10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K /A

Amendment No. 1

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

Commission file number 333-168484

Xtreme Oil & Gas, Inc.

 (Exact name of registrant as specified in its charter)

Nevada	20-8295316
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

5700 W. Plano Parkway, Suite 3600, Plano, Texas 75093

 (Address of principal executive offices)                (Zip Code)

Telephone: (214) 432-8002

Fax: (214) 432-8005

 (Registrant’s telephone number)

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

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.001 per share	Over The Counter – Bulletin Board

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  ¨ Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of common stock, par value $.001 per share, held by non-affiliates (based upon the closing sales price on the OTC QB Exchange on June 30, 2012, the last business day of registrant’s most recently completed second fiscal quarter) was approximately $15.3 Million.

As of April 15, 2013, there were 62,187,051 shares of common stock outstanding.

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EXPLANATORY NOTE

We are filing this Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”), which was originally filed with the Securities and Exchange Commission on April 16, 2013, for the sole purpose of furnishing the Interactive Data File as Exhibit 101 in accordance with Rule 405 of Regulation S-T. Exhibit 101 to this report furnishes the following items from the Form 10-K formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011, (ii) the Consolidated Statements of Operations for the years ended December 31, 2012 and 2011, (iii) the Consolidated Statements of Stockholders' Equity for the years ended December 31, 2012 and 2012, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011, and (v) the Notes to Consolidated Financial Statements.

No other changes have been made to the Form 10-K. This Amendment does not reflect events that have occurred after the April 16, 2013 filing date of the Form 10-K, or modify or update the disclosures presented therein, except to reflect the amendment described above.

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 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(2)       Financial Statements Schedules:

All schedules are omitted because they are inapplicable or because the required information is contained in the financial statements or included in the notes thereto.

(3) Exhibits:

Exhibit No.	Title of Document
3.1	Articles of Incorporation (1)
3.2	Certificate of Amendment to Articles of Incorporation (1)
3.3	Bylaws (1)
5.1	Legal Opinion
10.1	Agreement for Sale, Assignment and Release of Interests – Oil Creek (1)
10.2	Agreement for Sale, Assignment and Release of Interests – Cookie (1)
10.3	Agreement for Sale, Assignment and Release of Interests – Winston (1)
10.4	Agreement for Sale, Assignment and Release of Interests – Lenhart (1)
10.5	Agreement for Assignment of Rights Under Settlement Agreement (1)
10.6	Employment Agreement – W. McAndrew (1)
10.7	Employment Agreement – N. DeVito (1)
10.8	Employment Agreement – P. Wingate (1)
10.9	Settlement Agreement and Release – So. Kensington et. al. (1)
10.1	Agreement to Acquire Emerald Energy Partners, LLC (1)
10.11	Agreement to Acquire Majority Interest in Small Cap Strategies (1)
10.12	Agreement to Acquire I.R.A. Oil and Gas, LLC. (1)
10.13	Mutual Release of Claims – W. McAndrew (1)
10.14	Mutual Release of Claims – F. Schiemann (1)
10.15	Mutual Release of Claims – P. Wingate (1)
10.16	Form of Investment Agreement – Kodiak Capital (2)
10.17	Form of Registration Rights Agreement – Kodiak Capital (2)
10.18	Term Sheet Kodiak Capital (2)
10.19	Form of Subscription Agreement (3)
10.20	Form of Notes (3)
10.21	Form of Warrants (3)
10.22	Employment Agreement – R. Wurtele

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES - continued

21.1	List of Subsidiaries (1)
31.1 *	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 *	Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 *	Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

(1)  Incorporated by reference to our Registration Statement on Form 10 filed with the SEC on February 12, 2010.

(2)  Incorporated by reference to our Registration Statement on Form S-1 filed with the SEC on August 3, 2010.

(3)  Incorporated by reference to our Form 8-K filed with the SEC on September 9, 2011.

* Previously filed.

** Furnished herewith.

Signatures

            In accordance with the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Form 10K to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Plano, State of Texas, on December 3, 2013 .

	Xtreme Oil & Gas, Inc.:
Date: December 3, 2013	By:	/s/  Nicholas P. DeVito
		Name:  Nicholas P. DeVito
		Title: Chief Executive Officer

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11. Legal Matters

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

11. Legal Matters

On December 1, 2009, we began legal proceedings in McLain County District Court in Purcell, Oklahoma against D. Deerman, L.P. alleging breach of contract and demanding payment for fees owed, oil and gas production revenue and other expenses on the Oil Creek property in excess of $75,000 based on our contracted ownership percentage.  The suit also demands an accounting discovery for all items in dispute. On December 31, 2009, Deerman filed a counterclaim in the same court claiming breach of contract for drilling the Oil Creek property and demanding payment of $235,000 for expenses incurred. We are currently in the discovery phases of this action.

On March 30, 2010, each of Baker Hughes, Pan American Drilling and Native American Drilling began legal proceeding against us in Logan County District Court in Oklahoma demanding judgment for past due invoices in excess of $75,000. We dispute the amounts due based on contracted terms between us.  We have settled with all suppliers in this suit except for Baker Hughes whose bills we continue to dispute.

On April 27, 2010, we filed suit against Genie Well Services in U.S. District Court for the Western District of Oklahoma demanding restitution for damaging our Lionheart well for damages in excess of $75,000 based on their negligence that resulted in damaging the wellbore and added Crescent Services and Onsite Oiltools as additional defendants.   Genie filed a counterclaim for $53,110 for their services rendered after causing the damage. Genie recently admitted their liability to the court and we are currently in settlement discussions with them.  We settled all claims between all parties in confidential settlements dated March 5, 2012.

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Consolidated Statements of Operations (Unaudited) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Revenues:
Income from asset sales and other, net	$ 1,270,934	$ 2,429,624
Oil and gas sales	68,113	64,249
TOTAL REVENUES	1,339,047	2,493,873
OPERATING EXPENSES:
Production costs	137,502	194,848
General and administrative expenses	1,766,403	1,526,977
Depreciation, depletion and amortization expense	75,163	75,203
Loss on disposal of properties	233,266	48,356
TOTAL OPERATING EXPENSES	2,212,334	1,845,384
INCOME (LOSS) FROM OPERATIONS	(873,287)	648,489
OTHER INCOME (EXPENSE)
Other income	930,972	19,337
Interest expense, net	(396,071)	(199,492)
Amortization of debt discount	(2,064,402)	(391,767)
Derivative income (expense)	2,430,514	(436,699)
Gain (loss) on extinguishment of debt	(98,163)	155,044
Total other income (expense)	802,850	(853,577)
NET LOSS	$ (70,437)	$ (205,088)
LOSS PER COMMON SHARE-BASIC AND DILUTED	$ 0.00	$ 0.00
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC AND DILUTED	45,341,722	45,173,271

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4. Furniture and fixtures

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

4. Furniture and fixtures

Furniture and fixtures at December 31, 2012 and 2011 is comprised of the following:

	2012		2011
Furniture and fixtures	$	53,044	$	53,044
Less: accumulated depreciation,		46,921		40,837
Net furniture and fixtures	$	6,123	$	12,207

Depreciation expense was $6,084 and $8,960 for 2012 and 2011, respectively. 

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6. Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes Tables

Net deferred tax assets

	2012			2011
Deferred tax assets:
Net operating loss carry forward		$	2,218,000		$	2,217,000
Valuation allowance			(2,218,000)			(2,217,000)
Net deferred tax asset		$	-		$	-

Income tax reconciliation

	2012		2011
Statutory tax on book loss	$	(24,000)	$	(70,000)
Effect of non-deductibility of stock-based compensation		23,000		87,000
Change in valuation allowance		1,000		(17,000)
Income Tax Expense	$	-	$	-

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12. Employment Agreements

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

12. Employment Agreements

Xtreme has entered into long term employment contracts on December 1, 2009 with Mr. McAndrew as Chairman and Chief Executive Officer and with Mr. Nicholas P. DeVito as Chief Operating Officer for a period of five years.  Xtreme has entered into a long term employment contract on January 1, 2011 with Mr. Wurtele as Chief Financial Officer

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2. Significant Accounting Policies (Details Narrative) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Significant Accounting Policies Details Narrative
Estimate for doubtful accounts	$ 0	$ 173,842

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14. Supplemental Information on Oil and Gas Data (Tables)

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Capitalized Costs Relating to Oil and Gas Producing Activities

	Year Ended December 31,
	2012		2011
Capitalized Costs:
Oil & gas properties		8,584,572		7,547,166
Total Capitalized Costs		8,584,572		7,547,166
Less: Accumulated depreciation, depletion,
amortization, and valuation allowance		65,546		62,662
Net Capitalized Costs	$	8,519,026	$	7,484,504

Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities

	Year Ended December 31,
	2012		2011
Costs Incurred:
Acquisition of properties	$	416,961	$	312,323
Drilling and Completion		700,507		327,951
Development		116,375		269,278
Total Costs Incurred	$	1,233,843	$	909,552

Results of Operations from Oil and Gas Producing Activities

	Year Ended December 31,
	2012		2011
Revenues from Oil and Gas Producing Activity:	$	68,113	$	72,169
Less: Revenue Distributions		-		7,920
Net Revenues from Producing Activities		68,113		64,249
Production Costs		(137,152)		(194,848)
Exploration Expenses		-		-
Depreciation, depletion, amortization, & valuation allowance		(2,884)		(6,951)
Pretax Income from Producing Activities		(71,923)		(137,550)
Income tax expenses/estimated loss carry forward benefit		-		-
Results of oil and gas producing activities	$	(71,923)	$	(137,550)

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14. Capitalized Costs Relating to Oil and Gas Producing Activities (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Capitalized Costs:
Oil & gas properties	$ 8,584,572	$ 7,547,166
Total Capitalized Costs	8,584,572	7,547,166
Less: Accumulated depreciation, depletion, amortization, and valuation allowance	65,546	62,662
Net Capitalized Costs	$ 8,519,026	$ 7,484,504

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6. Net deferred tax assets (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Deferred tax assets:
Net operating loss carry forward	$ 2,218,000	$ 2,217,000
Valuation allowance	(2,218,000)	(2,217,000)
Net deferred tax asset	$ 0	$ 0

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9. Notes Payable and Convertible Notes Payable (Tables)

12 Months Ended

Dec. 31, 2012

Notes Payable And Convertible Notes Payable Tables

Derivative financial instruments

	Year ended December 31, 2012
Derivative liability	12/31/11		Fair Value Adjustments		Redemptions		Total
Notes	$	1,484,806	$	(682,150)	$	(575,586)	$	227,070
Warrants		1,253,018		(1,074,615)		-		178,403
	$	2,737,824	$	(1,756,765)	$	(575,586)	$	405,473

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)	Preferred Stock	Common Stock	Additional Paid-In Capital	Treasury Stock	Accumulated Deficit	Total
Beginning Balance, Amount at Dec. 31, 2010	$ 1	$ 44,504	$ 36,296,226	$ (850,000)	$ (33,518,863)	$ 1,971,868
Beginning Balance, Shares at Dec. 31, 2010	1,000	44,504,832
Common stock issued in connection with sale of property interest, Amount		65	64,935			65,000
Common stock issued in connection with sale of property interest, Shares		65,000
Common stock issued for services, Amount		394	248,210			248,604
Common stock issued for services, Shares		393,225
Common stock issued for cash, Amount		401	304,599			305,000
Common stock issued for cash, Shares		401,333
Cancellation of treasury stock			(850,000)	850,000
Net loss					(205,088)	(205,088)
Ending Balance, Amount at Dec. 31, 2011	1	45,364	36,063,970	0	(33,723,951)	2,385,384
Ending Balance, Shares at Dec. 31, 2011	1,000	45,364,390
Common stock issued for services, Amount		75	63,023			63,098
Common stock issued for services, Shares		75,464
Common stock issued for convertible debt conversions, Amount		1,759	81,966			83,725
Common stock issued for convertible debt conversions, Shares		1,758,838
Net loss					(70,437)	(70,437)
Ending Balance, Amount at Dec. 31, 2012	$ 1	$ 47,198	$ 36,208,959	$ 0	$ (33,794,388)	$ 2,461,770
Ending Balance, Shares at Dec. 31, 2012	1,000	47,198,692

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2. Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

2. Significant Accounting Policies

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements.  The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.  These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Consolidation Policy

The consolidated financial statements include the accounts of the Company and its’ wholly owned subsidiary. The Company’s subsidiary is Xtreme Operating Company, LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

Preparation of financial statements in conformity with 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.  The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.  The Company evaluates its estimates and assumptions on a regular basis.  Actual results may differ from these estimates and assumptions used in preparation of its financial statements and changes in these estimates are recorded when known.  

Significant estimates with regard to these financial statements include the estimate of (See Note 14), asset retirement obligations, income taxes and contingency obligations including legal and environmental risks and exposures.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  Excluded from cash and cash equivalents is $75,313 of restricted cash (deposits) for our operator’s bonds.

Receivables

Receivables from services are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. The Company records estimated oil and gas revenue receivable from third parties at its net revenue interest. The Company also reflects costs incurred on behalf of joint interest partners in receivables.

Management periodically reviews receivables for collectability. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Uncollectible receivables are charged off against the allowance account. The allowance for doubtful accounts was $0 and $173,842 as of December 31, 2012 and 2011, respectively.

Investments

Investments in partnerships and limited liability companies (LLC) that maintain specific ownership accounts for each investor and where the Company holds an interest of five percent or greater, but does not have control of the partnership or LLC, are accounted for using the equity method of accounting.

Oil and Natural Gas Properties

The Company uses the successful efforts method of accounting for its oil and natural gas properties. Costs incurred by the Company related to the acquisition of oil and natural gas properties and the cost of drilling successful wells are capitalized. Costs incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred. Gains and losses arising from sales of properties are included in income. Unproved properties are assessed periodically for possible impairment. The Company had $0 of non-producing properties as of December 31, 2012 and 2011, respectively.

Capitalized amounts attributable to oil and natural gas properties are depleted by the unit-of-production method. Depreciation and depletion expense for oil and natural gas producing property and related equipment was $2,884 and $6,951 for the periods ended December 31, 2012 and 2011, respectively.

Capitalized costs are evaluated for impairment based on an analysis of undiscounted future net cash flows. If impairment is indicated, the asset is written down to its estimated fair value based on expected future discounted cash flows. See Note 5 for additional information regarding the oil and gas properties.

Joint Interest Billings Receivable and Oil and Natural Gas Revenue Payable

Joint interest billings receivable represent amounts receivable for lease operating expenses and other costs due from third party working interest owners in the wells that the Company operates. The receivable is recognized when the cost is incurred.

Oil and natural gas revenues payable represents amounts due to joint interest owners for their share of oil and natural gas revenue collected on their behalf by the Company. The payable is recorded when the Company recognizes oil and natural gas sales and records the related oil and natural gas sales receivable.

The Company had $20,728 and $12,002 net joint interest billing receivable as of December 31, 2012 and 2011, respectively.

Other Property

Other assets classified as property and equipment consists primarily of office furniture and equipment, which are carried at historical cost. Depreciation is recorded using the straight-line method over estimated useful lives ranging from three to five years. Gain or loss on retirement or sale or other disposition of assets is included in income in the period of disposition.

Environmental Costs

The Company is engaged in oil and natural gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and natural gas wells and the operation thereof. In the Company's acquisition of existing or previously drilled well bores, the

Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental cleanup or restoration, the liability to cure such a violation could fall upon the Company. No claim has been made, nor is the Company aware of any liability, which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations relating thereto.

 Asset Retirement Obligations

The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and re-mediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the surrounding property. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset’s inception, with an offsetting increase to producing properties. The Company has recorded a liability of $300,000 as of December 31, 2012 and 2011.

The estimated liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company’s wells may vary significantly from prior estimates.

Accounting for the Impairment of Long-Lived Assets (Non Oil and Gas Properties)

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to the undiscounted cash flow that the asset or asset group is expected to generate. If such assets or asset groups are considered to be impaired, the loss recognized is the amount by which the carrying amount of the property, if any, exceeds its fair market value, for non oil and gas properties.

The Company determined that there was no impairment of long-lived (non oil and gas property) assets for the years ended December 31, 2012 and 2011.

 Income Taxes

The Company recognizes deferred income tax liabilities and assets for the expected future income tax consequences of temporary differences between financial accounting bases and income tax bases of assets and liabilities. Deferred income taxes are measured by applying currently enacted income tax rates. The Company accounts for uncertainty in income taxes for income tax positions taken or expected to be taken in an income tax return. Only income tax positions that meet the more-likely-than-not recognition threshold will be recognized.

Revenue Recognition

The Company recognizes revenue when it is realized and earned.  Specifically, the Company recognizes revenue when services are performed and projects are completed and accepted by the customer.

Revenues from sales of crude oil and natural gas products are recorded when deliveries have occurred and legal ownership of the commodity transfers to the purchaser. Revenues from the production of oil and natural gas properties in which the Company shares an undivided interest with other producers are recognized based on the actual volumes sold by the Company during the period.

The Company recognizes gains or losses from the sales of its interests in oil and natural gas properties as title passes to the buyer. These amounts are recognized as income from asset sales, net.

Concentration of Risk

Our financial instruments that are potentially exposed to credit risk consist primarily of cash, trade receivables and other receivables for which the carrying amounts approximate fair value. At certain times, our demand deposits held in banks exceeded the federally insured limit. The Company has not experienced any losses related to these deposits.

Concentrations of Market Risk

The results of the Company's oil and natural gas operations are impacted by the market prices of oil and natural gas. The availability of a ready market for crude oil, natural gas and liquid products in the future depends on numerous factors beyond the Company's control, including weather, imports, proximity and capacity of oil and gas pipelines and other transportation facilities, any oversupply or undersupply of oil, gas and liquid products, the regulatory environment, the economic environment, and other regional and political events, none of which can be predicted with certainty.

During 2012 and 2011, the Company did not have any credit losses on the sale of oil, natural gas, natural gas liquids or hedging contracts.

Segments

The Company operates in only one business segment, namely the drilling and development of oil and gas properties.

Derivative Instruments

The Company’s debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

The identification of, and accounting for, derivative instruments is complex.  Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur.  For bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using binomial option pricing model.  That model requires assumptions related to the remaining term of the instrument and risk-free rates of return, our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life of the option.

Fair Value Estimates

Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value.  ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.  ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. 

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities.

Stock-Based Compensation

We account for stock-based employee compensation arrangements using the fair value method which requires the measurement and recognition of compensation expense for all share-based payment awards (including stock options and stock awards) made to employees and directors based on estimated fair value. Compensation expense for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense in earnings over the requisite service period using a graded vesting method.

We periodically issue common stock for acquisitions and services rendered.  Common stock issued is valued at the estimated fair market value, as determined by our management and board of directors.  Management and the board of directors consider market price quotations, recent stock offering prices and other factors in determining fair market value for purposes of valuing the common stock.

Loss Per Share

The Company is required to provide basic and dilutive earnings per common share information. The basic net loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2012 and 2011, there were no securities that would have had a dilutive effect. 

Reclassification

Certain amounts in the 2011 financial statements have been reclassified to conform to the 2012 financial presentation. These reclassifications have no impact on net income (loss).

Recent Accounting Pronouncements

We have adopted recently issued accounting pronouncements and have determined that they have no material effect on our financial position, results of operations, or cash flow.  We do not expect any recently issued but not yet adopted accounting pronouncements to have a material effect on our financial position, results of operations or cash flow. 

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5. Oil and Natural Gas Properties

12 Months Ended

Dec. 31, 2012

Extractive Industries [Abstract]

5. Oil and Natural Gas Properties

Currently, the Company has limited production from its oil and gas properties, which are all unproven and have no proved developed reserves.

	2012		2011
Oil and natural gas properties	$	8,584,572	$	7,547,166
Less: accumulated depletion,		65,546		62,662
Net Oil and natural gas properties	$	8,519,026	$	7,484,504

Depletion expense was $2,884 and $6,951 for 2012 and 2011, respectively. 

The Company has the following oil and natural gas properties:

Oil and gas property:	December 31, 2011		Additions		Dispositions		December 31, 2012
West Thrifty / Quita Field	$	4,984,040	$	-	$	-	$	4,984,040
Texas 5 Star		528,089		-		-		528,089
Quita Ellenberger Project		-		116,375		-		116,375
Smoky Hill		577,951		700,507		-		1,278,458
Hancock/Robinson		62,323		-		-		62,323
Lionheart		1,198,326		90,800		-		1,289,126
Gotcheye SWD Project		-		1,021,418		695,257		326,161
Flint Creek / Oil Creek		196,437		-		196,437		-
Total	$	7,547,166	$	1,929,100	$	891,694	$	8,584,572

The Company focused its efforts on completing our Saltwater Disposal well project and repairing the Lionheart project.  During the second quarter 2012, the Company began full-time operations taking saltwater from multiple water hauling companies in the area. We acquired a 10% working interest from the ADA Energy Services and took over operations on May 29, 2012 in exchange for a 5 cent per barrel of water disposed fee payable upon collecting revenue from disposal customers. Development work in progress on the Saltwater Disposal well was $0 as of December 31, 2012.

The Company acquired a 17.79% working interest in Smoky Hill, Kansas leases totaling 8,516 acres in 2011.

The Company acquired a 0.25% working interest in the Robinson well in Oklahoma during April 2011 and a 1% working interest in the Hancock well in October 2011.

During 2011, we continued our lawsuit against three vendors claiming damage to the Lionheart project.  In March 2012, that suit was settled and the Company is exploring several alternatives for future utility on this site including producing from other oil zones in the existing wellbore and converting it to a Saltwater Disposal facility.

Texas Properties

West Thrifty Unit / Quita Field

On October 23, 2006, the Company acquired a 22.275% Working Interest (“WI”), which is a 15.5925% Net Revenue Interest (“NRI”) in the West Thrifty Unit (“WTU”) and related properties for $10 and 3,260,000 common shares valued at $1,434,400 based on an independent appraisal.

On January 18, 2008, the Company acquired a 22.275% WI, which is a 15.5925% NRI, in the WTU for $10.

On January 18, 2008, the Company acquired an additional 55.45% WI, which is a 38.82% NRI, in the WTU and 100% of Altair Energy for $130 and 3,600,000 shares of common stock valued at $3,600,000 based on an independent appraisal.

On February 7, 2008, the Company entered into a settlement agreement and agreed to pay $10,000 to Jeffery Gowan for his WTU Interest.

The Company acquired leases to the Quita Field in connection with the WTU acquisitions, which are included in the WTU Assignments.

On January 22, 2008, the Company sold a 75% WI, representing a 48.75% NRI in three wells located in the Quita Field for $150,000. On July 21, 2010, we reacquired this interest in exchange for unpaid Joint Interest Billing balance of $176,623.

On May 15, 2008, the Company sold a 50% WI, representing a 32.5% NRI in the Shore 2C well drilled to the Caddo formation in the Quita Field for $120,000.

In summary, the Company acquired 100% WI in the WTU and Quita Field representing a 65% NRI for a total of $5,221,375.

In March 2009, the Company sold a 10% WI, representing a 6.75% NRI in the West Thrifty Unit Fry Sands to an investor for $200,000.

Oklahoma Properties

Oil Creek S19 Prospect

In March 2008, the Company leased mineral rights and property consisting of 80 acres in the property commonly known as the Oil Creek S19 Prospect in McClain County, Oklahoma (“Oil Creek Well”) for $45,000 for the assignment with a NRI of 78%.

In March 2009, we drilled and completed a well and sold 90% of our NRI to third party investors and retained a 10% WI and a 12.5% carried interest. The Company also maintains an Area of Mutual Interest (“AMI”) to receive these same terms on any other projects.

The Flint Creek/Oil Creek property was written down to $0 at September 30, 2012 as unrecoverable.

Lionheart Prospect

On October 1, 2008, the Company purchased the rights to the Lionheart Prospect, being mineral rights and property consisting of 160 acres (“Lionheart”), for $7,000. The Company then acquired the leases necessary in connection with spacing and pooling to complete the ratification and own 100% of the Working Interest under all 160 acres based on a 75% Net Revenue Interest.

In 2009, we sold 49% WI representing a 36.75% NRI to multiple investors for gross proceeds of $2,350,000.  After drilling to a depth of 9,000 feet, we completed the first three horizontal legs in September 2009.  In December 2009, we completed two additional horizontal legs.

The well began producing in January 2010 and continued production until February 17, 2010 when a vendor failed to properly secure their equipment.  Initial repairs were completed to the well in June 2010 and we have produced minimal hydrocarbons from this well. The Company is exploring several alternatives for future utility on this site including producing from other oil zones in the existing wellbore and converting it to a Saltwater Disposal facility. 

In December 2009, Mr. McAndrew exchanged 200,000 shares of common stock for 20 units of the Lionheart Oil well project and an additional 200,000 shares for 20 units of the Gotcheye Saltwater Disposal project.

In 4Q12, the Company acquired 14 units from FC Energy in exchange for a note of $14,000.

Hancock and Robinson Wells

In April 2011, the Company acquired a 0.25% working interest in the Robinson well in central Oklahoma for 15,000 shares of stock.

In October 2011, the Company acquired a 1% working interest in the Hancock well in central Oklahoma for $40,000.

Kansas Property

Smoky Hill

In April 2011, the Company acquired a 15% working interest in 8,516 acres in central Kansas for $250,000.  Development costs of $327,951 were paid by the Company prior to December 31, 2011.  An additional 2.7972% working interest as contracted for in December 2011 and for which the Company paid $140,450 in January 2012.

Management Overriding Royalty Interests in Texas and Oklahoma

Mr. McAndrew has a 2.5% overriding royalty interest in the West Thrifty and Quita oil and gas properties, a 1.3% overriding royalty interest in the Oil Creek property and a 2.6% overriding royalty interest in the Lionheart property.

Working Interests in Drilling Properties

In 2012, we issued working interests in the Saltwater Disposal Project valued at $2,585,719.

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3. Financial Condition and Going Concern

12 Months Ended

Dec. 31, 2012

Financial Condition And Going Concern

3. Financial Condition and Going Concern

The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has an accumulated deficit of $33,794,388 and has historically had losses. These factors raise substantial doubt as to the Company’s ability to obtain debt and/or equity financing and achieve profitable operations.

The Company’s management intends to raise additional operating funds through equity and/or debt offerings, increase our current production, and continue development drilling on our properties.  There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support the Company's working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may be required to curtail its operations. These factors raise substantial doubt as to its ability to obtain debt and/or equity financing and achieving future profitable operations.

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4. Furniture and fixtures (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Property and equipment	$ 8,637,616	$ 7,600,210
Less: accumulated depreciation,	112,467	103,499
Net	8,525,149	7,496,711
Furniture and Fixtures
Property and equipment	53,044	53,044
Less: accumulated depreciation,	46,921	40,837
Net	$ 6,123	$ 12,207

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6. Income tax reconciliation (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Taxes Tables
Statutory tax on book loss	$ (24,000)	$ (70,000)
Effect of non-deductibility of stock-based compensation	23,000	87,000
Change in valuation allowance	1,000	(17,000)
Income Tax Expense	$ 0	$ 0

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Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
STOCKHOLDERS' EQUITY:
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized shares	50,000,000	50,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Non-transferable Preferred stock, par value	$ 0.001	$ 0.001
Non-transferable Preferred stock, authorized shares	1,000	1,000
Non-transferable Preferred stock, issued shares	1,000	1,000
Non-transferable Preferred stock, outstanding shares	1,000	1,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, Authorized	200,000,000	200,000,000
Common stock, Issued	47,198,692	45,364,390
Common stock, outstanding	47,198,692	45,364,390

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8. Concentrations

12 Months Ended

Dec. 31, 2012

Risks and Uncertainties [Abstract]

8. Concentrations

The Company had oil sales to one unaffiliated purchaser for years ended December 31, 2012 in 2011 totaling $68,113 and $64,249, respectively. Although all of our production is now purchased by one purchaser, the Company does not believe the loss of this purchaser would have a material adverse effect on the Company's business as other purchasers would be accessible.

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ (70,437)	$ (205,088)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation, depletion and amortization	173,799	75,203
Bad debt expense	182,018	0
Common stock issued for services	63,098	248,604
Income from sales of working interest	(1,270,934)	(2,429,624)
Loss on disposal of properties	233,266	48,356
Amortization of debt discounts	2,064,402	391,767
Derivative (income) expense	(2,430,514)	436,699
Gain (loss) on debt extinguishment	98,163	(155,044)
Changes in assets and liabilities:
Accounts receivable	(16,979)	22,843
Inventory	0	(62,028)
Development work in process	0	(447,630)
Deferred financing costs	0	(226,997)
Other current assets	(350)	(1,175)
Accounts payable and accrued expenses	68,834	76,781
Accounts payable - related parties	151,200	0
Deposits payable	1,576,892	355,500
Net cash provided by (used in) operating activities	822,458	(1,871,833)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets	150,000	220,000
Capital Expenditures	(1,307,271)	(1,081,073)
Net cash used in investing activities	(1,157,271)	(861,073)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable	0	2,520,000
Payments on convertible notes payable	(538,896)	(264,599)
Proceeds from advances - related parties	101,093	0
Proceeds from notes payable - related parties	250,000	0
Proceeds from short-term notes payables	64,000	0
Proceeds from sale of common stock	0	305,000
Net cash provided by (used in) financing activities	(123,803)	2,560,401
Net change in cash	(458,616)	(172,505)
CASH AT BEGINNING YEAR	484,970	657,475
CASH AT END OF YEAR	26,354	484,970
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for leasehold interests	0	65,000
Deposits applied to sale of assets	2,849,719	3,129,981
Development work in process reclassified to oil and gas properties	505,038	35,250
Accounts payable – related party issued for oil and gas properties	75,600	0
Accounts payable – related party issued for oil and gas properties applied to sale of assets	1,050,720	0
Inventory reclassified to oil and gas properties	62,028	0
Common stock issued for notes payable and accrued interest	83,725	0
Note payable issued for deposit	$ 50,000	$ 0

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Consolidated Balance Sheets (Unaudited) (USD $)	Dec. 31, 2012	Dec. 31, 2011
CURRENT ASSETS:
Cash	$ 26,354	$ 484,970
Cash - restricted	75,313	75,322
Accounts receivable, net	27,257	192,296
Work in process	0	505,038
Deferred financing costs	0	164,831
Inventory	0	62,028
Total Current Assets	128,924	1,484,485
PROPERTY AND EQUIPMENT:
Furniture and fixtures	53,044	53,044
Oil and natural gas properties (successful efforts method)	8,584,572	7,547,166
Total	8,637,616	7,600,210
Less-Accumulated depreciation, depletion and amortization	(112,467)	(103,499)
Net property and equipment	8,525,149	7,496,711
Deposits	57,887	7,537
TOTAL ASSETS	8,711,960	8,988,733
CURRENT LIABILITIES:
Accounts payable and accrued expenses	1,811,271	1,789,482
Deposits payable	391,418	1,514,244
Advances, related parties	101,093	0
Accounts payable – related parties	1,126,320	0
Short-term notes payable	114,000	0
Short-term notes payable - related parties	250,000	0
Convertible notes payable, net of discount	1,750,615	0
Derivative liability	405,473	2,737,824
Total Current Liabilities	5,950,190	6,041,550
LONG-TERM LIABILITIES
Convertible notes payable, net of debt discount	0	261,799
Asset retirement obligation	300,000	300,000
Total long-term liabilities	300,000	561,799
TOTAL LIABILITIES	6,250,190	6,603,349
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 50,000,000 shares authorized; none issued and outstanding	0	0
Non-transferable preferred stock, $0.001 par value, 1,000 Shares authorized, 1,000 shares issued and outstanding	1	1
Common stock, $.001 par value; 200,000,000 shares authorized; 47,198,692 and 45,364,390 shares issued and outstanding at December 31, 2012 and 2011, respectively	47,198	45,364
Additional paid-in capital	36,208,959	36,063,970
Accumulated deficit	(33,794,388)	(33,723,951)
Total Stockholders' Equity	2,461,770	2,385,384
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 8,711,960	$ 8,988,733

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5. Net Oil and natural gas properties (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Extractive Industries [Abstract]
Oil and natural gas properties	$ 8,584,572	$ 7,547,166
Less: accumulated depletion,	65,546	62,662
Net Oil and natural gas properties	$ 8,519,026	$ 7,484,504

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5. Oil and Natural Gas Properties (Tables)

12 Months Ended

Dec. 31, 2012

Extractive Industries [Abstract]

Net Oil and natural gas properties

	2012		2011
Oil and natural gas properties	$	8,584,572	$	7,547,166
Less: accumulated depletion,		65,546		62,662
Net Oil and natural gas properties	$	8,519,026	$	7,484,504

Schedule of oil and natural gas properties

Oil and gas property:	December 31, 2011		Additions		Dispositions		December 31, 2012
West Thrifty / Quita Field	$	4,984,040	$	-	$	-	$	4,984,040
Texas 5 Star		528,089		-		-		528,089
Quita Ellenberger Project		-		116,375		-		116,375
Smoky Hill		577,951		700,507		-		1,278,458
Hancock/Robinson		62,323		-		-		62,323
Lionheart		1,198,326		90,800		-		1,289,126
Gotcheye SWD Project		-		1,021,418		695,257		326,161
Flint Creek / Oil Creek		196,437		-		196,437		-
Total	$	7,547,166	$	1,929,100	$	891,694	$	8,584,572

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14. Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Costs Incurred:
Acquisition of properties	$ 416,961	$ 312,323
Drilling and Completion	700,507	327,951
Development	116,375	269,278
Total Costs Incurred	$ 1,233,843	$ 909,552

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14. Results of Operations from Oil and Gas Producing Activities (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Notes to Financial Statements
Revenues from Oil and Gas Producing Activity:	$ 68,113	$ 72,169
Less: Revenue Distributions	0	7,920
Net Revenues from Producing Activities	68,113	64,249
Production Costs	(137,152)	(194,848)
Exploration Expenses	0	0
Depreciation, depletion, amortization, & valuation allowance	(2,884)	(6,951)
Pretax Income from Producing Activities	(71,923)	(137,550)
Income tax expenses/estimated loss carry forward benefit	0	0
Results of oil and gas producing activities	$ (71,923)	$ (137,550)

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7. Commitments

12 Months Ended

Dec. 31, 2012

Commitments

NOTE 7 - Commitments

The Company leases office space in Plano, Texas under the terms of an operating lease expiring November 30, 2013.  The current lease began November 1, 2008.  Future minimum rental payments under the terms of the lease are $69,982 in 2013.

Total rent expense incurred by the Company was $83,476 for 2012 and $81,459 for 2011.

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5. Schedule of oil and natural gas properties (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
Biginning balance	$ 7,547,166
Additions	1,929,100
Dispositions	891,694
Ending balance	8,584,572
WestThriftyQuitaFieldMember
Biginning balance	4,984,040
Additions	0
Dispositions	0
Ending balance	4,984,040
TexasFiveStarMember
Biginning balance	528,089
Additions	0
Dispositions	0
Ending balance	528,089
Quita Ellenberger Project
Biginning balance	0
Additions	116,375
Dispositions	0
Ending balance	116,375
SmokyHillMember
Biginning balance	577,951
Additions	700,507
Dispositions	0
Ending balance	1,278,458
HancockRobinsonMember
Biginning balance	62,323
Additions	0
Dispositions	0
Ending balance	62,323
LionheartMember
Biginning balance	1,198,326
Additions	90,800
Dispositions	0
Ending balance	1,289,126
GotcheyeSwdMember
Biginning balance	0
Additions	1,021,418
Dispositions	695,257
Ending balance	326,161
FlintCreekOilCreekMember
Biginning balance	196,437
Additions	0
Dispositions	196,437
Ending balance	$ 0

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10. Stockholders’ equity

12 Months Ended

Dec. 31, 2012

STOCKHOLDERS' EQUITY:

NOTE 10 - Stockholders’ equity

Nontransferable Preferred Stock

We have one class of Preferred Stock and Nontransferable Preferred Stock.  The Nontransferable Preferred Stock, consisting of 1,000 shares, is all owned by Mr. McAndrew.

Holders of the Nontransferable Preferred stock are not entitled to receive any dividend, the stock is not transferrable, does not participate in any liquidation, and the stock is not convertible.  These shares may be transferred only to an entity for estate planning purposes provided that entity is controlled by the holder, in this case, Mr. McAndrew.

In the event that Mr. McAndrew dies, becomes incompetent for a period of six weeks such that Mr. McAndrew is unable to exercise his voting rights or voluntarily terminates his employment with the Company, the Nontransferable Preferred Stock is automatically cancelled.

The 1,000 shares of Nontransferable Preferred Stock have the number of votes equal to 1.1 times the number of shares of common stock outstanding.  Accordingly, except for votes requiring more than a majority vote of shares of common stock, Mr. McAndrew will determine the outcome of the vote.  The only such provision of Nevada law or as required by our Articles of Incorporation or Bylaws is the removal of directors.

Preferred Stock

The shares of Preferred Stock, other than the Nontransferable Preferred Stock, could be issued from time to time by our Board of Directors in its sole discretion without further approval or authorization by the stockholders, in one or more series, each of which series could have any particular distinctive designations as well as relative rights and preferences as determined by our Board of Directors. The relative rights and preferences that may be determined by our Board of Directors in its discretion from time to time include but are not limited to the following:

• the rate of dividend and whether the dividends are to be cumulative and the priority, if any, of dividend payments relative to other series in the class;

• whether the shares of any such series may be redeemed, and if so, the redemption price and the terms and conditions of redemption;

• the amount payable with respect to such series in the event of voluntary or involuntary liquidation and the priority, if any, of each series relative to other series in the class with respect to amounts payable upon liquidation and sinking fund provision, if any, for the redemption or purchase of the shares of that series; and

• the terms and conditions, if any, on which the shares of a series may be converted into or exchanged for shares of any class, whether common or preferred, or into shares of any series of the same class, and if provision is made for conversion or exchange, the times, prices, rates, adjustments and other terms.

Common Stock Issuances

Shares Issued for Cash

In 2012 we did not sell any shares to investors.

In the first quarter of 2011, we issued 401,333 restricted shares of our common stock to two investors for $305,000 cash.  Our shares were sold at approximately $0.75 per share.

Shares Issued for Services

In the first quarter of 2012, we issued 15,976 restricted shares of our common stock to consultants for $16,571 worth of services.  Our shares were valued at approximately $1.04 per share.

In the second quarter of 2012, we issued 73,673 restricted shares of our common stock to consultants valued at $44,413. Our shares were valued at approximately $0.60 per share.

In the third quarter of 2012, we issued 53,315 restricted shares of our common stock to consultants valued at $23,364. Our shares were valued at approximately $0.44 per share.

During the year ended December 31, 2012, the Company cancelled 67,500 shares of common stock previously issued to a consultant pursuant to a consulting agreement entered into on October 18, 2011.  The cancelled shares are being included in the issued and outstanding shares of common stock as of December 31, 2012.

In the first quarter of 2011, we issued 151,745 restricted shares of our common stock to four consultants for $131,329 worth of services.  Our shares were valued at approximately $0.87 per share.

In the second quarter of 2011, we issued 84,090 restricted shares of our common stock to four consultants for $87,363 worth of services.  Our shares were valued at approximately $1.04 per share.

In the third quarter of 2011, we issued 30,581 restricted shares of our common stock to four consultants for $15,877 worth of services.  Our shares were valued at approximately $0.52 per share.

In the fourth quarter of 2011, we issued 165,000 restricted shares of our common stock to three consultants for $51,150 worth of services. Our consultant shares issued were valued at $0.31per share.

In the fourth quarter of 2011, we issued 11,809 restricted shares of our common stock to two consultants for $12,885 worth of services. Our consultant shares issued were valued at $1.09 per share.

Shares Issued for Convertible Note Conversion

In 2012, we issued 1,758,838 shares of common stock to convertible note holders in exchange for $83,725 of principal and interest.

Shares Issued for Properties

In the first quarter of 2011, we issued 750,000 restricted shares of our common stock for $750,000 to acquire a 35% Working Interest in the Smoky Hill project in Kansas.  Our shares were valued at $1.00. In September 2011, those shares were returned pursuant to our agreement and canceled by the Company.

On April 22, 2011, we acquired a 0.25% working interest in the Robinson well in Oklahoma for consideration of 15,000 shares of common stock with a market value of $15,000.

Warrants

6,810,269 warrants were issued as part of a $2,360,000 financing in September 2011. No warrants were issued in 2012.

Securities issued for Working Interests

           In 2012, we issued working interests in the Saltwater Disposal Project valued at $2,585,719.

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6. Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

6. Income Taxes

Net deferred tax assets consist of the following components as of December 31, 2012 and 2011:

	2012			2011
Deferred tax assets:
Net operating loss carry forward		$	2,218,000		$	2,217,000
Valuation allowance			(2,218,000)			(2,217,000)
Net deferred tax asset		$	-		$	-

The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rate of 34% to pretax income from continuing operations for the years ended December 31, 2012 and 2011 due to the following:

	2012		2011
Statutory tax on book loss	$	(24,000)	$	(70,000)
Effect of non-deductibility of stock-based compensation		23,000		87,000
Change in valuation allowance		1,000		(17,000)
Income Tax Expense	$	-	$	-

The Company has determined that a valuation allowance of approximately $2,200,000 at December 31, 2012, is necessary to reduce the deferred tax assets to the amount that will more than likely than not be realized. As of December 31, 2012, the Company has a net operating loss carry-forward of approximately $6,800,000, which is available to offset future federal taxable income, if any, with expiration beginning 2028 and ending 2032. 

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1. Organization, History and Business Activity

12 Months Ended

Dec. 31, 2012

Organization History And Business Activity

NOTE 1 - Organization, History and Business Activity

Xtreme Oil & Gas, Inc. (the “Company” formerly Xtreme Technologies, Inc.), a Nevada corporation formed on October 3, 2006 is organized to engage in the acquisition, operation and development of oil and natural gas properties located in Texas and the southeast region of the United States. Effective December 29, 2006, Xtreme Technologies, Inc., a then Washington corporation, acquired Emerald Energy Partners, Inc., (“Emerald”) a Nevada corporation, in exchange for the issuance of 7,960,000 shares of the Company’s common stock and changed the Company’s name to Xtreme Oil & Gas, Inc. (“Xtreme”).

For accounting purposes this transaction was treated as an acquisition of Xtreme Technologies, Inc. and a re-capitalization of Emerald.  Emerald is the accounting acquirer and the results of its operations carry over.  Accordingly, the operations of Xtreme Technologies, Inc. were not carried over and were adjusted to $0 at the date of the merger.

Nature of Business

Since its formation, the Company has been involved in the acquisition and management of fee mineral acreage and the exploration for and development of oil and natural gas properties, principally involving drilling wells located on the company’s mineral acreage.  The Company’s mineral properties and other oil and natural gas interests are all located in the United States, primarily in Oklahoma, Kansas, and Texas. The majority of the Company’s oil and natural gas production is from its’ Texas wells for 2012 and 2011.  Substantially all the Company’s oil and natural gas production is sold by the Company directly to independent purchasers.

The Company from time to time sells or otherwise disposes of its interest in oil and natural gas properties as part of the normal course of business.

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9. Derivative financial instruments (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Derivative liability	$ 405,473	$ 2,737,824
Fair Value Adjustments	(1,756,765)
Redemptions	(575,586)
Notes
Derivative liability	227,070	1,484,806
Fair Value Adjustments	(682,150)
Redemptions	(575,586)
Warrants
Derivative liability	178,403	1,253,018
Fair Value Adjustments	(1,074,615)
Redemptions	$ 0

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13. Subsequent Events

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

NOTE 13 - Subsequent Events

In the first quarter of 2013, we issued 154,500 restricted shares of our common stock to consultants for $98,125 worth of services.  

In the first quarter of 2013, we issued 14,833,859 restricted shares of our common stock to convertible note holders in exchange for $267,212 worth of principle and interest.  

In December 2012, we signed an agreement to acquire 90% of Rick’s Transport Services business to complement our saltwater disposal well business for $8,000,000 and 2,000,000 shares of restricted common stock.  We engaged an investment bank to raise the funds for the acquisition and if successful it will add positive cash flow and earnings to Xtreme in 2013.  The agreement with Rick’s Transport Services expires on April 17, 2013.

On April 15, 2013, Xtreme Oil & Gas, Inc. (“Xtreme” or the “Company”) entered into an agreement with Torchlight Energy, Inc. (“Torchlight”) related to Xtreme’s Kansas, or Smokey Hills, prospect and all of the Company’s properties in Oklahoma.

Torchlight shall acquire one-half of the Company’s interest in the Smokey Hills prospect and assume the Company’s obligation to complete the first well drilled on the prospect plus additional costs previously billed to Xtreme by the operator. Torchlight will assume Xtreme’s obligation under its working interest in the prospect to drill the planned second well.

With respect to the Oklahoma properties, the Company shall convey half of its working interest and all related equipment in the Lenhart well and shall acquire all of the Company’s interest in the Robinson and Hancock wells. Torchlight shall also acquire 90% of the Overriding Royalty Interest in the Company’s Salt Water Disposal Well and Facility, as defined, but such interest is junior to the interests of investors in the well. In its discretion, Torchlight will pay the cost to re-enter the Lenhart well.

These transactions provide the resources to develop further wells that working interest owners in the various prospects own.

Payments to the Company, other than the $100,000 payable upon execution of the agreement, roughly total $1,200,000 depending upon certain costs assumed by Torchlight.

The agreement also grants to Torchlight the option to acquire for $4,000,000 in Torchlight Common Stock the balance of the Company’s interest in the Smokey Hills prospect if the first well drilled reaches 300 barrels of equivalent per day. Torchlight also has the option to acquire the balance of the working interest in the Lenhart prospect for $1,000,000 in Torchlight Common Stock should that well reach 50 barrels of oil equivalent production per day. Both production goals must reach the level of defined production within 30 days of completion.

The Company shall continue development opportunities of its largest prospect by asset valuation, the West Thrift Units.

On March 28, 2013, the Company formed a committee to advise the Company with respect to the Torchlight transaction discussed above. The committee consists of three stockholders of the Company, Brandon Chabner, Keith Houser, and Ben Doherty.

As part of the review of the Torchlight transaction, Torchlight had asked that Mr. McAndrew act as a consultant to Torchlight, necessitating a release by the Company of the Mr. McAndrew’s covenant not to compete with the Company. The committee approved that release. Accordingly, though Mr. McAndrew will remain the Company’s Chief Executive Officer and an employee of the Company, he will act as a consultant to Torchlight.

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9. Notes Payable and Convertible Notes Payable

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

NOTE 9 - Notes Payable and Convertible Notes Payable

Notes Payable

During the year ended December 31, 2012, a director advanced $101,093 to the Company. Interest is accrued on these advances at the rate of 10% per annum. The advances and accrued interest are payable on demand and unsecured.

On June 8, 2012, the Company owed an officer $464,000 for the acquisition of their working interest in the Saltwater Disposal Well (Gotcheye SWD) and $36,000 for the acquisition of their working interests in the Lionheart. These amounts are included in accounts payable – related parties on the consolidated balance sheet as of December 31, 2012.

On June 8, 2012, the Company owed an officer $464,000 for the acquisition of their working interest in the Saltwater Disposal Well (Gotcheye SWD) and $36,000 for the acquisition of their working interests in the Lionheart. These amounts are included in accounts payable – related parties on the consolidated balance sheet as of December 31, 2012.

On June 8, 2012, the Company owed an employee $80,000 for the acquisition of their working interest in the Saltwater Disposal Well (Gotcheye SWD) and $3,600 for the acquisition of their working interests in the Lionheart. These amounts are included in accounts payable – related parties on the consolidated balance sheet as of December 31, 2012.

On June 8, 2012, the Company owed a director $42,720 for the acquisition of their working interest in the Saltwater Disposal Well (Gotcheye SWD). These amounts are included in accounts payable – related parties on the consolidated balance sheet as of December 31, 2012.

On June 11, 2012 a director loaned $50,000 to the Company. The loan is non-interest bearing and due on June 30, 2012 (“Maturity Date”). The Company shall pay the director $5,000 for underwriting fees, charges and other payments on the maturity date if the Company’s financing is completed. This note is in default.

On June 11, 2012 an officer loaned $200,000 to the Company. The loan is non-interest bearing and due on June 30, 2012 (“Maturity Date”). The Company shall pay the officer $20,000 for underwriting fees, charges and other payments on the maturity date if the Company’s financing is completed. This note is in default.

On June 11, 2012 an investor loaned $50,000 to the Company. The loan is non-interest bearing and due on June 30, 2012 (“Maturity Date”). The Company shall pay the investor $5,000 for underwriting fees, charges and other payments on the maturity date if the Company’s financing is completed. This note is in default.

During the year ended December 31, 2012, an investor loaned $50,000 to the Company for the down payment in the acquisition of Rick’s Transport Services business.  There is no written loan agreement.  The loan is non-interest bearing and due on demand.

Convertible Notes Payable

On September 12, 2011, the Company raised $2,360,000 in convertible Notes. The Notes bear an interest rate of 12% per annum and mature on September 12, 2013. Under the convertible note agreements, the lender has the right to convert all or any part of the outstanding and unpaid principal and interest into shares of the Company’s common stock; provided however, that in no event shall the lender be entitled to convert any portion of the Notes that would result in the beneficial ownership by it and its affiliates to be more than 9.99% of the outstanding shares of the Company's common stock. The Notes are convertible at a fixed conversion price of $0.28 per share. In addition, the company issued Warrants to acquire 6,810,269 shares of the Company’s common stock at a strike price of $0.28 per share. The warrants expire on September 12, 2016. The conversion price of the notes and warrants will be reduced in the event the Company issues or sells any shares of common stock less than the conversion price.

The Company delayed scheduled payments on the convertible notes for the months of June, July, August, September, October, November, and December 2012. This resulted in a default on the note agreement. Interest is being accrued at a rate of 18% as a result of the default.

In connection with the issuance of the Notes and Warrants, the conversion features are accounted for as derivative liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date, due to anti-dilution reset features. The fair value was estimated on the date of grant using a binomial option-pricing model using the following weighted-average assumptions: expected dividend yield of 0%; expected volatility of 290%; risk-free interest rate of 0.05% and an expected holding period of 24 months for the Notes and 60 months for the Warrants. The resulting values, at the date of issuance, were allocated to the proceeds received and applied as a discount to the face value of the Notes and Warrants.  The Company recorded a derivative expense on the Notes of $649,212 at inception and a further derivative expense on the Warrants of $2,431,437 at inception based on the guidance in

ASC 815-10 and ASC 815-40-15 due to a reset feature on the exercise price.

In regards to the Notes, the Company also recognized a derivative liability of $1,484,806 at December 31, 2011 and a change in fair value of $682,150 for the year ended December 31, 2012, and redemptions of $575,586 for the year ended December 31, 2012, resulting in a derivative liability of $227,070 at December 31, 2012.

In regards to the Warrants, the Company also recognized a derivative liability of $1,253,018 at December 31, 2011 and a change in fair value of $1,074,615 for the year ended December 31, 2012, resulting in a derivative liability of $178,403 at December 31, 2012.

The following tables illustrate the fair value adjustments that were recorded related to the derivative financial instruments associated with the convertible debenture financings:

	Year ended December 31, 2012
Derivative liability	12/31/11		Fair Value Adjustments		Redemptions		Total
Notes	$	1,484,806	$	(682,150)	$	(575,586)	$	227,070
Warrants		1,253,018		(1,074,615)		-		178,403
	$	2,737,824	$	(1,756,765)	$	(575,586)	$	405,473

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4. Furniture and fixtures (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Furniture and fixtures

	2012		2011
Furniture and fixtures	$	53,044	$	53,044
Less: accumulated depreciation,		46,921		40,837
Net furniture and fixtures	$	6,123	$	12,207

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14. Supplemental Information on Oil and Gas Data (Unaudited)

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

14. Supplemental Information on Oil and Gas Data (Unaudited)

The following tables set forth supplementary disclosures for the Company’s oil and gas producing.  Currently, the Company has limited production from its oil and gas properties which are all unproven and has no proved developed reserves.

Capitalized Costs Relating to Oil and Gas Producing Activities:

	Year Ended December 31,
	2012		2011
Capitalized Costs:
Oil & gas properties		8,584,572		7,547,166
Total Capitalized Costs		8,584,572		7,547,166
Less: Accumulated depreciation, depletion,
amortization, and valuation allowance		65,546		62,662
Net Capitalized Costs	$	8,519,026	$	7,484,504

Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities:

	Year Ended December 31,
	2012		2011
Costs Incurred:
Acquisition of properties	$	416,961	$	312,323
Drilling and Completion		700,507		327,951
Development		116,375		269,278
Total Costs Incurred	$	1,233,843	$	909,552

Results of Operations from Oil and Gas Producing Activities:

	Year Ended December 31,
	2012		2011
Revenues from Oil and Gas Producing Activity:	$	68,113	$	72,169
Less: Revenue Distributions		-		7,920
Net Revenues from Producing Activities		68,113		64,249
Production Costs		(137,152)		(194,848)
Exploration Expenses		-		-
Depreciation, depletion, amortization, & valuation allowance		(2,884)		(6,951)
Pretax Income from Producing Activities		(71,923)		(137,550)
Income tax expenses/estimated loss carry forward benefit		-		-
Results of oil and gas producing activities	$	(71,923)	$	(137,550)

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Apr. 15, 2013	Jun. 30, 2012
Document And Entity Information
Entity Registrant Name	Xtreme Oil & Gas, Inc.
Entity Central Index Key	0001481218
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 15,300,000
Entity Common Stock, Shares Outstanding		62,187,051
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012

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1. BASIS OF PRESENTATION (Policies)

12 Months Ended

Dec. 31, 2012

Basis Of Presentation Policies

Consolidation Policy

Consolidation Policy

The consolidated financial statements include the accounts of the Company and its’ wholly owned subsidiary. The Company’s subsidiary is Xtreme Operating Company, LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

Preparation of financial statements in conformity with 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.  The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.  The Company evaluates its estimates and assumptions on a regular basis.  Actual results may differ from these estimates and assumptions used in preparation of its financial statements and changes in these estimates are recorded when known.  

Significant estimates with regard to these financial statements include the estimate of (See Note 14), asset retirement obligations, income taxes and contingency obligations including legal and environmental risks and exposures.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  Excluded from cash and cash equivalents is $75,313 of restricted cash (deposits) for our operator’s bonds.

Receivables

Receivables

Receivables from services are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. The Company records estimated oil and gas revenue receivable from third parties at its net revenue interest. The Company also reflects costs incurred on behalf of joint interest partners in receivables.

Management periodically reviews receivables for collectability. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Uncollectible receivables are charged off against the allowance account. The allowance for doubtful accounts was $0 and $173,842 as of December 31, 2012 and 2011, respectively.

Investments

Investments

Investments in partnerships and limited liability companies (LLC) that maintain specific ownership accounts for each investor and where the Company holds an interest of five percent or greater, but does not have control of the partnership or LLC, are accounted for using the equity method of accounting.

Oil and Natural Gas Properties

Oil and Natural Gas Properties

The Company uses the successful efforts method of accounting for its oil and natural gas properties. Costs incurred by the Company related to the acquisition of oil and natural gas properties and the cost of drilling successful wells are capitalized. Costs incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred. Gains and losses arising from sales of properties are included in income. Unproved properties are assessed periodically for possible impairment. The Company had $0 of non-producing properties as of December 31, 2012 and 2011, respectively.

Capitalized amounts attributable to oil and natural gas properties are depleted by the unit-of-production method. Depreciation and depletion expense for oil and natural gas producing property and related equipment was $2,884 and $6,951 for the periods ended December 31, 2012 and 2011, respectively.

Capitalized costs are evaluated for impairment based on an analysis of undiscounted future net cash flows. If impairment is indicated, the asset is written down to its estimated fair value based on expected future discounted cash flows. See Note 5 for additional information regarding the oil and gas properties.

Joint Interest Billings Receivable and Oil and Natural Gas Revenue Payable

Joint Interest Billings Receivable and Oil and Natural Gas Revenue Payable

Joint interest billings receivable represent amounts receivable for lease operating expenses and other costs due from third party working interest owners in the wells that the Company operates. The receivable is recognized when the cost is incurred.

Oil and natural gas revenues payable represents amounts due to joint interest owners for their share of oil and natural gas revenue collected on their behalf by the Company. The payable is recorded when the Company recognizes oil and natural gas sales and records the related oil and natural gas sales receivable.

The Company had $20,728 and $12,002 net joint interest billing receivable as of December 31, 2012 and 2011, respectively.

Other Property

Other Property

Other assets classified as property and equipment consists primarily of office furniture and equipment, which are carried at historical cost. Depreciation is recorded using the straight-line method over estimated useful lives ranging from three to five years. Gain or loss on retirement or sale or other disposition of assets is included in income in the period of disposition.

Environmental Costs

Environmental Costs

The Company is engaged in oil and natural gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and natural gas wells and the operation thereof. In the Company's acquisition of existing or previously drilled well bores, the

Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental cleanup or restoration, the liability to cure such a violation could fall upon the Company. No claim has been made, nor is the Company aware of any liability, which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations relating thereto.

Asset Retirement Obligations

 Asset Retirement Obligations

The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and re-mediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the surrounding property. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset’s inception, with an offsetting increase to producing properties. The Company has recorded a liability of $300,000 as of December 31, 2012 and 2011.

The estimated liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company’s wells may vary significantly from prior estimates.

Accounting for the Impairment of Long-Lived Assets (Non Oil and Gas Properties)

Accounting for the Impairment of Long-Lived Assets (Non Oil and Gas Properties)

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to the undiscounted cash flow that the asset or asset group is expected to generate. If such assets or asset groups are considered to be impaired, the loss recognized is the amount by which the carrying amount of the property, if any, exceeds its fair market value, for non oil and gas properties.

The Company determined that there was no impairment of long-lived (non oil and gas property) assets for the years ended December 31, 2012 and 2011.

Income Taxes

 Income Taxes

The Company recognizes deferred income tax liabilities and assets for the expected future income tax consequences of temporary differences between financial accounting bases and income tax bases of assets and liabilities. Deferred income taxes are measured by applying currently enacted income tax rates. The Company accounts for uncertainty in income taxes for income tax positions taken or expected to be taken in an income tax return. Only income tax positions that meet the more-likely-than-not recognition threshold will be recognized.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue when it is realized and earned.  Specifically, the Company recognizes revenue when services are performed and projects are completed and accepted by the customer.

Revenues from sales of crude oil and natural gas products are recorded when deliveries have occurred and legal ownership of the commodity transfers to the purchaser. Revenues from the production of oil and natural gas properties in which the Company shares an undivided interest with other producers are recognized based on the actual volumes sold by the Company during the period.

The Company recognizes gains or losses from the sales of its interests in oil and natural gas properties as title passes to the buyer. These amounts are recognized as income from asset sales, net.

Concentration of Risk

Concentration of Risk

Our financial instruments that are potentially exposed to credit risk consist primarily of cash, trade receivables and other receivables for which the carrying amounts approximate fair value. At certain times, our demand deposits held in banks exceeded the federally insured limit. The Company has not experienced any losses related to these deposits.

Concentrations of Market Risk

Concentrations of Market Risk

The results of the Company's oil and natural gas operations are impacted by the market prices of oil and natural gas. The availability of a ready market for crude oil, natural gas and liquid products in the future depends on numerous factors beyond the Company's control, including weather, imports, proximity and capacity of oil and gas pipelines and other transportation facilities, any oversupply or undersupply of oil, gas and liquid products, the regulatory environment, the economic environment, and other regional and political events, none of which can be predicted with certainty.

During 2012 and 2011, the Company did not have any credit losses on the sale of oil, natural gas, natural gas liquids or hedging contracts.

Segments

Segments

The Company operates in only one business segment, namely the drilling and development of oil and gas properties.

Derivative Instruments

Derivative Instruments

The Company’s debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

The identification of, and accounting for, derivative instruments is complex.  Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur.  For bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using binomial option pricing model.  That model requires assumptions related to the remaining term of the instrument and risk-free rates of return, our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life of the option.

Fair Value Estimates

Fair Value Estimates

Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value.  ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.  ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. 

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities.

Stock-Based Compensation

Stock-Based Compensation

We account for stock-based employee compensation arrangements using the fair value method which requires the measurement and recognition of compensation expense for all share-based payment awards (including stock options and stock awards) made to employees and directors based on estimated fair value. Compensation expense for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense in earnings over the requisite service period using a graded vesting method.

We periodically issue common stock for acquisitions and services rendered.  Common stock issued is valued at the estimated fair market value, as determined by our management and board of directors.  Management and the board of directors consider market price quotations, recent stock offering prices and other factors in determining fair market value for purposes of valuing the common stock.

Loss Per Share

Loss Per Share

The Company is required to provide basic and dilutive earnings per common share information. The basic net loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2012 and 2011, there were no securities that would have had a dilutive effect. 

Reclassification

Reclassification

Certain amounts in the 2011 financial statements have been reclassified to conform to the 2012 financial presentation. These reclassifications have no impact on net income (loss).

Recent Accounting Pronouncements

Recent Accounting Pronouncements

We have adopted recently issued accounting pronouncements and have determined that they have no material effect on our financial position, results of operations, or cash flow.  We do not expect any recently issued but not yet adopted accounting pronouncements to have a material effect on our financial position, results of operations or cash flow.