects in these states.&#160;&#160;The Company uses proven technologies and drilling and production methods that are both efficient and environmentally sound.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 2&#160;&#160;&#160;&#160;&#160;GOING CONCERN</b></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company&#8217;s condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations causing negative working capital, in that current liabilities exceed current assets, and the Company has negative operating cash flows, which raise substantial doubt about the Company&#8217;s ability to continue as a going concern. The Company sustained a net loss for the nine months ended September 30, 2012 of $4,035,809 and a net loss for the year ended December 31, 2011 of $9,613,034, and has an accumulated deficit of $26,587,275 as of September 30, 2012.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company intends to make its planned capital expenditures in order to continue its drilling programs, but does not have sufficient realized revenues or operating cash flows in order to finance these activities internally. As a result, the Company intends to seek financing in order to fund its working capital and capital expenditure needs.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has been able to meet its short-term needs through loans from officers and third parties; sales of working interest in its oil and gas properties; and private placements of equity securities.&#160;&#160;The Company may seek additional funding through sales of working interest in its oil and gas properties; the issuance of debt; preferred stock; common stock; or a combination of these items. Any proceeds received from these items could provide the needed funds for continued operations and drilling programs. The Company can provide no assurance that it will be able to obtain sufficient additional financing that it needs to develop its properties and alleviate doubt about its ability to continue as a going concern. If the Company is able to obtain sufficient additional financing proceeds, the Company cannot be certain that this additional financing will be available on acceptable terms, if at all. To the extent the Company raises additional funds by issuing equity securities, the Company&#8217;s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company&#8217;s ability to conduct business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 3&#160;&#160;&#160;&#160;&#160;SIGNIFICANT ACCOUNTING POLICIES</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (&#8220;GAAP&#8221;). The financial statements included herein were prepared from the records of the Company in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Regulation S-X and S-K. In the opinion of management, all adjustments, of a normal recurring nature that are considered necessary for a fair presentation of the interim financial information, have been included. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for a full year. The Company&#8217;s Form 10 includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company&#8217;s Form 10.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ from these estimates. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable under the circumstances. Although actual results may differ from these estimates under different assumptions or conditions, the Company believes that its estimates are reasonable. The Company&#8217;s activities are accounted for under the successful efforts method.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Reclassifications</u></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Certain prior period balances have been reclassified to conform to the current period presentation. Such reclassifications had no impact on net loss, statements of cash flows, working capital or equity previously reported.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Accounts Receivable</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Accounts receivable, which are primarily amounts owed by other working interest holders, are recorded at the invoiced amount and do not bear interest.&#160;The Company uses the specific identification method and routinely reviews outstanding accounts receivable balances for the likelihood of collection. The Company records a reserve for amounts not expected to be fully recovered. Actual balances are not applied against the reserve until substantially all collection efforts have been exhausted. The Company recorded and allowance for doubtful accounts of $192,332 and $0 at September 30, 2012 and December 31, 2012, respectively.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Reverse Stock Split</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As more fully described in Note 17, effective October 23, 2012, the Company implemented a 1-for-10 reverse stock split of its issued and outstanding common stock. Under the guidance of FASB ASC 505-10, all common share and per common share information in the accompanying condensed consolidated financial statements and these notes to the financial statements have been retroactively restated to reflect the reverse common stock split.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Loss Per Common Share</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Basic earnings per share (&#8220;EPS&#8221;) is computed by dividing net income (loss) (the numerator) by the weighted-average number of common shares outstanding for the period (the denominator).&#160;&#160;Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares and potential common shares outstanding (if dilutive) during each period.&#160;&#160;Potential common shares include common shares to be issued related to warrants outstanding, convertible debentures, and convertible preferred stock.&#160;&#160;The number of potential common shares outstanding is computed using the treasury stock method.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As the Company has incurred losses for the three and nine months ended September 30, 2012 and 2011, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of September 30, 2012 and 2011, there were 3,553,591 and 1,466,665 potentially dilutive shares, respectively.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Income Taxes</u></p> <p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company accounts for income taxes under FASB ASC 740. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.&#160;&#160;Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is more likely than not that some component or all of the benefits of deferred tax assets will not be realized.</p> <p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if it is more likely than not that the position will be sustained if challenged by a taxing authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;<u>Financial Instruments and Concentration of Risks</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company&#8217;s financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of their immediate or short-term maturities.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Substantially all of the Company&#8217;s accounts receivable result from oil and gas sales and joint interest billings (&#8220;JIBs&#8221;) to third parties in the oil and gas industry.&#160;&#160;This concentration of customers and joint interest owners may impact the Company&#8217;s overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. As of September 30, 2012, 30% of the accounts receivable balance resulted from one entity. For the nine months ended September 30, 2012 and 2011, all of the revenues resulted from producing wells in Kansas.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Jumpstart Our Business Startups Act (&#8220;JOBS Act&#8221;), adopted January 3, 2012</u></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company qualifies as an &#8220;emerging growth company,&#8221; as defined in Section 2(a) of the Securities Act of 1933 (the &#8220;Securities Act&#8221;) as modified by the Jumpstart Our Business Startups Act of 2012 (the &#8220;JOBS Act&#8221;). As such, the Company is permitted to rely on exemptions from various reporting requirements including, but not limited to, the requirement to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, and the requirement to submit certain executive compensation matters to shareholder advisory votes such as &#8220;say on pay&#8221; and &#8220;say on frequency.&#8221;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of the benefits of this extended transition period. The Company&#8217;s financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company will remain an emerging growth company up to the fifth anniversary of its first registered sale of common equity securities, or until the earliest of (a) the last day of the first fiscal year in which its annual gross revenues exceed $1 billion, (b) the date that it becomes a &#8220;large accelerated filer&#8221; as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the &#8220;Exchange Act&#8221;), which would occur if the market value of its common stock held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter, or (c) the date on which it has issued more than $1 billion in non-convertible debt during the preceding three-year period.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 4 ACQUISITION OF FREEDOM OIL &amp; GAS, INC.</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>&#160;</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On March 4, 2011, HPI entered into a Stock Exchange Agreement with Freedom Oil &amp; Gas, Inc., a Nevada corporation (&#8220;Freedom&#8221;), which called for the exchange of stock in HPI for all of the outstanding stock of Freedom (the &#8220;Freedom Acquisition&#8221;) that HPI did not already own (prior to the acquisition, the Company owned 100,000 shares of Freedom common shares) which resulted in HPI acquiring the remaining 99.83% of Freedom shares.&#160;&#160;The Freedom Acquisition was approved by HPI&#8217;s Board of Directors and a majority of the stockholders of Freedom as required by Nevada law, and the exchange took place effective March 31, 2011.&#160; The Freedom Acquisition provided the Company with additional oil exploitation opportunities through its ownership of complimentary properties in the Company&#8217;s Utah core area. Pursuant to the Stock Exchange Agreement, the Company assumed all of Freedom&#8217;s assets and liabilities.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company acquired 100% of all outstanding common stock of Freedom by the acquisition of 59,738,189 shares (99.83%) that the Company did not previously own in exchange for 5,973,819 shares of restricted common stock of the Company, plus 200,000 warrants for the purchase of the Company&#8217;s common stock valued at $11,977 exercisable at $2.50 per share to expire January 31, 2013.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The total purchase price of $5,995,796 was determined based upon the fair market value of $1.00 per share of common stock plus the $11,977 value for the warrants effective as of March 31, 2011. Goodwill has been recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired. The final allocation of the purchase price is as follows:</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table align="center" style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Assets Acquired:</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="width: 77%;">Cash</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">1,485</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Receivables</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">164,171</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Oil and gas properties</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">6,904,067</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Other</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">6,750</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Goodwill</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">75,481</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Liabilities Assumed:</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Current liabilities</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(1,156,158</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Total</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5,995,796</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Value of 200,000 New Warrants Issued on March 31, 2011</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">11,977</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Value of 5,973,819 New Common Stock Issued on March 31, 2011</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">5,973,819</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 1pt;">Value of 10,000 Common Stock Owned Prior to March 31, 2011</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">10,000</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Total Consideration</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5,995,796</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">Upon completion of the acquisition, Freedom became a wholly-owned subsidiary of the Company. On June 20, 2011, Freedom was merged into the Company with the Company being the surviving entity.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 5&#160;&#160;&#160;&#160;&#160;OIL AND NATURAL GAS PROPERTIES</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b><i>Acquisitions for the nine months ended September 30, 2012</i></b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In January 2012, the Company purchased a 1.00% working interest in the Fountain Green Project located in Sanpete County, Utah from two unaffiliated investors for a value totaling $141,857 in exchange for the issuance of 50,000 shares of common stock for a value of $125,000, or $2.50 per share plus the cancelation of $16,857 of JIBs accounts receivable owed to the Company by the investors.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In January 2012, the Company purchased a 0.25% working interest in the Liberty #1 Well located in Juab County, Utah from an unaffiliated investor for a value totaling $22,307 in exchange for the issuance of 4,853 shares of common stock for a value of $12,133, or $2.50 per share plus the cancelation of $10,174 of JIBs accounts receivable owed to the Company by the investor.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In March 2012, the Company acquired leases for the Fountain Green Project located in Sanpete County, Utah from an unaffiliated investor, at that time, for a value totaling $383,200 in exchange for the issuance of 153,280 shares of common stock for a value of $383,200, or $2.50 per share. The Company capitalized $289,316 as a result of having a 75.50% working interest and the remaining balance of $93,884 was billed to the other 24.50% Fountain Green Project working interest holders. On March 31, 2012, this unaffiliated investor, Joseph P. Tate, became a Director of the Company.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In June 2012, the Company acquired an additional 10.00% working interest in the Perth Project located in Sumner County, Kansas, whereby the Company&#8217;s working interest will increase from 75.00% to 85.00% upon the completion of a certain work plan in the Perth Project. The acquisition was from three unaffiliated investors in exchange for an agreement to provide the investors with an aggregate 15.00% total carried interest in the work plan that includes drilling one new well, three well recompletions, and work on a salt water disposal well. The work plan is scheduled to be implemented in the fourth quarter of 2012. As part of the consideration for this transaction, one of the 5.00% carried interest investors also agreed to reduce his note payable by $80,000 and exchanged a 50.00% working interest in a salt water disposal well that was valued at $150,000.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b><i>Divestitures for the nine months ended September 30, 2012</i></b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b><i>&#160;</i></b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In January, February and March 2012, the Company sold a 2.50% working interest in the Moroni #1-AXZH Well and the 320 acres leasehold for cash of $193,903 to an unaffiliated investor and two related parties (See Note 15).</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In February and March 2012, the Company sold a 5.50% working interest in the Koelsch Field, including the requirement to participate in the Koelsch #25-1 Well, for cash of $16,665 to an unaffiliated investor and two related parties (see Note 15).</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In May 2012, the Company sold a 3.00% carried interest in the first well to be drilled in the shallow zone on the Fountain Green Project in exchange for $100,000 in cash and a return of a 2.00% working interest in the Moroni #1-AXZH Well and the 320 acre leasehold. There were two parties to this transaction, one was an unaffiliated investor, the other was a related party, Zions Energy Corporation (see Note 15). The Zions Energy Corporation transaction was completed on the same terms as the unaffiliated investor transaction.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In May 2012<b>,</b> the Company sold a 21.00% working interest in the Prescott Lease, including the requirement to participate in the Prescott #25-6 Well located in the Koelsch Project and 229,801 warrants to purchase common stock at $2.50 per share for total cash of $619,500 to unaffiliated investors.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In May 2012, the Company determined that a lease in the Fountain Green Project was not valid as there were issues regarding the title of the property, and the lease term expired and, as a result, the lessor agreed to cancel the balance owing by the Company on this lease in the amount of $180,000.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In June 2012, the Company entered into an agreement (the &#8220;Skyline Oil Agreement&#8221;) with Skyline Oil, LLC (&#8220;Skyline Oil&#8221;), whereby the Company gave Skyline Oil (i) all of its interest in the Chad Wood Lease located in Central Utah; (ii) a 44.50% working interest in the Moroni #1-AXZH Well plus 320 surrounding acres; and (iii) a 15.00% working interest in 4,680 acres of the Independence Project, and in exchange Skyline Oil gave the Company (i) $1.6 million in cash; (ii) 200,000 shares of the Company&#8217;s common stock valued at $500,000 or $2.50 per share; and (iii) a 5.00% working interest in an additional 15,000 acres in a new Independence Project. The $500,000 from the return of 200,000 shares of common stock was treated as a return of capital and the remaining Independence Project unproved properties are now valued at $422,865. Following this transaction, the Company now owns a 5.00% working interest in 19,680 acres in the new Independence Project and a 5.00% working interest in the Moroni #1-AXZH Well plus 320 surrounding acres.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 12 CONVERTIBLE PREFERRED STOCK</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On August 31, 2012, the Company filed a Certificate of Designation with the Nevada Secretary of State, designating 5,000,000 shares of the Company&#8217;s authorized shares of preferred stock as &#8220;Series A Preferred Stock.&#8221; All shares of common stock rank junior to the Series A Preferred Stock in regards to payment of dividends, liquidation, dissolution, and winding up of the Company.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Series A Preferred Stock is convertible, at the option of the holders, into shares of common stock of the Company, at a per share conversion price determined by dividing the stated value of each share of Series A Preferred Stock by the average price at which shares of the Company&#8217;s common stock were sold over the 30-day period prior to the conversion, minus a 25.0% discount to such 30-day average price (the &#8220;Conversion Price&#8221;). Notwithstanding the foregoing, at no time shall the Conversion Price be less than $1.00 or greater than $3.70 per share.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company may redeem all or any portion of the Series A Preferred Stock at any time after August 31, 2014, or at any time if the Company&#8217;s common stock has traded at a rate of more than 10,000 shares per day for at least 30 consecutive days and the average trading price of the common stock (based on a 30-day moving average) is greater than $5.00 per share. The Series A Preferred Stock shall be redeemed by conversion into common stock of the Company. The Series A Preferred Stock redeemed shall be converted into shares of common stock of the Company at a per share conversion price determined by dividing the stated value of each share of Series A Preferred Stock by the Conversion Price. Notwithstanding the foregoing, at no time shall the Conversion Price used to determine the rate at which the Series A Preferred Stock shall be redeemed be less than $1.00 or greater than $3.70 per share. The holders of the Series A Preferred Stock shall have no voting rights, except as provided by Nevada law.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The holders of the Series A Preferred Stock shall be entitled to receive cumulative dividends on the Series A Preferred Stock at the rate of ten percent (10.0%) of the stated value per share per annum, payable quarterly.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of September 30, 2012, the Company has completed the sale of 285,000 units (the &#8220;Units&#8221;), each unit consisting of one share of Series A Preferred Stock, with a stated value of $1.00 per share and one warrant exercisable to acquire one-tenth of a share of the Company&#8217;s common stock at a price of $3.70 per share for a period of 3 years from the closing date, in exchange for gross proceeds of $285,000.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">If all the preferred stock outstanding were converted at September 30, 2012, we would issue 152,000 shares of common stock at a fair value of $380,000 or $2.50 per share. If the fair value of the common stock increases by $1.00 to $3.50 per share, we would only issue 108,571 shares of common stock. The maximum number of shares of common stock that could be required to be issued upon conversion of the preferred stock is 285,000 shares. No other contracts exist that could limit the number of shares we could be required to issue.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The convertible preferred stock is recorded as a liability at fair value in accordance with FASB ASC 480 &#8220;Distinguishing Liabilities from Equity&#8221;, with the difference between the fair value and the gross proceeds treated as a component of interest expense in the statement of operations. The related dividend payments will also be treated as a component of interest expense in the statement of operations as they are incurred.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 13&#160;&#160;&#160;&#160;&#160;COMMON STOCK</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In January 2012, the Company issued 234,375 shares of common stock to unaffiliated and existing investors for cash of $375,000 or $1.60 per share.&#160;&#160;In addition, the Company granted warrants to purchase up to 117,188 shares of common stock with an exercise price of $2.50 per share, which expire in January 2013.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In January 2012, the Company issued 10,000 shares of common stock to a consultant as compensation for services valued at $16,000 or $1.60 per share. The shares issued were fully vested and the entire amount was expensed on the date of grant.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Since February 2012, the Company issued 555,900 shares of common stock to unaffiliated and existing investors for cash of $1,389,750 or $2.50 per share.&#160;&#160;In addition, the Company granted warrants to purchase up to 555,700 shares of common stock with an exercise price ranging from $2.50 to $5.00 per share, which expire between February 2013 and July 2015.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>&#160;</i></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Since February 2012, the Company issued 545,200 shares of common stock to directors, employees, and consultants, as compensation for services valued at $1,363,000 or $2.50 per share. The shares issued were fully vested and the entire amount of each stock award was expensed on the date of grant, with the exception of one grant valued at $75,000 that is for future services and will be expensed over the 6 month term of the agreement.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>&#160;</i></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the first quarter 2012, the Company issued 208,133 shares of common stock to unaffiliated and existing investors for a value of $520,333 or $2.50 per share relating to oil and gas properties consisting of lease acquisitions and a purchase of a 1.00% working interest in the Fountain Green Project located in Sanpete County, Utah and the purchase of a 0.25% working interest in the Liberty #1 Well located in Juab County, Utah.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In March 2012, the Company issued 47,200 shares of common stock to an existing investor for settlement of a $100,000 other payable plus $18,000 of accrued interest for a total value of $118,000 or $2.50 per share. The shares issued were fully vested and the $18,000 accrued interest was expensed on the date of grant.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In March 2012, the Company issued 1,000 shares of common stock to an unaffiliated investor for an oil and gas lease renewal valued at $2,500 or $2.50 per share. The shares issued were fully vested and the entire amount was expensed on the date of grant.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the second quarter 2012, note holders exercised rights to convert $375,000 in convertible notes payable ranging from $2.20 to $2.50 per share into 151,365 shares of common stock. The shares issued were fully vested on the date of grant.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In May 2012, J. David Gowdy, a former officer and director of the Company voluntarily agreed to return to the Company, 25,000 shares of the Company&#8217;s common stock valued at $62,500 or $2.50 per share, to offset a portion of the independent audit fees recently incurred by the Company to complete the 2010 audit of Freedom required by Rule 8-04 of Regulation S-X of the Exchange Act. The shares were returned to the Company as treasury shares and subsequently cancelled.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In June 2012, the Company issued 7,193 shares of common stock to MacKov Investments Limited (&#8220;MacKov&#8221;), a related party, related to the exercise of warrants in settlement of interest outstanding on a note payable. The exercise price was $11,509 or $1.60 per share (see Note 15).</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In June 2012, the Company entered into an agreement (the &#8220;Skyline Oil Agreement&#8221;) with Skyline Oil, LLC (&#8220;Skyline Oil&#8221;), whereby the Company gave Skyline Oil (i) all of its interest in the Chad Wood Lease located in Central Utah; (ii) a 44.50% working interest in the Moroni #1-AXZH Well plus 320 surrounding acres; and (iii) a 15.00% working interest in 4,680 acres of the Independence Project, and in exchange Skyline Oil gave the Company (i) $1.6 million in cash; (ii) 200,000 shares of the Company&#8217;s common stock valued at $500,000 or $2.50 per share; and (iii) a 5.00% working interest in an additional 15,000 acres in a new Independence Project. The 200,000 shares were returned to the Company as treasury shares and were subsequently cancelled.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 15&#160;&#160;&#160;&#160;&#160;RELATED PARTY TRANSACTIONS</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 0.25in;"><i>A.</i></td> <td style="text-align: justify;"><i>Douglas C. Hewitt, Sr., an Officer and Chairman of the Board of the Company</i></td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>&#160;</i></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Douglas C. Hewitt, Sr., an officer and Director of the Company, is a beneficiary in the Mountain Home Petroleum Business Trust, a Utah Business Trust (&#8220;MHPBT&#8221;), and Zions Energy Corporation (&#8220;Zions&#8221;) is a wholly owned subsidiary of MHPBT. In addition, The D. Mack Trust (&#8220;D Mack Trust&#8221;), is a trust in which Mr. Hewitt receives beneficial interest and is entitled to receive overriding royalty interest (&#8220;ORRI&#8221;) up to 1.00% in all newly acquired leases by the Company. MHPBT, Zions and D Mack Trust have had related party transactions with the Company.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of September 30, 2012, MHPBT has working interests in oil and gas properties that the Company controls which include a 0.50% before payout interest (&#8220;BPO&#8221;) and a 20.50% after payout interest (&#8220;APO&#8221;) in the Liberty #1 Well and Liberty Project and a 50.00% working interest in the shallow zones of the Fountain Green Project as previously defined. All of the working interest owned by MHPBT in the Company&#8217;s Liberty #1 Well, Liberty Project and Fountain Green Project properties were acquired by MHPBT from third parties prior to the formation of the Company.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of September 30, 2012, Zions has working interests in oil and gas properties that the Company controls which include, a 1.50% carried interest in the first well to be drilled in the shallow zone on the Fountain Green Project and a 2.00% working interest in the Koelsch Field. All of the carried and working interests owned by Zions were acquired from the Company in 2012 on the same terms as other independent third party transactions as disclosed below in Note 15 (A) (ii) and 15 (A) (iii). For the nine months ended September 30, 2012, Zions has received $4,662 in revenues from oil sales from the Koelsch Field. As of September 30, 2012 the Liberty Project and Fountain Green Project remain undeveloped and no royalty revenues have been generated from these properties.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of September 30, 2012, the D. Mack Trust receives ORRIs ranging from 0.25% to 1.50% on certain Kansas leases and MHPBT owns 6.00% ORRIs in Liberty #1 Well and Liberty Project. For the nine months ended September 30, 2012, the D. Mack Trust has received $12,489 in royalties relating to ORRIs from the Kansas leases.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following related party transactions occurred with Zions or MHPBT during the nine months ended September 30, 2012:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">i.</td> <td style="text-align: justify;">In February and March 2012, the Company sold a 1.00% working interest in the Moroni #1-AXZH Well and the 320 acres leasehold for cash of $77,561 to Zions. This purchase was made on the same terms as other third party transactions that were completed in December 2011 and January 2012.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">ii.</td> <td style="text-align: justify;">In February and March 2012, the Company sold a 3.00% working interest in the Koelsch Field, including the requirement to participate in the Koelsch #25-1 Well, for cash of $9,090 to Zions. This purchase was made on the same terms as other third party transactions that were completed in December 2011 and March 2012.</td> </tr> </table> <p style="margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">iii.</td> <td style="text-align: justify;">In May 2012, the Company received $50,000 in cash plus it acquired a 1.00% working interest in the Moroni #1-AXZH Well and the 320 acres leasehold by exchanging a 1.50% carried interest in the first well to be drilled in the shallow zone on the Fountain Green Project. This exchange was made on the same terms as another third party transaction that was completed in May 2012.</td> </tr> </table> <p style="margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">iv.</td> <td style="text-align: justify;">In August 2012, Zions loaned $50,000 to the Company and the Company issued a Note Payable to Zions at 6.0% per annum, due September 30, 2012. In conjunction with the loan, the Company granted 15,000 warrants for shares of common stock, exercisable at $5.00 per share and expiring on September 29, 2013. The warrants were valued at $3.68 using the Black-Scholes option valuation model and were expensed on the date of grant. The note was paid by the Company in September 2012 and $247 in interest was paid to Zions.</td> </tr> </table> <p style="margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">v.</td> <td style="text-align: justify;">In August 2012, MHBPT sold a 1.50% BPO and a 1.50% APO in the Liberty #1 Well and Liberty Project to a third party investor together with 22,500 shares of the Company&#8217;s stock for the sum of $187,000. The Company was not a party to this transaction.</td> </tr> </table> <p style="margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">vi.</td> <td style="text-align: justify;">In September 2012, MHBT sold a 1.00% working interest in the Koelsch #25-1 Well and 640 acre leasehold and a 1.00% working interest in the Prescott #25-6 Well and 80 acre leasehold, both located in Stafford County, Kansas. The transfer also included the right to 15,000 warrants for shares of the Company&#8217;s common stock at $5.00 per share which expires on September 30, 2013. The Company was not a party to this transaction and the purchase price was not disclosed to the Company.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 0.75in; font: 10pt times new roman, times, serif;">&#160;&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of September 30, 2012, the Company has $0 due to the Company&#8217;s director, Douglas C. Hewitt, Sr. and as of December 31, 2011, the Company had $27,934 due to Mr. Hewitt. These amounts are non-interest bearing and have no set terms of repayment.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>&#160;</i></p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 0.25in;"><i>B.</i></td> <td style="text-align: justify;"><i>J. David Gowdy, a Former Officer and Director of the Company and Greater than 5% Shareholder</i></td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">J. David Gowdy, an officer and director of the Company from March 31, 2011 to December 12, 2011 and a beneficial owner of more than 5% of the outstanding shares of our common stock, is also a beneficiary in MHPBT and Zions described above. Prior to March 31, 2011, Mr. Gowdy was an officer and director of Freedom, which was acquired by the Company on March 31, 2011 (see Note 4). Mr. Gowdy is a trustee of MHPBT and the President of Zions. MHPBT and Zions&#8217; related party transactions during the nine months ended September 30, 2012 are described above. In addition, Mr. Gowdy had the following related party transactions with the Company.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">i.</td> <td style="text-align: justify;">As per his December 12, 2011 letter agreement, Mr. Gowdy received $50,000 as compensation for transitional related consulting services from January 1, 2012 to April 30, 2012. Mr. Gowdy&#8217;s formal service contract with the Company ended April 30, 2012. The Company may continue to use Mr. Gowdy for consulting services as needed in the future which consulting services will be billed at an hourly rate.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 0.75in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">ii.</td> <td style="text-align: justify;">In May 2012, Mr. Gowdy voluntarily agreed to return to the Company, 25,000 shares of the Company&#8217;s common stock valued at $62,500 or $2.50 per share, to offset a portion of the independent audit fees recently incurred to complete the 2010 audit of Freedom which was required by Rule 8-04 of Regulation S-X of the Exchange Act. The shares were returned to the Company as treasury shares and subsequently cancelled.</td> </tr> </table> <p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 0.25in;"><i>C.</i></td> <td style="text-align: justify;"><i>Glenn G. MacNeil, an Officer and Director of the Company</i></td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">MacKov Investments Limited (&#8220;MacKov&#8221;), a company which is a Canadian controlled private corporation in which Glenn G. MacNeil, an officer and director of the Company, and his spouse have 100% of the ownership interests, has had related party transactions with the Company. As of September 30, 2012, MacKov has working interests in oil and gas properties that the Company controls which include the following: (i) MacKov owns a 0.50% working interest in the deep zones and a 0.25% working interest in the shallow zones of the Fountain Green Project which was purchased from the Company prior to Mr. MacNeil becoming the CFO and a director of the Company on the same terms as other independent third party transactions; (ii) MacKov owns a 3.25% BPO and a 2.75% APO working interest in the Liberty #1 Well and Liberty Project of which a 2.25% BPO and a 1.75% APO were purchased from third parties in 2009 through 2011 prior to Mr. MacNeil becoming CFO and a Director; a 0.50% BPO and a 0.50% APO were purchased from the Company prior to Mr. MacNeil becoming the CFO and a director on the same terms as other independent third party transactions in 2010; and a 0.50% BPO and a 0.50% APO were purchased from the Company in December 2011 on the same terms as other independent third party transactions as previously disclosed in 2011. In addition, MacKov owns a 1.00% ORRI in the Liberty #1 Well and Liberty Project which was purchased from a third party in 2010 and 2011; (iii) MacKov owns a 5.00% working interest in the Koelsch Field of which a 3.50% working interest was purchased from the Company in December 2011 on the same terms as other independent third party transactions as previously disclosed and a 1.50% working interest was purchased from the Company in February 2012 on the same terms as other independent third party transactions as disclosed in Note 15 (C) (i) below; and (iv) MacKov owns ORRI ranging from 0.25% to 2.25% on certain Kansas leases which were purchased from the Company in March 2011 prior to Mr. MacNeil becoming the CFO and a director. For the nine months ended September 30, 2012, MacKov has received $11,547 in royalties relating to ORRI and oil sales from working interest from the Kansas leases including the Koelsch Field. As of September 30, 2012 the Liberty Project and Fountain Green Project remain undeveloped and no revenues have been generated from these properties. The following related party transactions occurred with MacKov during the nine months ended September 30, 2012:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">i.</td> <td style="text-align: justify;">In February 2012, the Company sold a 1.50% working interest in the Koelsch Field, including the requirement to participate in the Koelsch #25-1 Well, for cash of $4,545 to MacKov. This purchase was made on the same terms as other Company independent third party transactions that were completed in December 2011.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">ii.</td> <td style="text-align: justify;">In February 2012, the Company sold a 0.50% working interest in the Moroni #1-AXZH Well and the 320 acres leasehold for cash of $38,781 to MacKov. This purchase was made on the same terms as other Company independent third party transactions that were completed in December 2011 and January 2012.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">iii.</td> <td style="text-align: justify;">From January 1, 2012 to September 30, 2012, MacKov&#8217;s billings for fees for services to the Company totaled $103,500, which have been partially paid.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 0.75in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">iv.</td> <td style="text-align: justify;">On June 30, 2012, MacKov settled the $254,909 note payable with the Company (plus accrued interest for $287,712) for consideration consisting of cash and the exercise of 7,193 warrants at $11,509 or $1.60 per share.</td> </tr> </table> <p style="margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="width: 0.25in;">v.</td> <td style="text-align: justify;">On June 30, 2012, in connection with the Company&#8217;s sale of its interest in the Moroni #1-AXZH Well and the surrounding 320 acres to Skyline Oil, MacKov sold its 0.50% working interest in the Moroni #1-AXZH Well and the surrounding 320 acres to Skyline Oil for the sum of $54,231.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of September 30, 2012, the Company has $0 due to the Company&#8217;s director, Glenn G. MacNeil and as of December 31, 2011, the Company had $0 due to Mr. MacNeil. The Company has a due to related party payable to&#160;MacKov in the amounts of $14,865 and $245,740 at September 30, 2012 and December 31, 2011, respectively. The September 30, 2012 balance of $14,865 consists of outstanding fees and unreimbursed travel allowances. The December 31, 2011 balance of $245,740 consisted of $43,307 outstanding fees and unreimbursed travel allowances and a $254,909 note payable, net of debt discount of $52,476.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 0.25in;"><i>D.</i></td> <td style="text-align: justify;"><i>Joseph P. Tate, a Director of the Company</i></td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Joseph P. Tate became a director of the Company effective March 31, 2012. As of September 30, 2012, Mr. Tate is a beneficial landowner of two oil and gas leases totaling 1,816 acres within the Fountain Green Project which the Company controls and negotiated lease terms with Mr. Tate prior to him becoming a director. Mr. Tate received $383,200 as compensation for these five year leases through the issuance of 153,280 shares of common stock of the Company valued at $2.50 per share. In addition to this compensation, Mr. Tate is entitled to the 12.50% landowner royalty-interest revenues related to hydrocarbons produced by the Company on these oil and gas leases. During the nine months ended September 30, 2012, no landowner royalty interest revenues were earned by Mr. Tate from these undeveloped new Fountain Green Project leases. Also prior to Mr. Tate becoming a director, he negotiated a settlement of $100,000 debt owed to him by the Company to include $18,000 of interest for the period of the debt outstanding which was settled through the issuance of 47,200 shares of common stock valued at $2.50 per share.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">All related party transactions have been reviewed and approved by a majority vote of our Board of Directors and were completed on the same terms and conditions as other independent third party transactions. With respect to transactions in which the related party is also a member of our Board of Directors, such Directors abstained from voting to approve the transactions.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 6&#160;&#160;&#160;&#160;&#160;NOTES PAYABLE</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Notes Payable consists of the following:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">September 30</td> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">December 31,</td> <td nowrap="nowrap">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2012</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2011</td> <td style="padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Note Payable, interest at 12.0% per annum, due June 2012, secured by 5.00% working interest in certain Fountain Green Project Leases.</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">-</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">1,080,000</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $7,500, due October 2013, secured by a 5.00% working interest in certain Fountain Green Project Leases.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">746,376</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 18.0% per annum, due on demand, secured by Mai, Johnson and Gorham, Kansas Leases.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">90,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $3,200, due June 2014, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">367,159</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 7.5% per annum, monthly payments of $1,949, due January 2014, secured by vehicle.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">29,994</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">43,650</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, due June 2012, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">248,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $15,000, due June 2014, secured by 10.00% working interest in certain Fountain Green Project Leases.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">743,023</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">700,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, for $152,514 with interest at 2.0% monthly, due April 2012, unsecured - net of discount.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">121,694</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $5,000, due June 2014, unsecured</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">99,570</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 0.0% per annum, monthly payments of $1,500, due May 2013, unsecured</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">11,714</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">24,296</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Note Payable, interest at 8.0% per annum, monthly payments of $10,000, due December 2013, unsecured</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">143,204</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Total Notes Payable</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">2,141,040</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">2,307,640</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Less: Current Portion (includes demand notes)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(323,898</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(2,277,497</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Long-Term Portion</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">1,817,142</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">30,143</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 7&#160;&#160;&#160;&#160;&#160;CONVERTIBLE NOTES PAYABLE</b></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">Convertible Notes Payable consists of the following:</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">September 30,</td> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">December 31,</td> <td nowrap="nowrap">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2012</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2011</td> <td style="padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Note Payable interest at 8.0% per annum, due June 2012, convertible into common shares of the Company, at a conversion rate of $2.50 per common share, unsecured</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">-</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">367,500</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 12.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">52,560</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">52,560</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 10.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, secured by certain Kansas Leases and 10% working interest in certain Fountain Green Project Leases</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,300,000</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,300,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 10.0% per annum, due June 2012, convertible into common shares of the Company at a conversion rate of $2.50 per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">100,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 5.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of CAD $1.60 (which was USD $1.67 at the time of loan) per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">50,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 5.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of CAD $1.60 (which was USD $1.67 at the time of loan) per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">100,000</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">50,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Note Payable interest at 0.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.20 per common share, unsecured.</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">25,000</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Total Convertible Notes Payable</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,452,560</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,945,060</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Less: Current Portion (includes demand notes)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(1,452,560</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(1,945,060</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Long-Term Portion</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 14&#160;&#160;&#160;&#160;&#160;WARRANTS TO PURCHASE COMMON STOCK</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">During the nine months ended September 30, 2012, warrants totaling 1,017,301 shares of common stock were granted in conjunction with the issuance and settlement of notes payable, certain consulting agreements, oil and gas property sold by the Company, and private placements of preferred stock. These warrants are accounted for by the Company </font>under the provisions of FASB ASC 718 and FASB ASC 505. These standards require the Company to record an expense associated with the fair value of stock-based payments.&#160;&#160;The Company uses the Black-Scholes option valuation model to calculate the fair value of stock-based payments at the date of grant.&#160;&#160;Warrant pricing models require the input of highly subjective assumptions, including the expected price volatility.&#160;&#160;For warrants granted in 2012, the Company used a variety of comparable and peer companies to determine the expected volatility.&#160; The Company believes the use of peer company data fairly represents the expected volatility it would experience if the Company was publicly traded in the oil and gas industry over the contractual term of the warrants. Changes in these assumptions can materially affect the fair value estimate.&#160; There were 511,051 <font style="color: black;">warrants that were fully vested as of September 30, 2012 and 506,250 warrants that will vest over time through June 2014. All of these warrants remained outstanding as of September 30, 2012.&#160; The Company has determined the fair value of the warrants granted to be $752,503 of which $448,096 has been expensed as of September 30, 2012 and $304,407 will be expensed in future periods. </font>The following is the weighted average of the assumptions used in calculating the fair value of the warrants granted using the Black-Scholes model:</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;&#160;</p> <table style="width: 95%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.1in;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 87%;">Fair market value</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">2.46</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Exercise price</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">5.83</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Risk free rates</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">0.36</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Dividend yield</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">0.00</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Expected volatility</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">72.96</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Contractual term</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;" nowrap="nowrap">2.89 Years</td> <td style="text-align: left;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The weighted-average fair market value at the date of grant for warrants granted, are as follows:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="width: 95%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.1in;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 87%;">Fair value per warrant</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">0.7397</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Total warrants granted</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">1,017,301</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Total fair value of warrants granted</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">752,503</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the nine months ended September 30, 2012, an additional 672,888 warrants for shares of common stock were granted in conjunction with private placements of common stock for cash proceeds (see Note 13) that have an exercise price between $2.50 and $5.00 per share and expire one to three years from the date of grant.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">There were warrants to purchase 2,952,686 shares of common stock outstanding as of September 30, 2012 exercisable between $1.60 and $12.50 per share that expire at various times between October 20, 2012 and September 24, 2015. The following table summarizes the Company&#8217;s warrant activity for the nine months ended September 30, 2012:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 401.2pt;"></td> <td></td> </tr> </table> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Weighted-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Average</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Weighted-</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Remainder</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Average</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Contractual</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;" colspan="2">Warrants</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;" colspan="2">Exercise&#160;Price</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;" colspan="2">Term&#160;in&#160;Years</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 61%;">Warrants outstanding as of December 31, 2011</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 10%;">1,269,690</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">2.22</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 10%;">0.96</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Granted</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,690,189</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">5.30</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">2.80</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Exercised</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">(7,193</td> <td style="text-align: left;">)</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">(1.60</td> <td style="text-align: left;">)</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 1pt;">Forfeited/Expired</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: right; padding-bottom: 1pt;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: right; padding-bottom: 1pt;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify; padding-bottom: 2.5pt;">Warrants outstanding as of September 30, 2012</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: right;">2,952,686</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="text-align: left; padding-bottom: 2.5pt;">$</td> <td style="text-align: right; padding-bottom: 2.5pt;">4.00</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="text-align: right; padding-bottom: 2.5pt;">1.43</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 11&#160;&#160;&#160;&#160;&#160;&#160;ASSET RETIREMENT OBLIGATIONS</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">FASB ASC 410 requires that an asset retirement obligation (&#8220;ARO&#8221;) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable. Under this method, when liabilities for dismantlement and abandonment costs, excluding salvage values, are initially recorded, the carrying amount of the related oil and gas properties is increased. The fair value of the ARO asset and liability is measured using expected future cash outflows discounted at the Company&#8217;s credit-adjusted risk-free interest rate. Accretion of the liability is recognized each period using the interest method of allocation, and the capitalized cost is depleted using the units of production method. Should either the estimated life or the estimated abandonment costs of a property change materially upon the Company&#8217;s periodic review, a new calculation is performed using the same methodology of taking the abandonment cost and inflating it forward to its abandonment date and then discounting it back to the present using the Company&#8217;s credit-adjusted-risk-free rate. The carrying value of the asset retirement obligation is adjusted to the newly calculated value, with a corresponding offsetting adjustment to the asset retirement cost.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table summarizes the Company&#8217;s asset retirement obligation transactions recorded in accordance with the provisions of FASB ASC 410 during the nine months ended September 30, 2012 and the year ended December 31, 2011: &#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>&#160;</b></p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">September 30,</td> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">December 31,</td> <td nowrap="nowrap">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2" nowrap="nowrap">2012</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2" nowrap="nowrap">2011</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Beginning asset retirement obligation</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">350,243</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">348,742</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Liabilities incurred for new wells placed into production</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">10,187</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">106,507</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Liabilities decreased for wells sold or plugged</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">(14,409</td> <td style="text-align: left;">)</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">(109,620</td> <td style="text-align: left;">)</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Accretion of discount on asset retirement obligations</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">3,805</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">4,614</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Ending asset retirement obligations</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">349,826</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">350,243</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 8&#160;&#160;&#160;&#160;CAPITAL LEASE OBLIGATION</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company leases well equipment under a capital lease agreement.&#160;&#160;The term of the capital lease is for 5 years, bears interest at 9.0%, with monthly payments of $3,200 per month with the final payment due on May 20, 2013.&#160;&#160;As of September 30, 2012 and December 31, 2011, the remaining capital lease obligation was $27,929 and $51,227, respectively.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of September 30, 2012 and December 31, 2011, well equipment acquired under capital leases totaled $154,155 and accumulated depreciation was $100,934 and $84,418, respectively.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 9&#160;&#160;&#160;&#160;&#160;OPERATING LEASES</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company leases office space in Salt Lake City, Utah (&#8220;Premises Lease&#8221;) which consists of approximately 3,903 square feet.&#160;&#160;The Company has a prepaid security deposit of $8,954.&#160;&#160;The Company entered into a one-year lease agreement effective September 1, 2011 with an option to renew annually for two additional years. The Company renewed the Premises Lease for an additional year effective September 1, 2012 with an annualized lease obligation of $110,167. The option to renew for the period September 1, 2013 to August 31, 2014 is an annualized obligation of $112,902. For the nine months ended September 30, 2012 and 2011, the Premises Lease payments were $80,827 and $49,830, respectively. &#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company leases a printer, copier and fax machine. The term of the lease is for 37 months commencing March 23, 2010.&#160;&#160;The monthly lease payment is $255. For the nine months ended September 30, 2012 and 2011, the lease payments were $2,295 for both periods.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 10 OIL AND GAS PROPERTY LEASES</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table sets forth the oil and gas property lease acreage with an expiration date within the next three years (September 30, 2015). The Company intends to renew or place into production all of these oil and gas property leases prior to their expiration.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="width: 70%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">Gross&#185;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">Net&#178;</td> <td>&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Acreage</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Acreage</td> <td style="padding-bottom: 1pt;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 64%;">Utah/Wyoming</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 15%;">6,844</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 15%;">5,116</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 1pt;">Kansas/Oklahoma</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">640</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">579</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Total</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: right;">7,484</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5,695</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">1- "Gross" means the total number of acres in which we have a working interest.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">2- "Net" means the aggregate of the percentage working interests of the Company.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 16&#160;&#160;&#160;&#160;&#160;LEGAL PROCEEDINGS</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>&#160;</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>TX Holdings, Inc. v. Hewitt Energy Group LLC</b></p> <p style="text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On January 10, 2012, TX Holdings, Inc. (&#8220;TX Holdings&#8221;) filed an amended complaint against HEGLLC, a predecessor of the Company, Douglas C. Hewitt, Sr., Dexter &amp; Dexter Attorneys at Law, P.C. and Michael Cederstrom in the United States District Court for the District of Utah (the &#8220;Utah Action&#8221;). The complaint arises out of a claimed agreement between HEGLLC and TX Holdings (the &#8220;Perth Sale Agreement&#8221;) pursuant to which HEGLLC agreed to sell to TX Holdings an interest in the Perth Project located in Kansas (the &#8220;Perth Interest&#8221;). TX Holdings&#8217; complaint alleges certain causes of action, including, among others, unjust enrichment, breach of contract and breach of fiduciary duty. The complaint alleges that HEGLLC breached the Perth Sale Agreement by failing to deliver the Perth Interest to TX Holdings. TX Holdings seeks the Perth Interest and an unspecified amount of damages from the named parties. The Company does not believe it is obligated to deliver the Perth Interest to TX Holdings because it is the Company&#8217;s belief that TX Holdings breached the Perth Sale Agreement by, among other things, failing to pay the purchase price. A similar complaint was filed by TX Holdings in February 2010 in Florida State Court in the District of Miami, Dade County (the &#8220;Florida Action&#8221;). On July 5, 2011, the Florida court dismissed the claims against HEGLLC and Douglas C. Hewitt, Sr. in the Florida Action for lack of personal jurisdiction. TX Holdings appealed the decision dismissing the claims against HEGLLC and Douglas C. Hewitt, Sr. However, on April 24, 2012 TX Holdings filed a voluntary dismissal of that appeal. As a result of the voluntary dismissal, the only action remaining by TX Holdings against HEGLLC and Douglas C. Hewitt, Sr. was the Utah action. On August 9, 2012 TX Holdings submitted a stipulation of dismissal, with prejudice, to the United States District Court for the District of Utah, which has resolved all matters in this dispute.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Nostra Terra Oil &amp; Gas Company v. Richfield Oil &amp; Gas Company</b></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On February 1, 2012, Nostra Terra Oil &amp; Gas Company (&#8220;NTOG&#8221;) filed an action against the Company, HPI, HEGINC, and HEGLLC in the Twenty-Third Judicial District Court of Russell County, Kansas. The complaint alleges that the Company defaulted on its repayment obligations under a note and security agreement, dated April 13, 2011, in the principal amount of $1.3 million and accrued interest at 10% per annum. The complaint seeks foreclosure on two of the Company&#8217;s property leases located in Kansas. The note was due on January 31, 2012. On January 31, 2012, the Company requested the loan payoff and documents relating to the release of collateral from NTOG&#8217;s representatives. The Company followed up on this request with a written request on February 1, 2012. On or about March 19, 2012 the Company filed an answer to the Complaint and a Cross-Complaint against NTOG for tortious interference with business. The previously set trial date has been cancelled and no trial date currently exists. The Company intends to vigorously defend against this foreclosure action and repay any amount that is ultimately determined to be outstanding.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The obligations due and owing under this note and security agreement are fully accounted for in the Company&#8217;s financial statements.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Litigation in the Ordinary Course</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>&#160;</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">We may become involved in litigation from time to time relating to claims arising in the ordinary course of our business. We do not believe that the ultimate resolution of such claims would have a material effect on our business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material effect on our business, results of operations, financial condition and cash flows.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>NOTE 17&#160;&#160;&#160;&#160;&#160;SUBSEQUENT EVENTS</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>&#160;</b></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On October&#160;19, 2012, the stockholders of the Company voted to approve an amendment to the Company&#8217;s Articles of Incorporation to, among other things, effect a reverse stock split of the Company&#8217;s outstanding Common Stock at an exchange ratio of between 1-for-5 and 1-for-10, decrease the number of authorized shares of the Common Stock to 250,000,000 shares, and clarify and amend certain language in Article V (Directors) and Article VII (Indemnification), subject to the authority of the Company&#8217;s board of directors to abandon such amendment. On October&#160;22, 2012, the Board approved the reverse stock split of the Company&#8217;s outstanding Common Stock at an exchange ratio of 1-for-10. The Board also authorized the amendment to the Company&#8217;s Articles of Incorporation, and the Company filed a Certificate of Amendment to effect such amendment with the Secretary of State of the State of Nevada on October&#160;23, 2012. The Certificate of Amendment provides that it is effective as of 8:00 a.m., Pacific Time, on October&#160;23, 2012, at which time every ten (10) shares of issued and outstanding common stock will be automatically combined into one (1) issued and outstanding share of the common stock, without any change in the par value per share. The Company will not issue fractional shares in connection with the reverse stock split. Holders of the common stock will be entitled to receive from the Company&#8217;s transfer agent, in lieu of any fractional share, the number of shares rounded up to the next whole number. Under the guidance of FASB ASC 505-10, all common share and per common share information in the accompanying condensed consolidated financial statements and these notes to the financial statements have been retroactively restated to reflect the reverse common stock split.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On October 20, 2012, the Company elected to extend the expiration date of 332,842 warrants from October 20, 2012 to December 31, 2012. The warrant holders include MacKov, a related party, holding warrants to purchase up to 132,529 shares of common stock and certain other unaffiliated investors holding warrants to purchase up to an aggregate of 200,313 shares of common stock.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In October 2012, MacKov exercised warrants totaling 110,280 shares of the Company&#8217;s common stock for $176,445 or $1.60 per share. Contemporaneously with the exercise of the warrants, MacKov sold the shares of the Company&#8217;s common stock to affiliated and unaffiliated investors for $199,800 or $1.80 per share and granted a short-term loan to the Company totaling $23,335.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="font-weight: normal;">In October 2012, the Company issued 4,000 shares of common stock to an existing investor for services of $10,000 or $2.50 per share.</font></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In October 2012, the Company issued a note payable for $250,000 to an existing investor. The note payable bears an interest rate of 10% per annum and matures on September 30, 2014. The interest for the term of the note was prepaid by issuing 19,973 shares of common stock valued at $49,932 or $2.50 per share.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In October 2012, the Company issued a convertible note payable for $425,000 to an existing investor. The convertible note payable bears an interest rate of 6% per annum, matures on February 1, 2014 and converts into 170,000 shares of common stock at $2.50 per share. The interest for the term of the note was prepaid by assigning 1.50% ORRI in the Company&#8217;s South Haven Project, Kansas that was valued at $32,000.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Reclassifications</u></p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Certain prior period balances have been reclassified to conform to the current period presentation. Such reclassifications had no impact on net loss, statements of cash flows, working capital or equity previously reported.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Loss Per Common Share</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Basic earnings per share (&#8220;EPS&#8221;) is computed by dividing net income (loss) (the numerator) by the weighted-average number of common shares outstanding for the period (the denominator).&#160;&#160;Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares and potential common shares outstanding (if dilutive) during each period.&#160;&#160;Potential common shares include common shares to be issued related to warrants outstanding, convertible debentures, and convertible preferred stock.&#160;&#160;The number of potential common shares outstanding is computed using the treasury stock method.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As the Company has incurred losses for the three and nine months ended September 30, 2012 and 2011, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of September 30, 2012 and 2011, there were 3,553,591 and 1,466,665 potentially dilutive shares, respectively.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Income Taxes</u></p> <p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company accounts for income taxes under FASB ASC 740. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.&#160;&#160;Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is more likely than not that some component or all of the benefits of deferred tax assets will not be realized.</p> <p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if it is more likely than not that the position will be sustained if challenged by a taxing authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;<u>Financial Instruments and Concentration of Risks</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company&#8217;s financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of their immediate or short-term maturities.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Substantially all of the Company&#8217;s accounts receivable result from oil and gas sales and joint interest billings (&#8220;JIBs&#8221;) to third parties in the oil and gas industry.&#160;&#160;This concentration of customers and joint interest owners may impact the Company&#8217;s overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. As of September 30, 2012, 30% of the accounts receivable balance resulted from one entity. For the nine months ended September 30, 2012 and 2011, all of the revenues resulted from producing wells in Kansas.</p> <div><font size="2" style="font-family:times new roman,times">The final allocation of the purchase price is as follows:</font></div> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table align="center" style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Assets Acquired:</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="width: 77%;">Cash</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">1,485</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Receivables</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">164,171</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Oil and gas properties</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">6,904,067</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Other</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">6,750</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Goodwill</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">75,481</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Liabilities Assumed:</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Current liabilities</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(1,156,158</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Total</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5,995,796</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Value of 200,000 New Warrants Issued on March 31, 2011</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">11,977</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Value of 5,973,819 New Common Stock Issued on March 31, 2011</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">5,973,819</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 1pt;">Value of 10,000 Common Stock Owned Prior to March 31, 2011</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">10,000</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Total Consideration</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5,995,796</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Notes Payable consists of the following:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">September 30</td> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">December 31,</td> <td nowrap="nowrap">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2012</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2011</td> <td style="padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Note Payable, interest at 12.0% per annum, due June 2012, secured by 5.00% working interest in certain Fountain Green Project Leases.</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">-</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">1,080,000</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $7,500, due October 2013, secured by a 5.00% working interest in certain Fountain Green Project Leases.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">746,376</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 18.0% per annum, due on demand, secured by Mai, Johnson and Gorham, Kansas Leases.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">90,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $3,200, due June 2014, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">367,159</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 7.5% per annum, monthly payments of $1,949, due January 2014, secured by vehicle.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">29,994</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">43,650</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, due June 2012, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">248,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $15,000, due June 2014, secured by 10.00% working interest in certain Fountain Green Project Leases.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">743,023</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">700,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, for $152,514 with interest at 2.0% monthly, due April 2012, unsecured - net of discount.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">121,694</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 10.0% per annum, monthly payments of $5,000, due June 2014, unsecured</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">99,570</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable, interest at 0.0% per annum, monthly payments of $1,500, due May 2013, unsecured</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">11,714</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">24,296</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Note Payable, interest at 8.0% per annum, monthly payments of $10,000, due December 2013, unsecured</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">143,204</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Total Notes Payable</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">2,141,040</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">2,307,640</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Less: Current Portion (includes demand notes)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(323,898</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(2,277,497</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Long-Term Portion</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">1,817,142</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">30,143</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">Convertible Notes Payable consists of the following:</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">September 30,</td> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">December 31,</td> <td nowrap="nowrap">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2012</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">2011</td> <td style="padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Note Payable interest at 8.0% per annum, due June 2012, convertible into common shares of the Company, at a conversion rate of $2.50 per common share, unsecured</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">-</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">367,500</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 12.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">52,560</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">52,560</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 10.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, secured by certain Kansas Leases and 10% working interest in certain Fountain Green Project Leases</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,300,000</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,300,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 10.0% per annum, due June 2012, convertible into common shares of the Company at a conversion rate of $2.50 per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">100,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 5.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of CAD $1.60 (which was USD $1.67 at the time of loan) per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">50,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Note Payable interest at 5.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of CAD $1.60 (which was USD $1.67 at the time of loan) per common share, unsecured.</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">100,000</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">50,000</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Note Payable interest at 0.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.20 per common share, unsecured.</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">25,000</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Total Convertible Notes Payable</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,452,560</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,945,060</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Less: Current Portion (includes demand notes)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(1,452,560</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">(1,945,060</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Long-Term Portion</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <div><font size="2" style="font-family:times new roman,times">The following is the weighted average of the assumptions used in calculating the fair value of the warrants granted using the Black-Scholes model:</font></div> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;&#160;</p> <table style="width: 95%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.1in;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 87%;">Fair market value</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">2.46</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Exercise price</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">5.83</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">&#160;</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Risk free rates</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">0.36</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Dividend yield</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">0.00</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Expected volatility</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">72.96</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Contractual term</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;" nowrap="nowrap">2.89 Years</td> <td style="text-align: left;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The weighted-average fair market value at the date of grant for warrants granted, are as follows:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="width: 95%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.1in;" cellspacing="0" cellpadding="0"> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 87%;">Fair value per warrant</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">0.7397</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Total warrants granted</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">1,017,301</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Total fair value of warrants granted</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">752,503</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <div><font size="2" style="font-family:times new roman,times">The following table summarizes the Company&#8217;s warrant activity for the nine months ended September 30, 2012:</font></div> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 401.2pt;"></td> <td></td> </tr> </table> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Weighted-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Average</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Weighted-</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Remainder</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Average</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: left;" colspan="2">Contractual</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: left;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;" colspan="2">Warrants</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;" colspan="2">Exercise&#160;Price</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;" colspan="2">Term&#160;in&#160;Years</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 61%;">Warrants outstanding as of December 31, 2011</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 10%;">1,269,690</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">2.22</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 10%;">0.96</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Granted</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">1,690,189</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">5.30</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">2.80</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td>Exercised</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">(7,193</td> <td style="text-align: left;">)</td> <td>&#160;</td> <td style="text-align: left;">$</td> <td style="text-align: right;">(1.60</td> <td style="text-align: left;">)</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">-</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 1pt;">Forfeited/Expired</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: right; padding-bottom: 1pt;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="text-align: right; padding-bottom: 1pt;">-</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify; padding-bottom: 2.5pt;">Warrants outstanding as of September 30, 2012</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: right;">2,952,686</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="text-align: left; padding-bottom: 2.5pt;">$</td> <td style="text-align: right; padding-bottom: 2.5pt;">4.00</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="text-align: right; padding-bottom: 2.5pt;">1.43</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table summarizes the Company&#8217;s asset retirement obligation transactions recorded in accordance with the provisions of FASB ASC 410 during the nine months ended September 30, 2012 and the year ended December 31, 2011: &#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>&#160;</b></p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">September 30,</td> <td nowrap="nowrap">&#160;</td> <td nowrap="nowrap">&#160;</td> <td style="text-align: center;" colspan="2" nowrap="nowrap">December 31,</td> <td nowrap="nowrap">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td nowrap="nowrap">&#160;</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2" nowrap="nowrap">2012</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2" nowrap="nowrap">2011</td> <td style="padding-bottom: 1pt;" nowrap="nowrap">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 74%;">Beginning asset retirement obligation</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">350,243</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">$</td> <td style="text-align: right; width: 10%;">348,742</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Liabilities incurred for new wells placed into production</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">10,187</td> <td style="text-align: left;">&#160;</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">106,507</td> <td style="text-align: left;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Liabilities decreased for wells sold or plugged</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">(14,409</td> <td style="text-align: left;">)</td> <td>&#160;</td> <td style="text-align: left;">&#160;</td> <td style="text-align: right;">(109,620</td> <td style="text-align: left;">)</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt;">Accretion of discount on asset retirement obligations</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">3,805</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">4,614</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt;">Ending asset retirement obligations</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">349,826</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">350,243</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table sets forth the oil and gas property lease acreage with an expiration date within the next three years (September 30, 2015). The Company intends to renew or place into production all of these oil and gas property leases prior to their expiration.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <table style="width: 70%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">Gross&#185;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">Net&#178;</td> <td>&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Acreage</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">Acreage</td> <td style="padding-bottom: 1pt;">&#160;</td> </tr> <tr style="vertical-align: bottom;"> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: center;" colspan="2">&#160;</td> <td>&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="width: 64%;">Utah/Wyoming</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 15%;">6,844</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="width: 1%;">&#160;</td> <td style="text-align: left; width: 1%;">&#160;</td> <td style="text-align: right; width: 15%;">5,116</td> <td style="text-align: left; width: 1%;">&#160;</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 1pt;">Kansas/Oklahoma</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">640</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> <td style="padding-bottom: 1pt;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: left;">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right;">579</td> <td style="text-align: left; padding-bottom: 1pt;">&#160;</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt;">Total</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: right;">7,484</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> <td style="padding-bottom: 2.5pt;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: left;">&#160;</td> <td style="border-bottom: black 2.5pt double; text-align: right;">5,695</td> <td style="text-align: left; padding-bottom: 2.5pt;">&#160;</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">1- "Gross" means the total number of acres in which we have a working interest.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">2- "Net" means the aggregate of the percentage working interests of the Company.</p> 320 320 4680 15000 33000 320 0.30 The Company will remain an emerging growth company up to the fifth anniversary of its first registered sale of common equity securities, or until the earliest of (a) the last day of the first fiscal year in which its annual gross revenues exceed $1 billion, (b) the date that it becomes a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which would occur if the market value of its common stock held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter, or (c) the date on which it has issued more than $1 billion in non-convertible debt during the preceding three-year period. 1485 164171 6904067 6750 75481 -1156158 5995796 11977 11977 5973819 10000 5995796 2011-03-04 100000 0.9983 1.00 0.05 1.00 59738189 200000 2.50 0.7397 2013-01-31 0.0100 0.0025 0.0200 0.2100 0.4450 0.1500 0.0500 0.8500 0.7500 0.5000 0.0150 0.0150 0.0500 0.1000 0.0500 0.15 0.445 0.01 0.0025 0.0050 0.2050 0.0175 0.0250 0.0500 0.0200 0.0100 0.0100 0.1000 141857 22307 383200 27088744 50000 4853 383200 22500 28624110 47200 10174 93884 38781 19390 4545 77561 9090 50000 54231 16665 193903 2307640 1080000 0 90000 0 43650 248000 700000 121694 0 24296 0 80000 2141040 0 746376 0 367159 29994 0 743023 0 99570 11714 143204 100000 100000 1600000 150000 0.0300 0.0150 0.05 0.15 0.05 229801 1690189 7193 5.83 5.30 619500 180000 Common stock were sold over the 30-day period prior to the conversion, minus a 25% discount to such 30-day average price 1.00 285000 285000 If the fair value of the common stock increases by $1.00 to $3.50 per share, we would only issue 108,571 shares of common stock. 0.10 2.50 1.60 2.50 2.50 2.50 75000 2.20 1.67 1.60 2.50 2.50 1.67 1.60 2.50 2.20 2.50 2.50 15000 4680 320 25000 200000 250000 2.50 0.25 2.50 62500 500000 62500 1389750 555900 555700 5.00 0.0025 0.0225 0.0025 0.0150 0.0600 0.0100 4662 12489 11547 245740 14865 50000 43307 14865 103500 153280 2.50 0.1250 27934 0 100000 18000 52476 752503 June 2014 June 2012 June 2012 June 2012 June 2014 June 2012 October 2013 June 2014 May 2013 April 2012 January 31, 2012 January 2014 December 2013 0.12 0.10 0.18 0.10 0.075 0.10 0.10 0.020 0.10 0.00 0.08 0.00 0.05 0.12 0.10 0.05 0.10 0.08 3200 15000 7500 5000 1500 152514 1949 10000 1945060 367500 52560 1300000 100000 50000 50000 25000 1452560 0 52560 1300000 0 0 100000 0 0 0 2.46 0.0036 0.0000 0.7296 P2Y10M20D P11M16D 1017301 672888 132529 1269690 2952686 506250 -7193 0 2.22 4.00 -1.60 0 P2Y9M18D P0Y P0Y P1Y5M5D 2014-06-14 304407 511051 106507 10187 -109620 -14409 4614 3805 P5Y 0.0900 3200 2013-05-20 51227 27929 154155 154155 84418 100934 8954 110167 112902 37 months September 1, 2013 to August 31, 2014 2295 49830 2295 80827 255 7484 6844 640 5695 5116 579 2015-09-30 10-Jan-12 1-Feb-12 Hewitt Energy Group LLC Nostra Terra Oil and Gas Company TX Holdings, Inc HPI, HEGINC, and HEGLLC 1300000 0.10 2012-03-19 0 285000 1.60 12.50 The Company may redeem all or any portion of the Series A Preferred Stock at any time after August 31, 2014, or at any time if the Company's common stock has traded at a rate of more than 10,000 shares per day for at least 30 consecutive days and the average trading price of the common stock (based on a 30-day moving average) is greater than $5.00 per share. 0.10 0.10 0 5000000 0 258000 0 258000 110280 50000 0.06 15000 5.00 2013-09-29 3.681 247 "Gross" means the total number of acres in which we have a working interest. "Net" means the aggregate of the percentage working interests of the Company. 2.50 1.60 2.50 1.60 2.50 2.50 2.50 2.20 2.50 1.60 2.50 2.50 0.10 16857 0001537834rich:Koelsch251WellMemberrich:ZionsEnergyCorporationMember2012-09-30 0.0550 0.0500 Conversion Price be less than $1.00 or greater than $3.70 per share 3.70 285000 152000 380000 2.50 375000 2012-10-20 2015-09-24 200000 254909 11509 1.60 287712 0.0500 0.0100 0001537834rich:SkylineOilLLCMemberrich:Moroni1AxzhWellMember2012-06-30 0.0050 0001537834rich:ZionsEnergyCorporationMemberrich:Moroni1AxzhWellMember2012-03-31 0.0100 0001537834rich:ZionsEnergyCorporationMemberrich:Koelsch251WellMember2012-03-31 0.0550 0001537834 rich:DivestituresUnAffliatedInvestosMember 2012-03-31 0.2450 0.7550 00015378342012-03-31 289316 <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Reverse Stock Split</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As more fully described in Note 17, effective October 23, 2012, the Company implemented a 1-for-10 reverse stock split of its issued and outstanding common stock. Under the guidance of FASB ASC 505-10, all common share and per common share information in the accompanying condensed consolidated financial statements and these notes to the financial statements have been retroactively restated to reflect the reverse common stock split.</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Accounts Receivable</u></p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">&#160;</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Accounts receivable, which are primarily amounts owed by other working interest holders, are recorded at the invoiced amount and do not bear interest.&#160;The Company uses the specific identification method and routinely reviews outstanding accounts receivable balances for the likelihood of collection. The Company records a reserve for amounts not expected to be fully recovered. Actual balances are not applied against the reserve until substantially all collection efforts have been exhausted. The Company recorded and allowance for doubtful accounts of $192,332 and $0 at September 30, 2012 and December 31, 2012, respectively.</p> 0 0 272115 0 3553591 1466665 5973819 0001537834rich:UnaffiliatedAndExistingInvestorsMember2012-01-012012-03-31 2.50 0001537834rich:UnaffiliatedAndExistingInvestorsMember2012-02-012012-02-29 0001537834rich:DirectorsEmployeesAndConsultantsMember2012-02-012012-02-29 7193 0001537834rich:MackovRelatedPartyMember2012-06-012012-06-30 0001537834rich:UnaffiliatedAndExistingInvestorsMember2012-01-012012-01-31 234375 375000 117188 1.60 2.50 0001537834rich:ConsultantMember2012-01-012012-01-31 10000 16000 1.60 2.50 2.50 0001537834rich:ExistingInvestorMember2012-03-012012-03-30 0001537834rich:AccruedInterestMemberrich:ExistingInvestorMember2012-03-012012-03-31 0001537834rich:OtherPayableMemberrich:ExistingInvestorMember2012-03-012012-03-31 0001537834rich:UnaffiliatedInvestorMember2012-03-012012-03-31 0001537834rich:NoteHolderMember2012-04-012012-06-30 0001537834us-gaap:MaximumMemberrich:NoteHolderMember2012-06-30 0001537834us-gaap:MinimumMemberrich:NoteHolderMember2012-06-30 0001537834rich:MrGowdyMember2012-05-012012-05-31 0001537834rich:SkylineOilLLCMember2012-06-012012-06-30 0001537834rich:Moroni1AxzhWellMemberrich:SkylineOilLLCMember2012-06-30 0001537834rich:IndependenceProjectMemberrich:SkylineOilLLCMember2012-06-30 0001537834rich:LibertyNo1WellAndLibertyProjectMemberrich:UnaffiliatedAndExistingInvestorsMember2012-03-31 0001537834rich:FountainGreenProjectsMemberrich:SkylineOilLLCMember2012-03-31 0001537834rich:SkylineOilLLCMember2012-06-30 0001537834us-gaap:MaximumMemberrich:UnaffiliatedAndExistingInvestorsMember2012-02-012012-02-29 200313 176445 00015378342012-10-20 332842 0001537834rich:MackovRelatedPartyMember2012-10-20 0001537834rich:UnaffiliatedInvestorMember2012-10-20 1.60 0001537834rich:ExistingInvestorMember2012-10-012012-10-31 4000 10000 2.50 23335 0001537834rich:ExistingInvestorMember2012-10-31 250000 425000 0001537834rich:ExistingInvestor1Member2012-10-31 0001537834rich:ExistingInvestor1Member2012-10-012012-10-31 0.0600 2014-02-01 0.1000 2014-09-30 19973 49932 170000 32000 2.50 0.0150 0001537834rich:Moroni1AxzhWellMemberrich:DivestituresUnAffliatedInvestosMember2012-01-012012-03-31 0001537834rich:DivestituresUnAffliatedInvestosMemberrich:Moroni1AxzhWellMember2012-03-31 320 0001537834rich:ZionsEnergyCorporationMemberrich:Koelsch251WellMember2012-02-012012-03-31 5.00 2.50 0001537834rich:UnaffiliatedInvestorMember2012-10-012012-10-31 199800 1.80 200000 500000 2.50 10000 0001537834rich:ShallowZonesFountainGreenProjectMember2012-09-30 0.5000 0001537834rich:ZionsEnergyCorporationMemberrich:Koelsch251WellMember2012-03-30 0.0300 0001537834rich:BeforePayoutMemberrich:MackovInvestmentsLimitedMember2012-09-30 0.0325 0001537834rich:MackovInvestmentsLimitedMemberrich:AfterPayoutMember2012-09-30 0.0275 0001537834rich:ThirdPartiesTransactionMember2011-12-31 0.0350 0001537834rich:SkylineOilLLCMemberrich:Moroni1AxzhWellMember2012-06-30 0.0050