S-1 1 s1.htm MAIN DOCUMENT Converted by EDGARwiz

As filed with the Securities and Exchange Commission on May 28, 2013 Registration No. _________

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM S-1

Registration Statement under the Securities Act of 1933


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XUN ENERGY, INC.

(Name of issuer in its charter)

Nevada

 

1311

 

26-1616719

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial Classification Code)

 

(I.R.S. Employer Identification

No.)

Xun Energy, Inc.

12518 NE Airport Way, Suite 148 No. 156

Portland, OR 97230

(775) 200-0505

(Address and telephone number of principal executive offices)


Jerry Mikolajczyk, President, CEO and CFO

12518 NE Airport Way, Suite 148 No. 156, Portland, OR 97230, (775) 200-0505

 (Name, address and phone number of agent for service)


Copies of communications to:

Matthew C. McMurdo, Esq., 140 West 57th Street, New York, NY 10019, (917) 318-2865


Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o


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

 

Large Accelerated Filer

p

  

Accelerated Filer

p

Non-accelerated Filer

p

 (Do not check if a smaller reporting company)

Smaller reporting company

x

  

  

  

Calculation of registration fee

Title of Each

Class Of

Securities To Be

Registered

  

Amount To Be

Registered(1)

  

Proposed Maximum

Offering 

Price Per Share (2)

  

Proposed Maximum

Aggregate 

Offering Price (2)

  

Amount of

Registration Fee

  

Common stock,

$.0001 par value per share

  

79,081,633

  

$

.00705

  

$

557,525.51

  

$

76.05

  

 

(1)

The shares of common stock of Xun Energy, Inc. (“Xun” or the “Company”) to be registered includes


1

(2)

75,000,000 shares of our common stock (the “Put Shares”) that we will put to AGS Capital Group, LLC (“AGS”), pursuant to a reserve equity financing agreement by and between AGS and the Company, dated May 7, 2013 (the “Drawdown Agreement”) and (ii) 4,081,633 commitment shares of our common stock we paid to AGS as a fee for providing the facility.


In the event of stock splits, stock dividends, or similar transactions involving the common stock, the number of common shares registered shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). In the event that adjustment provisions of the Drawdown Agreement require the registrant to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act of 1933, as amended, the registrant will file a new registration statement to register those additional shares.


(3)

The proposed maximum offering price per share and the proposed maximum aggregate offering price have been estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rules 457(c) under the Securities Act of 1933, as amended on the basis of the average of the high and low prices of the common stock on the OTC Markets on May 24, 2013, a date within five (5) trading days prior to the date of the filing of this registration statement.


 The registrant hereby amends this Registration Statement on the date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on the date as the Commission, acting pursuant to said Section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. The Registrant may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Selling Stockholders Preliminary Prospectus   


Subject to completion May 28, 2013


XUN ENERGY, INC.


79,081,633 Shares of Common Stock

 

This prospectus relates to the resale of up to 79,081,633 shares of common stock, $.0001 par value, of Xun Energy, Inc., a Nevada corporation, by the selling stockholder (the “Selling Stockholder”), including (i) up to 75,000,000 Put Shares that we may put to AGS, pursuant to the Drawdown Agreement and (ii) 4,081,633 commitment shares of our common stock we paid to AGS as a fee for providing the facility. The total amount of shares of common stock which may be sold pursuant to this prospectus would constitute approximately 17.17% of our issued and outstanding common stock as of May 28, 2013, if all of the shares had been sold by that date.


Pursuant to the Drawdown Agreement, which has a total drawdown amount of fifteen million dollars ($15,000,000) (the “Commitment Amount”), Xun has the right to sell to AGS, at its sole discretion, and AGS has the obligation to purchase through advances to the Company, the Company's common stock through draw-down notice requests (each, a “Notice”) issued by the Company. The number of shares of common stock that AGS shall purchase shall be determined by dividing the dollar amount raised, which may or may not equal the entire amount of the advance request, by the purchase price. No fractional shares will be issued.


The Selling Stockholders are selling all of the shares of common stock offered by this prospectus. It is anticipated that the Selling Stockholders will sell these shares of common stock from time to time in one or more transactions, in negotiated transactions or otherwise, at prevailing market prices or at prices otherwise negotiated. We will not receive any proceeds from the sale of shares by the Selling Stockholders. However, we will receive the sale price of any common stock that we sell to AGS under the Drawdown Agreement.  


AGS is an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”) in connection with the resale of our common stock under the equity line of credit. AGS will pay us 90% of the average of the three (3) lowest closing bid prices during the ten (10) trading days immediately following our delivery of our Notice to AGS of our election to exercise our "put" right. The offering will terminate upon the earlier of (i) the first day of the month next following the 36-month anniversary of the date the registration statement, to which this prospectus is made a part, is declared effective by the SEC and (ii) the date on which AGS shall have made payment of advances in the aggregate amount of the Commitment Amount. There are no underwriting agreements.


We have agreed to pay all the costs and expenses of this registration.


Our common stock is quoted on the OTC Markets ("OTCBB") under the symbol "XNRG." The shares of our common stock registered hereunder are being offering for sale by the Selling Stockholders at prices established on the OTCBB during the term of this offering. On May24, 2013, the closing bid price of our common stock was $.007 per share on the OTCBB. These prices will fluctuate based on the demand for our common stock.


We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision. The Company is not a blank check company because it has a specific business purpose and has no plans or intention to merge with an operating company.  None of the Company’s shareholders have plans to enter a change of control or change of management.  None of our current management has previously been involved with a development stage company that did not implement its business plan, that generated no or minimal revenues or was engaged in a change of control.

 

The shares being offered are highly speculative and they involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See "Risk Factors" beginning on page _.


Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is subject to completion May 28, 2013


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TABLE OF CONTENTS

  

  

PROSPECTUS SUMMARY

5

  

  

RISK FACTORS

9

  

  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

17

  

  

USE OF PROCEEDS

18

  

  

DETERMINATION OF OFFERING PRICE

18

  

  

DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES

18

  

  

SELLING STOCKHOLDER

19

  

PLAN OF DISTRIBUTION

20

  

  

BUSINESS

22

  

  

MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

31

  

  

DESCRIPTION OF PROPERTY

36

  

  

LEGAL PROCEEDINGS

36

  

  

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

36

  

  

EXECUTIVE COMPENSATION

39

  

  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

42

  

  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

42

  

  

DESCRIPTION OF SECURITIES

42

  

  

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

43

  

  

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

47

  

DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

47

  

  

EXPERTS

47

  

  

WHERE YOU CAN FIND MORE INFORMATION

48

  

  

FINANCIAL STATEMENTS

49



You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date.

 

Until July 1, 2013, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


 

 PROSPECTUS SUMMARY

 

The information presented is a brief overview of the key aspects of the offering.  The prospectus summary contains a summary of information contained elsewhere in this prospectus. You should carefully read all information in the prospectus, including the financial statements and the notes to the financial statements under the Financial Statements section beginning on page F-1 prior to making an investment decision.

 

Our Business

 

The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company plans to acquire producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and as well in Canada.


We were incorporated on December 20, 2007 in the State of Nevada. We are a development stage company, and to date have earned limited revenue.


On August 31, 2012, the Company acquired 30 oil and gas well locations in Venango County, Pennsylvania with an option to acquire an additional 15 oil and gas locations.


STRATEGY


We aspire to be an independent oil and gas company in North America and to provide our shareholders with returns over the long-term. To achieve this, we strive to optimize our capital investments to maximize growth in cash flows, earnings, production and establish reserves. We will do this by:


1.

Generating cash flow,

2.

Securing financing to acquire our planned acquisitions,

3.

Exercising capital discipline,

4.

Ensuring financial strength, and

5.

Investing in oil and gas properties with strong full-cycle margins.


OVERVIEW


The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company plans to acquire producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and as well in Canada.


The implementation of our business plan will require significant capital. We do not have this capital and as a result, we will require additional financing to acquire and develop our leasehold obligations. We may use debt or equity to fund our ongoing operations. There can be no assurance that any financing will be available, and if available, will be on terms and conditions acceptable to the Company. If we rely on equity financing, our shareholders will experience significant dilution. If we rely on debt financing, we may not be able to satisfy our debt obligations.


Identification of leasehold interests


The Company plans to acquire producing or near producing leaseholds that will provide cash flow and an upside for future development. However, it is unlikely that we will be able to exploit these leaseholds without a significant capital infusion.         


The Company may acquire the leaseholds in consideration for cash or shares of the company or a combination of cash and shares of the Company and may include an Overriding Royalty. Typical Overriding Royalty’s range from 2.5% to as much as 25% depending upon the current production on the leaseholds and the potential for Oil and Gas production.


A typical leasehold grants the Company the exclusive right to explore the land (“Property”) covered by the Oil and Gas Lease by geophysical and other methods, and to operate same for and produce there from all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced therewith ("Oil and Gas"); and the exclusive right to inject gas, water, brine and other fluids into subsurface strata; and rights of way and easements for laying pipelines, telephone, telegraph and power lines, and the right to erect or install power stations, compressor stations, roadways, storage tanks or other storage facilities, separators and any fixtures and other structures




5


thereon for producing, treating, processing, maintaining, storing and caring for the oil and gas; and oil and gas from other properties and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the Property and other lands for the production of Oil and Gas, and the injecting of gas, water, brine and other fluids into subsurface strata.


The Company may, at any time and from time-to-time pool all or part of the Property with other properties to create one or more drilling units. The production of Oil or Gas from such a pooled unit is generally treated as though the production occurred from a well on the Property, except the Lessor shall be entitled to royalty only on its pro-rata share of such production.


It is intended that the leasehold also include all lands and interests of the Lessor, which are contiguous to or in the vicinity of the Property.


Usually the leasehold will remain in force for a term of one year from the date executed and for as long thereafter as Oil and/or Gas is produced from the Property, or as long as operations for drilling are continued or as long as operations are continued for injection of gas, water, brine and other fluids into subsurface strata.


When a well is worked over or offset well drilled, an access road is constructed to the well site or upgraded. This results in surface damages that the surface owner is compensated for the loss of property. Timber may also be cut down during construction, the Company may cut and stack the timber at a location convenient for the surface owner to sell or a value may be assessed on the timber and the surface owner compensated.


Depending upon jurisdiction of the leasehold, the state can force a "pooling" of the oil and gas interests of a landowner with the interests of other landowners where the size or condition of lands does not allow the neighbor to find a drill site while respecting distance limits from property lines. A mineral owner has five options in the context of forced pooling. They can: 


1.

Lease their mineral interest.

2.

Sell their mineral interest.

3.

Participate materially in the development of the gas field.

4.

Be a non-consenting owner.

5.

Protest forced pooling


A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).


NORTH AMERICAN MARKET


The oil and natural gas industry contributes tremendously to the U.S. economy as one of the nations’ largest employers and purchasers of goods. The industry also produces many products essential to everyday living and provides an economical fuel source for the nation’s transportation, agriculture, and manufacturing needs. 


U.S. and global energy demand is rising significantly as worldwide population grows and quality of life improves for people around the globe. In fact, the International Energy Outlook 2011 quotes: "Despite uncertainty over the prospects for short-term economic growth, demand for energy in the New Policies Scenario grows strongly, increasing by one-third from 2010 to 2035."


U.S. production of liquid fuels (mostly oil) will increase for the next 18 years by 116.35% of 2010 production levels by 2020 according to the Energy Information Administration (EIA), refer to table below:



 

EIA FORECAST - LIQUID FUEL SUPPLY TO THE USA

Million Barrels/Day

2010

2015

2020

2024

2025

2030

U.S. Production

8.93

9.37

10.39

10.19

10.16

10.04

Biofuels

1.00

1.22

1.52

1.79

1.86

2.36

Canada

1.97

2.25

2.41

2.59

2.61

2.86

Rest of World

7.32

6.30

4.78

4.68

4.67

4.31

U.S. Liquid Fuel Supply

19.22

19.14

19.10

19.25

19.29

19.57

       

Percentages

2010

2015

2020

2024

2025

2030

U.S. Production

46%

49%

54%

53%

53%

51%

Biofuels

5%

6%

8%

9%

10%

12%

Canada

10%

12%

13%

13%

14%

15%

Rest of World

38%

33%

25%

24%

24%

22%

U.S. Liquid Fuel Supply

100%

100%

100%

100%

100%

100%

 

Source: EIA, AEO2012, June 2012


The future global primary energy demand is expected to be driven by increasing requirements of the rising population, the overall rate of economic growth, and the availability and affordability of energy; energy fuel mix and the efficiency of current and future energy technologies used by the fast emerging economies. Technology, population growth and the role of renewable sources of energy will be the key factors in influencing the future energy growth path. For example, technology could act as double sword. While it will facilitate in augmenting the energy supplies and reducing cost, it will also be the key to arrest the acceleration in energy demand – energy efficiency and help in reducing emission/conservation.


MISSION STATEMENT


·

To become a leader in providing energy, through acquisition and diversification.


·

To acquire working interest positions and mineral rights leases for the purposes of oil and gas development and production using new technologies, advanced drilling and completion methods and invest in known, producing properties and surrounding areas.


·

To be aggressive in gaining interest positions in leases and existing producing properties that will produce desirable returns, utilize leading technologies, utilize methods to maximize exploration and production results while providing Return On Investment.


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The Terms of the Offering

                                                                 

Securities Being Offered   

79,081,633 shares of common stock being registered on behalf of the Selling Stockholder (maximum offering).


Offering Period:

Until all shares are sold by the Selling Stockholder or until 36 months from the date that the registration statement becomes effective, whichever comes first.


Risk of Factors:

The Securities offered hereby involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment.    See “Risk Factors”.


Common Stock Issued And

Outstanding Before Offering:

385,415,240 shares of our common stock are issued and outstanding as of the date of this Prospectus.


Common Stock Issued And

Outstanding After Offering:

460,415,240 shares of common stock.


Use of Proceeds:

We will not receive any proceeds from the sale of the common stock by the Selling Stockholder. However, we will receive proceeds from the sale of our common stock under the Drawdown Agreement. The proceeds will be used for working capital, asset acquisition, and general corporate purposes. See “Use of Proceeds.”


This offering relates to the resale of up to 79,081,633 shares of our common stock by the Selling Stockholder, including (i) up to 75,000,000 Put Shares that we may put to AGS, pursuant to the Drawdown Agreement and (ii) 4,081,633 commitment shares of our common stock we paid to AGS as a fee for providing the facility.


There are substantial risks to investors as a result of the issuance of shares of our common stock under the Drawdown Agreement. These risks include dilution of stockholders, significant decline in our stock price and our inability to draw sufficient funds when needed.


In order to fund a notice for funding pursuant to the Drawdown Agreement (a “Drawdown Notice”), AGS will periodically purchase our common stock under the Drawdown Agreement and will, in turn, sell such shares to investors in the market at the market price on a best efforts basis, subject to certain conditions. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to AGS to raise the same amount of funds, as our stock price declines.


7




RISK FACTORS

 

An investment in our securities is highly speculative and subject to numerous and substantial risks. These risks are set forth below. You should not invest in the Company unless you can afford to lose your entire investment. Readers are encouraged to review these risks carefully before making any investment decision.

 

Risks of Purchasing Shares:


Possible loss of entire investment.


This Offering is intended for investors who can accept the applicable risks. Prospective investors should not subscribe unless they can readily bear the consequences of the loss of their entire investment.


Exchange fluctuations.


Shares will be priced in US dollars, and persons investing by converting foreign currency will bear the risk of such conversion. The value of such investments may be affected favorably or unfavorably by fluctuations in exchange currencies. In addition, prospective investors whose assets and liabilities are primarily denominated in currencies other than US Dollars should take into account the potential risk of loss arising from fluctuations in the rate of exchange between the currency of the investment and such other currency.


Additional dilution as additional shares are issued which may decrease the market price of our common stock.

 

Additional offerings will likely have to be made in the future to raise capital to meet operating cash flow needs. Such offerings may include warrants for issuance of additional common stock, further diluting the number of shares of common stock outstanding from time to time. An increase in the number of our shares of common stock from these events or others may result in a decrease of the market price for our common stock and will dilute the ownership interest of current shareholders.  


Shares eligible for future sale under Rule 144 may adversely affect the market for our securities.

 

From time to time, certain of our stockholders who hold restricted securities may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, subject to certain limitations. Although current stockholders may have no current intention or ability to sell their shares, any substantial sales by holders of our common stock in the future pursuant to Rule 144 may have a material adverse affect on the market price of our securities.


The price of our common stock is subjected to volatility.

 

The market for Xun’s common stock is highly volatile. The trading price of Xun’s common stock is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to their markets or relating to Xun could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of Xun’s stock prices may cause investment losses for their shareholders. If securities class action litigation is brought against Xun, such litigation could result in substantial costs while diverting management's attention and resources.


Disruptions in global financial markets and deteriorating global economic conditions could cause lower returns to investors.


Disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of Xun’s common stock. The current state of the economy and the implications of future potential weakening may negatively impact market fundamentals, resulting in lower revenues and values for Xun’s business opportunities and investments.


If securities or industry analysts do not publish research or reports about Xun’s business or if they issue an adverse or misleading opinion regarding Xun stock, its price and trading volume could decline.


The trading market for Xun’s common stock will be influenced by the research and reports that industry or securities analysts publish about Xun or its business, if any.


Our shares will be deemed to be "penny stocks" as defined in the Securities Exchange Act of 1934, as amended, and, as a result, will be subject to various eligibility and disclosure requirements on broker-dealers engaged in the resale of these shares.

 

The shares offered in this prospectus will be "penny stocks" as that term is defined in the Securities Exchange Act of 1934, as amended, (the ‘Exchange Act”) to mean, among other definitions, equity securities with a price of less than $5.00 per share. Underthe penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or an


8


accredited investor must make a special suitability determination regarding the purchaser and provide special disclosure documents to the purchaser. The imposition of these suitability standards and special disclosures could reduce an investor's ability to resale the shares at a time or price desired. See the section "Market for Common Equity and Related Stockholder Matters."


AGS will pay less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.


Our common stock to be issued under the Drawdown Agreement will be purchased at a ten percent (10%) discount or 90% of the average of the three (3) lowest closing bid prices during the ten (10) trading days immediately following our delivery of our Notice to AGS of our election to exercise our "put" right.


AGS has a financial incentive to sell our shares immediately upon receiving the shares to realize the profit between the discounted price and the market price.  If AGS sells our shares, the price of our common stock may decrease.  If our stock price decreases, AGS may have a further incentive to sell such shares. Accordingly, the discounted sales price in the Drawdown Agreement may cause the price of our common stock to decline.


We are registering an aggregate of 79,081,633 shares of common stock to be issued under the equity line of credit. The sale of such shares could depress the market price of our common stock.


We are registering an aggregate of 79,081,633 shares of common stock under the registration statement of which this prospectus forms a part for issuance pursuant to the equity line of credit. The sale of these shares into the public market by AGS could depress the market price of our common stock.


Our common stock price may decline by our draw on our equity line of credit.


Effective May 7, 2013, we entered into the Drawdown Agreement with AGS. Pursuant to the Drawdown Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to AGS at a price equal to 90% of the average of the three (3) lowest closing bid prices of our common stock during the ten (10) consecutive trading days immediately following the date our Notice is delivered.  Because the put price is lower than the prevailing market price of our common stock, to the extent that the put right is exercised, your ownership interest may be diluted.


There may not be sufficient trading volume in our common stock to permit us to generate adequate funds.

The Drawdown Agreement provides that the dollar value that we will be permitted to request from AGS in each Notice may be up to $250,000, provided that the number of shares sold pursuant to each Notice shall not exceed 200% of the average daily trading volume for the previous 10 trading days. If the average daily trading volume in our common stock is too low, it is possible that we may not be permitted to draw the full amount of proceeds of the drawdown request, which may not provide adequate funding for our planned operations.


If we fail to remain Current on our reporting requirements, we could be removed from quotation by the OTCBB, which would limit the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.


Companies quoted on the OTCBB must be reporting issuers under Section 12 of the Exchange Act, and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCBB.  If we fail to remain current on our reporting requirements, we could be removed from the OTCBB.  As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.


Risks Related to Our Business:


We ceased generating revenue.


We have had limited revenues since inception. We will, in all likelihood, sustain operating expenses without corresponding revenues. This may result in our incurring a net operating loss that will increase unless we consummate an acquisition of an oil and gas producing properties that are profitable. We cannot assure you that we can identify any oil and gas properties that will be profitable at the time of its acquisition by the Company or ever.


Risks Related to our Business Operations:


Environmental and Occupational Regulations will impact our operations.


We are subject to various federal, state, provincial, and local international laws and regulations concerning occupational safety and health as well as the discharge of materials into, and the protection of, the environment. Environmental laws and regulations relate to, among other things:


9


i)

assessing the environmental impact of drilling, workover or construction activities;

ii)

the generation, storage, transportation and disposal of waste materials;

iii)

the emission of certain gases into the atmosphere;

iv)

the monitoring, abandonment, reclamation and remediation of well and other sites, including sites of former operations; and

v)

the development of emergency response and spill contingency plans.


The costs of environmental protection and safety and health compliance are significant. Compliance with environmental, safety and health initiatives can be costly. There is no assurance that we will be able to comply with these regulations. If we cannot comply with these regulations, we will be forced to cease all operations in which case you will lose your entire investment. We cannot predict with any reasonable degree of certainty our future exposure concerning such matters.


We are subject to exploration and production regulation.


Our oil and gas operations are subject to various federal, state, provincial, tribal, and local laws and regulations. These laws and regulations relate to matters that include, but are not limited to:


i)

acquisition of seismic data;

ii)

location of wells;

iii)

drilling and casing of wells;

iv)

hydraulic fracturing;

v)

well production;

vi)

spill prevention plans;

vii)

emissions and discharge permitting;

viii)

use, transportation, storage and disposal of fluids and materials incidental to oil and gas operations;

ix)

surface usage and the restoration of properties upon which wells have been drilled;

x)

calculation and disbursement of royalty payments and production taxes;

xi)

plugging and abandoning of wells; and

xii)

transportation of production.

Our operations also are subject to conservation regulations, including the regulation of the size of drilling and spacing units or proration units; the number of wells that may be drilled on the Oil and Gas Lease and the unitization or pooling of oil and gas properties. In the United States, some states allow the forced pooling or integration of tracts to facilitate exploration, while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws generally limit the venting or flaring of natural gas and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to limit the amounts of oil and gas we can produce from our wells and to limit the number of wells or the locations at which we can drill.


Public policy, which includes laws, rules and regulations, can change.


Our operations are generally subject to federal laws, rules and regulations. In addition, we are also subject to the laws and regulations of various states and local governments. Pursuant to public policy changes, numerous government departments and agencies have issued extensive rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. Changes in such public policy have affected, and at times in the future could


10


affect,our operations. Political developments can restrict production levels, enact price controls, and change environmental protection requirements, and increase taxes, royalties and other amounts payable to governments or governmental agencies. Existing laws and regulations can also require us to incur substantial costs to maintain regulatory compliance. Our operating and other compliance costs could increase further if existing laws and regulations are revised or reinterpreted or if new laws and regulations become applicable to our operations. Although we are unable to predict changes to existing laws and regulations, such changes could significantly affect our profitability, financial condition, and liquidity, particularly changes related to hydraulic fracturing, income taxes and climate change as discussed below.


Hydraulic Fracturing  — The U.S. Congress is currently considering legislation to amend the federal Safe Drinking Water Act to require the disclosure of chemicals used by the oil and natural-gas industry in the hydraulic-fracturing process. Currently, regulation of hydraulic fracturing is primarily conducted at the state level through permitting and other compliance requirements. This legislation, if adopted, could establish an additional level of regulation and permitting at the federal level.

  

Environmental matters and costs can be significant.

  

As an operator of oil and gas properties, we are subject to various federal, state, and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on us for the cost of pollution clean-up resulting from our operations in affected areas. Any future environmental costs of fulfilling our commitments to the environment are uncertain and will be governed by several factors, including future changes to regulatory requirements. There is no assurance that changes in or additions to public policy regarding the protection of the environment will not have a significant impact on our operations and profitability.

  

Insurance does not cover all risks.

  

Exploration, development, production, and processing of oil and gas can be hazardous and involve unforeseen occurrence including, but not limited to blowouts, cratering, fires, and loss of well control. These occurrences can result in damage to or destruction of wells or production facilities, injury to persons, loss of life, or damage to property or the environment. We do not maintain insurance at this time against losses or liabilities in accordance with customary industry practices. However, insurance against all operational risks is not available to us.


We have generated limited revenues from operations. We have a history of losses and losses are likely to continue in the future.

  

We have generated limited revenues from operations. Cumulative losses as of February 28, 2013 totaled ($2,897,586). We have incurred significant losses in the past and we will likely continue to incur losses in the future unless our development program proves successful. Even if our development program produces oil and gas, there can be no assurance that we will be able to commercially exploit these resources, or generate sufficient revenues to operate profitably.

  

We will require additional financing to continue our development operations.

  

We will require significant working capital to continue our current development program. There can be no assurance that we will be able to secure additional funding to meet our objectives or if we are able to identify funding sources, that the funding will be available on terms acceptable to the Company. Should this occur, we will have to significantly reduce our development programs, which will limit our ability to secure additional equity participation in acquisitions of oil and gas leases or in various joint ventures.

  

There are no confirmed proven reserves of oil and gas reservoirs on any properties from which we may derive any financial benefit.

  

Neither the Company nor any independent petroleum geologist has confirmed that our leasehold interests can be commercially developed. In order to carry out additional development and/or exploration programs of any potential oil or gas deposits, we will require substantial additional funding.


We have no history as a company engaged in oil and gas development or exploration.   


We have no history of earnings or cash flow from oil and gas operations. If we are able to proceed to production, commercial viability will be affected by factors that are beyond our control such as the particular attributes of the deposit, the fluctuation in the prices of oil and gas,  the cost of construction and operating an oil or gas  well, prices, and refining facilities, the availability of economic sources for energy, government regulations including regulations relating to prices, royalties, restrictions on production, quotas on exploration,  as the costs of protection of the environment.

  

If our exploration costs are higher than anticipated, then our profitability will be adversely affected.

  

We are currently proceeding with development and/or exploration of our leasehold interests on the basis of estimated development/exploration costs. If our development/exploration costs are greater than anticipated we may be forced to terminate our operations until such time as we generate additional revenues to fund our operations. Factors that could cause


11


develpment/exploration costs to increase are adverse weather conditions, difficult terrain, unknown or unexpected results when we re-enter a well, increased government regulation and shortages of qualified personnel.

  

We face many operating hazards.


The development and operation of an oil or gas well involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include, among other things, ground fall, flooding, environmental hazards, and the discharge of toxic chemicals, explosions and other accidents. Such occurrences may result in work stoppages, delays in production, increased production costs, damage to or destruction of mines and other producing facilities, injury or loss of life, damage to property, environmental damage, and possible legal liability for such damages.




We do not maintain liability insurance.


We do not maintain liability insurance. As such, if we are found liable for any action, whether intentional or unintentional, we will be required to satisfy the liability with our own funds. Currently we have nominal assets and any monetary award would likely result in the close of our operations. Even assuming a significant increase in our assets and we secure liability insurance, the amount of the coverage may be insufficient to cover to insure against any award. Since the Company may not be able, or may elect not to insure, this may result in a material adverse change in the Company’s financial position. The nature of these risks is such that liabilities may exceed policy limits, in which event the Company would incur substantial uninsured losses.


During our operations we may experience certain unanticipated conditions or unexpected or unusual events may occur, including fires, floods, or earthquakes. It is not always possible to fully insure against such risks and we may decide not to take out insurance against such risks as a result of high premiums or for other reasons. Should such liabilities arise, they may reduce or eliminate any future profitability and may result in a decline in the value of the securities of the Company.


There may be insufficient oil and gas reserves to develop any of our properties and our estimates may be inaccurate.

  

There is no certainty that any expenditures made in the development/exploration of any properties will result in discoveries of commercially recoverable quantities of oil or gas. Most development/exploration projects do not result in the discovery of commercially extractable deposits of oil or gas and no assurance can be given that any particular level of recovery will in fact be realized or that any identified leasehold interest will ever qualify as a commercially developed. Estimates of reserves, deposits, and production costs can also be affected by such factors as environmental regulations and requirements, weather, unexpected or unknown results when we re-enter a well, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations, and work interruptions.

  

Short term factors relating to reserves, such as the need for orderly development of the wells may also have an adverse effect on our development/exploration, drilling and on the results of operations. There can be no assurance the production of insignificant amounts of oil can be duplicated in a larger exploration program. Material changes in estimated reserves, development/drilling costs may affect the economic viability of any project.


 We have no proven reserves.


All of our leasehold interests are without known bodies (reserves) of commercial oil or gas. Development of these properties will follow only upon obtaining satisfactory development/exploration results. The long-term profitability of the Company’s operations will be in part directly related to the cost and success of its development/exploration and development programs. Oil and gas development/exploration and development are highly speculative businesses, involving a high degree of risk. Few properties, which are explored, are ultimately developed into producing oil and gas fields. There is no assurance that our development/exploration and development activities will result in any discoveries of commercial quantities of oil and gas. There is also no assurance that, even if commercial quantities of oil or gas are discovered, a well can be brought into commercial production. Production/discovery of oil and gas is dependent upon a number of factors, not the least of which is the technical skill of the development/exploration personnel involved. The commercial viability of a well is also dependent upon a number of factors, many of which are beyond the Company’s control, such as worldwide economy, the price of oil and gas, government regulations, including regulations relating to royalties, allowable production, and environmental protection.


We face fluctuating oil and prices.   

  

The price of oil and gas has experienced significant price movements over short periods of time and is affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations (including, the U.S. dollar relative to other currencies) interest rates, global or regional consumption patterns, speculative activities and increases in production due to improved exploration and d production methods. The supply of and demand for oil and gas are affected by various factors, including political events, economic conditions and production costs in major producing regions.


12


Drilling operations are hazardous, raise environmental concerns and raise insurance risks.

  

Drilling operations are by their nature subject to a variety of risks, such as, flooding, environmental hazards, the discharge of toxic chemicals and other hazards. Such occurrences may delay development or production, increase production costs, or result in a liability. We may not be able to insure fully or at all against such risks, due to political or other reasons, or we may decide not to take out insurance against such risks as a result of high premiums or other reasons. We intend to conduct our business in a way that safeguards public health and the environment and in compliance with applicable laws and regulations. Environmental hazards may exist on properties in which we hold an interest which are unknown to us and may have been caused by prior owners. Changes to drilling laws and regulations could require additional capital expenditures and increase operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could render certain operations uneconomic.

  

Our estimates of resources are subject to uncertainty. The cost of employing this technology maybe cost prohibitive or the cost may exceed the benefit.

  

Under current SEC standards, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. Reasonable certainty can be established using techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that have been field-tested and have demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.


In order to establish reasonable certainty with respect to our leases, we would have to employ technologies that have been demonstrated to yield results with consistency and repeatability. The technical data used in the estimation of proved reserves include, but are not limited to, electrical logs, radioactivity logs, core analyses, geologic maps and available downhole and production data, seismic data and well test data. Generally, oil and gas reserves are estimated using, as appropriate, one or more of these available methods: production decline curve analysis, analogy to similar reservoirs or volumetric calculations. Reserves attributable to producing wells with sufficient production history are estimated using appropriate decline curves or other performance relationships. Reserves attributable to producing wells with limited production history and for undeveloped locations are estimated using performance from analogous wells in the surrounding area and technical data to assess the reservoir continuity. In some instances, particularly in connection with exploratory discoveries, analogous performance data is not available, requiring us to rely primarily on volumetric calculations to determine reserve quantities. Volumetric calculations are primarily based on data derived from geologic-based seismic interpretation, open-hole logs, and completion flow data. When using production decline curve analysis or analogy to estimate proved reserves, they would be limited to estimates to the quantities of oil and gas derived through volumetric calculations.


The accuracy of any reserve estimate is a function of the quality of available geological, geophysical, engineering, and economic data, the precision of the engineering and geological interpretation and judgment. The estimates of reserves and future cash flows are based on various assumptions and are inherently imprecise. Even though these estimates may be reasonable and logical, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates. Also, the use of a discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which the oil and natural gas industry in general are subject.

  

If we are unable to obtain all of our required governmental permits, our operations could be negatively impacted.

  

Our future operations, including exploration and development activities, required permits from various governmental authorities. Such operations are and will be governed by laws and regulations governing prospecting, development,   production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to acquire all required licenses or permits or to maintain continued operations at our properties.


We are subject to numerous environmental and other regulatory requirements.


All phases of drilling and development/exploration operations are subject to governmental regulation including environmental regulation. Environmental legislation is becoming stricter, with increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and heightened responsibility for companies and their officers, directors and employees. There can be no assurance that possible future changes in environmental regulation will not adversely affect our operations. As well, environmental hazards may exist on a property in which we hold an interest that was caused by previous or existing owners or operators of the properties and of which the Company is not aware at present.


13


Government approvals and permits are required to be maintained in connection with our drilling and development/exploration activities. We will require permits for our operations and there re is no assurance that delays will not occur in connection with obtaining all necessary renewals of such permits for the existing operations or additional permits for any possible future changes to the Company’s operations, including any proposed capital improvement programs. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions there under, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in drilling operations may be required to compensate those suffering loss or damage by reason of our activities and may be liable for civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permitting requirements, or more stringent application of existing laws, may have a material adverse impact on the Company resulting in increased capital expenditures or production costs, reduced levels of production at producing properties or abandonment or delays in development of properties.

   

There is no assurance that there will not be title or boundary disputes.


Although we have investigated the right to explore and exploit our properties and obtained records from government offices, this should not be construed as a guarantee of title. Other parties may dispute the title to any of our properties or that any property may be subject to prior unregistered agreements and transfers. The title may be affected by undetected encumbrances or defects or governmental actions.


Local infrastructure may impact our development/exploration activities and results of operations.


Our activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges and power and water supplies are important determinants that affect capital and operating costs. Unusual or infrequent weather phenomena sabotage or government or other interference in the maintenance or provision of such infrastructure could adversely affect the activities and profitability of the Company.


There may be challenges to our title in our properties.

  

While we intend to conduct our own due diligence prior to committing significant funds to any project,  oil and gas properties may be subject to prior unregistered agreements, transfers or claims and title may be affected by undetected defects. Should this occur, we face significant delays, costs and the possible loss of any investments or commitment of capital.


Because of the speculative nature of completing development programs and drilling for oil and gas, there are significant risks that our business will fail.

  

Oil and gas development/exploration is extremely risky. We cannot provide any assurances that our activities will result in commercially exploitable reserves of oil and gas. Development/exploration for oil and gas is a speculative venture necessarily involving substantial risk. Any expenditure that we make may not result in the discovery of commercially exploitable reserves.

  

The market for oil and gas is volatile. This will have a direct impact on the Company’s revenues (if any) and profits (if any) and will probably have an adverse affect on our ongoing operations.

  



The price of both oil and gas has fluctuated significantly over the past few years. This has contributed to the renewed interest in oil and gas exploration. However, in the event that the price of either oil or gas falls, the interest in exploratory ventures may decline and the value of the Company’s business could be adversely affected.

  

Government regulation or changes in such regulation may adversely affect the Company’s business.

  

The Company intends to engage experts to assist it with respect to its operations. The Company deals with various regulatory and governmental agencies and the rules and regulations of such agencies. No assurances can be given that it will be successful in its efforts or dealings with these agencies. Further, in order for the Company to operate and grow its business, it needs to continually conform to the laws, rules, and regulations of such jurisdiction. It is possible that the legal and regulatory environment pertaining to the development/exploration and development of oil and gas properties will change. Uncertainty and new regulations and rules could increase the Company’s cost of doing business or prevent it from conducting its business.

   

 We are in competition with companies that are larger, more established and better capitalized than we are.

  

Many of our potential competitors have:


·

greater financial and technical resources;

·

longer operating histories and greater experience in oil and gas

  


14


We may not be able to generate revenue sufficient to maintain operations.

  

To date, we have generated limited revenue. We have incurred significant losses since inception and there can be no assurance that we will be able to reverse this trend. Even if we are able to successfully identify commercially exploitable oil and gas reserves, there is no assurance that we will have sufficient financing to exploit these reserves, generate revenues, or find a willing buyer for the properties.

  

We have no proven reserves, extremely limited operations and no operating revenues.   

  

We currently have no revenues from operations and no proven reserves. Reserves, by definition, contain mineral deposits in a quantity and in a form from which oil and gas may be economically and legally extracted or produced. We have not established that either oil or gas exists in any quantity in the property, which is the focus of our exploration efforts, and unless or until we do so, we will have nominal revenues.   

  

Development/Exploration for economic deposits of oil and gas is speculative.

  

Our business is very speculative since there is generally no way to recover any of the funds expended on development/exploration unless the existence of commercially exploitable reserves are established and the Company can exploit those reserves by either commencing drilling operations, selling or leasing its interest in the property, or entering into a joint venture with a larger e company that can further develop the property. Unless we can establish and exploit reserves before our funds are exhausted, we will have to discontinue operations, which could make our stock valueless.

  

Our operations are subject to environmental risks.

  

Our operations are subject to strict environmental rules and regulations. There can be no assurance that we will be able to comply with these rules. Environmental legislation is evolving in some jurisdictions in a manner, which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect our projects


The oil and gas industry is highly competitive and the success and future growth of our business depend upon our ability to remain competitive in identifying and developing properties with sufficient reserves for economic exploitation.

  

The oil and gas industry is highly competitive and fragmented with limited barriers to entry, especially at the exploratory stages. We compete in national, regional, and local markets with large multi-national corporations and against start-up operators hoping to identify an oil or gas property. Some of our competitors have significantly greater financial resources than we do. This puts us at a competitive disadvantage if we choose to further exploit development opportunities.   

  

The loss of key members of our senior management team could adversely affect the execution of our business strategy and our financial results.

  

We believe that the successful execution of our business strategy and our ability to move beyond the exploratory stages depends on the continued employment of key members of our senior management team. If any members of our senior management team become unable or unwilling to continue in their present positions, our financial results and our business could be materially adversely affected.

  

We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce our revenues.

  

Our organization is subject to extensive and complex, federal and state laws and regulations. If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or cease and desist orders.

  

We will hire third party companies to undertake our development programs.   

  

We will have to hire employees or retain independent companies to oversee or perform our development operations. We currently do not have sufficient funds for either. As such, even with exploitable deposits of oil or gas, we may not be able to develop our leasehold interests.


15


Risks Related to Our Stockholders and Shares of Common Stock


We have a large number of authorized but unissued shares of our common stock.

  

We have a large number of authorized but unissued shares of common stock, which our management may issue without further stockholder approval, thereby causing dilution of your holdings of our common stock. Our management will continue to have broad discretion to issue shares of our common stock in a range of transactions, including capital-raising transactions, mergers, acquisitions and in other transactions, without obtaining stockholder approval, unless stockholder approval is required. If our management determines to issue shares of our common stock from the large pool of authorized but unissued shares for any purpose in the future, your ownership position would be diluted without your further ability to vote on that transaction.


Shares of our common stock may continue to be subject to price volatility and illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange.

  

While we may at some point be able to meet the requirements necessary for our common stock to be listed on a national securities exchange, we cannot assure you that we will ever achieve a listing of our common stock on a national securities exchange. Our shares are currently only eligible for quotation on the Over-The-Counter Bulletin Board, which is not an exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and may limit your ability to sell your shares, any of which could result in you l/osing some or all of your investments.


The market valuation of our business may fluctuate due to factors beyond our control and the value of your investment may fluctuate correspondingly.


The market valuation of emerging growth companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies. Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:

 

i)

changes in securities analysts’ estimates of our financial performance, although there are currently no analysts covering our stock;

·

ii)

fluctuations in stock market prices and volumes, particularly among securities of emerging growth companies;

·

iii)

changes in market valuations of similar companies;

·

iv)

announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;

·

v)

variations in our quarterly operating results;

·

vi)

fluctuations in related commodities prices; and

·

vii)

additions or departures of key personnel.


As a result, the value of your investment in us may fluctuate.


Investors should not look to dividends as a source of income.


In the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable future. Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market value of our stock, and not as a result of dividend payments.

  




Our common stock may be subject to penny stock regulations, which may make it difficult for investors to sell their stock.


The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks”. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules; deliver a standardized risk disclosure document prepared by


16


the Commission, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If our common stock becomes subject to the penny stock rules, holders of our shares may have difficulty selling those shares.


We have never paid dividends on our common stock.


We have never paid cash dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. We anticipate that any funds available for payment of cash dividends will be re-invested into the Company to further our business strategy.


We expect to issue more shares in an equity financing, which will result in substantial dilution..


Our Articles of Incorporation authorize the Company to issue 5,000,000,000 shares of common stock. Any equity financing effected by the Company may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, our common stock issued in any equity financing transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock or preferred stock are issued in connection with a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of common stock might be materially adversely affected.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements.  The words "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect" and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in "Risk Factors" and elsewhere in this prospectus.

 

Other sections of this prospectus may include additional factors which could adversely affect our business and financial performance. Moreover, we operate in a highly regulated, very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

We undertake no obligation to update publicly or revise any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or will occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have an ongoing obligation to continually disclose material future changes in the Company and its operations.

 

17


USE OF PROCEEDS

 

We will not receive any of the proceeds from the sale of the common stock by Selling Stockholder. However, the Company anticipates receiving up to $15,000,000 gross proceeds pursuant to the equity line of credit with AGS. The maximum amount we can receive is dependent on the liquidity and price of our common stock, and could be less than $15,000,000. If the Company receives $50,000,000, we expect to disburse the proceeds from this offering in the amounts set forth below:

Offering Proceeds:

$15,000,000

$10,000,000

$5,000,000

    

Selling Costs - 5%

$750,000

$500,000

$250,000

    

Acquisitions:   

$12,500,000

$8,500,000

$4,250,000

    

Working Capital - 10%:

$1,250,000

$850,000

$425,000

    

General Corporate Purposes:

$500,000

$150,000

$75,000

    

Totals

$15,000,000

$10,000,000

$5,000,000



DETERMINATION OF OFFERING PRICE

 

The Selling Stockholder may sell their shares in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to the prevailing market price, or at negotiated prices. We will not receive any proceeds from the sale of shares by the Selling Stockholder.



DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES

 

"Dilution" represents the difference between the offering price of the shares of common stock and the net book value per share of common stock immediately after completion of the offering. "Net Book Value" is the amount that results from subtracting total liabilities from total assets.  In this offering, the level of dilution is increased as a result of the relatively low book value of Xun’s issued and outstanding stock.

As of May 31, 2013, we had 385,415,240 shares of common stock outstanding. Our net tangible book value as of February 28, 2013 was ($189,830).  Based upon those figures, our net tangible book value per share was ($0.00049253). Assuming an approximate net tangible value of ($189,830), on May 31, 2013 and after giving effect to the purchase by AGS of all 75,000,000 shares being offered, and in effect Xun receives the maximum estimated proceeds, our net book value per share would be $0.18284080 which represents an immediate dilution to an investor of $0.01715920 per share.

 The following table illustrates the dilution of the net book value of common stock purchased by AGS in this offering of 75,000,000 shares compared with those existing shareholders who purchased shares of Xun previously.

Percent of Offering Sold

100%

75%

50%

25%

     

Net Tangible Book Value Per Share Prior to Sale

-$0.00049253

-$0.00049253

-$0.00049253

-$0.00049253

 

    

Pro Forma Net Tangible Book Value Per Share After Sale

$0.18284080

$0.18284080

$0.18284080

$0.18284080

 

    

Increase in Net Book Value Per Share Due to Sale

$0.18333333

$0.18333333

$0.18333333

$0.18333333

 

    

Net Dilution (Purchase Price of $0.20 Less Pro Forma Net Tangible Book Value Per Share)

$0.01715920

$0.01715920

$0.01715920

$0.01715920


18


SELLING STOCKHOLDER


Reserve Equity Financing Agreement.


On May 7, 2013, we entered into the Drawdown Agreement and a registration rights agreement (collectively, the “Agreements”) with AGS. In accordance with the Agreements, AGS has committed, subject to certain conditions, to purchase up to fifteen million dollars ($15,000,000) of the Company's common stock over a term of up to three years. AGS and any participating broker-dealers are “underwriters” within the meaning of the Securities Act. Although the Company is not mandated to sell shares under the Agreements, the Agreements give the Company the option to sell to AGS shares of common stock at a per share purchase price equal to 90% of the average of the three lowest closing bid prices during the ten consecutive trading days immediately following the Company's delivery of a Notice. At its option, the Company may set a floor price under which AGS will not purchase the shares which were the subject of the Notice.  


AGS is not required to purchase the shares, unless the shares which are subject to the Notice have been registered for resale and are freely tradable in accordance with the federal securities laws, including the Securities Act. The Company is obligated to file with the SEC a registration statement on Form S-1, of which this prospectus forms a part, and to use all commercially reasonable efforts to have such registration statement declared effective by the SEC.




During the ten consecutive trading days following a Notice, we will calculate the amount of shares we will sell to AGS and the purchase price per share. The amount may not equal the full amount of the Notice due to market conditions and/or the floor provisions in the Drawdown Agreement. The purchase price per share of common stock will be based on the average of the three lowest closing bid prices of our common stock during the ten consecutive trading days immediately following the drawdown date, less a discount of 10%. AGS' obligations under the Drawdown Agreement are not transferrable.


The value of stock issued in each advance must exceed $3,000 if the stock is not DWAC eligible and cannot be sent electronically in order for the Advance to be accepted by the Investor. The maximum amount we can request at any one time is the larger of:


·

$250,000; or

·

200% of the average daily volume based on the trailing ten days preceding the date of delivery of a Notice.


Allen Silberstein is a natural person and the Chief Executive Officer of AGS who exercises the voting and dispositive powers with respect to the shares to be offered by the Company. Allen Silberstein has had no other material relationship with the Company and has owned no securities of the Company prior to the offering.


Please note that the parties have agreed to $15,000,000 as the amount of the equity line of credit. Although the parties believe it is unlikely that the full amount of the proceeds available under equity line of credit will be used at the current stock price, the parties believe that with the proper use of the funds, the price of the stock will increase and we will be able to use the whole equity line of credit.


All expenses incurred with respect to the registration of the common stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commission or other expenses incurred by the Selling Stockholder in connection with the sale of such shares. 


Except as indicated below, neither the Selling Stockholder nor any of its associates or affiliates has held any position, office, or other material relationship with us in the past three years.


The following table sets forth the name of the Selling Stockholder, the number of shares of common stock beneficially owned by the Selling Stockholder as of the date hereof and the number of shares of common stock being offered by the Selling Stockholders. The shares being offered hereby are being registered to permit public secondary trading, and the Selling Stockholder may offer all or part of the shares for resale from time to time. However, the Selling Stockholder is under no obligation to sell all or any portion of such shares. All information with respect to share ownership has been furnished by the Selling Stockholder. The “Number of Shares Beneficially Owned After the Offering” column assumes the sale of all shares offered herein.

Name

Shares Beneficially

Owned Prior To Offering

hares to

be Offered

Amount Beneficially

Owned After Offering(1)

Percent

Beneficially Owned

After Offering

AGS Capital Group, LLC (2)

4,081,633 (4)

75,000,000 (3)

0

0%


(1)

The number assumes the Selling Stockholder sells all of the common shares being offering pursuant to this prospectus.


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(2)

AGS Capital Group, LLC is a limited liability company organized and exiting under the laws of the State of Nevada. Allen Silberstein is the Chief Executive Officer of AGS Capital Group, LLC and, acting alone, has voting and dispositive power over the shares beneficially owned by AGS Capital Group, LLC.

(3)

The number assumes that AGS purchases the maximum amount of registrable Put Shares in this registration statement.

(4)

Assumes that AGS commitment fee deposit of 4,081,633 shares is refunded to the Company

 

PLAN OF DISTRIBUTION

 

This prospectus relates to the resale of up to 79,081,633 shares of our common stock by the Selling Stockholder, including (i) up to 75,000,000 Put Shares that we may put to AGS, pursuant to the Drawdown Agreement, and (ii) 4,081,633 commitment shares of our common stock we paid to AGS as a fee for providing the facility.


The Selling Stockholder and any of its pledgees, donees, assignees and other successors-in-interest may, from time to time sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling shares:


·

ordinary brokerage transactions and transactions in which the broker-dealer solicits the purchaser;

·

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal;

·

facilitate the transaction;

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

·

through the writing of options on the shares

·

a combination of any such methods of sale; and

·

any other method permitted pursuant to applicable law.


The Selling Stockholder may also sell shares under Rule 144 of the Securities Act, if available, rather than under this prospectus. The Selling Stockholder shall have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if it deems the purchase price to be unsatisfactory at any particular time.


The Selling Stockholder may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that the Selling Stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then existing market price. We cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the Selling Stockholder. The Selling Stockholder and any broker-dealers or agents, upon completing the sale of any of the shares offered in this prospectus, may be deemed to be "underwriters" as that term is defined under the Securities Act, the Exchange Act and the rules and regulations of such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.


We are required to pay all fees and expenses incident to the registration of the shares. The Selling Stockholder, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter. The Selling Stockholder has not entered into any agreement with a prospective underwriter and there is no assurance that any such agreement will be entered into.


The Selling Stockholder may pledge its shares to its brokers under the margin provisions of customer agreements. If the Selling Stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The Selling Stockholder and any other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Exchange Act, and the rules and regulations under such act, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the Selling Stockholder or any other such person. The Selling Stockholder is not permitted to engage in short sales of common stock. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.


AGS, the underwriter herein, may offer for sale up to 79,081,633 shares of our common stock which it will originally acquire


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pursuant to the terms of the Drawdown Agreement. AGS will be offering such shares for its own account. We do not know for certain how or when AGS will choose to sell its shares of common stock. However, it can sell such shares at any time or through any manner set forth in this plan of distribution, at such time as we have "put" the shares to them. We may request AGS to purchase shares by delivering a Notice to AGS. A Notice may not be sent until the drawdown on the prior Notice is completed.


To permit AGS to resell the shares of common stock issued to it and the 4,081,633 Commitment Shares, we agreed to file a registration statement, of which this prospectus is a part, and all necessary amendments and supplements with the SEC for the purpose of registering and maintaining the registration of the shares and the 4,081,633 Commitment Shares. We will bear all costs relating to the registration of the common stock offered by this prospectus. We will keep the registration statement effective until the earlier of (i) the date after which all of the shares of common stock held by AGS that are covered by the registration statement have been sold by AGS pursuant to such registration statement and (ii) the first day of the month next following the 36-month anniversary of the date the registration statement, to which this prospectus is made a part, is declared effective by the SEC.


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BUSINESS

 

Definitions


There are numerous abbreviations of general use in the Oil and Gas Industry, as well as those used by the Company. Following is a glossary of abbreviations used throughout this report.   


Abbreviations:


  

Abbreviation

Definition

  

  

“BBL”

Barrel, 42 US gallons

“BOPD”

Barrels of Oil Production per Day

“BOPM”

Barrels of Oil Per Month

“D&A”

Dry and Abandoned

“DG”

Domestic Gas

“GAS”

Gas Producer or natural gas

“HKO”

Highest known oil

“LKH”

Lowest known hydrocarbons

“LOC”

Location (new permit issued or insufficient data)

“MCF”

One Thousand Cubic Feet

“MCFGPD”

Thousand Cubic Feet Of Gas Per Day

“MCFPD”

One Thousand Cubic Feet of Gas Per Day

“MMBtu”

One million (1,000,000) British thermal units

“MMCFD”

One Million Cubic Feet of Gas Per Day

“NRI”

Net Revenue Interest or Net Royalty Interest

“NUX”

Nux Holdings of Kentucky, Inc.

“OIL”

Oil Producer or crude oil

“ORRI”

Overriding Royalty Interest

"PSA"

Purchase and Sales Agreement

“SEC”

The United States Securities and Exchange Commission.

“TCF”

Trillion cubic feet

“TRM”

Terminated (permit expired or cancelled)

“WI”

Working Interest

“XNRG”

Xun Energy, Inc.

“XUN OIL-KY”

Xun Oil of Kentucky, Inc., part of  Oil and Gas Division of Xun Energy, Inc.

“XUN OIL-FL”

Xun Oil Corporation, part of Oil and Gas Division of Xun Energy, Inc



Oil and Gas Glossary of Terms and Definitions


We are providing you with the following glossary of terms to assist you in your understanding of the oil and gas industry.    


  

Term

Definition

ASSIGNMENT

In oil and gas usage, assignment is a transfer of a property or an interest in an oil or gas property; most commonly, the transfer of an oil or gas lease. The assignor does the transferring and the assignee receives the interest of property.

  

  

CRUDE OIL PRODUCTION

Pressure from the reservoir forces the hydrocarbons (crude oil) from the pores in the formation, and moves them to the wellbore. A downhole pump connected by sucker rod to a pump jack artificially lifts the crude oil from the bottom of the wellbore to the top of the wellhead and into a collection tank.

  

  

DEVELOPMENT - OFFSET DRILLING

Offset drilling program consists of drilling new wells within a proven and producing property. Well locations are selected by geologists based on known and historical data from producing oil and gas wells within the property or adjoining properties.

  

  

DOWN HOLE PUMP OR BOTTOM HOLE PUMP

Any of the rod pumps, high-pressure liquid pumps, or centrifugal pumps located at or near the bottom of the well and used to lift the well fluids.


22

  

  

DRILLING RIG

A drilling rig is a machine, which creates holes (usually called boreholes) and/or shafts in the ground. Drilling rigs can be massive structures housing equipment used to drill oil wells, or natural gas extraction wells.

  

  

FARMIN AGREEMENT

An agreement between operators whereby the owner (farmer) not wanting to drill a property agrees to assign all or part to the operator (farmee) desiring to drill; farmee assumes the obligation to drill one or more wells on the property to earn the assignment.

  

  

FRACTURING

The pumping of crude oil, diesel, water, or chemical into a reservoir with such force that the reservoir rock is broken and results in greater flow of oil or gas from the reservoir.



GAS WELL

 


A well that produces natural gas, which is not associated with crude oil.

  

  

LANDMAN

The individual who negotiates oil and gas leases with mineral owners, cures title defects, and negotiates with other companies on agreements concerning the lease.

  

  

LANDOWNER

The person who generally owns all or part of the minerals under his lands and is entitled to lease the same.

  

  

LEASE

(1) A legal instrument executed by a mineral owner granting exclusive right to another to explore, drill, and produce oil and gas from a piece of land; (2) Used in conjunction with the actual location of a well(s) or unit.

  

  

LEASEHOLD

An Oil and Gas property that is leased from the land owner for a royalty based on production of oil and gas from the property as developed by the leasee.

  

  

LESSEE

The person who receives the lease, sometimes called the tenant.

  

  

LESSOR

The person giving the lease, sometimes called grantor or landlord.

  

  






NET REVENUE INTEREST

The share of revenue, expressed in fractions or decimals, accruing to the working interest after deducting all lease burdens (royalty, overriding royalty, or similar burden).

  

 

OFFSET WELL

(1) A well drilled on the next location to the original well. The distance from the first well to the offset well depends upon spacing regulations and whether the original well produces oil or gas. (2) A well drilled on one tract of land to prevent the Drainage of oil or gas to an adjoining tract where a well is being drilled or is already producing.

  

  

OIL & GAS LEASE

A contract between mineral owner, otherwise known as the lessor and a company or working interest owner, otherwise known as the lessee in which the lessor grants the lessee the right to explore, drill and produce oil, gas and other minerals for a specified primary term and as long thereafter as oil, gas or other minerals are being produced in paying quantities. This lease gives the lessee a working interest. The oil and gas lease is granted in exchange for royalty payments to the lessor. It is simply a "ticket to hunt".

  

  

OIL WELL

A well that produces crude oil, which is not associated with natural gas.

  

  

OPERATOR

Company which operates an Oil and Gas Lease, either on its own behalf, or, if a member of a consortium, on behalf of Lessee’s. Takes primary responsibility for day-to-day operations for an activity (exploration, development, or production) on the Oil and Gas Lease.

  

  

OVERRIDE ROYALTY

An overriding royalty interest can be assigned from a working interest owner to a person. An overriding royalty interest may also be generated by someone who has leased a person’s minerals and then assigns their leasehold to a working interest owner and retains an override. Neither a royalty nor overriding royalty interest owner pays any well costs associated with the drilling, recompletion or workover of a well. They also do not pay any of the monthly operating expenses associated with a well. Like mineral and royalty owners, the owner of overriding royalty interests receives a portion of the income from the production of oil and


23


gas. The main difference is that the owner of an overriding royalty does not own the minerals under the ground, only proceeds from the production of minerals. Once the lease has expired and production has ceased, the overriding royalty interest expires. Conversely, the owners of minerals and royalties maintain their ownership after production ceases.

  

  

PLUG

To fill a well’s borehole with cement or other impervious material to prevent the flow of water, gas or oil from one strata to another when a well is abandoned; to screw a metal plug into a pipeline to shut off drainage or to divert the stream of oil to a connecting line to stop the flow of oil or gas.

  

 

PLUGGING A WELL

To fill up the borehole of an abandoned well with mud and cement to prevent the flow of water or oil from one strata to another or to the surface. In the industry’s early years, wells were often improperly plugged or left open. Modern practice requires that an abandoned well be properly and securely plugged.

  

  

PROPERTY

Land covered by the Oil and Gas Lease.

  

  

PRODUCTION

The process of extracting crude oil or natural gas from the underground formations to the surface via natural reservoir pressures or by artificial lift.

  

  

PROVED DEVELOPED RESERVES

Proved reserves that can be expected to be recovered (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well, and (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

  

  

PROVED RESERVES

Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible - from a given date forward from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. (i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data. (ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty. (iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty. (iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including government entities.

  

  

PROVED UNDEVELOPED RESERVES

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. (i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic productbility at greater distances. (ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been


24


adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time. (iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

  

  

PUMPER

An employee of an operator who is responsible for gauging the oil and gas sold off the leases he has been assigned and who is also responsible for maintaining and reporting the daily production.

  

  






PUMP JACK

A pump jack (nodding donkey, pumping unit, horsehead pump, beam pump, sucker rod pump (SRP), grasshopper pump, thirsty bird, jack pump) is the over ground drive for a reciprocating piston pump in an oil well. It is used to mechanically lift liquid out of the well if there is not enough bottom hole pressure for the liquid to flow all the way to the surface.

  

  

RESERVOIR

A subsurface, porous, permeable or naturally fractured rock body in which oil or gas are stored. Most reservoir rocks are limestones, dolomites, sandstones, or a combination of these. The four basic types of hydrocarbon reservoirs are oil, volatile oil, dry gas, and gas condensate. An oil reservoir generally contains three fluids—gas, oil, and water—with oil the dominant product. In the typical oil reservoir, these fluids become vertically segregated because of their different densities. Gas, the lightest, occupies the upper part of the reservoir rocks; water, the lower part; and oil, the intermediate section. In addition to its occurrence as a cap or in solution, gas may accumulate independently of the oil; if so, the reservoir is called a gas reservoir. Associated with the gas, in most instances, are salt water and some oil. Volatile oil reservoirs are exceptional in that during early production, they are mostly productive of light oil plus gas, but, as depletion occurs, production can become almost totally completely gas. Volatile oils are usually good candidates for pressure maintenance, which can result in increased reserves. In the typical dry gas reservoir, natural gas exists only as a gas and production is only gas plus fresh water that condenses from the flow stream reservoir. In a gas condensate reservoir, the hydrocarbons may exist as a gas, but, when brought to the surface, some of the heavier hydrocarbons condense and become a liquid.

  

  

ROD (SUCKER ROD)

Steel rods that are screwed together to form a “string” that connects the pump inside a well’s tubing down hole to the pump jack on the surface; pumping rods.

  

  

ROYALTY

A percentage interest in the value of production from a lease that is retained and paid to the mineral rights owner. The share of the production or proceeds therefrom reserved to the lessor under the terms of the mineral lease. Normally, royalty interests are free of all costs of production (as distinguished from costs of marketing) except production taxes, and is established in the lease by reserving a royalty, which is usually, expressed fractionally (i.e. 1/8).

  

  

SERVICE RIG

A service rig is a piece of equipment, which is used for servicing wells such as oil and gas wells. Service rigs are not intended for drilling, but for the completion of other tasks related to operating oil and gas wells. Some companies, which operate wells, maintain their own service rigs, while others prefer to rent them because they can be very expensive. Specialty crews run service rigs when they are needed for routine maintenance and emergencies.

  

  

SWAB

A tool, which is lowered down the pipe on a wire line. The "swab" is then pulled out of the hole. As it travels up the pipe, rubber elements expand so that the fluid in the pipe is trapped above the swab and pushed to the surface. This operation is necessary when the formation pressure is not high enough to blow the fluids in the pipe to the surface.

  

  

TOP HEAD LEASE

A lease acquired while a mineral lease to the same property is still in effect. The top head lease (held by a different company) replaces the existing lease when it expires or is terminated.

  

  

TUBING

Relatively small-diameter pipe that is run into a well to serve as a conduit for the passage of oil and gas to the surface.

  

  

25

WELLBORE

The hole drilled by the bit that is equipped for oil or gas production on a completed well. Also called Well or Borehole.

WELLHEAD

The equipment at the surface of a well used to control the pressure; the point at which the hydrocarbons and water exit the ground

  

  

WELL LOCATION

Well Location is defined as a circle having a radius of the well bore centre, to a depth as allowed in the Master Lease. Does not include rights to minerals beyond the circle of the radius of the well bore centre.

  

  

WILDCAT WELL

An exploration well that is drilled to an unproven reservoir from which no oil

or gas has been produced in the nearby area. A "rank" wildcat is drilled in an area distant from previous drilling.

  

  

WORKING INTEREST

The right granted to the lessee of a property to explore for and to produce and own oil, gas, or other minerals. The working interest owners bear the exploration, development, and operating costs on a cash, penalty, or carried basis.

  

  

WORKOVER

(1) Operations on a producing well to restore or increase production. A workover may be performed to stimulate the well, remove sand, or wax from the wellbore, to mechanically repair the well, or for other reasons.

(2)  The performance of one or more of a variety of remedial operations on a producing oil well to try to increase production. Examples of workover jobs are deepening, plugging back, pulling resetting liners, and squeeze cementing.


General


The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 30 oil and gas wells with an option to acquire an additional 15 oil and gas well locations for drilling and completion in Venango County, Pennsylvania.


The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations.


There are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas will be produced from one or more of the 30 oil and gas well locations, that the Company will be profitable.


We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada.


We were incorporated on December 20, 2007 in the State of Nevada. We are a development stage company, and to date have earned limited revenue.


Our focus is to generate cash flow.


On August 31, 2012 the Company entered into an Oil and Gas Well Location Agreement with Vencedor Energy Partners (Assignor). The agreement allows the Company to drill 30 offset oil and gas wells on 3 producing oil and gas leases in Venango County, Pennsylvania.


The Company paid $585,000 in the form of 11,700,000 shares of common stock (Shares) of the Company for the rights.


The Company will have 100% working interest in the wells and Net Revenue Interest as follows:




  

Lease Name

Net Revenue Interest Breakdown

Rice

Master Lease Lessor - 12.5% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 82.5% royalty interest;

  

  

Lalley

Master Lease Lessor - 12.5% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 82.5% royalty interest; and


26

  

  

Corse

Master Lease Lessor - 15.0% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 80.0% royalty interest.


The Agreement allows the Company to have the exclusive right to explore, operate, produce all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced (Oil and Gas) from Oil and Gas deposits contained within and under the well location and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the well location and other lands for the production of Oil and Gas to the Company. A well location is defined as a circle having a radius of l50 feet with the well, to a depth as allowed in the Master Lease, at the center thereof.


The Company owns the rights and may select up to 30 well locations from the following:


   

Lease Name

Locations

Rights

Rice

Up to 10

One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,200 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Rice Lease.

  

  

  

Lalley

Up to 8

One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,200 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Lalley Lease.

  

  

  

Corse

Up to 15

One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,000 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Corse Lease.


If Company does not begin or provide proof of funds or funding for the first well on or before January 31, 2013, subject to our operator, Vencedor Energy Partners, obtaining the necessary permits to allow the Company to commence drilling and completions operations, and does not begin or provide proof of funds or funding for 3 more wells on or before March 31, 2013, then the Company will have forfeited its rights and the Agreement shall terminate and unwind and the Assignor agrees to return the Shares (11,700,000) to the Company.


On January 29, 2013, pursuant to a letter agreement between the Company and the Assignor, the Company acknowledged and agreed to the notice of the delay of the permits up to 4 weeks beyond January 31, 2013.


After completing 8 wells and if Company does not complete any of the remaining 22 well drilling provision set forth in the Agreement within the 2 years from the date of the execution of the Agreement, then the Company will forfeit its rights to the well locations not completed. The Company will retain its rights for the well locations completed and will retain an Override Royalty of Seven and one half per cent (7.5%) on the well locations forfeited.


The Company has 2 years from the date of execution of the Agreement to complete the drilling of the 30 well locations and has the option to acquire an additional 15 well locations for the same terms and conditions of the Agreement after the first 30 wells locations have been completed.


The Company will provide funding in groups of 4 to 6 wells to optimize economies of scale, with the exception of the first 4 wells which can be funded on an individual basis.


The Company agreed, the Participation and Operating Agreement (the "POA"), to have Assignor the designated Operator (the "Operator") of the Oil and Gas Well Locations which includes all the responsibilities as a designated operator in the State of Pennsylvania which includes the duties of managing and supervising the drilling and completions of the Oil and Gas Locations.


On December 18, 2012, pursuant to the POA, the Operator invoiced the Company $835,000 for the drilling and completion of five oil wells on the Rice lease. The Company has recorded the transaction capitalizing the drilling and completions as work in progress. The liability is included in the Company's Accounts Payable.   


On March 18, 2013, pursuant to a letter agreement, Amendment #3, between the Company and the Assignor, both the Company and the Assignor agreed to delete Section 4a (financing conditions) of the Oil and Gas Well Location Assignment dated August 31, 2012 between Xun Energy, Inc. and Vencedor Energy Partners.


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Mission Statement


·

To become a leader in providing energy, through acquisition and diversification.

·

To acquire working interest positions and mineral rights leases for the purposes of oil and gas development and production using new technologies, advanced drilling and completion methods and invest in known, producing properties and surrounding areas.

·

To be aggressive in gaining interest positions in leases and existing producing properties that will produce desirable returns, utilize leading technologies, utilize methods to maximize exploration and production results while providing Return On Investment.


Strategy


We aspire to be an independent oil and gas company in North America and to provide our shareholders with returns over the long-term. To achieve this, we strive to optimize our capital investments to maximize growth in cash flows, earnings, production and establish reserves. We will do this by:


·

Generating cash flow,

·

Securing financing to acquire our planned acquisitions,

·

Exercising capital discipline,

·

Ensuring financial strength, and

·

Investing in oil and gas properties with strong full-cycle margins.


The Industry


Background:  Oil and Gas industry:

  

The oil and gas businesses are fundamentally commodity businesses. This means the Company’s operations and earnings may be significantly affected by changes in oil and gas prices. Oil and gas prices and margins in turn depend on local, regional, and global events or conditions that affect supply and demand for the relevant commodity. Commodity prices are subject to significant price fluctuations.


Economic conditions      


The demand for energy and petrochemicals correlates closely with general economic growth rates. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on our results. Other factors that affect general economic conditions in the world or in a major region, such as changes in population growth rates or periods of civil unrest, also impact the demand for energy and petrochemicals. Economic conditions that impair the functioning of financial markets and institutions also pose risks to the Company, including risks to the safety of our financial assets and to the ability of our customers to fulfill their commitments to the Company.


Operational Hazards and Insurance


Our operations are subject to the usual hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation. In addition, the presence of unanticipated pressures or irregularities in formations, miscalculations, or accidents may cause our drilling activities to be unsuccessful and result in a total loss of our investment. We do not maintain insurance of the various types to cover our operations with policy limits and retention liability customary in the industry. The occurrence of a significant adverse event, the risks of which are not covered by insurance, could have a material adverse effect on our financial condition and results of operations. We cannot give any assurances that we will be able to obtain adequate insurance in the future at rates we consider reasonable.




Public Policy and Government Regulation

  

The oil and natural gas industry is subject to various types of regulation throughout the world. Laws, rules, regulations, and other policy implementations affecting the oil and natural gas industry have been pervasive and are under constant review for amendment or expansion. Pursuant to public policy changes, numerous government agencies have issued extensive laws and regulations binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas exploration, production and marketing and midstream activities. These laws and regulations increase the cost of doing business and, consequently, affect profitability. Because public policy changes affecting the oil and natural gas industry are commonplace and because existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such


28


laws and regulations. However, we do not expect that any of these laws and regulations will affect our operations in a manner materially different than they would affect other oil and natural gas companies of similar size and financial strength.


Industry Competition For Leases, Materials, People and Capital Can Be Significant


Strong competition exists in all sectors of the oil and gas industry. We compete with other independent oil and gas companies for the acquisition of oil and gas leases and properties. Most of these entities have significantly greater assets and name recognition. We also compete for the equipment and personnel required to explore, develop and operate properties. Competition is also prevalent in the marketing of oil and gas. Typically, during times of high or rising commodity prices, drilling and operating costs will also increase. Higher prices will also generally increase the costs of properties available for acquisition. Certain of our competitors have financial and other resources substantially larger than ours. They also may have established strategic long-term positions and relationships in areas in which we may seek new entry. As a consequence, we may be at a competitive disadvantage in the acquisition of oil and gas leases and properties. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect demand for oil and gas production, such as changing worldwide price and production levels, the cost and availability of alternative fuels, and the application of government regulations.


North American Market


The oil and natural gas industry contributes tremendously to the U.S. economy as one of the nations’ largest employers and purchasers of goods. The industry also produces many products essential to everyday living and provides an economical fuel source for the nation’s transportation, agriculture, and manufacturing needs. 


U.S. and global energy demand is rising significantly as worldwide population grows and quality of life improves for people around the globe. In fact, the International Energy Outlook 2011 quotes: "Despite uncertainty over the prospects for short-term economic growth, demand for energy in the New Policies Scenario grows strongly, increasing by one-third from 2010 to 2035."


U.S. production of liquid fuels (mostly oil) will increase for the next 18 years by 116.35% of 2010 production levels by 2020 according to the Energy Information Administration (EIA), refer to table below:   


       

EIA FORECAST - LIQUID FUEL SUPPLY TO THE USA

Million Barrels/Day

2010

2015

2020

2024

2025

2030

U.S. Production

8.93

9.37

10.39

10.19

10.16

10.04

Biofuels

1.00

1.22

1.52

1.79

1.86

2.36

Canada

1.97

2.25

2.41

2.59

2.61

2.86

Rest of World

7.32

6.30

4.78

4.68

4.67

4.31

U.S. Liquid Fuel Supply

19.22

19.14

19.10

19.25

19.29

19.57

  

      

Percentages

2010

2015

2020

2024

2025

2030

U.S. Production

46%

49%

54%

53%

53%

51%

Biofuels

5%

6%

8%

9%

10%

12%

Canada

10%

12%

13%

13%

14%

15%

Rest of World

38%

33%

25%

24%

24%

22%

U.S. Liquid Fuel Supply

100%

100%

100%

100%

100%

100%

Source: EIA, AEO2012, June 2012


Facts and Figures About the U.S. Oil and Natural Gas Industry


  

9.2 million

Number of people directly and indirectly employed by the U.S. oil and natural gas industry.

7.7% GDP

America’s oil and natural gas industry supports 7.7 percent of our nation’s GDP.

$86 Million/day

Daily amount companies pay to the federal government in royalty payments, rents and bonus fees.

$100 billion

Amount the U.S. oil and natural gas industry has paid to the federal government in rents, royalties and lease payments for production since 2000.

$266 billion

Amount the industry invested in new U.S. capital projects in 2010

$176 billion

Amount of wages paid to U.S. employees in 2010, plus benefits and payments to oil and natural gas leaseholders.

$35 billion

Amount of dividends distributed to American shareholders.

Source: http://energytomorrow.org


29


The future global primary energy demand is expected to be driven by increasing requirements of the rising population, the overall rate of economic growth, and the availability and affordability of energy; energy fuel mix and the efficiency of current and future energy technologies used by the fast emerging economies. Technology, population growth and the role of renewable sources of energy will be the key factors in influencing the future energy growth path. For example, technology could act as double sword. While it will facilitate in augmenting the energy supplies and reducing cost, it will also be the key to arrest the acceleration in energy demand – energy efficiency and help in reducing emission/conservation.


Company Operations


The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company plans to acquire producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and as well in Canada.


The implementation of our business plan will require significant capital. We do not have this capital and as a result, we will require additional financing to acquire and develop our leasehold obligations. We may use debt or equity to fund our ongoing operations. There can be no assurance that any financing will be available, and if available, will be on terms and conditions acceptable to the Company. If we rely on equity financing, our shareholders will experience significant dilution. If we rely on debt financing, we may not be able to satisfy our debt obligations.


Identification of leasehold interests.


The Company plans to acquire producing or near producing leaseholds that will provide cash flow and an upside for future development. However, it is unlikely that we will be able to exploit these leaseholds without a significant capital infusion.         


The Company may acquire the leaseholds  in consideration for cash or shares of the company or a combination of cash and shares of the Company and may include an Overriding Royalty. Typical Overriding Royalty’s range from 2.5% to as much as 25% depending upon the current production on the leaseholds and the potential for Oil and Gas production.


A typical leasehold grants the Company the exclusive right to explore the land (“Property”) covered by the Oil and Gas Lease by geophysical and other methods, and to operate same for and produce there from all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced therewith ("Oil and Gas"); and the exclusive right to inject gas, water, brine and other fluids into subsurface strata; and rights of way and easements for laying pipelines, telephone, telegraph and power lines, and the right to erect or install power stations, compressor stations, roadways, storage tanks or other storage facilities, separators and any fixtures and other structures thereon for producing, treating, processing, maintaining, storing and caring for the oil and gas; and oil and gas from other properties and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the Property and other lands for the production of Oil and Gas, and the injecting of gas, water, brine and other fluids into subsurface strata.


The Company may, at any time and from time-to-time pool all or part of the Property with other properties to create one or more drilling units. The production of Oil or Gas from such a pooled unit is generally treated as though the production occurred from a well on the Property, except the Lessor shall be entitled to royalty only on its pro-rata share of such production.


It is intended that the leasehold also include all lands and interests of the Lessor, which are contiguous to or in the vicinity of the Property.


Usually the leasehold will remain in force for a term of one year from the date executed and for as long thereafter as Oil and/or Gas is produced from the Property, or as long as operations for drilling are continued or as long as operations are continued for injection of gas, water, brine and other fluids into subsurface strata.


When a well is worked over or offset well drilled, an access road is constructed to the well site or upgraded. This results in surface damages that the surface owner is compensated for the loss of property. Timber may also be cut down during construction, the Company may cut and stack the timber at a location convenient for the surface owner to sell or a value may be assessed on the timber and the surface owner compensated.


Depending upon jurisdiction of the leasehold, the state can force a "pooling" of the oil and gas interests of a landowner with the interests of other landowners where the size or condition of lands does not allow the neighbor to find a drill site while respecting distance limits from property lines. A mineral owner has five options in the context of forced pooling. They can: 


1.

Lease their mineral interest.

2.

Sell their mineral interest.

3.

Participate materially in the development of the gas field.


30


4.

Be a non-consenting owner.

5.

Protest forced pooling.


A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).




When the well is no longer considered productive, the Company is required to plug the well under the direction of the Division of Oil and Gas inspector for the State. This involves placing cement plugs at various depths to isolate producing intervals, protect fresh water aquifers and coal seams. The site is reclaimed and vegetation is established to prevent erosion from the well site. After all wells on a lease are plugged, the lease is terminated and returned to the mineral owner.


After completion and testing of a workover well or an offset well, the well is put into production. As in the case of oil, the oil is pumped into a 100 BBL or 200 BBL tank(s). The pumper inspects the well on a daily or regular routine basis and monitors the production of oil. As the tank(s) nears capacity, the pumper will make arrangements for pickup of the oil for delivery to the Purchaser. The cost of hauling the oil to the refinery varies by distance from the well to the refinery and can range from $3 to $6 per BBL. The cost of the freight charge is borne by the Company. Oil collected or shipped during the month is paid by the Purchaser in the following month. The price paid for the produced oil is based on the average monthly market price.    

  

Conflicts of Interest


Management is not required to commit their full time to our affairs and, accordingly, such persons may have conflicts of interest in allocating management time among various business activities. Our affiliates, officers, and directors may engage in other business activities similar and dissimilar to those we are engaged in. To the extent that management engages in such other activities, they will have possible conflicts of interest in diverting opportunities to other companies, entities, or persons with which they are or may be associated or have an interest, rather than diverting such opportunities to us. As no policy has been established for the resolution of such a conflict, we could be adversely affected should management choose to place their other business interests before ours. No assurance can be given that such potential conflicts of interest will not cause us to lose potential opportunities. Management may become aware of investment and business opportunities, which may be appropriate for presentation to us as well as the other entities with which they are affiliated. Management may have conflicts of interest in determining which entity a particular business opportunity should be presented. Accordingly, as a result of multiple business affiliations, management may have similar legal obligations relating to presenting certain business opportunities to multiple entities. In addition, conflicts of interest may arise in connection with evaluations of a particular business opportunity by the board of directors with respect to the foregoing criteria. There can be no assurances that any of the foregoing conflicts will be resolved in our favor. We may consider Business Combinations with entities owned or controlled by persons other than those persons described above. There can be no assurances that any of the foregoing conflicts will be resolved in our favor.


Employees

  

Other than our officers and directors, we have no employees.    

MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS


You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from those we currently anticipate as a result of many factors, including the factors we describe under "Risk Factors," and elsewhere in this prospectus.


Forward-Looking Statements


Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently


31


uncertain.  Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein.


General


The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 30 oil and gas wells with an option to acquire an additional 15 oil and gas well locations for drilling and completion in Venango County, Pennsylvania. The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States.


There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations. There are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas will be produced from one or more of the 30 oil and gas well locations, that the Company will be profitable.


We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada.


We were incorporated on December 20, 2007 in the State of Nevada. We are a development stage company, and to date have earned limited revenue.


Introduction


We are an independent oil and natural gas development and production company. Our basic business model is to increase shareholder value by finding and developing oil and gas production through the development activities, which include drilling offset oil and gas wells and re-entering oil and gas wells, that have historical oil and gas production or are currently producing oil and gas, and selling the production from these, worked over wells at a profit. To be successful, we must, over time, need to complete our goal of raising sufficient funds to drill offset wells or complete development programs over the next year and then sell the resulting production at a price that is sufficient to cover our operating expenses, administrative costs and interest expense, plus offer us a return on our capital investment.


We have a limited operating history of oil and gas production and no proven reserves, no production and negative cash flow. To date, we have had limited revenues and have not been able to generate sustainable positive earnings on a Company-wide basis. Our management cannot provide any assurances that the Company will ever operate profitably.


Our longer-term success depends on, among many other factors, the production of grade oil and gas properties and on the prevailing sales prices for oil and natural gas along with associated operating expenses. The volatile nature of the energy markets makes it difficult to estimate future prices of oil and natural gas; however, any prolonged period of depressed prices would have a material adverse effect on our results of operations and financial condition.


Our operations are focused on identifying and evaluating prospective oil and gas properties and funding projects that we believe have the potential to produce oil or gas in commercial quantities subject to the Company obtaining the necessary funding for the offset drilling or development programs.


During the past two fiscal years, we have been involved in searching for an acquisition that would provide us with revenue and positive cash flow. Our inability to generate revenue for the 12 month period ending May 31, 2012 is due primarily to difficulties in our ability to raise sufficient funds necessary to close on the acquisition of an oil producing, cash flow positive, property in Texas during the past fiscal year. There are no assurances that the Company will be successful in raising sufficient funds to accomplish our goals and objectives.


COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012 AND FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2013.


Revenues


We generated no revenues for the three month period ended February 28, 2013 and the three month period ended February 29, 2012. Our operations for the quarter have been financed by the sale of our common stock and debt. Operating expenses for the three month period ended February 28, 2013 and February 29, 2012 totaled $563,126 and $124,133. Our single largest expense to


32


for the three month period ended February 28, 2013 has been financial consulting fees totaling $327,500 and no expenditures for financial consulting for the three month period ended February 29, 2012. General and Administrative expenses, including financial consulting fees, totaled $563,126 and $124,133 respectively. For the three month period ended February 28, 2013 and February 29, 2012 we had a net loss of ($577,242) and ($124,304).   


We generated no revenues for the nine months ended February 28, 2013 and for the nine months ended February 29, 2012. Our operations to date have been financed by the sale of our common stock and debt. Operating expenses for the nine months ended February 28, 2013 and February 29, 2012 totaled $1,166,155 and $320,232. Our single largest expense to for the nine months ended February 28, 2013 has been financial consulting fees totaling $752,300 and no expenditures for financial consulting for the nine months ended February 29, 2012. General and Administrative expenses, including financial consulting fees, totaled $1,166,155 and $320,232 respectively. For the nine months ended February 28, 2013 and February 29, 2012 we had a net loss of ($1,196,477) and ($340,450).  Total losses since December 20, 2007 (“Inception”) were ($2,897,586).     





Until we obtain additional funding to complete our oil and gas well drilling and completions program, we do not anticipate generating revenues, and any revenues that we generate may not be sufficient to cover our operating expenses, in which case we may have to cease operations and you may lose your entire investment.


Liquidity and Capital Resources


Assets and Liabilities


Our primary financial resource is our base of our unproven oil and gas locations in Venango County, Pennsylvania. Our ability to fund our capital expenditure program is dependent upon the availability of capital resource financing. In this fiscal year, we plan on spending approximately $7,500,000 in new capital investments for a 30 well oil and gas drilling program and exercise our option for an additional 15 oil and gas well drilling programs on our ability to raise $7,500,000 in funding. Factors such as changes in operating margins due to changes in the price of oil and gas and the availability of capital resources could increase or decrease our ultimate level of expenditures during the remaining fiscal year.


The changes in our capital resources at February 28, 2013 compared with February 29, 2012 are:


        

  

  

  

Increase (Decrease)

Percentage Change

  

  

February 28, 2013

 

February 29, 2012

 

  

  

  

  

  

  

  

  

 Cash   

$

69

$

                           179

$

             (110)

61.30%

 Current Assets   

$

953,287

$

                           179

$

        953,108

532,462.78%

 Total Assets   

$

2,431,977

$

435,974

$

      1,996,003

457.83%

 Current Liabilities   

$

2,495,483

$

1,315,052

$

      1,180,431

89.76%

 Total Liabilities   

$

2,621,807

$

1,440,689

$

      1,181,118

81.98%

 Working Capital Deficit   

$

1,542,196

$

1,314,873

$

          227,323

17.29%


Our working capital deficit increased by $227,323, from ($1,314,873) as of February 29, 2012 to ($1,542,196) as of February 28, 2013. This increase in the deficit is due to the amount of resources that is required to raise sufficient capital to start and complete the 30 well oil and gas drilling and completions program, corporate and field staff, to complete all the necessary SEC filings and the capital cost to drill and complete five oil wells on the Rice Lease.


Over the last nine months, we expended our resources on raising sufficient funds for a drilling and completions program for our 30 oil and gas well locations in Venango County, Pennsylvania. Our ability to grow is dependent upon favorably obtaining outside debt and capital and generating cash flows from operating activities necessary to fund our investment activities. There is no assurance that we will be able to achieve profitability. Since our future operations will continue to be dependent on successful development activities and our ability to seek and secure capital from external sources, should we be unable to achieve sustainable profitability this could cause any equity investment in the Company to become worthless.


Major sources of funds in the past for us have included debt or equity markets. We will have to rely on these capital markets to fund future operations and growth. Our business model is focused on the development of our oil and gas properties. Our ability to generate future revenues and operating cash flow will depend on successful completion of our planned drilling and completions programs and the acquisition of additional oil and gas producing properties, which may very likely require us to continue to raise equity or debt capital from outside sources.


The Company has ongoing capital commitments to develop certain leases pursuant to their underlying terms. Failure to meet such ongoing commitments may result in the loss of the lease itself. These ongoing capital commitments require us to seek capital from sources outside of the Company. The current uncertainty in the credit and capital markets, and the economic downturn, may restrict our ability to obtain needed capital.


33


Cash Flows


Changes in the net funds provided by or (used in) each of our operating, investing and financing activities are set forth in the table below:


Cash Flow Used in Operating activities:

  

     

Increase (Decrease)

Percentage Change

  

  

February 28

2013

  

February 29

2012

 

 Net cash provided by (used in) operating activities   

$

289,260

 

$

(6,315)

 

$

295,575

4,680.53%

 Net cash provided by (used in) investing activities   

$

     (835,000)

 

$

        (430,170)

 

$

(404,830)

94.11%

 Net cash provided by (used by) financing activities   

$

545,809

 

$

411,595

 

$

134,214

32.61%


Cash flow from operating activities is derived from changes in the balances of payables, or other non-oil property asset account balances. For the nine months ended February 28, 2013, we had a positive cash flow from operating activities of $289,260, in comparison to a negative cash flow of ($6,315) for the nine months ended February 29, 2012. This change of $295,575 was the result of an increase in our payables balance. Variations in cash flow from operating activities may affect our level of development (workover) expenditures. Our expenditures consist primarily of our General and Administrative (G&A) expenses, which consist of consulting and professional services, employee compensation, legal, accounting, travel and other G&A expenses, which we have incurred in order to obtain project financing for the Company.


Cash Flow Used in Investing activities


Cash flow used by investing activities was $835,000 for the nine months ended February 28, 2013. This is in comparison to $430,170 used for investing activities for the nine months ended February 29, 2012, an increase of $404,830. The investments are for the drilling and completion of five oil wells on the Rice Lease.   


Cash Flow from Financing activities


Cash flow from financing activities is derived from long-term liability account balances or in equity, account balances excluding retained earnings. Cash flow provided by financing activities was $545,809 for the nine months ended February 28, 2013. This is in comparison to $411,595 used by financing activities for the nine months ended February 29, 2012. We anticipate it will be necessary to rely on additional funding from debt financing and from capital markets in the current fiscal year to complete the financing for the 30 well oil and gas drilling program and exercise our option for an additional 15 oil and gas well drilling program and to discharge our debts.


Our business is capital intensive. Our ability to grow is dependent upon favorably obtaining outside capital and generating cash flows from operating activities necessary to fund our investment activities. There is no assurance that we will be able to achieve profitability. Since our future operations will continue to be dependent on successful development activities and our ability to seek and secure capital from external sources, should we be unable to achieve profitability this could cause any equity investment in the Company to become worthless.


We have no ongoing revenues to satisfy our ongoing liabilities. Our auditors have issued a going concern opinion. Unless we secure equity, debt financing or Joint Venture partners, of which there can be no assurance, or identify a profitable acquisition candidate, we will not be able to continue any operations.


Plan of Operation For Remaining Fiscal Year


Our acquisition of the 30 well oil and gas locations in Pennsylvania will require approximately $5 Million of financing to complete the drilling and completions program and if we choose to exercise our option, we will need to finance another $2.5 Million to complete the additional 15 oil and gas well locations. Over the last nine months, we retained the services of two financial consultants to assist the Company in its efforts to raise the necessary capital to meet our financial obligations for the 30 well drilling and completions program. On December 18, 2012 the Company terminated one of the two financial consultants as the financial consultant breached their agreement with the Company. The Company is in discussions with various financial and private equity firms to raise funds either through debt or equity financing. There are no assurances that the Company will be successful in raising sufficient funds to accomplish our goals and objectives for the remainder of this fiscal year. There are no assurances that if the Company is successful in raising equity financing, that there will not be shareholder dilution.

  

Our auditors have issued a going concern opinion. Unless we secure equity or debt financing, of which there can be no assurance, or our leasehold interests generate revenues sufficient to meet ongoing and accrued expenses, it is unlikely that we will be able to continue our operations in which case you will lose your investment.   


34



Critical Accounting Policies


Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission (the “SEC”), encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The Company’s financial statements include a summary of the significant accounting policies and methods used in the preparation of the financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements.


Use of Estimates - Management’s discussion and analysis or plan of operation is based upon the Company’s financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and long-lived assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.


We review the carrying value of property and equipment for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.


The Company’s financial statements are prepared using the accrual method of accounting and according to the provision of Statement of Financial Accounting No. 7 (“SFAS 7”), “Accounting and Reporting for Development Stage Enterprises”. The Company is considered a development-stage entity.


In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRSs")." Under ASU 2011-04, the guidance amends certain accounting and disclosure requirements related to fair value measurements to ensure that fair value has the same meaning in U.S. GAAP and in IFRS and that their respective fair value measurement and disclosure requirements are the same. ASU 2011-04 is effective for public entities during interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company does not believe that the adoption of ASU 2011-04 will have a material impact on the Company's consolidated results of operation and financial condition.




In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income," ("ASU 2011-05") which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders' equity. Instead, comprehensive income must be reported either in a single continuous statement of comprehensive income, which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after Dec. 15, 2011 with early adoption permitted. The Company does not believe that the adoption of ASU 2011-05 will have a material impact on the Company's consolidated results of operation and financial condition.

  

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries.  None of the updates are expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

Governmental Regulations


The oil and natural gas industry is subject to various types of regulation throughout the world. Laws, rules, regulations, and other policy implementations affecting the oil and natural gas industry have been pervasive and are under constant review for amendment or expansion. Pursuant to public policy changes, numerous government agencies have issued extensive laws and regulations binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas exploration, production and marketing and midstream activities. These laws and regulations increase the cost of doing business and, consequently, affect profitability. Because public policy changes affecting the oil and natural gas industry are commonplace and because existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws and regulations. However, we do not expect that any of these laws and regulations will affect our operations in a manner materially different than they would affect other oil and natural gas companies of similar size and financial strength.


Environmental


Our operations are subject to the usual hazards incident to the drilling and production of oil and gas, such as blowouts, cratering,


35


explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation. In addition, the presence of unanticipated pressures or irregularities in formations, miscalculations, or accidents may cause our drilling activities to be unsuccessful and result in a total loss of our investment. We do not maintain insurance of the various types to cover our operations with policy limits and retention liability customary in the industry. The occurrence of a significant adverse event, the risks of which are not covered by insurance, could have a material adverse effect on our financial condition and results of operations. We cannot give any assurances that we will be able to obtain adequate insurance in the future at rates we consider reasonable.


Off-balance Sheet Arrangements


We have not entered into any off-balance sheet arrangements. We do not anticipate entering into any off-balance sheet arrangements during the next 12 months.


Note Defaults


None


DESCRIPTION OF PROPERTY

 

Our executive offices are located at 12518 NE Airport Way, Suite 148 No. 156, Portland, OR 97230, an office leased by Peter Matousek, one of our executives. Mr. Matousek provides this office rent free. This office space is currently sufficient for our needs and we expect it to be sufficient for the foreseeable future or until such time as we acquire a target company.


Oil and Gas Leases


On August 31, 2012, the Company acquired 30 oil and gas well locations in Venango County, Pennsylvania with an option to acquire an additional 15 oil and gas locations.


LEGAL PROCEEDINGS

 

On May 10, 2011, the Company accepted an Offer to Purchase from Lea Kennedy d/b/a LuxemBarings (“Purchaser”) to purchase $10 million of the Company’s common stock based on the average of 5 consecutive trading day’s close prior to date of closing. The Offer to Purchase was scheduled to close on or before June 24, 2011. The Purchaser failed to complete the transaction, after mutually agreed extensions of the closing date. The Company has retained legal counsel to take legal action against the Purchaser for failing to complete the purchase transaction and for damages to the Company as a result of the failure to complete the transaction. The Company has recognized losses and damages in the financial statements for the year ended May 31, 2012. On March 23, 2013 The United States District Court for The Southern District of Illinois granted summary judgment on Xun Energy’s breach of contract claim against Lea Kennedy d/b/a/ LuxemBarings. The amount of damages remains an issue to be resolved in the case and the Company's "fraud in the inducement claim" alleged in its complaint remains pending.


DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

 

Our Board of Directors currently consists of three members. The directors hold office until her successor is duly elected by the stockholders. The executive officer serves at the pleasure of the Board of Directors. Our current directors and executive officers are:

 

Name

Age

Position

Year Appointed

Jerry G. Mikolajczyk  

59

President, CEO, CFO, and a Director

2011

Wayne St. Cyr 

50

Executive Vice President, Marketing and Strategic Development and Corporate Secretary  

2011

Peter Matousek

48

Vice President – Investor Relations and Director

2011

Dr. William, D. Spier

65

Treasurer, Director

2011


   

Mr. Jerry G. Mikolajczyk


Mr. Jerry G. Mikolajczyk was appointed President, CEO, CFO, and a director of the Company on May 31, 2011. Prior to the appointments, Mr. Mikolajczyk was a key consultant to the Company who identified the opportunities available to us in Kentucky, helped negotiate our contracts, and assisted the Company with its financial reporting including SEC filings and our financial statements from February 2010 to May 2011.

Mr. Mikolajczyk has had an extensive career in the oil and gas, construction, and mining industries. Mr. Mikolajczyk has worked


36


for Fortune 500 companies such as BP Resources (British Petroleum), SCI Group of Companies, Husky Oil, Syncrude, Bechtel, Guy F. Atkinson and INCO. He has worked as a heavy equipment operator on surface and open pit mining operations.

After completing his Business Administration diploma, Mr. Mikolajczyk went on to obtain his professional designation as a Certified General Accountant (CGA) and Certified Internal Auditor (CIA). As a professional accountant and auditor, he has been involved with planning, designing, and testing operations to ensure that the operations are efficient and effective.

In 2008, Mr. Mikolajczyk was awarded “CFO of the Year” for the application of his knowledge and expertise in a turnaround assignment for the Santa Clara Valley Transportation Authority (VTA), a $3.3 Billion asset transportation authority in Silicon Valley (San Jose, California).


Mr. Mikolajczyk has an aggregate of 41 years of experience, which include:


·

Twenty-two (22) years of C-Level experience.

·

Ten (10) years in the Oil and Gas Industry evaluating and analyzing systems and operations to improve effectiveness, increase profits, and streamline operations without compromising controls.

·

Eighteen (18) years in the Mining Industry with operational experience in tar sands, copper, gold, limestone and precious stones. Mines were both open pit and deep rock (shaft) as well as alluvial and placer mining operations.

·

Twenty Seven (27) years of experience in the Construction Industry ranging in Oil and Gas, Mining, Transportation and Housing sectors. Specialty is Project Control and Reporting.


Mr. Mikolajczyk, through consulting agencies, has provided various consulting services to clients, which included, but not limited to:


·

Global Power and Water Industries, Inc.

·

VTA (Santa Clara Valley Transportation Authority)

·

MineCore International, Inc.

·

Platinum Works, Inc.

·

Blue Green Corp

·

J.M.E.L. International Inc.

·

Nova Petrochemicals

·

BP Resources

Mr. Mikolajczyk is an acknowledged speaker and presenter. He has moderated various panels on P3’s (Private Public Partnerships) projects such as the Confederation Bridge, the longest bridge in North America, joining Prince Edward Island and New Brunswick in Canada, which Mr. Mikolajczyk was involved in the bidding, award and financing of the project. Mr. Mikolajczyk also presented a paper to the 1990 Western Regional Conference of the Institute of Internal Auditors entitled: "Is Your Project Control Out of Control?" and a paper in 1991 to the Institute of Internal Auditors, Calgary Chapter, entitled: "Operational Audit of the Procurement Function".

Mr. Wayne St. Cyr


Mr. Wayne St. Cyr, our Executive Vice President, Marketing and Strategic Development since January 1, 2011, is our Corporate Secretary since July 15, 2011.

Mr. St. Cyr comes to us leaving a distinguished 10 year career with RBS Group (Royal Bank of Scotland) which includes a six-time recipient of the President's Award for exceeding company objectives. During his tenure at RBS/Citizens Financial Group, he was responsible for developing the key alliances with Citizens Bank.

Mr. St. Cyr’s education includes an Associate degree in Business Administration and a Bachelor of Science degree in Marketing.


Mr. Peter Matousek


Mr. Peter Matousek was appointed our Vice President – Investor Relations on May 31, 2011. Mr. Matousek served as the Company’s President and CEO from February 2010 to May 2011 and as a director from February 2010 to August 2011 before his term expired. He was reappointed as a director on May 25, 2012.

Mr. Matousek has worked extensively with the public markets for companies throughout the United States and Canada in the financial and natural resource sector, including oil & gas and precious metal mining. He has represented numerous companies in the capacity of Investor & Public Relations. He speaks German, Czech, English and Russian.


37


Dr, William D. Spier


William D. Spier, Ph.D., was appointed as Treasurer on October 23, 2012. Dr. Spier is a Board Member of the Company and Chairman of the Company's Audit Committee. Dr. Spier has been an advisor in economics and business development to private equity funds in the U.S. and Europe for the past six years. Prior to that, he was a business growth consultant to major proprietary and public institutions of higher education with 5-1 year appointments.

Dr. Spier was Senior Vice President for Whitman Medical and Executive Director for Ultrasound Technical Services, a reporting issuer, for 13 years during which he was responsible for the founding and growth of the pioneering institute for medical ultrasound training which expanded to 15 major markets in the U.S. For two years, Dr. Spier was the registered principal for Diamond Turk & Company, a specialist firm on the American Stock Exchange.

From 1969 to 1981, Dr. Spier held various positions with the New York Board of Education and was a graduate instructor at Washington University, St. Louis and Assistant Professor of Sociology at St. Louis University. Dr. Spier was a member of the United States Teacher Corps.

Dr. Spier received his Bachelor of Arts degree from Hobart College, his Masters degree from the Washington University, St. Louis and his Doctorate in Sociology with concentration in political economy from Washington University, St. Louis.

Dr. Spier has an extensive history of publications and has authored more than fifty business plans for both start-ups and mature companies. He is a member of economic, education and medical societies and participates on the board of public companies. He is often a visiting instructor at NYC and metropolitan-area institutions of higher education for graduate level teaching.


Family Relationships


There are no family relationships, by blood, marriage or adoption, among or between any of our director, officer or beneficial owners of more than five percent of our outstanding shares of common stock.


Involvement in Certain Legal Proceedings


To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding  (excluding traffic violations and other minor offences); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.


Board Committees 


Audit committee


While we have adopted a charter for the Audit Committee, due to the small size of the board, we do not have a separately-designated audit committee. The Board of Directors performs the functions of an audit committee. A written charter governs the actions of the Board of Directors when performing the functions that would generally be performed by an audit committee. The Board of Directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board of Directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.


Compensation and Nominations Committees

 

We currently have no compensation or nominating committee or other board committee performing equivalent functions. Currently, the member of our Board of Directors participates in discussions concerning executive officer compensation and nominations to the Board of Directors.

 

Finance committee


While we have adopted a charter for the Finance Committee, due to the small size of the board, we do not have a separately-designated finance committee. Currently, the members of our Board of Directors participates in discussions concerning the finances of the Company.


38


Code of Conduct and Ethics

 

We have not adopted a Code of Ethics, as required by sections 406 and 407 of the Sarbanes-Oxley Act of 2002. Our management believes that the size of our company and current operations at this time do not require a code of ethics to govern the behaviour of our officer. We anticipate that we will adopt a code of ethics once we are in a position to do so.


Indemnification of Executive Officers and Directors


The Nevada Revised Statutes permits indemnification of directors, officers, and employees of corporations under certain conditions subject to certain limitations. In the event that a claim for indemnification (other than the payment by us of expenses incurred or paid by our directors and officers in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is appropriate and will be governed by the final adjudication of such issue.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

  

EXECUTIVE COMPENSATION

 

Mr. Jerry G. Mikolajczyk was appointed our acting president, chief executive officer and chief financial officer on May 31, 2011 effective June 1, 2011. His employment contract terminated on May 31, 2012. The Company has not renewed the contract with Mr. Mikolajczyk and has retained Mr. Mikolajczyk on a month to month basis.  The Company pays Mr. Mikolajczyk $10,000 per month.

Mr. Wayne St. Cyr was appointed our Executive Vice President, Marketing and Strategic Development on January 1, 2011. His employment contract terminated on December 31, 2011. The Company has not renewed the contract with Mr. Ct. Cyr and has retained Mr. St. Cyr on a month to month basis. The Company pays Mr. Wayne St. Cyr $10,000 per month.

Mr. Peter Matousek was appointed our Vice President – Investor Relations on May 31, 2011. His employment contract terminated May 31, 2012.  The Company has not renewed the contract with Mr. Matousek and has retained Mr. Matousek on a month to month basis.  The Company pays Mr. Peter Matousek $7,500 per month.

Dr. William D. Spier was appointed our Treasurer on October 23, 2012. His employment contract will end on May 31, 2013. The Company pays Dr. Spier $4,000 per month.

The following table discloses compensation paid during the fiscal years ended May 31, 2012 and 2011 to the Company’s Officers and the most highly compensated executive officer whose total compensation exceeded $100,000 for the fiscal year ended May 31, 2012 (Collectively, the “Named Executive Officers”). No restricted stock awards, long-term incentive plan payouts or other types of compensation, other than the compensation identified in the table below, were paid to the Named Executive Officers during these fiscal years.






Name and Principal Position

Year

Ended

May 31

Salary*4
($)

Bonus
($)

Stock
Awards
($)

Option
Awards
($)

Total
($)

Jerry G. Mikolajczyk, President/CEO/CFO

2012

$120,000

-0-

-0-

-0-

$120,000

Wayne St. Cyr, Executive Vice President

2012

$120,000

-0-

-0-

-0-

$120,000

Peter Matousek, VP-Investor Relations*1

2012

$90,000

-0-

-0-

-0-

$90,000

       
       

Name and Principal Position

Year

Ended

May 31

Salary*4
($)

Bonus
($)

Stock
Awards
($)

Option
Awards
($)

Total
($)

Jerry G. Mikolajczyk, President/CEO/CFO

2011

-0-

-0-

-0-

-0-

-0-

Jerry G. Mikolajczyk, Consultant*2

2011

$409,775

-0-

-0-

-0-

$409,775

Wayne St. Cyr, Executive Vice President

2011

$50,000

-0-

-0-

-0-

$50,000

Peter Matousek, VP-Investor Relations*1

2011

$27,500

-0-

-0-

-0-

$27,500

Dennis T. Kushner, President/CEO/CFO*3

2010

$9,250

-0-

-0-

-0-

$9,250


39


*1 - Former President/CEO during 2011

*2 - Gross paid to agency, Comtax Services, Inc. which Mr. Mikolajczyk was an officer of until May 31, 2011

*3 - Former President/CEO during 2010 and a portion of 2011

*4 - Does not include stock compensation as Board members, refer to Item 5.E of this Form 10-K


Stock Options Granted/Exercised in Last Year

The Company has never issued any stock options.

Employment Agreements


The Company entered in a Management and Financial Service Agreement with Mr. Wayne St. Cyr as the Executive Vice President, Marketing and Strategic Development on December 21, 2010 for a ten day period ending December 31, 2010 which was extended for a 12 month term to December 31, 2011, whereby the Executive Vice President, Marketing and Strategic Development is paid $10,000 per month. The Company has not renewed the contract with Mr. Ct. Cyr and has retained Mr. St. Cyr on a month to month basis. In addition to his duties as Executive Vice President, Marketing and Strategic Development, Mr. St. Cyr is the Corporate Secretary for the Company. Mr. St Cyr is paid $10,000 per month.


The Company entered into a Management and Financial Service Agreement for Mr. Jerry G. Mikolajczyk for a 12-month period commencing on June 1, 2011 and ending May 31, 2012. Mr. Mikolajczyk is hired through a service company, and will be paid $120,000 in cash payments for the services of Mr. Mikolajczyk. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Mikolajczyk. Mr. Mikolajczyk continues to work for the Company on a month-to-month basis and is paid $10,000 per month.


The Company entered into a Management and Financial Service Agreement with Mr. Peter Matousek for a 12-month period commencing June 1, 2011 and ending May 31, 2012 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Matousek. Mr. Matousek continues to work for the Company on a month-to-month basis and is paid $7,500 per month.


The Company entered into a Management and Financial Service Agreement with Dr. William D. Spier for a 7.25-month period commencing October 23 and ending May 31, 2013 whereby Dr. Spier will be paid $29,032 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.


Significant Employees


As our business progresses and grows, we expect to hire and begin paying salaries to other officers. We also expect to hire part-time and full-time employees and consultants who will be paid compensation and consulting fees.


Employee Pension, Profit Sharing or other Retirement Plans

 

We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.


Director's compensation


On May 22, 2012, the Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2013.


On May 25, 2012, the Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2013.


On September 1, 2012, the Company entered into a Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2013.


40


Mr. Mikolajczyk, Dr. Spier and Mr. Matousek will receive 5,000 shares per month of the Company’s common stock in consideration for them serving on the Company’s Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses.


Related Party Transactions


The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.


On December 20, 2007, pursuant to the terms of a subscription agreement, we sold 80 million (post forward split) shares of our common stock to Ms. Marina Karpilovski, the Company's former President and a director, for cash payment to us of $1,000. We believe this issuance was deemed to be exempt under Regulation S of the Securities Act, as no advertising or general solicitation was employed in offering the securities, the offering and sale was made only to Ms. Karpilovski who is a non-U.S. citizen, and transfer was restricted by us in accordance with the requirements of the Securities Act.


On December 20, 2007 pursuant to the terms of a subscription agreement, we sold 320 million (post forward split) shares of our common stock to Mr. Michael Zazkis, the Company's former Secretary, Treasurer, and a director, for cash payment to us of $4,000. We believe this issuance was deemed to be exempt under Regulation S of the Securities Act, as no advertising or general solicitation was employed in offering the securities, the offering and sale was made only to Mr. Zazkis who is a non-U.S. citizen, and transfer was restricted by us in accordance with the requirements of the Securities Act.


On March 28, 2011, the Company entered into Redemption Agreement with Peter Matousek, the Company’s president and director, which provides in part for the Company to redeem from Mr. Matousek 140 million shares of the Company’s common stock at a price of $87,500 or $0.000625 per share. On May 31, 2011, Mr. Matousek assigned the Note Payable to Comtax Services, Inc.


The Company issued an aggregate of 142,500 shares for the period ending May 31, 2012 with an average price of $0.0518 per share to the Executive and Board pursuant to a Management and Financial Service Agreement with Mr. Peter Matousek and a Board Member Compensation Agreement with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Kevin M. Grapes, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.


The Company authorized and approved 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier. The 45,000 shares were issued to the Board on October 26, 2012.


Prior to June 1, 2011, our President, CEO and Director, Jerry G. Mikolajczyk, performed services for the Company on a consulting contract through a consulting agency, Comtax Services, Inc. (Comtax). From April 1, 2010 to February 28, 2011, Comtax charged a fixed monthly fee of $2,500, a minimum of 10 hours per month for Mr. Mikolajczyk, an aggregate of $27,500 for the 11 months for Mr. Mikolajczyk’s services to the Company. For the period March 1, 2011 to May 31, 2011, Comtax charged the Company an aggregate of $387,275 (1,106.5 hours) for the services of Mr. Mikolajczyk plus $9,656.50 in travel expenses Mr. Mikolajczyk incurred on behalf of the Company. On October 31, 2012, Comtax assigned the trade payables to Mr. Mikolajczyk d/b/a/ Lighthouse Investments, as unsecured Promissory Notes. The Promissory Notes, an aggregate of $398,248.50, are non-interest bearing. Mr. Mikolajczyk was an officer of Comtax until his resignation on May 31, 2011 and terminated his consulting contract with Comtax as of May 31, 2011 prior to accepting his executive and director positions with the Company.


41





SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following tables set forth, as of February 28, 2013, the ownership of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, our director, or executive officer and our executive officers and directors as a group. To the best of our knowledge, the person named has sole voting and investment power with respect to such shares, except as otherwise noted. There are no known pending or anticipated arrangements that may cause a change in control.

   

  

  

  

Percentage of Outstanding Common Stock

Name and Address of Beneficial Owner (1)

  

Shares Beneficially Owned (2)

  

Prior to Offering

  

After Offering (3)

 

Jerry G. Mikolajczyk 

 

188,549,421

 

48.92%

 

40.95%

 

Peter Matousek

 

128,629

 

0.03%

 

0.03%

 

Dr. William D. Spier

 

46,613

 

0.01%

 

0.01%

 

Wayne St. Cyr

 

0

 

0%

 

0%

 


Officers and Directors as a group (4 in total)

 

188,724,663

 

48.97%

 

40.99%

 


(1)

The address for each beneficial owner is c/o Xun Energy, Inc., 12518 NE Airport Way, Suite 148 No. 156, Portland, OR 97230

(2)

Includes all shares each director and officer has the right to acquire within sixty days.

(3)

Assumes that all of the shares being offered are sold


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Except as described below, none of the following persons has any direct or indirect material interest in any transaction to which we are a party during the past two years, or in any proposed transaction to which the Company is proposed to be a party:


A.

any director or officer;

B.

any proposed nominee for election as a director;

C.

any person who  beneficially  owns,  directly  or  indirectly,  shares carrying  more than 5% of the  voting  rights  attached  to our common stock; or

D.

any  relative  or  spouse  of  any of the  foregoing  persons,  or any relative of such spouse,  who has the same house as such person or who is a director or officer of any parent or subsidiary.


Potential Conflict of Interest


Prior to June 1, 2011, our President, CEO and Director, Jerry G. Mikolajczyk, performed services for the Company on a consulting contract through a consulting agency, Comtax Services, Inc. (Comtax). From April 1, 2010 to February 28, 2011, Comtax charged a fixed monthly fee of $2,500, a minimum of 10 hours per month for Mr. Mikolajczyk, an aggregate of $27,500 for the 11 months for Mr. Mikolajczyk’s services to the Company. For the period March 1, 2011 to May 31, 2011, Comtax charged the Company an aggregate of $387,275 (1,106.5 hours) for the services of Mr. Mikolajczyk plus $9,656.50 in travel expenses Mr. Mikolajczyk incurred on behalf of the Company. On October 31, 2012, Comtax assigned the trade payables to Mr. Mikolajczyk d/b/a/ Lighthouse Investments, as unsecured Promissory Notes. The Promissory Notes, an aggregate of $398,248.50, are non-interest bearing. Mr. Mikolajczyk was an officer of Comtax until his resignation on May 31, 2011 and terminated his consulting contract with Comtax as of May 31, 2011 prior to accepting his executive and director positions with the Company.


The current officers and directors of the Company shall devote full-time to the Company. If a specific business opportunity becomes available, such person may face a conflict in selecting between our business interest and their other business interests. The policy of the Board is that any personal business or corporate opportunity incurred by an officer or director of the Company must be examined by the Board and turned down by the Board in a timely basis before an officer or director can engage or take advantage of a business opportunity which could result in a conflict of interest.

 

DESCRIPTION OF SECURITIES


Common Stock


The Company is authorized to issue 5,000,000,000 shares of $0.0001 par value common stock. All common stock shares have equal voting rights, are non-assessable, and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.


42


Holders of our common stock are entitled to receive such dividends as our Board may declare from time to time from any surplus that we may have. We have not paid dividends on our common stock since the date of our incorporation and we do not anticipate paying any common stock dividends in the foreseeable future. We anticipate that any earnings will be retained for development and expansion of our businesses and we do not anticipate paying any cash dividends in the foreseeable future. Future dividend policy will depend upon our earnings, financial condition, contractual restrictions and other factors considered relevant by our Board and will be subject to limitations imposed under Nevada law.


Preferred Stock


The Company is authorized to issue 50,000,000 shares of preferred stock, par value $0.0001. On November 30, 2011 and January 12, 2013, the Board of Directors of the Company approved the allocation of 4,000,000 of the 50,000,000 authorized Preferred Shares of the Company as Series A Preferred Shares with the following rights:


 

·

Convertible to one hundred (100) common shares of the Company for each one (1) Series A Preferred Share

·

Voting rights equal to one hundred (100) votes for each Series A Preferred Share


The consideration for one (1) Series A Preferred Share is set at $0.50.


On April 29, 2013, 2013, the Board of Directors of the Company approved the allocation of 750,000 of the 50,000,000 authorized Preferred Shares of the Company as Series B Preferred Shares with the following rights:


1.

May be converted by the holder into Company common stock. The conversion ratio is such that if the full 750,000 Series B Shares are issued, they will convert into Company common shares representing 70% of the fully diluted outstanding common shares outstanding after the conversion (which includes all common shares outstanding plus all common shares potentially issuable upon the conversion of all derivative securities not held by the holder).

2.

If the full 750,000 Series B Shares are not issued, the issued Series B Shares divided by 750,000 multiplied by 70% will represent the percentage of the fully diluted outstanding common shares outstanding after the conversion (which includes all common shares outstanding plus all common shares potentially issuable upon the conversion of all derivative securities not held by the holder). For example: 500,000 Series B Shares issued will result in the holder having 46.67% (500,000/750,000 X 70% = 46.67%) of the fully diluted outstanding common shares.

3.

The holder of Series B Shares may cast the number of votes at a shareholders meeting or by written consent that equals the number of common shares into which the Series B Shares are convertible on the record date for the shareholder action.

4.

In the event the Board of Directors declares a dividend payable to Company common shareholders, the holders of Series B Shares will receive the dividend that would be payable if the Series B Shares were converted into Company common shares prior to the dividend.

5.

In the event of a liquidation of the Company, the holders of Series B Shares will receive a preferential distribution of $0.001 per share, and will share in the distribution as if the Series B Shares had been converted into common shares.


The consideration for one (1) Series B Preferred Share is set at $0.50.


MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS [NEEDS UPDATING]


Market Information


Our common stock trades on the Over-the-Counter-Bulletin Board under the symbol ("XNRG"). There is a very limited market for our common stock, with very limited trading activities. Until October 2009 there was no posted bid or ask price for our common stock. The following table shows the high and low closing sales prices for our Common Stock for the two most recent fiscal years. The quotations reflect inter dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The information is derived from information received from online stock quotation services.


  

Year ended May 31, 2013

 

Year ended May 31, 2012

  

HIGH

LOW

  

HIGH

LOW

First Quarter

$0.0800

$0.0250

  

$0.140

$0.011

Second Quarter

$0.0100

$0.0250

  

$0.015

$0.002

Third Quarter

$0.0240

$0.0068

  

$0.120

$0.020

Fourth Quarter (ending May 24, 2013)

$0.0180

$0.0059

  

$0.080

$0.010


*The price of the common stock has been adjusted to reflect an 80:1forward split of our common stock in August 2010.


43


Holders


As of May 31, 2012, the Company had 58 active shareholders of record. This number does not include an indeterminate number of shareholders whose shares are held by brokers in street name.


Transfer Agent


Our transfer agent is Holladay Stock Transfer, Inc. whose address is 2939 N. 67th Place #C, Scottsdale, Arizona  85251 and their telephone number is (480)481-3940.   


Equity Compensation Plan


Executive and Board Compensation


The Company entered in a Management and Financial Service Agreement with Mr. Wayne St. Cyr as the Executive Vice President, Marketing and Strategic Development on December 21, 2010 for a ten day period ending December 31, 2010 which was extended for a 12 month term to December 31, 2011, whereby the Executive Vice President, Marketing and Strategic Development is paid $10,000 per month. The Company has not renewed the contract with Mr. Ct. Cyr and has retained Mr. St. Cyr on a month to month basis. In addition to his duties as Executive Vice President, Marketing and Strategic Development, Mr. St. Cyr is the Corporate Secretary for the Company. Mr. St Cyr is paid $10,000 per month.


The Company entered into a Management and Financial Service Agreement for Mr. Jerry G. Mikolajczyk for a 12-month period commencing on June 1, 2011 and ending May 31, 2012. Mr. Mikolajczyk is hired through a service company, and will be paid $120,000 in cash payments for the services of Mr. Mikolajczyk. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Mikolajczyk. Mr. Mikolajczyk continues to work for the Company on a month-to-month basis and is paid $10,000 per month.


The Company entered into a Management and Financial Service Agreement with Mr. Peter Matousek for a 12-month period commencing June 1, 2011 and ending May 31, 2012 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Matousek. Mr. Matousek continues to work for the Company on a month-to-month basis and is paid $7,500 per month.


The Company had Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Donald Lynch and Mr. Jerry G. Mikolajczyk which ended on August 31, 2011 whereby Mr. Matousek, Mr. Lynch and Mr. Mikolajczyk will be paid 5,000 shares per month in stock of the Company. The stock will be valued based on the average of the 5 trading day close price prior to each month end. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. On August 31, 2011, directors Peter Matousek, Donald Lynch and Jerry G. Mikolajczyk termed out.


The Company entered into Board Member Compensation Agreements with Mr. Kevin M. Grapes and Mr. Jerry G. Mikolajczyk as directors of the Company for a term of one (1) year ending August 31, 2012. Both Mr. Grapes and Mr. Mikolajczyk will receive 5,000 shares per month of the Company’s common stock in consideration for them serving on the Company’s Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3 rd party or travel expenses.   


On May 21, 2012, Mr. Kevin M. Grapes resigned as a Board member.


On May 22, 2012, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2013.


On May 25, 2012, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2013.


Both Dr. Spier and Mr. Matousek will receive 5,000 shares per month of the Company’s common stock in consideration for them serving on the Company’s Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3 rd party or travel expenses.


44


The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Board pursuant to a Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Kevin M. Grapes, Mr. Peter Matousek and Dr. William D. Spier. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012. The balance of 31,129 shares was issued to the Board on June 25, 2012.


The Company authorized, approved and issued an aggregate of 135,000 shares for the nine month period ended February 28, 2013 with an average price of $0.02118 per share to the Board pursuant to a Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.


Sales of Unregistered Securities


The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Executive and Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Jerry G. Mikolajczyk,  Mr. Kevin M. Grapes and Dr. William D. Spier. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012. The balance of 31,129 shares was issued to the Board on June 25, 2012.

The Company issued 20 Million shares on August 31, 2012 for $1,000,000 pursuant to a twenty-four month agreement with Prodigy Asset Management, LLC.


The Company issued 11.7 Million shares on August 31, 2012 for $585,000 pursuant to a Purchase and Sales agreement with Vencedor Energy Partners for the acquisition of 30 oil and gas well locations in Venango County, Pennsylvania.


On September 20, 2012, the Company and Charles Morgan Securities Inc. ("CMS") mutually agreed to terminate the Investment Banking Agreement between the Company and CMS. The 18 Million shares issued on April 12, 2012 for $900,000 to CMS was memorialized and cancelled.


The Company issued 1,428,571 shares on October 22, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 16.2 Million shares on October 26, 2012 for $810,000 pursuant to a twelve month Financial Consulting Services Agreement with Vaquero Private Capital, Inc. (“VPC”) effective as of June 1, 2012. On December 18, 2012, the Company issued a Notice of Termination to VPC for breach of contract by VPC, thus terminating the September 4, 2012 twelve months Financial Consulting Services Agreement. The Company has placed a Stop Order on the transference of 16.2 million shares pending resolution of the breach of contract with VPC.


The Company issued 243,103 shares on October 26, 2012 for $6,077 for interest and penalties to a 3rd party lender.


The Company issued 45,000 shares with an average price of 0.01227 per share on October 26, 2012 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk,  and Dr. William D. Spier.


The Company issued 1,162,790 shares on November 12, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 45,000 shares for the period ended November 30, 2012 with an average price of $0.012167 per share on December 18, 2012 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.

  

The Company issued 54,322 shares on December 18, 2012 for $1,880 for interest and penalties to a 3rd party lender.


The Company issued 45,000 shares for the period ended February 28, 2013 with an average price of $0.0109267 per share on April 30, 2013 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.


The Company issued 4,081,633 shares on April 30, 2013 for $40,000 pursuant to a reserve equity financing agreement dated May 7, 2013.


The Company issued 423,728 shares on April 17, 2013 for $2,500 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 2,061,855 shares on April 30, 2013 for $10,000 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 2,857,143 shares on May 2, 2013 for $12,000 pursuant to a Convertible Promissory Note dated October 26,


45


2012.


The Company issued 2,222,222 shares on May 8, 2013 for $10,000 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 3,658,537 shares on May 9, 2013 for $15,000 pursuant to a Convertible Promissory Note dated October 26, 2012.





The Company issued 1,700,000 shares on May 10, 2013 for $6,800 pursuant to a Convertible Promissory Note dated October 26, 2012.


The Company issued 4,811,707 shares on May 13, 2013 for $19,728 pursuant to a Convertible Promissory Note dated October 19, 2012.


The issuance of the common stock was exempt from registration under Section 4(2) of the Securities Act.

 

Penny Stock Considerations


Our common stock will be deemed to be "penny stock" as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

 

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $100,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:

 

Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

 

Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;

 

Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer's account, the account's value and information regarding the limited market in penny stocks; and

 

Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction, prior to conducting any penny stock transaction in the customer's account.

 

Because of these regulations, broker-dealers may encounter difficulties in their attempt to buy or sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock even if our common stock becomes publicly traded. In addition, the liquidity for our common stock may be decreased, with a corresponding decrease in the price of our common stock. Our shares are likely to be subject to such penny stock rules for the foreseeable future.

 

Common Stock Currently Outstanding

 

As of May 21, 2013, all of our currently outstanding shares consist of 385,415,240 shares of common stock.


Dividends

 

We have not declared any cash dividends on our common stock since our inception and do not anticipate paying any dividends in the foreseeable future. We plan to retain future earnings, if any, for use in our business. Any decisions as to future payments of dividends will depend on our earnings and financial position and such other facts, as the Board of Directors deems relevant.


Reports to Stockholders

 

We have filed all necessary periodic reports, and other information with the SEC. We have provided annual reports to our stockholders containing audited financial statements.


46


CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


On March 11, 2009, we dismissed the auditing firm of Moore & Associates, Chartered Independent Registered Public Accounting Firm (“Moore and Associates”) and approved the engagement of Weinberg & Baer LLC, Certified Public Accountants. During the fiscal year ended May 31, 2008 and the subsequent interim periods until the change, there were no disagreements with Moore & Associates, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Moore & Associates, would have caused them to make reference in connection with their report to the subject matter of the disagreement, and Moore & Associates, Chartered has not advised the Company of any reportable events.


DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Our Bylaws, subject to the provisions of the Nevada Revised Statutes, contain provisions which allow the Company to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in or not opposed to the best interest of the Company. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.



EXPERTS


Financial Auditors


Current financial statements for the period from inception included in this prospectus have been so included in reliance on the report of Weinberg & Baer LLC, 115 Sudbrook Lane, Suite 210, Baltimore, MD 21208, independent public accountant, given on that firm’s authority as experts in auditing and accounting.


Legal Counsel Providing Legal Opinion  


The validity of the issuance of the shares of common stock will be passed upon for the company by Matthew McMurdo, Esq. Counsel has additionally consented to his opinion being included as an exhibit to this filing. Additionally, counsel has consented to being named in the prospectus.   


The legal counsel that passed their opinion on the legality of these securities is:

Matthew McMurdo, Esq.

140 West 57th Street

New York, NY 10019


47


WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 (File Number ___________) under the Securities Act of 1933 regarding the shares of common stock offered hereby. This prospectus does not contain all of the information found in the registration statement, portions of which are omitted as permitted under the rules and regulations of the SEC. For further information regarding us and the securities offered by this prospectus, please refer to the registration statement, including its exhibits and schedules. Statements made in this prospectus concerning the contents of any contract, agreement or other document filed as an exhibit to the registration statement are summaries of the terms of those documents. The registration statement of which this prospectus forms a part, including its exhibits and schedules, may be inspected and copied at the public reference room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

 

The SEC maintains a web site on the Internet at www.sec.gov. Our registration statement and other information that we file with the SEC are available at the SEC's website.

 

We make available to our stockholders annual reports (on Form 10-K) containing our audited consolidated financial statements and make available quarterly reports (on Form 10-Q) containing our unaudited interim consolidated financial information for the first three fiscal quarters of each of our fiscal years.

 

If you are a stockholder, you may request a copy of these filings at no cost by contacting us at:


Xun Energy, Inc.

12518 NE Airport Way, Suite 148 No. 156

Portland, OR 97230

(775) 200-0505


48


XUN ENERGY, INC. AND SUBSIDIARIES

 

(A DEVELOPMENT STAGE COMPANY)

 

CONSOLIDATED FINANCIAL STATEMENTS





49



















 

Page

  

Financial Statements Table of Contents

51

 

 

Consolidated Balance Sheets at February 28, 2013 and May 31, 2012

52

 

 

Consolidated Statement of Operations for the Three and Nine Months ended February 28, 2013 and February 29, 2012 and from Inception (December 20, 2007) to February 28, 2013

53

 

 

Consolidated Statements of Stockholders Equity from Inception (December 20, 2007) to February 28, 2013

54

  

Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 2013 and February 29, 2012 and Cumulative since Inception to February 28, 2013

55

 

 

Notes to Consolidated Financial Statements as of February 28, 2013

56



50








XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

As of FEBRUARY 28, 2013  and  MAY 31, 2012

(Expressed in U.S. dollars)


       

  

  

  

February 28, 2013

  

May 31, 2012

  

  

  

  

(Unaudited)

  

(Audited)

  

  

ASSETS

  

  

  

  

  

  

Current Assets:

  

  

  

  

  

  

  Cash

$

                               69

$

                            -

  

  

  Other Current Assets

$

                      953,218

$

                 833,274

  

  

Total Current Assets

$

                      953,287

$

                 833,274

  

  

Fixed Assets:

  

  

  

  

  

  

 Property, Plant and Equipment

  

                      942,250

  

                            -

  

  

Total Property, Plant and Equipment

$

                      942,250

$

                            -

  

  

Other Assets:

  

  

  

  

  

  

  Intangible Assets - Legal and Contractual

  

  

  

  

  

  

    Rights - Oil and Gas Leases

$

                      536,250

$

                            -

  

  

   Trademarks

$

                               20

$

                          20

  

  

   Incorporation Costs

$

                             170

$

                        170

  

  

  Total Legal and Contractual

$

                      536,440

$

                        190

  

  

  Total Intangible Assets

$

                      536,440

$

                        190

  

  

Other Long Term Assets

  

  

  

  

  

  

  Bonds

$

                                 -

$

                        500

  

  

Total Other Long Terms Assets

$

                                 -

$

                        500

  

  

Total Other Assets

$

                      536,440

$

                        690

  

  

Total Assets

$

                   2,431,977

$

                 833,964

  

  

  

  

  

  

  

  

  

LIABILITIES AND STOCKHOLDERS' EQUITY

  

  

  

  

  

  

Current  Liabilities:

  

  

  

  

  

  

  Accounts payable and accrued expenses

$

                   1,676,145

$

              1,036,669

  

  

  Loans payable

$

                      426,747

$

                 419,649

  

  

  Convertible Promissory Notes, net of discount

$

                      392,591

$

                            -

  

  

Total Current Liabilities

$

                   2,495,483

$

              1,456,318

  

  

Long Term Liabilities:

  

  

  

  

  

  

  Notes - 3 Years and Less

$

                      116,850

$

                 116,374

  

  

  Notes - 3 Years and Less Related Party

$

                          9,474

$

                     9,436

  

  

Total Long Term Liabilities

$

                      126,324

$

                 125,810

  

  

Total Liabilities

$

                   2,621,807

$

              1,582,128

  

  

  

  

  

  

  

  

  

Stockholders' Equity (Deficit):

  

  

  

  

  

  

Preferred Stock, par value $0.0001, 50,000,000 shares authorized,

  

  

  

  

  

  

none issued and outstanding

$

  -     

$

  -     

  

  

Common Stock, par value $0.0001, 5,000,000,000 shares authorized,

  

  

  

  

  

  

363,553,415 and 330,643,500 shares issued and outstanding, respectively

$

36,355

$

                   33,064

  

  

Paid in Capital

$

2,671,400

$

                 919,881

  

  

Accumulated Deficit

$

(2,897,585)

$

            (1,701,109)

  

  

Total Stockholders' Equity (Deficit)

$

                  (189,830)

$

               (748,164)

  

  

Total Liabilities and Stockholders' Equity (Deficit)

$

                   2,431,977

$

                 833,964

  


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


51



   

XUN ENERGY, INC. AND SUBSIDIARIES

  

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND  FEBRUARY 29, 2012

AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007)

(Unaudited)

(Expressed in U.S. dollars)

             

  

  

  

For the three months ended

  

For the nine months ended

  

December 20, 2007 (Inception) To February 28, 2013

  

  

  

  

February 28 2013

  

February 29 2012

  

February 28 2013

  

February 29 2012

  

  






  

Revenue

  

  

  

  

  

  

  

  

  

  

  

  

Revenue - Operations

$

                 -    

$

                 -    

$

                  -    

$

                   -    

$

                      4,637

  

  

Total Revenue

$

                 -    

$

                 -    

$

                  -    

$

                   -    

$

                      4,637

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Cost of Goods Sold

$

                 -    

$

                 -    

$

                  -    

$

                   -    

$

                      1,653

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Gross Profit

$

                 -    

$

                 -    

$

                  -    

$

                   -    

$

                      2,984

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Expenses

  

  

  

  

  

  

  

  

  

  

  

  

General and Administrative

$

563,126

$

124,133

$

1,166,155

$

320,232

$

               2,438,768

  

  

Loss before income taxes

$

(563,126)

$

(124,133)

$

(1,166,155)

$

(320,232)

$

             (2,435,784)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Other income (expense)

$

(14,116)

$

            (171)

$

(30,321)

$

(20,217)

$

                (461,802)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Provision for Income Taxes

$

                 -    

$

                 -    

$

                  -    

$

                   -    

$

                           -    

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Net (Loss)

$

(577,242)

$

(124,304)

$

(1,196,477)

$

(340,450)

$

             (2,897,586)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Basic and Diluted

  

  

  

  

  

  

  

  

  

  

  

  

(Loss) per Common Shares

  

a

  

a

  

a

  

a

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Weighted Average

  

  

  

  

  

  

  

  

  

  

  

  

   Number of Common Shares*1

  

363,533,551

  

312,557,743

  

349,784,346

  

312,557,743

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

a = Less than ($0.01) per share

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

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


52




















XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE PERIOD FROM INCEPTION (DECEMBER 20, 2007) THROUGH FEBRUARY 28, 2013

(Unaudited)

(Expressed in U.S. dollars)


             

  

  

  

  

  

  

  

Additional Paid in Capital

  

  

  

  

  

  

  

  

Common Stock

  

  

Retained Earnings

  

Total Equity

  

  

  

  

Shares*1

  

Amount

  

  

  

  

  

Inception December 20, 2007

  

                         -    

$

              -    

$

                -    

$

                  -    

$

                 -    

  

  

Common stock issued  to Directors

  

400,000,000

$

40,000

$

(35,000)

$

                  -    

$

5,000

  

  

Private placement

  

110,416,000

$

11,042

$

44,166

$

                  -    

$

55,208

  

  

Net loss for the year

  

  

$

  

$

  

$

(85)

$

(85)

  

  

Balance, May 31, 2008

  

510,416,000

$

51,042

$

9,166

$

(85)

$

60,123

  

  

Net loss for the year

  

  

$

  

$

  

$

(50,170)

$

(50,170)

  

  

Balance, May 31, 2009

  

510,416,000

$

51,042

$

9,166

$

(50,255)

$

9,953

  

  

Net loss for the year

  

  

$

  

$

  

$

(50,744)

$

(50,744)

  

  

Balance, May 31, 2010

  

510,416,000

$

51,042

$

9,166

$

(100,999)

$

(40,791)

  

  

Common stock issued  to Directors

  

37,500

$

4

$

3,296

$

                     -    

$

3,300

  

  

For purchase of Accounts Receivable

  

1,259,000

$

126

$

62,824

$

                     -    

$

62,950

  

  

For cash November 30, 2010

  

741,000

$

74

$

36,976

$

                     -    

$

37,050

  

  

Common stock issued  to Directors

  

37,500

$

4

$

5,946

$

                     -    

$

5,950

  

  

Common stock issued  to Consultant

  

10,000

$

1

$

1,099

$

                     -    

$

1,100

  

  

Common stock retirement

  

(200,000,000)

$

(20,000)

$

(105,000)

$

                     -    

$

(125,000)

  

  

Net loss for the period

  

  

$

  

$

  

$

(614,592)

$

(614,592)

  

  

Balance, May 31, 2011

  

312,501,000

$

31,250

$

14,308

$

(715,592)

$

(670,034)

  

  

Common stock issued  to Directors

  

37,500

$

4

$

4,956

$

                     -    

$

4,960

  

  

Common stock issued  to Directors

  

30,000

$

3

$

805

$

                     -    

$

808

  

  

Common stock issued  to Directors

  

75,000

$

8

$

1,612

$

                     -    

$

1,619

  

  

Common stock issued  to Consultant

  

18,000,000

$

1,800

$

898,200

$

                     -    

$

900,000

  

  

Net loss for the period

  

  

$

  

$

  

$

(985,517)

$

(985,517)

  

  

Balance, May 31, 2012

  

330,643,500

$

33,064

$

919,881

$

(1,701,109)

$

(748,164)

  

  

Common stock issued  to Directors

  

31,129

$

3

$

2,103

$

                     -    

$

2,106

  

  

Common stock issued for Assets

  

11,700,000

$

1,170

$

583,830

$

                     -    

$

585,000

  

  

Common Stock issued to Consultant

  

20,000,000

$

2,000

$

998,000

$

                     -    

$

1,000,000

  

  

Common stock issued to Directors

  

45,000

$

5

$

1,811

$

                     -    

$

1,815

  

  

Common stock issued to Lender

  

243,103

$

24

$

6,053

$

                     -    

$

6,077

  

  

Common Stock issued to Consultant

  

16,200,000

$

1,620

$

808,380

$

                     -    

$

810,000

  

  

Common Stock issued to reduce CPN

  

2,591,361

$

259

$

(2,601)

$

                     -    

$

(2,342)

  

  

Common Stock Cancelled - Note 3

  

(18,000,000)

$

(1,800)

$

(898,200)

$

                     -    

$

(900,000)

  

  

Common stock issued to Directors

  

45,000

$

5

$

548

$

  

$

552

  

  

Common stock issued to Lender

  

54,322

$

5

$

1,875

$

  

$

1,880

  

  

Discount on CPN's

  

  

$

  

$

249,720

$

  

$

249,720

  

  

Net loss for the period

  

  

$

  

$

  

$

(1,196,477)

$

(1,196,477)

  

  

Balance, February 28, 2013

  

363,553,415

$

36,355

$

2,671,399

$

(2,897,585)

$

(189,831)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

*1 - The number of issued and outstanding shares of common stock has been adjusted to reflect an 80:1 forward split effective August 3, 2010

  


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


53







XUN ENERGY, INC. AND SUBSIDIARIES

 

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012

AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007)

(Unaudited)

(Expressed in U.S. dollars)


         

  

  

  

For the nine months ended February. 28, 2013

  

For the nine months ended February 29, 2012

  

December 20, 2007 (Inception) to February 28, 2013

  

  

  

  

  

  

  

  

OPERATING ACTIVITIES

  

  

  

  

  

  

  

  

Net (Loss)

$

         (1,196,477)

$

           (340,450)

$

(2,897,585)

  

  

Adjustments to reconcile net loss to net cash used by operating activities

    

  

  

Share based compensation

$

                 4,473

$

                 5,768

$

22,210

  

  

Share based Interest

$

                 7,958

$

                       -    

$

7,958

  

  

Non-Cash amortization - Financial Services

$

             782,500

$

                       -    

$

857,500

  

  

Non-Cash amortization - Debt Discount

$

               79,182

$

                       -    

$

                       79,182

  

  

Gain on debt extinguishment

$

                (2,342)

$

                       -    

$

                      (2,342)

  

  

Non-Cash inventory

$

                       -    

$

                       -    

$

283

  

  

Corporate Overhead allocated to Intangible Assets

$

              (58,500)

$

                       -    

$

(60,822)

  

  

Depletion

$

                       -    

$

                       -    

$

835

  

  

Accrued Interest

$

               24,934

$

                    516

$

25,744

  

  

Changes in net assets and liabilities-

  

  

  

  

  

  

  

  

Property, Plant and Equipment impairment

$

                       -    

$

                       -    

$

18,840

  

  

Oil and Gas Leases forfeitures

$

                       -    

$

               19,701

$

5,583

  

  

Oil and Gas Lease impairment

$

                       -    

$

                       -    

$

399,743

  

  

Bonds

$

                    500

$

                       -    

$

500

  

  

Other current assets

$

                 7,557

$

                       -    

$

7,557

  

  

Accounts payable and accrued liabilities

$

             639,476

$

             308,150

$

1,676,144

  

  

Net Cash Used By Operating Activities

$

             289,260

$

               (6,315)

$

141,330

  

  

INVESTING ACTIVITIES

  

  

  

  

  

  

  

  

Purchase of Other Current Assets

$

                       -    

$

                       -    

$

(408,017)

  

  

Purchase of Fixed Assets

$

            (835,000)

$

                       -    

$

(852,637)

  

  

Purchase of Intangible Assets

$

                       -    

$

           (430,170)

$

(5,773)

  

  

Purchase of Long Term Assets

$

                       -    

$

                       -    

$

(500)

  

  

Net Cash Used By Investing Activities

$

            (835,000)

$

           (430,170)

$

(1,266,927)

  

  

FINANCING ACTIVITIES

  

    

  

  

  

  

  

  

Proceeds from issuance of common stock

$

               10,000

$

                       -    

$

170,208

  

  

Repayment of loans

$

              (20,500)

$

             (25,000)

$

(137,142)

  

  

Proceeds from loans

$

             556,309

$

             436,595

$

1,092,599

  

  

Cash Provided by Financing Activities

$

             545,809

$

             411,595

$

1,125,665

  

  

Net Increase in Cash

$

                      69

$

             (24,890)

$

69

  

  

Cash, Beginning of Period

$

                       -    

$

               25,069

$

                               -    

  

  

Cash, End of Period

$

                      69

$

                    179

$

69

  

  

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS:

  

  

  

  

Cash paid for income taxes

$

                       -    

$

                       -    

$

                               -    

  

  

Cash paid for interest                                      

$

                       -    

$

                       -    

$

222

  

  

NON-CASH FINANCING AND INVESTING ACTIVITIES:

  

  

  

  

Convertible Promissory Note - non-cash capitalization

$

               10,000

$

                       -    

$

                       10,000

  

  

Prepaid Expenses - non-cash capitalization

$

910,000

$

                       -    

$

1,810,000

  

  

Purchase of Intangible Assets - non-cash capitalization

$

585,000

$

                       -    

$

585,000

  

  

Debt Discount - non cash capitalization

$

247,119

$

                       -    

$

                     247,119

  


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


54


XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 28, 2013


NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS


The Company is engaged primarily in the acquisition, work-over development, and production of oil and gas properties. Such activities are concentrated in North American onshore, primarily in the United States in the State of Pennsylvania. The Company plans to acquire producing or near producing oil and gas properties that will provide cash flow and an upside for future development. We will be scouting for additional properties in and around Texas, Oklahoma, Pennsylvania, Kansas and in Canada.


The Company was incorporated under the laws of the state of Nevada on December 20, 2007 as Real Value Estates, Inc. On July 20, 2010, the Company changed its name to Xun Energy, Inc. and on February 7, 2011, the Company established two subsidiaries in the State of Kentucky.  The Company acquired three oil and gas leases in the State of Kentucky on February 28, 2011 and began production of oil on one of its leases in March 2011.


On April 18, 2011, the Company filed a Form 8-K with the United States Securities and Exchange Commission (“SEC”) disclosing that the Company is no longer considered a shell and has completed a workover program on one of its wells. Subsequent to filing of the Form 8-K with the SEC, the Company has filed its required four quarterly filings to "cure" itself of  "shell status". The Company operations are extensively involved in oil and gas operations even though the Company has had limited revenue from the oil and gas operations.


On February 6, 2012, the Company established a subsidiary in the State of Florida.


On August 31, 2012, the Company acquired 30 oil and gas well locations in Venango County, Pennsylvania with an option to acquire an additional 15 oil and gas locations.


NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES


BASIS OF ACCOUNTING


Our consolidated financial statements include the accounts of all of our wholly-owned subsidiaries and we have eliminated all significant intercompany balances and transactions in consolidation.


FISCAL YEAR


The Company’s consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a May 31 fiscal year end.


PRINCIPLES OF CONSOLIDATION


The Consolidated Financial Statements include the accounts of Xun Energy, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements are presented in accordance with the accounting principles generally accepted in the United States.


UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS





The interim consolidated financial statements of Xun Energy, Inc. as of February 28, 2013, and for the nine months then ended, and cumulative from inception, are unaudited. However, in the opinion of management, the interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly Xun Energy, Inc.’s consolidated financial position as of February 28, 2013, and the results of its consolidated operations and its cash flows for the nine months ended February 28, 2013, and February 29, 2012, and cumulative from inception. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2013. The accompanying consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States of America. Refer to the Company’s audited financial statements as of May 31, 2012, filed with the SEC for additional information, including significant accounting policies.


INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)


The Company has adopted the International Financial Reporting Standards code of accounts. However, the Company’s consolidated statements are completed using USA GAAP.


55


EARNINGS PER SHARE


Basic earnings per share amounts are computed by dividing the net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items in the Company.


CASH AND CASH EQUIVALENTS


The Company may, from time to time, invest cash in excess of our immediate operating requirements in short-term time deposits and money market instruments generally with original maturities at the date of purchase of three months or less. The Company considers all liquid investments with maturity of three months or less when purchased to be cash equivalents.


USE OF ESTIMATES


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates, and changes in these estimates are recorded when known. Significant items subject to such estimates and assumptions include, but are not limited to, the following:


·

Estimates of proved reserves and related estimates of the present value of future net revenues;

·

Carrying value of oil and gas properties;

·

Estimates of the fair value of reporting units and related assessment of goodwill for impairment;

·

Income taxes;

·

Asset retirement obligations;

·

Legal contingencies and environmental risks and exposures.


PROPERTY AND EQUIPMENT

 

The Company follows the successful efforts (“SE”) cost method of accounting for its oil and gas properties. Accordingly, only those expenses associated with successfully locating new oil and natural gas reserves are capitalized. For unsuccessful (or "dry hole") results, the associated operating costs are immediately charged against revenues for that period.


All costs incidental to the acquisition, exploration, and development of oil and gas properties, including costs of undeveloped leasehold, and leasehold equipment, are capitalized.  Please refer to INTANGIBLE ASSETS - LEGAL AND CONTRACTUAL - RIGHTS in this NOTE for further detail.


Internal costs incurred that are directly identified with acquisition, exploration and development activities undertaken by the Company for its own account, and that are not related to production, general corporate overhead or similar activities, are also capitalized.


Interest costs incurred and attributable to unproved oil and gas properties under current evaluation and major development projects of oil and gas properties are also capitalized. All costs related to production activities, including workover costs incurred solely to maintain or increase levels of production from an existing completion interval, are charged to expense as incurred.


Indirect costs, such as General and Administrative costs, are allocated to capital costs at a rate of 10% of the direct costs associated with the acquisition, exploration, and development activities undertaken by the Company for its own account.


Capitalized costs are depleted by an equivalent unit-of-production cost method, converting gas to oil at the ratio of six thousand cubic feet of gas to one barrel of oil. Depletion is calculated using the capitalized costs, including estimated asset retirement costs, plus the estimated future expenditures (based on current costs) to be incurred in developing or working over an oil or gas well, proved reserves, net of estimated salvage values.


Depletion is charged for each barrel of oil equivalent until the oil or gas well is no longer deemed economical for production of oil or gas. An over recovery of depletion by the Company may result from oil and gas wells producing more oil and gas than the reserve reports estimated. The over-recovery will be charged to income on a quarterly basis after the Company reviews the over-recovery and deducts an allowance for remediation, well capping and abandonment and future maintenance or workover costs.

 

Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. The Company assesses its unproved properties for impairment quarterly. Significant unproved properties are assessed individually.


56

 

No gain or loss is recognized upon disposal of oil and gas properties unless such disposal significantly alters the relationship between capitalized costs and proved reserves.

 

Depreciation and amortization of other property and equipment, including corporate and other midstream assets and leasehold improvements, are provided using the straight-line method based on estimated useful lives ranging from three to 39 years. Interest costs incurred and attributable to major midstream and corporate construction projects are also capitalized.

 

The Company recognizes liabilities for retirement obligations associated with tangible long-lived assets, such as producing well sites, when there is a legal obligation associated with the retirement of such assets and the amount can be reasonably estimated. The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the associated property and equipment on the consolidated balance sheet. If the fair value of a recorded asset retirement obligation changes, a revision is recorded to both the asset retirement obligation and the asset retirement cost. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.


The detailed analysis of our Plant, Property and equipment are as follows:


  

As Of

Description

 

February 28, 2013

 

May 31, 2012

Plant - Oil Wells: Beginning of year

$

                                 -

$

                               -

Work in Progress-Intangible

$

                            694,035

$

                               -

Work in Progress-Tangible

$

                            140,965

$

 

Rights (leases)

$

                            107,250

$

 

Subtotal

$

                            942,250

$

                               -

Depletion

$

   

$

 

Depreciation

$

                                  -

$

                               -

Net Plant - Oil Wells: End of year

$

                            942,250

$

                               -

 

EXPLORATION


The Company does not explore for oil and gas deposits. The Company may drill a new well, which is categorized as an offset well to an existing well that is producing oil or gas. The Company’s current business model does not include “wild cat” or exploratory drilling.


DEVELOPMENT - OFFSET DRILLING


The Company's development - offset drilling program consists of drilling new wells within a proven and producing property. Well locations are selected by geologists based on known and historical data from producing oil and gas wells within the property or adjoining properties. All costs of drilling a new offset well are capitalized and amortized (depletion) on a per-unit of barrel equivalent of production.


DEVELOPMENT - WORKOVER PROGRAM


The Company’s development - workover program consists of re-entering or completing a workover on an oil or gas well that has a historical evidence of oil or gas production or that is currently producing oil and gas at a fractional output compared to when the oil and gas wells first came into production. Workover activities include one or more of a variety of remedial operations on a producing well or inactive well to try to increase production. All costs of a workover are capitalized and amortized (depletion) on a per-unit of barrel equivalent of production.


RESERVES


The Company does not have proven reserves of oil or gas on its current oil and gas leases.


INTANGIBLE ASSETS - LEGAL AND CONTRACTUAL - RIGHTS





The Company capitalizes the expenses incurred for acquiring oil and gas leases. The oil and gas leases are contracts between mineral owner, otherwise known as the lessor and the Company or working interest owner, otherwise known as the lessee in which the lessor grants the lessee the rights to explore, drill and produce oil, gas and other minerals for a specified primary term and thereafter as long as oil, gas, or other minerals are being produced in paying quantities. This lease gives the lessee a working interest. The oil and gas lease is granted in exchange for royalty payments to the lessor.


57


The capitalized costs include but are not limited to: the acquisition cost of the oil and gas leases, legal, travel, consultant studies, reserve reports, financing charges including an overhead allocation on closing. Many of the oil and gas leases have production covenants, which if not complied with during the term of the lease, the Company may forfeit the oil and gas lease. On a yearly basis, the oil and gas leases are reviewed for expiry and or non performance by the Company of any of the covenants in the oil and gas leases.


The detailed analysis of our Oil and Gas Rights are as follows:


  

As Of

Description

 

February 28, 2013

 

May 31, 2012

Oil and Gas Leases: Beginning of year

$

                                  -

$

                           5,583

Acquisitions/Work in Progress

$

                            643,500

$

                        399,743

Subtotal

$

                            643,500

$

                        405,326

Capitalized as Fixed Assets

 

                          (107,250)

  

Forfeitures during the period

$

                                  -

$

                         (5,583)

Impairments during the period

$

                                  -

$

                       (399,743)

Oil and Gas Leases: End of year

$

                 536,250

$

                               -


REVENUE RECOGNITION

 

Oil and gas sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred, and collectability of the revenue is probable. Delivery occurs and title is transferred when production has been delivered to a pipeline, railcar, truck, or a tanker lifting has occurred. Cash received relating to future production is deferred and recognized when all revenue recognition criteria are met. Taxes assessed by governmental authorities on oil and gas sales are included in the Cost of Goods in the accompanying Consolidated Statements of Operations.


GENERAL AND ADMINISTRATIVE EXPENSES


General and administrative expenses are reported net of amounts reimbursed by working interest owners of the oil and gas properties operated by the Company.


ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS


The carrying value of the Company’s financial instruments, consisting of accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial statements.


INCOME TAXES


Income taxes are provided in accordance with FASB ASC 740. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.


Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.


NOTE 3: OTHER CURRENT ASSETS


The Other Current Assets account consists of inventory and prepaid expenses. During the first nine months of the fiscal year, the Company entered into two financial advisory contracts to provide consulting services in connection with the Company’s business affairs and assist the Company in raising capital. One consulting contract is with Vaquero Private Capital, Inc. (VPC) is for $810,000 for a 12 month period effective June 1, 2012. As consideration for the services to be provided by VPC, the Company paid VPC 16.2 Million shares of the Company on execution of the agreement. The Company charged $810,000 as a prepaid financial services expense and is amortizing the prepaid expense over 12 months. Refer to additional information on this agreement in Note 23: TERMINATION OF FINANCIAL SERVICES AGREEMENT.


The second consulting contract is with Prodigy Asset Management, Inc. (PAM) is for $1,000,000 for a 24 month period effective August 31, 2012. As one of the considerations for the services to be provided by PAM, the Company paid PAM 20 Million shares of the Company on execution of the agreement. The Company charged $1,000,000 as a prepaid financial services expense and is amortizing the prepaid expense over 24 months.


58


For the fiscal year ending May 31, 2012, the Company entered into a Investment Banking and Advisory (IBA) agreement with Charles Morgan Securities, Inc. (CMS). As one of the considerations for the services to be provided by CMS, the Company paid CMS 18 Million shares of the Company on execution of the agreement. The Company charged $900,000 as a prepaid financial services expense and is amortizing the prepaid expense over 24 months. On September 20, 2012, the Company and CMS mutually agreed to terminate the IBA agreement between the Company and CMS.  The Company and CMS agreed that the IBA agreement and all rights, obligations, interest, claims and causes of action pursuant thereto shall automatically be canceled, terminated, released and extinguished. As a condition of the Termination Agreement, the Company is obligated to pay $4,000 for legal fees incurred by CMS. The Company issued 18 million common stock (Shares) to CMS of which 7.5 million Shares were released to CMS. The shares are in trust and will be returned once the Company's has paid the $4,000 of legal fees incurred.


The detailed analysis of our Other Current Assets is as follows:


  

As Of

Description

 

February 28, 2013

 

May 31, 2012

Beginning Balance:

$

                            833,274

$

                                       -

Prepaid Legal

$

                              (7,556)

$

                                8,274

Prepaid Financial Services

$

                            910,000

$

                            900,000

Less: Amortization

 

                          (782,500)

 

                            (75,000)

Balance end of period:

$

                            953,218

$

                            833,274


NOTE 4: OTHER ASSETS


The detailed analysis of our Other Assets is as follows:


  

As Of

Description

 

February 28, 2013

 

May 31, 2012

Rights - Oil and Gas Leases

$

                            536,250

$

                                       -

Trademarks

$

                                  20

$

                                     20

Incorporation Costs

$

                                 170

$

                                   170

Bonds

$

                                    -

$

                                   500

Total Other Assets:

$

                            536,440

$

                                   690


NOTE 5: ADVERTISING


The Company’s policy regarding advertising is to expense advertising when incurred. The Company had not incurred any advertising expense as of February 28, 2013.


NOTE 6: GOING CONCERN


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has net losses for the period from inception (December 20, 2007) to February 28, 2013. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Management is planning to raise additional funds through debt or equity offerings. There is no guarantee that the Company will be successful in these efforts. There is no guarantee that the Company will be successful generating profits from its oil and gas operations.


NOTE 7: RELATED PARTY TRANSACTIONS





The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.


On December 20, 2007, pursuant to the terms of a subscription agreement, we sold 80 million (post forward split) shares of our common stock to Ms. Marina Karpilovski, the Company's former President and a director, for cash payment to us of $1,000. We believe this issuance was deemed to be exempt under Regulation S of the Securities Act, as no advertising or general solicitation was employed in offering the securities, the offering and sale was made only to Ms. Karpilovski who is a non-U.S. citizen, and transfer was restricted by us in accordance with the requirements of the Securities Act.


59


On December 20, 2007 pursuant to the terms of a subscription agreement, we sold 320 million (post forward split) shares of our common stock to Mr. Michael Zazkis, the Company's former Secretary, Treasurer, and a director, for cash payment to us of $4,000. We believe this issuance was deemed to be exempt under Regulation S of the Securities Act, as no advertising or general solicitation was employed in offering the securities, the offering and sale was made only to Mr. Zazkis who is a non-U.S. citizen, and transfer was restricted by us in accordance with the requirements of the Securities Act.


On March 28, 2011, the Company entered into Redemption Agreement with Peter Matousek, the Company’s president and director, which provides in part for the Company to redeem from Mr. Matousek 140 million shares of the Company’s common stock at a price of $87,500 or $0.000625 per share. On May 31, 2011, Mr. Matousek assigned the Note Payable to Comtax Services, Inc.


The Company issued an aggregate of 142,500 shares for the period ending May 31, 2012 with an average price of $0.0518 per share to the Executive and Board pursuant to a Management and Financial Service Agreement with Mr. Peter Matousek and a Board Member Compensation Agreement with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Kevin M. Grapes, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail.


The Company authorized and approved 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on October 26, 2012.


Prior to June 1, 2011, our President, CEO and Director, Jerry G. Mikolajczyk, performed services for the Company on a consulting contract through a consulting agency, Comtax Services, Inc. (Comtax). From April 1, 2010 to February 28, 2011, Comtax charged a fixed monthly fee of $2,500, a minimum of 10 hours per month for Mr. Mikolajczyk, an aggregate of $27,500 for the 11 months for Mr. Mikolajczyk’s services to the Company. For the period March 1, 2011 to May 31, 2011, Comtax charged the Company an aggregate of $387,275 (1,106.5 hours) for the services of Mr. Mikolajczyk plus $9,656.50 in travel expenses Mr. Mikolajczyk incurred on behalf of the Company. On October 31, 2012, Comtax assigned the trade payables to Mr. Mikolajczyk d/b/a/ Lighthouse Investments, as unsecured Promissory Notes. The Promissory Notes, an aggregate of $398,248.50, are non-interest bearing. Mr. Mikolajczyk was an officer of Comtax until his resignation on May 31, 2011 and terminated his consulting contract with Comtax as of May 31, 2011 prior to accepting his executive and director positions with the Company.


NOTE 8:  INCOME TAXES


The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During each fiscal year from 2008 thru 2012, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset of approximately $1,014,155 (assuming a 35% effective tax rate) generated by the loss carry-forward has been fully reserved as of February 28, 2013.  


The Company files income tax returns in the United States, the states of Kentucky and Florida.


The Company did not identify any material uncertain tax positions on tax returns filed, nor did the company recognize any interest or penalties for unrecognized tax benefits.


NOTE 9:  NET OPERATING LOSSES


As of February 28, 2013, the Company has a net consolidated operating loss carry-forward of approximately $2,897,586, which will expire 20 years from the date the loss was incurred.


NOTE 10: STOCKHOLDERS’ EQUITY


AUTHORIZED


The Company is authorized to issue 5,000,000,000 shares of $0.0001 par value common stock and 50,000,000 shares of preferred stock, par value $0.0001. All common stock shares have equal voting rights, are non-assessable, and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.


On July 20, 2010, the Company filed a Certificate of Amendment to the Company’s certificate of incorporation with the Nevada Secretary of State, which increased the Company’s authorization to issue 5,000,000,000 shares of $0.0001 par value common stock, refer to NOTE 18: CORPORATE ACTION.  


On November 30, 2011 and January 12, 2013, the Board of Directors of the Company approved the allocation of 4,000,000 of the


60


50,000,000 authorized Preferred Shares of the Company as Series A Preferred Shares with the following rights:


·

Convertible to one hundred (100) common shares of the Company for each one (1) Series A Preferred Share

·

Voting rights equal to one hundred (100) votes for each Series A Preferred Share


The consideration for one (1) Series A Preferred Share is set at $0.50.


ISSUED AND OUTSTANDING


On December 20, 2007, the Company issued 400,000,000 (post forward split) common shares to its Directors for cash of $5,000.


Since inception (December 20, 2007) to November 30, 2009, the Company accepted subscriptions for 110,416,000 (post forward split) common shares from 37 investors under a private placement which closed on March 31, 2008. The private placement was not subject to any minimum investment and was priced at $0.0005 per share (post forward split). The Company accepted the subscriptions on various dates throughout the year.


The Company issued 1,259,000 common shares on November 30, 2010 for $62,950 for Accounts Receivable assignment.


The Company issued 741,000 common shares on November 30, 2010 for $37,050 cash in a negotiated transaction with an investor to fund the ongoing operations of the Company.


The Company issued 10,000 common shares on February 28, 2011 for $1,100 pursuant to an Oil and Gas Field Operations Services agreement with the Company.


The Company redeemed on March 28, 2011, 140 million shares of the Company’s common stock at a price of $87,500 or $0.000625 per share from Peter Matousek, the Company’s president and director, at the time. Also on March 28, 2011, the Company redeemed 60 million shares of the Company’s common stock from four shareholders. The purchase price for the 60 million totaled $37,500 or $0.000625 per share. With the redemption of the 200 million shares, the Company reduced its issued and outstanding shares to 312,501,000 shares of common stock as of March 28, 2011.


The Company authorized and approved an aggregate of 112,500 shares for the period ending May 31, 2011 with an average price of $0.1263 per share to the Executive and Board pursuant to a Management and Financial Service Agreement with Mr. Peter Matousek and a Board Member Compensation Agreement with Mr. Peter Matousek and Mr. Donald Lynch. During the fiscal year ending May 31, 2011, the Company issued 75,000 of the 112,500 shares to the Executive and Board with the remaining 37,500 shares issued on June 6, 2011.


The Company issued 18 Million shares on April 12, 2012 for $900,000 pursuant to a twenty-four month agreement with Charles Morgan Securities Inc. On September 20, 2012, the Company and CMS mutually agreed to terminate the IBA agreement between the Company and CMS and the 18 Million shares were cancelled.


The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Executive and Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Jerry G. Mikolajczyk, Mr. Kevin M. Grapes and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012.  The balance, 31,129 shares, were issued to the Board on June 25, 2012.


The Company issued 20 Million shares on August 31, 2012 for $1,000,000 pursuant to a twenty-four month agreement with Prodigy Asset Management, LLC.


The Company issued 11.7 Million shares on August 31, 2012 for $585,000 pursuant to a Purchase and Sales agreement with Vencedor Energy Partners for the acquisition of 30 oil and gas well locations in Venango County, Pennsylvania.


The Company issued 1,428,571 shares on October 22, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 16.2 Million shares on October 26, 2012 for $810,000 pursuant to a twelve month Financial Consulting Services Agreement with Vaquero Private Capital, Inc. effective as of June 1, 2012.


The Company issued 243,103 shares on October 26, 2012 for $6,077 for interest and penalties to a 3rd party lender.


The Company authorized and approved 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on October 26, 2012.


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The Company issued 1,162,790 shares on November 12, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company authorized and approved 45,000 shares for the period ended November 30, 2012 with an average price of $0.012167 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on December 18, 2012.

 

The Company issued 54,322 shares on December 18, 2012 for $1,880 for interest and penalties to a 3rd party lender.


NOTE 11: RECENT ACCOUNTING PRONOUNCEMENTS


There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's financial position, results of operations or cash flows.


NOTE 12: CHANGE OF CONTROL


On February 9, 2010 certain shareholders sold and transferred an aggregate of 400,000,000 (post forward split) shares of Common Stock representing approximately 78.37% of the issued and outstanding shares of the Company to certain buyers (“Buyers”), at $0.000625 per share, post forward split, for an aggregate purchase price of $250,000 (the “Purchase Price”). Such transaction is hereinafter referred to as the “Takeover” or the “Transaction”.


The table below represents the ownership and percentage of control by each of the new shareholders:


Name of Beneficial Owner

Class of Voting Stock

Number of Shares (Post Forward Split) of Voting Stock Beneficially Owned

Percentage of Class (1)

Donald Lynch

Common Stock

80,000,000

15.67%

Peter Matousek

Common Stock

320,000,000

62.69%

All Officers & Directors As a Group (2 Persons)

Common Stock

400,000,000

78.37% (1)

 

(1)     Based on 510,416,000 (post forward split) shares of Common Stock issued and outstanding.

 

 

In connection with the Agreement, there was a change in the majority of the Company’s Board of Directors. Upon the consummation of the Takeover, Marina Karpilovski President and Director, and Michael Zazkis, Secretary, Treasurer & Director resigned and Mr. Donald Lynch was appointed as Director and Executive Officer of the Company and Mr. Peter Matousek was appointed as Director and Executive Officer of the Company.


On May 31, 2011, Mr. Jerry G. Mikolajczyk, our President, CEO and Director, acquired 180,000,000 common shares of the company from Mr. Peter Matousek, former President, CEO and Director of the Company. The common share acquisition by Mr. Mikolajczyk gave him control of 57.6% of the issued and outstanding shares of the Company. Subsequent to May 31, 2011, Mr. Mikolajczyk has acquired additional shares directly and indirectly in the Company. As of Mr. Mikolajczyk’s last Form 4 filed with the SEC on December 21, 2012, Mr. Mikolajczyk is beneficial owner of 188,534,421  (51.87%) of the issued and outstanding shares of the Company.


NOTE 13: LOANS PAYABLE


The Company has loans in the amount of $394,248, non-interest bearing and unsecured, with our President, CEO and Director, Jerry G. Mikolajczyk d/b/a Lighthouse Investments.


CPN#1 - The Company issued an unsecured one year 10% Convertible Promissory Note (CPN#1) on October 19, 2012 due on October 19, 2013 for $50,000. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 50% of the Market Price. Market Price is the average of the lowest three (3) Closing Prices for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice as reported on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Company’s common stock is listed or traded). The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. Default interest is 18% per annum should the Company default on the CPN#1. The Company may prepay CPN#1 equal to 150% of the unpaid principle and accrued and unpaid interest. As of February 28, 2013, the CPN#1 has a principle amount of $40,000 with accrued interest of $1483.56. The Creditor converted $10,000 of CPN#1 for 2,591,361 shares of common stock of the Company. On January 9, 2013, CPN#1was amended to have a floor price of $0.0001.

 

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CPN#2 - The Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#2) on October 26, 2012 due on July 29, 2013 for $32,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 55% of the Market Price. "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#2. The Company may prepay CPN#2 at any time for the period beginning on the date of the CPN#2 and ending on the date which is ninety (90) days following the date of the CPN#2, the CPN#2 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#2 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#2 and ending on the date which is one hundred twenty (120) days following the date of CPN#2, the Company may prepay the CPN#2 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#2 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#2 and ending on one hundred eighty (180) days following the date of this CPN#2, the Company may prepay the CPN#2 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#2 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#2, the Company shall have no right of prepayment. As of February 28, 2013, the Company accrued interest of $890.42. On January 9, 2013, CPN#2 was amended to have a floor price of $0.00005.


CPN#3 - The Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#3) on December 6, 2012 due on September 10, 2013 for $37,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 55% of the Market Price. "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#3. The Company may prepay CPN#3 at any time for the period beginning on the date of the CPN#3 and ending on the date which is ninety (90) days following the date of the CPN#3, the CPN#3 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#3 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#3 and ending on the date which is one hundred twenty (120) days following the date of CPN#3, the Company may prepay the CPN#3 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#3 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#3 and ending on one hundred eighty (180) days following the date of this CPN#3, the Company may prepay the CPN#3 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#3 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#3, the Company shall have no right of prepayment. As of February 28, 2013, the Company accrued interest of $989.59.  On January 9, 2013, CPN#3 was amended to have a floor price of $0.00005.


CPN#4  - The Company has loans in the amount of $231,160, non-interest bearing, with Comtax Services, Inc. The loans from Comtax Services, Inc. have been provided to the Company as working capital.  On January 12, 2013 the Company amended the Promissory Notes with Comtax Services, Inc. and issued an unsecured one year 10% Convertible Promissory Note (CPN#4) effective October 19, 2012 due on October 18, 2013 for $231,160. The principal and accrued interest is convertible up to 509,520 Series A Preferred Shares at a strike price of $0.50 per Series A Preferred Share with the following rights:

  

1.

Convertible to one hundred (100) common shares of the Company for each one (1) Series A Preferred Share; and

2.

Voting rights equal to one hundred (100) votes for each Series A Preferred Share.


CPN#5  - The Company has a loans in the amount of $62,000, non-interest bearing, with Comtax Services, Inc. The loans from Comtax Services, Inc. have been provided to the Company as working capital.  On January 12, 2013 the Company amended the Promissory Notes for $62,000 with Comtax Services, Inc. and issued an unsecured one year 10% Convertible Promissory Note (CPN#5) effective December 1, 2012 due on November 30, 2013  for $62,000. The principal and accrued interest is convertible up to 136,400 Series A Preferred Shares at a strike price of $0.50 per Series A Preferred Share with the following rights:

 

1.

Convertible to one hundred (100) common shares of the Company for each one (1) Series A Preferred Share; and

2.

Voting rights equal to one hundred (100) votes for each Series A Preferred Share.


CPN#6 - On February 14, 2012, the Company issued a Promissory Note for $100,000 and is carrying a contingent liability of $30,000, with Altmann Revocable Living Trust, Rlt. (ALRT), totaling $130,000 which became due December 31, 2012 with interest calculated at 8% per annum. The Company amended the $100,000 Promissory Note plus accrued interest of $7,036 to an unsecured one year 8% Convertible Promissory Note (CPN#6) effective January 1, 2013 due on January 1, 2014 for


63


$100,000 with accrued interest of $7,036. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at the Conversion Price which shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price is 80% of the Market Price. "Market Price" means the average of the Closing Prices (as defined below) for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Company via facsimile (the "Conversion Date"). "Closing Price" means, for any security as of any date, the closing price on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Company’s common stock is listed or traded). The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company may prepay CPN#6 in advance in full or in part at any time and from time to time without premium or penalty. "Fixed Conversion Price" shall mean $0.0001. As of February 28, 2013, the Company accrued interest of $8,329.

 

CPN#7 - On June 25, 2012, the Company issued an unsecured Promissory Note for $25,000 to a 3rd party due on July 16, 2012 with a default penalty of $2,500, default interest at 20% per annum plus late fees. The Promissory Note was renegotiated with a due date of December 31, 2012. The Company paid the 3rd party $7,958.04 in interest, default fees and late fees for the period June 25, 2012 and December 31, 2012. The Company amended the $25,000 Promissory Note plus default penalty of  $2,500 to an unsecured one year 20% Convertible Promissory Note (CPN#7) effective January 1, 2013 due on August 1, 2013. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at the Conversion Price which shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price is 80% of the Market Price. "Market Price" means the average of the Closing Prices (as defined below) for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Company via facsimile (the "Conversion Date"). "Closing Price" means, for any security as of any date, the closing price on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Company’s common stock is listed or traded). The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company may prepay CPN#6 in advance in full or in part at any time and from time to time without premium or penalty. "Fixed Conversion Price" shall mean $0.0001. As of February 28, 2013, the Company accrued interest of $889.




On February 14, 2012, the Company accrued a contingent liability of $30,000, for Altmann Revocable Living Trust, Rlt., accruing interest at 8%, is unsecured, and is contingent upon ALRT providing documentation supporting the claim of investment in the West Crockett Oil and Gas Project. As of February 28, 2013, the Company accrued interest of $2,499.


NOTE 14: LONG TERM LIABILITIES – NOTES – 3 YEARS AND LESS


On March 28, 2011, the Company entered into Redemption Agreement with Peter Matousek, the Company’s president and director, which provides in part for the Company to redeem from Mr. Matousek a total of 140 million shares of the Company’s common stock at a price of $87,500 or $0.000625 per share. On May 31, 2011, Mr. Matousek assigned the Note Payable to Comtax Services, Inc.


Also on March 28, 2011, the Company entered into similar redemption agreements with four other shareholders, which in total provide for the redemption of 60 million shares of the Company’s common stock. The purchase price for the 60 million totaled $37,500 or $0.000625 per share.


The terms of the stock redemption, agreement is a non-callable 3-year note. The principal will accrue interest at the rate of 0.55% (IRS Short Term AFR – April 2011) per annum, until March 31, 2014 (the “Maturity Date”). Principal plus all accrued interest will be due on the Maturity Date.


NOTE 15: LONG TERM LIABILITIES – NOTES – 3 YEARS AND LESS – RELATED PARTY


Our President, CEO and Director, Mr. Jerry G. Mikolajczyk, acquired 100% interest in Womack Holdings, Inc. on July 15, 2011. Womack Holdings, Inc. holds a Note Payable by the Company. The Note Payable is in the amount of $9,375. The principal, $9,375, will accrue interest at the rate of 0.55% (IRS Short Term AFR – April 2011) per annum, until March 31, 2014 (the “Maturity Date”). Principal plus all accrued interest will be due on the Maturity Date.


NOTE 16: FAIR VALUE OF FINANCIAL INSTRUMENTS


Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.


64


The Company has convertible promissory notes that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:


Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.


The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of February 28, 2013 and May 31, 2012:


  

As Of

Description

 

February 28, 2013

 

May 31, 2012

CPN#1

$

                    40,000

$

                             -

CPN#1 Discount

$

                     40,000

$

                             -

CPN#1 - 10% Interest Accrued

$

                       1,484

$

                             - 

CPN#2

$

                     32,500

$

                             -

CPN#2 Discount

$

                     26,591

$

                             -

CPN#2 - 8% Interest Accrued

$

                         890

$

                             -

CPN#3

$

                     37,500

$

                             -

CPN#3 Discount

$

                      30,682

$

                             -

CPN#3 - 8% Interest Accrued

$

                         990

$

                             - 

CPN#4

$

                    231,160

$

                             -

CPN#4 Discount

$

                    106,334

$

                             -

CPN#4 - 10% Interest Accrued

$

                       8,360

$

                             -

CPN#5

$

                      62,000

$

                             -

CPN#5 Discount

$

                        2,480

$

                             -

CPN#5 - 10% Interest Accrued

$

                      1,529

$

                             - 

CPN#6

$

                    100,000

$

                             -

CPN#6 Discount

$

                     26,759

$

                             -

CPN#6 - 8% Interest Accrued

$

                     8,329

$

                             -

CPN#7

$

                    27,500

$

                             -

CPN#7 Discount

$

                       6,875

$

                             -

CPN#7 - 20% Interest Accrued

$

                         889

$

                             - 

Total Convertible Promissory Notes

$

                    530,660

$

                             -

Less: Debt Discount

$

                    239,720

$

                             -

Convertible Promissory Notes

$

                    290,940

$

                             -

     

Total Accrued CPN Interest

$

                     22,470

$

                          -


In accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total debt discounts of $239,720, and $-0- for the variable conversion feature of the convertible debts incurred during the nine months ended February 28, 2013 and year ended May 31, 2012, respectively. The discount will be amortized to debt discount over the term of the debentures using the effective interest method. The Company recorded $79,182 and $-0- of debt discount expense pursuant to the amortization of the convertible promissory note discounts during the nine months ended February 28, 2013 and February 29, 2012, respectively. The Company recorded $22,470 and $-0- of interest expense for convertible promissory notes the during the nine months ended February 28, 2013 and February 29, 2012, respectively.


Both CPN#1, CPN#2 and CPN#3 carry default provisions that place a “maximum share amount” on the note holders. The maximum share amount that can be owned as a result of the conversions to common stock by the note holders is 4.99% of the Company’s issued and outstanding shares.


65


In accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued represented embedded derivative features, and these are included in Loan Payable on the balance sheet.


NOTE 17: CORPORATE ACTIONS


A Certificate of Amendment to the Certificate of Incorporation was authorized by the Company’s Board of Directors on May 15, 2010 and approved by the written consent of the holders of a majority of the Company’s shareholders owning a majority of the outstanding issued and outstanding voting shares. The Certificate of Amendment provided for the Company to:


·

Change its name from Real Value Estates, Inc. to Xun Energy, Inc.;

·

Increase the number of authorized shares of its common stock from 100 million shares $0.0001 par value to 5 billion shares of common stock, $0.0001 par value; and  

·

An 80:1 forward split of the Company’s issued and outstanding common stock.


On July 20, 2010, the Company filed a Certificate of Amendment to the Company’s certificate of incorporation with the Nevada Secretary of State to effect the name change to Xun Energy, Inc. and to increase the authorized common stock to 5 billion shares of common stock, $0.0001 par value.


On August 3, 2010, the corporate action became effective whereby the 6,380,200 issued and authorized shares of common stock were forward split resulting in 510,416,000 issued and outstanding shares of common stock.


NOTE 18: COMMITMENTS





The Company entered in a Management and Financial Service Agreement with Mr. Wayne St. Cyr as the Executive Vice President, Marketing and Strategic Development on December 21, 2010 for a ten day period ending December 31, 2010 which was extended for a 12 month term to December 31, 2011, whereby the Executive Vice President, Marketing and Strategic Development is paid $10,000 per month. The Company has not renewed the contract with Mr. Ct. Cyr and has retained Mr. St. Cyr on a month to month basis. In addition to his duties as Executive Vice President, Marketing and Strategic Development, Mr. St. Cyr is the Corporate Secretary for the Company. Mr. St Cyr is paid $10,000 per month.


The Company entered into a Management and Financial Service Agreement for Mr. Jerry G. Mikolajczyk for a 12-month period commencing on June 1, 2011 and ending May 31, 2012. Mr. Mikolajczyk is hired through a service company, and will be paid $120,000 in cash payments for the services of Mr. Mikolajczyk. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Mikolajczyk. Mr. Mikolajczyk continues to work for the Company on a month-to-month basis and is paid $10,000 per month.


The Company entered into a Management and Financial Service Agreement with Mr. Peter Matousek for a 12-month period commencing June 1, 2011 and ending May 31, 2012 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Matousek. Mr. Matousek continues to work for the Company on a month-to-month basis and is paid $7,500 per month.


The Company entered into a Management and Financial Service Agreement with Dr. William D. Spier for a 7.25-month period commencing October 23 and ending May 31, 2013 whereby Dr. Spier will be paid $29,032 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.


NOTE 19: EXECUTIVE AND BOARD COMPENSATION


The Company entered into Board Member Compensation Agreements with Mr. Kevin M. Grapes and Mr. Jerry G. Mikolajczyk as directors of the Company for a term of one (1) year ending August 31, 2012. Both Mr. Grapes and Mr. Mikolajczyk will receive 5,000 shares per month of the Company’s common stock in consideration for them serving on the Company’s Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses.  On May 21, 2012, Mr. Kevin M. Grapes resigned as a Board member.


On May 22, 2012, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2013.


66


On May 25, 2012, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2013.


Both Dr. Spier and Mr. Matousek will receive 5,000 shares per month of the Company’s common stock in consideration for them serving on the Company’s Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses.


The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Board pursuant to a Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Kevin M. Grapes, Mr. Peter Matousek and Dr. William D. Spier. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012.  The balance,  31,129 shares, were issued to the Board on June 25, 2012.


The Company authorized and approved an aggregate of 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier. The 45,000 shares were issued to the Board on October 26, 2012.


On August 31, 2012, Jerry G. Mikolajczyk was re-appointed as a director by the Board of Directors of  the Company for another one-year term ending August 31, 2013.  In consideration for Mr. Mikolajczyk’s service as director, the Company will issue 5,000 shares per month of the Company’s stock, which will be valued based on the average of the five trading day close price prior to each month end.  In addition, the Company will reimburse Mr. Mikolajczyk for the preapproved cost of airfare, travel expenses and disbursements made on behalf of the Company.


The Company authorized and approved an aggregate of 45,000 shares for the period ended November  30, 2012 with an average price of $0.01227 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.


The table below represents the shares issued or reserved to the Board with the 5-Day Average Share Closing Price:


    

5-Day

 

Par

 
 

Shares

Total

Share

 

Value

Paid In

Month

Executive

Board

Shares

Average

Cost

$0.0001

Capital

June

-

    15,000

    15,000

$0.03800

$570.00

$1.50

$568.50

July

-

    15,000

    15,000

$0.04400

$660.00

$1.50

$658.50

August

-

    15,000

    15,000

$0.03900

$585.00

$1.50

$583.50

Quarter Total

-

    45,000

    45,000

$0.04033

$1,815.00

$4.50

$1,810.50

September

-

    15,000

    15,000

$0.02320

$348.00

$1.50

$346.50

October

-

    15,000

    15,000

$0.00770

$115.50

$1.50

$114.00

November

-

    15,000

    15,000

$0.00590

$88.50

$1.50

$87.00

Quarter Total

-

    45,000

45,000

$0.01227

$552.00

$4.50

$547.50

December

-

    15,000

    15,000

$0.00774

$116.10

$1.50

$114.60

January

-

    15,000

    15,000

$0.00982

$147.30

$1.50

$145.80

February

-

    15,000

    15,000

$0.01522

$228.30

$1.50

$226.80

Quarter Total

-

    45,000

45,000

$0.01093

$491.70

$4.50

$487.20

Year Total

-

135,000

135,000

$0.02118

$2,858.70

$13.50

$2,845.20



NOTE 20: COMMON SHARES PURCHASE LITIGATION


On May 10, 2011, the Company accepted an Offer to Purchase from Lea Kennedy d/b/a LuxemBarings (“Purchaser”) to purchase $10 million of the Company’s common stock based on the average of 5 consecutive trading day’s close prior to date of closing. The Offer to Purchase was scheduled to close on or before June 24, 2011. The Purchaser failed to complete the transaction, after mutually agreed extensions of the closing date. The Company has retained legal counsel to take legal action against the Purchaser for failing to complete the purchase transaction and for damages to the Company as a result of the failure to complete the transaction. The Company has recognized losses, at cost, in the financial statements for the period ended May 31, 2012 and legal costs for the nine months ending February 28, 2013.


NOTE 21: EXECUTIVE AND BOARD CHANGES


On May 31, 2011, Mr. Matousek, our President and CEO, advised that the roles and responsibilities are increasing for the


67


Company and that Mr. Jerry G. Mikolajczyk, while as consultant to the Company, has been instrumental in developing and building the Company to its current status including funding and operations. Mr. Matousek advised that it is in the best interests for the Company and the Shareholders that Mr. Mikolajczyk have authority to continue developing the Company and have authority to make decisions at an Executive Level of the Company. Subsequently, Mr. Matousek resigned as President, CEO and CFO and the Company appointed Jerry G. Mikolajczyk as Interim President, CEO and CFO until a permanent President and CEO is recruited and a permanent CFO is recruited. The Company entered into a Management and Financial Service Agreement for Mr. Jerry G. Mikolajczyk for a 12-month period commencing on June 1, 2011 and ending May 31, 2012. Mr. Mikolajczyk is hired through a service company, and will be paid $120,000 in cash payments for the services of Mr. Mikolajczyk. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Mikolajczyk. Mr. Mikolajczyk continues to work for the Company on a month-to-month basis and is paid $10,000 per month.


The Company also appointed Mr. Peter Matousek as the Company’s Vice-President of Investor Relations. The Company entered into a Management and Financial Service Agreement with Mr. Peter Matousek for a 12-month period commencing June 1, 2011 and ending May 31, 2012 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million. The Company has not renewed the contract with Mr. Matousek. Mr. Matousek continues to work for the Company on a month-to-month basis and is paid $7,500 per month.


On August 31, 2011, directors Peter Matousek, Donald Lynch and Jerry G. Mikolajczyk termed out. On September 1, 2011, the Company obtained the written consent of the stockholders holding a majority, 86.51%, of the outstanding voting rights of the Company (the "Consent"). The Consent approved the election of Kevin M. Grapes and Jerry G. Mikolajczyk as directors of the Company for a term of one (1) year ending August 31, 2012.


On May 21, 2012, Mr. Kevin M. Grapes resigned as a Board member.

 

On May 22, 2012, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2013.


On May 25, 2012, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2013.


On August 31, 2012, Company entered into a Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2013.


Each Board member will receive 5,000 shares per month of the Company’s common stock in consideration for them serving on the Company’s Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million.




NOTE 22:  VENANGO 30 WELL LOCATION


On August 31, 2012 the Company entered into an Oil and Gas Well Location Agreement with Vencedor Energy Partners (Assignor). The agreement allows the Company to drill 30 offset oil and gas wells on 3 producing oil and gas leases in Venango County, Pennsylvania.


The Company paid $585,000 in the form of 11,700,000 shares of common stock (Shares) of the Company for the rights.


The Company will have 100% working interest in the wells and Net Revenue Interest as follows:


Lease Name

Net Revenue Interest Breakdown

Rice

Master Lease Lessor - 12.5% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 82.5% royalty interest;

  

Lalley

Master Lease Lessor - 12.5% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 82.5% royalty interest; and

  

Corse

Master Lease Lessor - 15.0% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 80.0% royalty interest.


68


The Agreement allows the Company to have the exclusive right to explore, operate, produce all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced (Oil and Gas) from Oil and Gas deposits contained within and under the well location and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the well location and other lands for the production of Oil and Gas to the Company. A well location is defined as a circle having a radius of l50 feet with the well, to a depth as allowed in the Master Lease, at the center thereof.


The Company owns the rights and may select up to 30 well locations from the following:


Lease Name

Locations

Rights

Rice

Up to 10

One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,200 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Rice Lease.

   

Lalley

Up to 8

One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,200 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Lalley Lease.

   

Corse

Up to 15

One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,000 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Corse Lease.


If Company does not begin or provide proof of funds or funding for the first well on or before January 31, 2013, subject to our operator, Vencedor Energy Partners, obtaining the necessary permits to allow the Company to commence drilling and completions operations, and does not begin or provide proof of funds or funding for 3 more wells on or before March 31, 2013, then the Company will have forfeited its rights and the Agreement shall terminate and unwind and the Assignor agrees to return the Shares (11,700,000) to the Company.


On January 29, 2013, pursuant to a letter agreement between the Company and the Assignor, the Company acknowledged and agreed to the notice of the delay of the permits up to 4 weeks beyond January 31, 2013.


After completing 8 wells and if Company does not complete any of the remaining 22 well drilling provision set forth in the Agreement within the 2 years from the date of the execution of the Agreement, then the Company will forfeit its rights to the well locations not completed. The Company will retain its rights for the well locations completed and will retain an Override Royalty of Seven and one half per cent (7.5%) on the well locations forfeited.


The Company has 2 years from the date of execution of the Agreement to complete the drilling of the 30 well locations and has the option to acquire an additional 15 well locations for the same terms and conditions of the Agreement after the first 30 wells locations have been completed.


The Company will provide funding in groups of 4 to 6 wells to optimize economies of scale, with the exception of the first 4 wells which can be funded on an individual basis.


The Company agreed, the Participation and Operating Agreement (the "POA"), to have Assignor the designated Operator (the "Operator") of the Oil and Gas Well Locations which includes all the responsibilities as a designated operator in the State of Pennsylvania which includes the duties of managing and supervising the drilling and completions of the Oil and Gas Locations.


On December 18, 2012, pursuant to the POA, the Operator invoiced the Company $835,000 for the drilling and completion of five oil wells on the Rice lease. The Company has recorded the transaction capitalizing the drilling and completions as work in progress. The liability is included in the Company's Accounts Payable.  


THE COMPANY WILL NEED TO RAISE FUNDS TO DRILL THE OIL AND GAS WELLS AND THERE IS NO GUARANTEE THAT THE COMPANY WILL BE SUCCESSFUL IN RAISING THE FUNDS NECESSARY TO COMPLETE 1 OR ANY OF THE 30 OFFSET OIL AND GAS WELLS.


NOTE 23: TERMINATION OF FINANCIAL CONSULTING SERVICES AGREEMENT


On December 18, 2012, the Company issued a Notice of Termination to Vaquero Private Capital, Inc. (“VPC”) for breach of contract by VPC, terminating the September 4, 2012 twelve month Financial Consulting Services Agreement (the “Agreement”)


69


effective as of June 1, 2012, pursuant to which VPC would provide consulting services in connection with the Company’s business affairs and assist the Company in raising capital.  In consideration of the services to be provided by VPC, the Company paid VPC a prepaid fee of $810,000 in the form of 16.2 million common shares of the Company. The Company has placed a Stop Order on the transference of 16.2 million shares pending resolution of the breach of contract by VPC.


NOTE 24: SUBSEQUENT EVENTS


On March 18, 2013, pursuant to a letter agreement, Amendment #3, between the Company and Vencedor Energy Partners, the Company has agreed to delete Section 4a (financing conditions) of the Oil and Gas Well Location Assignment dated August 31, 2012 between Xun Energy, Inc. and Vencedor Energy Partners.


On March 23, 2013 The United States District Court For The Southern District Of Illinois granted summary judgment on Xun Energy’s breach of contract claim against Lea Kennedy d/b/a/ LuxemBarings. The amount of damages remains an issue to be resolved in the case and the Company's "fraud in the inducement claim" alleged in its complaint remains pending.


70


PART II


INFORMATION NOT REQUIRED IN PROSPECTUS




 ITEM 13   OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION


The following are our expenses related to our initial public offering:

Securities and Exchange Commission Registration Fee

$

-

Legal Fees

$

18,000

Accounting Fees*

$

3,000

Printing and Engraving*

$

-

Blue Sky Qualification Fees and Expenses*

$

-

Transfer Agent Fee*

$

9,000

Miscellaneous*

$

1,000

TOTAL

$

31,000

* Estimated costs

  


ITEM 14.   INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

The Registrant is a Nevada corporation and the provisions of the Nevada Revised Statutes will be applicable to the indemnification the Registrant offers to its officers, directors and agents. In its By-laws the Registrant generally agrees to indemnify each person who is a director or officer of the Registrant, or serves at the request of a director or officer as a director, officer, employee or agent of another company, in accordance with the Registrant's By-laws, to the fullest extent permissible by the Nevada Revised Statutes or other applicable laws. In its By-laws the Registrant indicates that, in connection with any such indemnification, it is within the discretion of the Board of Directors whether to advance any funds in advance of disposition of any action, suit or proceeding.

 

Under the Articles of Incorporation, the By-laws, and the Nevada Revised Statutes, no director of the Registrant will be personally liable to the Registrant or its stockholders for monetary damages, or expenses in defense of an action, for breach of fiduciary duty as a director or by reason of the fact that he is or was a director, officer, employee or agent of the Registrant, or serving in such capacity for another entity at the request of the Registrant, except for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or there is reasonable cause to believe it was unlawful, or (iii) for any transaction from which the director derived an improper personal benefit. The Registrant has the power to purchase and maintain insurance on behalf of any persons potentially eligible for indemnification. The rights to indemnification are also applicable to those persons entitled to such rights by virtue of the Registrant's consummation of a business combination, including such consummations wherein the Registrant is merged into or reorganized as a new entity.


The foregoing description of available indemnification is a summary only, and is qualified in its entirety by the complete terms and provisions of the Nevada Revised Statutes and also the Registrant's Articles of Incorporation and By-laws, filed herewith as exhibits.


II-1





ITEM 15    RECENT SALES OF UNREGISTERED SECURITIES


Below is a chart of all the shareholders who purchased shares since May 31, 2012. The chart provides detail on the sales price of the common stock of the Company, person purchasing the security, the date and amount of the security.

Cert No

Name

Shares

per share $

Total Paid

Method of Payment

Date of Payment

Exemption from Registration

2192

Jerry G. Mikolajczyk

15,000

$0.06807

$1,021.00

Board Compensation

5/31/2012

4(2)

2191

Kevin Grapes

13,387

$0.07066

$945.91

Board Compensation

5/31/2012

4(2)

2190

Dr. William D. Spier

1,613

$0.05100

$82.26

Board Compensation

5/31/2012

4(2)

2189

Peter Matousek

1,129

$0.05100

$57.58

Board Compensation

5/31/2012

4(2)

2206

Prodigy Asset Management, LLC

20,000,000

$0.05000

$1,000,000.00

Service Contract

8/31/2012

4(2)

2205

Vencedor Energy Partners

11,700,000

$0.05000

$585,000.00

Asset Acquisition

8/31/2012

4(2)

2212

Jerry G. Mikolajczyk

15,000

$0.06807

$1,021.05

Board Compensation

8/31/2012

4(2)

2211

Dr. William D. Spier

15,000

$0.06807

$1,021.05

Board Compensation

8/31/2012

4(2)

2210

Peter Matousek

15,000

$0.06807

$1,021.05

Board Compensation

8/31/2012

4(2)

2221

Continental Equities, LLC

1,428,571

$0.00350

$5,000.00

Debt Conversion

10/19/2012

4(2)

2213

Vaquero Private Capital, Inc.

16,200,000

$0.05000

$810,000.00

Service Contract

6/1/2012

4(2)

2219

Brian Edwards

243,103

$0.02500

$6,077.00

Debt Conversion

10/31/2012

4(2)

2220

Continental Equities, LLC

1,162,790

$0.00430

$5,000.00

Debt Conversion

10/19/2012

4(2)

2226

Jerry G. Mikolajczyk

15,000

$0.01267

$190.05

Board Compensation

11/31/12

4(2)

2225

Dr. William D. Spier

15,000

$0.01267

$190.05

Board Compensation

11/31/12

4(2)

2224

Peter Matousek

15,000

$0.01267

$190.05

Board Compensation

11/31/12

4(2)

2227

Brian Edwards

54,322

$0.03461

$1,880.00

Debt Conversion

12/31/2012

4(2)

2238

Jerry G. Mikolajczyk

15,000

$0.01093

$163.90

Board Compensation

2/28/2013

4(2)

2237

Dr. William D. Spier

15,000

$0.01093

$163.90

Board Compensation

2/28/2013

4(2)

2236

Peter Matousek

15,000

$0.01093

$163.90

Board Compensation

2/28/2013

4(2)

 2239

AGS Capital Group, LLC

4,081,633

$0.00980

$40,000.00

Service Contract

4/30/2013

4(2)

 2233

Continental Equities, LLC

423,728

$0.00590

$2,500.00

Debt Conversion

10/19/2012

4(2)

 2235

Continental Equities, LLC

2,061,855

$0.00485

$10,000.00

Debt Conversion

10/19/2012

4(2)

2240

Asher Enterprises, Inc.

2,857,143

$0.00420

$12,000.00

Debt Conversion

10/26/2012

4(2)

2244

Continental Equities, LLC

2,222,222

$0.00450

$10,000.00

Debt Conversion

10/19/2012

4(2)

2243

Asher Enterprises, Inc.

3,658,537

$0.00410

$15,000.00

Debt Conversion

10/26/2012

4(2)

2245

Asher Enterprises, Inc.

1,700,000

$0.00400

$6,800.00

Debt Conversion

10/26/2012

4(2)

2246

Continental Equities, LLC

4,811,707

$0.00410

$19,728.00

Debt Conversion

10/19/2012

4(2)

        

DESCRIBE UNREGISTERED STOCK ISSUES SINCE MAY 31, 2012:


The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Executive and Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Jerry G. Mikolajczyk,  Mr. Kevin M. Grapes and Dr. William D. Spier. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012. The balance of 31,129 shares was issued to the Board on June 25, 2012.

The Company issued 20,000,000 shares on August 31, 2012 pursuant to a twenty-four month agreement with Prodigy Asset Management, LLC.


The Company issued 11,700,000 shares on August 31, 2012 pursuant to a Purchase and Sales agreement with Vencedor Energy Partners for the acquisition of 30 oil and gas well locations in Venango County, Pennsylvania.


The Company issued 1,428,571 shares on October 22, 2012 for $5,000 pursuant to the conversion of a Convertible Promissory Note, dated October 19, 2012.


The Company issued 16,200,00 shares on October 26, 2012 pursuant to a twelve month Financial Consulting Services Agreement with Vaquero Private Capital, Inc. (“VPC”) effective as of June 1, 2012. On December 18, 2012, the Company issued a Notice of Termination to VPC for breach of contract by VPC, thus terminating the September 4, 2012 twelve months Financial Consulting Services Agreement. The Company has placed a Stop Order on the transference of the shares pending resolution of the breach of contract with VPC.


The Company issued 243,103 shares on October 26, 2012 for interest and penalties to a 3rd party lender.


The Company issued 45,000 shares with an average price of 0.01227 per share on October 26, 2012 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.





The Company issued 1,162,790 shares on November 12, 2012 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 45,000 shares for the period ended November 30, 2012 with an average price of $0.012167 per share on December 18, 2012 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.

  

The Company issued 54,322 shares on December 18, 2012 for interest and penalties to a 3rd party lender.


The Company issued 45,000 shares for the period ended February 28, 2013 with an average price of $0.0109267 per share on April 30, 2013 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.


The Company issued 4,081,633 shares on April 30, 2013 as incentive to enter into a reserve equity financing agreement dated May 7, 2013.


The Company issued 423,728 shares on April 17, 2013 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 2,061,855 shares on April 30, 2013 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 2,857,143 shares on May 2, 2013 pursuant to the conversion of a Convertible Promissory Note dated October 26, 2012.


The Company issued 2,222,222 shares on May 8, 2013 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 3,658,537 shares on May 9, 2013 pursuant to the conversion of a Convertible Promissory Note dated October 26, 2012.


The Company issued 1,700,000 shares on May 10, 2013 pursuant to the conversion of a Convertible Promissory Note dated October 26, 2012.


The Company issued 4,811,707 shares on May 13, 2013 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The issuance of the common stock was exempt from registration under Section 4(2) of the Securities Act.


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ITEM 16.   EXHIBITS


3.1

Articles of Incorporation for Xun Energy, Inc., as amended

3.2

By-Laws of Xun Energy, Inc., as amended

4.1

Form of Specimen Stock Certificate 

5.1

Opinion of Matthew McMurdo, Esq., legal counsel.

10.1


10.2


22.1

23.1

Reserve Equity Financing Agreement, by and between Xun Energy, Inc. and AGS Capital Group, LLC, dated May 7, 2013.

Registration Rights Agreement, by and between Xun Energy, Inc. and AGS Capital Group, LLC, dated May 7, 2013.

Subsidiaries

Consent of Weinberg & Baer LLC,

23.2

Consent of Matthew McMurdo, Esq. (included in Exhibit 5.1)



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ITEM 17.   UNDERTAKINGS 

 

UNDERTAKINGS


The Registrant undertakes:


1.   Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


The Registrant is registering securities under Rule 415 of the Securities Act and hereby undertakes:


1.   To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:


  

(i)

Include any prospectus required by Section 10(a)(3) of the Securities Act;


  

(ii)

Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.


  

(iii)

Include any additional or changed material information on the plan of distribution.


2.   That, for the purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.


3.   To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.


4.   The undersigned Registrant hereby undertakes that:

 

A.   For determining liability of the undersigned issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned issuer undertakes that in a primary offering of securities of the undersigned issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

  

i.

Any preliminary prospectus or prospectus of the undersigned issuer relating to the offering required to be filed pursuant to Rule 424;

 

  

ii.

Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned issuer or used or referred to by the undersigned issuer;

  

II-4

  

iii.

The portion of any other free writing prospectus relating to the offering containing material information about the undersigned  issuer or its securities provided by or on behalf of the undersigned issuer; and

 

  

iv.

Any other communication that is an offer in the offering made by the undersigned issuer to the purchaser.


B. That for the purpose of determining liability under the Securities Act to any purchaser:

 

Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

"Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the issuer pursuant to the foregoing provisions, or otherwise, the issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable."




In the event that a claim for indemnification against such liabilities (other than the payment by the issuer of expenses incurred or paid by a director, officer or controlling person of the issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.


SIGNATURES

 


Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, on May 28, 2013.

 

 

  

XUN ENERGY, INC.

  

  

  

  

By:  

/s/ Jerry G. Mikolajczyk

  

  

Jerry G. Mikolajczyk, CEO and President

  

  

  

 

In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.


/s/ Jerry G. Mikolajczyk

  

Dated: May 28, 2013

Jerry G. Mikolajczyk, President, CEO and CFO

  

  

 

  

  

/s/ Peter Matousek

              Dated: May 28, 2013

Peter Matousek, Director


/s/ Dr. William D. Spier

              Dated: May 28, 2013

Dr. William D. Spier, Director