NITRO PETROLEUM INC. - FORM 10-K

Attached files

file	filename
EX-31.1 - CERTIFICATION OF CEO - NITRO PETROLEUM INC.	nitroexh311.htm
EX-32.1 - CERTIFICATION OF CFO - NITRO PETROLEUM INC.	nitroexh321.htm
EX-99.1 - RAMSEY PROPERTY MANAGEMENT LLC - NITRO PETROLEUM INC.	nitroexh991.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended January 31, 2011

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

For the transition period from ______ to ______

Commission File No. 000-50932

Nitro Petroleum Incorporated

(Exact name of registrant as specified in its charter)

NEVADA (State or other jurisdiction of incorporation or organization)	98-0488493 (I.R.S. Employer Identification No.)

624 W. INDEPENDENCE, SUITE 101 SHAWNEE, OK 74804 (Address of principal executive offices)	74804 (Zip Code)

Registrant's telephone number, including area code: (405) 273-9119

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

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 o No þ

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

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 o No o

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. 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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

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

Yes o No þ

As of July 30, 2010 (the last business day of the registrant's most recently completed second quarter), the aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant was $1,296,992 (based upon the closing price of the registrant’s common stock as reported by the OTC Bulletin Board on July 30, 2010).

As of August 8, 2011, there were 207,424,156 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS
		Page No.
PART I

Item 1.	Business	4
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	5
Item 2.	Properties	5
Item 3.	Legal Proceedings	8
Item 4.	[Removed and Reserved]	8

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	9
Item 6.	Selected Financial Data	10
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 8.	Financial Statements and Supplementary Data	11
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	11
Item 9A.	Controls and Procedures	12
Item 9B.	Other Information	12

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	12
Item 11.	Executive Compensation	14
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	14
Item 13.	Certain Relationships and Related Transactions, and Director Independence	15
Item 14.	Principal Accountant Fees and Services	15

PART IV

Item 15.	Exhibits and Financial Statement Schedules	16
Signatures		16

Index to Consolidated Financial Statements of Nitro Petroleum Incorporated		F-1

FORWARD-LOOKING STATEMENTS

This report, including information included in, or incorporated by reference from future filings by us with the SEC, as well as information contained in written material, press releases and oral statements issued by us or on our behalf, contain, or may contain, certain statements that are “forward-looking statements” within the meaning of federal securities laws that are subject to a number of risks and uncertainties, many of which are beyond our control. This report modifies and supersedes documents filed by us before this report. In addition, certain information that we file with the SEC in the future will automatically update and supersede information contain in this report. All statements, other than statements of historical fact, included or incorporated by reference in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Forward-looking statements may include statements about our business strategy, reserves, technology, financial strategy, oil and natural gas realized prices, timing and amount of future production of oil and natural gas, the amount, nature and timing of capital expenditures, drilling of wells, competition and government regulations, marketing of oil and natural gas, property acquisitions, costs of developing our properties and conducting other operations, general economic conditions, uncertainty regarding our future operating results and plans, objectives, expectations and intentions contained in this report that are not historical.

All forward-looking statements speak only as of the date of this report, and, except as required by law, we do not intend to update any of these forward-looking statements to reflect changes in events or circumstances that arise after the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

PART I

ITEM 1. BUSINESS

Unless the context otherwise requires, all references in this report to “Nitro,” “our,” “us,” and “we” refer to Nitro Petroleum Incorporated and its subsidiaries, as a combined entity.

Overview

Nitro Petroleum Incorporated is a development stage company engaged in the acquisition and exploration of gas and oil properties. We were originally incorporated on October 27, 2003, under the name Ingenium Capital Corp. in the State of Nevada. We changed our name from Ingenium Capital Corp. to Nitro Petroleum Incorporated on February 27, 2006. Our principal offices are located at 624 W. Independence, Suite 101, Shawnee, OK 74804. Our telephone number is (405) 273-9119.

On February 6, 2006, we effected a four-for-one forward stock split whereby each share of our issued and outstanding common stock was converted into four shares of common stock. As a result of this stock split our total authorized shares of common stock increased from 100,000,000 to 400,000,000.

On December 29, 2006, we effected a five-for-one forward stock split whereby each share of our issued and outstanding common stock was converted into five shares of common stock. As a result of this stock split, our total authorized shares of common stock increased from 400,000,000 to 2,000,000,000.

On March 17, 2008, our majority stockholder surrendered 100,000,000 shares of our common stock to us and instructed us to cancel those shares. We subsequently cancelled those 100,000,000 shares per the request of the surrendering stockholder. We paid no consideration for the cancelled shares.

On December 5, 2008, we entered into separate Promissory Note Settlement Agreements (the “2008 Settlement Agreements”) with the holders of certain of our outstanding demand promissory notes (the “2008 Demand Notes”). Pursuant to the terms of the 2008 Settlement Agreements, we issued a total of 49,725,540 shares of our common stock to the holders of the 2008 Demand Notes in full payment of all principal and accrued and unpaid interest due on the 2008 Demand Notes.

On January 1, 2011, we entered into separate Promissory Note Settlement Agreements (the “2011 Settlement Agreements”) with the holders of certain of our outstanding demand promissory notes (the “2011 Demand Notes”). Pursuant to the terms of the Settlement Agreements, we issued a total of 5,494,000 shares of our common stock to the holders of the 2011 Demand Notes in full payment of all principal and accrued and unpaid interest due on the 2011 Demand Notes.

Business

Our business strategy is to acquire interest in the properties of, and working interests in the production owned by, established oil and gas production companies, whether public or private, in the United States oil producing areas. We believe such opportunities exist in the United States. We also believe that these opportunities have considerable future potential for the development of additional oil reserves. Such new reserves might come from the development of existing but as yet undeveloped reserves as well as from future success in exploration.

When and if funding becomes available, we plan to acquire high-quality oil and gas properties, primarily "proven producing and proven undeveloped reserves." We will also explore low-risk development drilling and work-over opportunities with experienced, well-established operators.

Competition

We operate in a highly competitive environment. We compete with major and independent oil and natural gas companies, many of whom have financial and other resources substantially in excess of those available to us. These competitors may be better positioned to take advantage of industry opportunities and to withstand changes affecting the industry, such as fluctuations in oil and natural gas prices and production, the availability of alternative energy sources and the application of government regulation.

Compliance with Government Regulation

The availability of a ready market for future oil and gas production from possible U.S. assets will depend upon numerous factors beyond our control. These factors may include, amongst others, regulation of oil and natural gas production, regulations governing environmental quality and pollution control, and the effects of regulation on the amount of oil and natural gas available for sale, the availability of adequate pipeline and other transportation and processing facilities and the marketing of competitive fuels. These regulations generally are intended to prevent waste of oil and natural gas and control contamination of the environment.

We expect that our sales of crude oil and other hydrocarbon liquids from our future U.S.-based production will not be regulated and will be made at market prices. However, the price we would receive from the sale of these products may be affected by the cost of transporting the products to market via pipeline and marine transport.

Environmental Regulations

Our U.S. assets could be subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands within wilderness, wetlands and other protected areas, require remedial measures to mitigate pollution from former operations, such as pit closure and plugging abandoned wells, and impose substantial liabilities for pollution resulting from production and drilling operations. Public interest in the protection of the environment has increased dramatically in recent years. The worldwide trend of more expansive and stricter environmental legislation and regulations applied to the oil and natural gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability. To the extent laws are enacted or other governmental action is taken that restricts drilling or imposes more stringent and costly waste handling, disposal and cleanup requirements, our business and prospects could be adversely affected.

Operating Hazards and Insurance

The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, craterings, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, formations with abnormal pressures, pipeline ruptures or spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations.

In accordance with customary industry practices, we expect to maintain insurance against some, but not all, of such risks and losses. There can be no assurance that any insurance we obtain would be adequate to cover any losses or liabilities. We cannot predict the continued availability of insurance or the availability of insurance at premium levels that justify its purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition and operations.

Pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our future financial condition. If we were unable to obtain adequate insurance, we could be forced to participate in all of our activities on a non-operated basis, which would limit our ability to control the risks associated with oil and natural gas operations.

Employees

At August 8, 2011 we had one full-time employee.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Oil and Natural Gas Reserves

The information below is derived from a reserve report prepared by Ramsey Property Management LLC. Copies of the summary reserve report are attached as an exhibit to this annual report.

To determine our estimated proved reserves, and as required by the SEC, we used the 12-month unweighted arithmetic average of the first-day-of-the-month price for the months of February 2010 through January 2011 calculated to be $4.60 per Mcf of natural gas and $78.42 per Bbl of oil. These prices were held constant for the life of the properties and adjusted for the appropriate market differentials.

As of January 31, 2011, our proved crude oil and natural gas reserves are presented below by reserve category. All of our proved reserves are located within the United States.

	Oil Bbl	Gas Mcf

Proved developed	50,238	48,019
Proved undeveloped	29,528	41,079

Total proved	79,766	89,098

Increases in our proved developed reserves and our proved undeveloped reserves are attributable to acquisitions of working interests in oil and gas properties. For a more detailed description of such acquisitions, see “Note 3 – Oil and Gas Properties” in the Notes to our financial statements filed with this Annual Report.

Net Production, Unit Prices and Costs

The following table presents certain information with respect to our oil and natural gas production and prices and costs attributable to all oil and natural gas properties owned by us for the periods shown.

		Year ended January 31,
:		2011		2010
Production volumes:
Oil (Bbls)		1,230		1,971
Natural gas (Mcf)		2,363		2,332
Total (Boe)		1,624		2,360
Average realized prices
Oil (per Bbl)	$	78.42	$	63.25
Natural gas (per Mcf)	$	4.60	$	4.34
Total per Boe	$	70.79	$	50.87
Average production cost (not including ad valorem and severance taxes):
Oil (per Bbl)
Natural gas (per Mcf)
Total per Boe	$	66.94	$	63.74

Drilling Activities

For the years ended January 31, 2011 and 2010, we have drilled 0 net exploratory wells and 2 net development wells, respectively.

Producing Wells

The following table sets forth the number of productive wells in which we owned an interest as of January 31, 2011. Productive wells consist of producing wells and wells capable of production, including wells awaiting pipeline connections or connection to production facilities. Wells that we complete in more than one producing horizon are counted as one well.

	Gross	Net

Oil	10	1.25
Natural gas	0	0

Total	10	1.25

The following table sets forth our developed and undeveloped gross and net leasehold acreage as of January 31, 2011:

	Gross	Net

Developed	1000	125
Undeveloped	1800	225

Total	2800	350

Our undeveloped acreage includes leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether or not such acreage is held by production or contains proved reserves. A gross acre is an acre in which we own an interest. A net acre is deemed to exist when the sum of fractional ownership interests in gross acres equals one. The number of net acres is the sum of the fractional interests owned in gross acres.

Participation in Barnett Shale

We entered into an Acreage Participation Agreement effective January 23, 2006, with REO Energy, Ltd. as a holder of approximately 2,000 acres of mineral leases in and around Montague County, Texas (the "Gross Area"). We purchased 50% of the REO Energy’s leasehold interest in the Gross Area (the "Assigned Acreage") for $300,000. We are also entitled (i) to receive a 1% overriding royalty on the entire Gross Area, (ii) to participate in up to a 25% working interest in wells drilled in the Gross Area, and (iii) to receive an acreage fee of $500 per acre from all wells drilled on the Assigned Acreage.

Additionally, we acquired a 10% working interest in four wells (Inglish 4, Inglish 5, Inglish D1 and Inglish D2) and a 5% working interest in two wells (Craig Muncaster 6 and Craig Muncaster 7) drilled by REO Energy Ltd. on Barnett Shale formation leases. We subsequently transferred 50% of our working interests in these wells to Quantum Energy, Inc.; however, we later terminated our agreement with Quantum Energy and currently hold our original working interests in these wells.

The funds advanced under this contract, USD$750,000, were applied towards the acquisition of a 10% working interest in four wells ( Inglish 4, Inglish 5, Inglish D1 and Inglish D2) and a 5% working interest in two wells (Craig Muncaster 6 and Craig Muncaster 7) drilled by REO Energy Ltd. on Barnett Shale formation leases. All of these wells are currently completed and producing.

Oklahoma Property

Nowata County

On December 18, 2006, we acquired three producing leases in Oklahoma for $250,000. The funding for this acquisition was derived from a private placement of 500,000 shares of our common stock and warrants to purchase 500,000 of our common stock to Bridge Capital Inc., a private offshore corporation. On February 26, 2010, we sold all of our interest in the Moreland and Farley leases for $100,000.

The three leases, East Moreland, West Moreland and Farley are described as follows:

The East Moreland and West Moreland Leases are in Nowata County, Oklahoma. The leases are in total of 160 acres. Nitro owned 100% of the interest on these leases, which represented a 78 % revenue interest. There are four wells on these leases, all of which are producing. The aggregate production at the time of our sale was seven barrels of oil per day.

The Farley Lease is also located in Nowata County, Oklahoma. It is an 80 acres lease. We owned 100% of the interest on this lease, which represented a 78 % revenue interest. There are three wells on this lease, all of which are producing. The aggregate production at the time of our sale was three barrels of oil per day.

Garvin County

On February 1, 2008, we purchased producing properties located in Garvin County and Pottawatomie County, Oklahoma in a transaction that resulted in the distribution of 1,306,054 shares in exchange for an 18.75% to a 24.75% gross working interest in producing wells and in undeveloped proved properties. The Sarah No. 1-4, Teresa No. 1, Thompson No. 1-18, Ward/McNeil and Mason-Burns wells are all located in Garvin County. The Quinlan well is located in Pottawatomie County.

On September 1, 2010, we acquired a 25% working interest in 7 well package located in Garvin County, Oklahoma. We acquired this interest by first purchasing the prospect and then selling off 55% of the ownership in the working interest to third party investors, giving a 20% carried working interest to the seller and retaining the balance of the working interest. Currently, we own a 25% working interest in these wells.

On September 29, 2010, we purchased a 20.83333% working interest in the Thompson #2-18 located in Garvin County, Oklahoma. We paid $10,417 for this working interest. On November 17, 2010, we sold 13.46774% of their interest, realizing $35,516. Currently, we own a 7.36559% working interest in this well.

Pottawatomie County

We acquired the Crown No. 1, No. 2 and No. 3 and the Gloria SWD wells located in Pottawatomie County, Oklahoma, on February 1, 2008 and turnkeyed the rework of these wells to outside investors, retaining a 15% carried working interest and operations of the wells.

During 2008 we drilled the Quinlan No. 3 and the Quinlan No. 4, both located in Pottawatomie County, Oklahoma, retaining a 15% carried working interest in both wells. The Quinlan No. 4 was later converted into a saltwater disposal well. We also reworked the Quinlan No. 2, located in Pottawatomie County, Oklahoma, initially as a saltwater disposal well, but later converted it into a producing well.

Effective January 1, 2011, we negotiated purchase agreements in which certain owners of working interest in the Crown and Quinlan leases would sell, transfer, assign, convey and deliver all right, title and interest in said leases to us in exchange for shares of our common stock. Pursuant to the terms of the purchase agreements, we assumed $113,159 of joint interest billings and issued a total of 58,106,000 shares of common stock to the sellers in the Quinlan’s 1, 2, 3 and 4 and the Crown’s 1, 2 and 3 as the purchase price for the working interests. We recognized an aggregate cost of $694,219 for this transaction.

As a result of this transaction, our working interest in these leases increased as indicated in the following table.

Ownership Interest
Lease Name	Before Acquisition	After Acquisition

Crown 1&2	15.00%	88.75%
Crown 3	15.00%	88.75%
Quinlan 1	12.25%	62.111328%
Quinlan 2	29.44%	99.64%
Quinlan 3	15.00%	85.00%
Quinlan 4	15.00%	83.34%

On February 1, 2008, we acquired a 50% working interest in the Nancy Hubbard, Walker, State SWD and Krouch 1 and 2 leases, all located in Pottawatomie County, Oklahoma. We have performed major rework on these leases during the latter part of the year. On April 22, 2010, we sold all of our interest in the Nancy Hubbard, Walker and Crouch’s 1 and 2 wells for $20,300.

Seminole County

On April 8, 2008, we acquired the 10% of the Jessica No. 23, located in Seminole County, Oklahoma.

Corporate Office

We lease our corporate office located at 624 W. Independence, Suite 101, Shawnee, OK 74804. Our corporate office is approximately 1,235 square feet and our annual rent was $6,606.25. The Company leases an office in Tulsa and rent for the eyar ended January 31, 2011 was $6,400.

ITEM 3. LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings and, to our knowledge, no such proceedings are threatened or contemplated.

ITEM 4. [REMOVED AND RESERVED]

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for the Common Stock

Our common stock is traded on the OTC Bulletin Board – Pink Sheets and is quoted under the symbol “NTRO.” The following quotations were obtained from Yahoo Finance and reflect interdealer prices, without retail markup, markdown, or commission, and may not represent actual transactions. There have been no reported transactions in our stock for certain of the trading days during the periods reported below. The following table sets forth the high and low bid prices for our common stock on the OTC Bulletin Board – Pink Sheets for the periods indicated (as adjusted for stock splits):

	High	Low

Fiscal Year ended January 31, 2011:
Quarter ending January 31, 2011	0.01	0.01
Quarter ending October 31, 2010	0.01	0.01
Quarter ended July 31, 2010	0.02	0.01
Quarter ended April 30, 2010	0.02	0.01

Fiscal Year Ended January 31, 2010:
Quarter ending January 31, 2010	0.02	0.01
Quarter ending October 31, 2009	0.04	0.02
Quarter ended July 31, 2009	0.05	0.01
Quarter ended April 30, 2009	0.05	0.02

Holders of the Common Stock

At the date of this report, we had 66 stockholders of record.

Dividends

Our dividend policy for holders of common stock is to retain earnings to support the expansion of operations through organic growth or by strategic acquisitions. We have not previously paid any cash dividends, and we do not intend to pay cash dividends in the near future. Any future cash dividends will depend on our future earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors.

Equity Compensation Plan Information

The following table provides information for all equity compensation plans as of the fiscal year ended January 31, 2011, under which our equity securities were authorized for issuance:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plans approved by security holders	—	—	—
Equity compensation plans not approved by security holders
2008 Stock Incentive Plan	—	—	700,000
2010 Stock Incentive Plan	—	—	4,950,000
Total	—	—	5,650,000

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

We intend to continue to acquire high quality oil and gas properties, primarily “proved producing and proved undeveloped reserves” in the United States. The We see significant opportunities in acquiring properties with proven producing reserves and undeveloped acreage in fields that have a long history of production. We will also explore low-risk development drilling and work-over opportunities with experienced, strong operators. We will attempt to finance oil and gas operations through a combination of privately placed debt and/or equity. There can be no assurance that we will be successful in finding financing, or even if financing is found, that we will be successful in acquiring oil and/or gas assets that result in profitable operations.

We are continuing its efforts to identify and assess investment opportunities in oil and natural gas properties, utilizing free labor of its directors and stockholders until such time as funding is sourced from the capital markets. It is anticipated that funding for the next twelve months will be required to maintain the Company. Attempts are ongoing to raise funds through private placements and said attempts will continue throughout 2011. We may also use various debt instruments as well as public offerings to raise needed capital during 2011.

As oil and gas properties become available and appear attractive to our management, funds, when they become available, will be spent on due diligence and research to determine if said prospects could be purchased to provide income for the Company. Established oil companies continue to strive to reduce costs and debt. This causes significant market opportunities for us to possibly position itself with sellers that wish to divest themselves of production or proven undeveloped properties in order to provide liquidity. Our management believes that current market conditions are creating situations that could result in the opportunity for such production acquisitions.

We may also finance acquisition of “proven producing reserves” with predictable production levels and cash flow by offering the secure investors with the mineral interests acquired. We may also hedge price risk by selling forward a portion of future production acquired under fixed-price contracts to minimize risk associated with commodity prices. In some cases the future value of such fixed-price contracts may be greater that the initial investments, thereby hedging the inherent acquisition risk, without limiting the upside available the stockholders and investors. There can be no assurance, however, that any of these methods of financing will be successful in helping fund the Company.

The operating expenses will increase as we undertake our plan of operations. The increase will be attributable to the continuing geological exploration and acquisition programs and continued professional fees that will be incurred.

Financial Condition and Results of Operations

For the fiscal year ended January 31, 2011, we had revenue of $144,112 from production of oil and gas, as compared to $120,035 for the fiscal year ended January 31, 2010.

Cost of continued operations for the fiscal year ended January 31, 2011 was $761,483 resulting in a net loss for the period of $536,816.

Cost of continued operations for the fiscal year ended January 31, 2010 was $953,228, resulting in a net loss for the period of $823,059.

Liquidity and Capital Resources

We had a cash balance of $40,501 as of January 31, 2011, compared to cash balance of $2,502 as of January 31, 2010. We had a working capital deficiency of $246,973 as of January 31, 2011, compared to working capital deficiency of $522,607 as of January 31, 2010.

During the first quarter of the fiscal year, we issued 10,000,000 shares of capital stock in a conversion of debt to stock. This transaction reduced debt by $20,063 and accrued interest in the amount of $4,937.

During the fourth quarter, we had raised approximately $970,518 by virtue of converting debt into capital stock and by issuing capital stock for oil and gas properties. We issued 5,494,000 shares of capital stock, reducing debt by $364,259 in principal and $25,199 in accrued interest. We also issued 58,106,000 of capital stock in exchange for oil and gas properties in the Oklahoma counties of Pottawatomie and Garvin. This transaction increased oil and gas properties in the amount of $581,060. We also reduced accounts receivable owing by the owners of the oil and gas interest in the amount of $113,159, thereby increasing the basis in our oil and gas properties by $113,159.

Going Concern

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and exploration activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt we will be able to continue as a going concern without further financing.

Future Financings

We will continue to rely on equity sales of the common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

ITEM 7A.

QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements and Financial Statement Schedules - See Index to Consolidated Financial Statements and Schedules immediately following the signature page of this report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by it in the reports that it files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission's rules and forms, and that information is accumulated and communicated to its management, including its principal executive and principal financial officers (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of its Certifying Officers, the effectiveness of its disclosure controls and procedures as of January 31, 2011, pursuant to Rule 13a-15 under the Securities Exchange Act. Due our inability to file this annual report in a timely manner, our Certifying Officer concluded that, as of January 31, 2011, our disclosure controls and procedures were not effective. We are taking steps to remedy these deficiencies as quickly as possible.

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Our controls are designed to provide reasonable assurance that our assets are protected from unauthorized use and that transactions are executed in accordance with established authorizations and properly recorded. Management used the framework set forth in the report entitled "Internal Control-Integrated Framework" published by the Committee of Sponsoring Organizations of the Treadway Commission (referred to as "COSO") to evaluate the effectiveness of our internal control over financial reporting as of January 31, 2011. Due our inability to file this annual report in a timely manner, management has concluded that the design and operations of our internal controls over financial reporting at January 31, 2011 were not effective and did not provide reasonable assurance that the books and records accurately reflected our transactions. We are taking steps to remedy these deficiencies as quickly as possible.

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our Board of Directors is currently composed of three (3) persons. The term of each director is one-year or until he resigns or is succeeded by another qualified director who has been elected. The following is a list of our executive officers and the current members of our Board of Directors, including each member’s age, the year he or she became a director of the Company and his or her current position with the Company:

Name	Age		Director Since		Position
James G. Borem		63		2009	Director, Chief Executive Officer and Interim Chief Financial Officer
Larry Wise		57		2007	Director, Chief Operating Officer
Gunther Weisbrich		58		2008	Director

Set forth below is a brief description of the background and business experience of our executive officers and directors.

James G. Borem

James G. Borem was appointed to the Board and as our Chief Executive Officer and Interim Chief Financial Officer effective October 1, 2009. Mr. Borem has over 40 years of experience in the Petroleum Industry. He has vast experience in the areas of Petroleum Valuations, Development, Financing, Budgeting, Marketing, Materials Procurement and Risk Management. Mr. Borem currently serves, and has served for the past five years, as President of Premier Operating Inc. and Providian Reserves Inc., two Oklahoma oil and gas service and production companies that are not affiliated with Nitro Petroleum Incorporated.

Larry Wise

Larry Wise was appointed as our President and Treasurer and appointed to the board of directors as of February 21, 2007. Mr. Wise resigned his positions as President and Treasurer effective October 1, 2009 but remains on our Board of Directors. Mr. Wise has been involved in the Oil & Gas industry for 30 years. Larry started as a junior field engineer with Phillips 66 Petroleum Company in 1977. In 1979 Larry became the Completion Superintendent for Jerry Scott Company, overseeing 14 drilling rigs and over 300 producing properties up to the early 1980's. During the 1980's and 1990's Mr. Wise was the President and Chief Operating Officer for JOMC Oil Co; Texas United Petroleum and Pottawatomie County Energy. Over the past 7 years Larry Wise has operated Wise Oil & Gas Company, LLC and served as an independent Engineering Consultant responsible for all operations of Morris E. Stewart Oil Company, OKC, OK; Kirrie Oil Company, OKC, OK; Hoko, Inc. Oil Company, Wichita Falls, TX; and Buccaneer Energy Corporation, Tampa Bay, FL.

Gunther Weisbrich

Gunther Weisbrich was appointed to our board of directors effective May 19, 2008. Mr. Weisbrich began his oil and gas career as a Production Geologist with Exxon Company, USA in Louisiana, then as a Frontier Exploration Geologist with Tenneco (Houston), Sr. Explorationist with North Central Oil Company (Houston) and finally as a Senior Exploration Geologist with Hunt Oil Company in Dallas, Texas working both internationally (Yemen and South America) and domestically (West Texas, Texas Gulf Coast, East Texas Basin, Mid-continent and Miss-Ala-Fla). Over the years Mr. Weisbrich generated and participated in the discovery of many oil/gas fields. He additionally received the BEST POSTER AWARD at the 1994 Mexico City Joint AAPG/AMPG research conference.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish US with copies of all Section 16(a) forms they file. For the fiscal year ending January 31, 2011, Messrs. Borem, Weisbrich and Wise each filed one late Form 5.

Code of Ethics

Our code of ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethics was filed as an exhibit to the 2006 Annual Report and is incorporated by reference herein. We will provide to any person, without charge, a copy of our Code of Ethics upon receipt of a written request addressed to Nitro Petroleum Incorporated, Attn: Corporate Secretary, 624 W. Independence, Suite 101, Shawnee, OK 74804.

Corporate Governance

We do not presently have any committees of our board of directors, including an audit committee, because our size makes it impractical to implement board committees at this point.

Leadership Structure of the Board

The chairman of our Board of Directors has the power to preside at all meetings of the Board. James G. Borem, our Chief Executive Officer and Interim Chief Financial Officer, serves as the chairman of our Board of Directors. Although our Board believes that the combination of the chairman and chief executive officer positions is appropriate for our company in the current circumstances, there is no corporate policy requiring those positions to be held by the same person.

Our Chief Executive Officer is appointed by the Board to manage our daily affairs and operations. We believe that Mr. Borem’s extensive industry experience and direct involvement in our operations make him best suited to serve as chairman in order to (i) lead the Board in productive, strategic planning, (ii) determine necessary and appropriate agenda items for meetings of the Board with input from both our independent directors and management, and (iii) determine and manage the amount of time and information devoted to discussion and analysis of agenda items and other matters that may come before the Board.

Risk Oversight

The Board considers oversight of our risk management efforts to be a responsibility of the entire Board. The Board’s role in risk oversight includes receiving regular reports from members of senior management on areas of material risk to us, including operational, financial, personnel, information technology, environmental, legal and regulatory, strategic and reputational risks. The full Board receives these reports from the appropriate members of management to enable the Board to understand our risk identification, risk management, and risk mitigation strategies.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The table below summarizes the total compensation paid to our named executive officers for the last two fiscal years.

Name & Principal Position	Year	Salary ($)	Stock Awards (1) ($)	Total ($)
James G. Borem, CEO and Interim CFO	2011	93,000	36,000	129,000
	2010	26,000	-	26,000

Larry Wise, Chief Operating Officer	2011	80,000	15,000	95,000
	2010	59,500	-	59,500

(1)	The amounts in the “Stock Awards” column reflect the grant date fair value computed in accordance with FASB ASC Topic 718 of restricted stock awards pursuant to the 2010 Stock Incentive Plan.

Outstanding Equity Awards at January 31, 2011

We had no outstanding equity awards as of January 31, 2011.

Director Compensation for the Year Ended January 31, 2011

The following table summarizes the compensation paid to our directors in the fiscal year ended January 31, 2011.

Name	Stock Awards (1) ($)	Total ($)
Gunther Weisbrich	25	25

(1)	The amounts in the “Stock Awards” column reflect the grant date fair value computed in accordance with FASB ASC Topic 718 of restricted stock awards pursuant to the 2010 Stock Incentive Plan.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

As of July 8, 2011, based upon ownership filings with the SEC, we have no shareholders that beneficially own more than 5% of our outstanding shares of common stock. The following table sets forth the number of shares of our common stock beneficially owned as of July 8, 2011, by each director, the named executive officer and all of our directors and executive officers as a group, and the percentage represented by such shares of the total common stock outstanding on that date.

Name or Group	Number of Shares Common Stock Beneficially Owned	Percent of Class
James G. Borem	6,000,000	*
Larry Wise	2,500,000	*
Gunther Weisbrich	75,000	*
All directors and executive officers as a group, including those named above (3 persons)	8,575,000	*

* The percentage of shares beneficially owned by such director or named executive officer does not exceed 1%.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Director Independence

The Board of Directors has determined that Gunther Weisbrich is an independent director under the definition found in Nasdaq Rule 5605(a)(2).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth information regarding the amount billed to us by our independent auditor, Killman, Murrell & Company PC for the fiscal years ended January 31, 2011 and 2010:

	Years Ended January 31
	2011	2010

Audit Fees (1)	$27,906	$22,500
Audit-Related Fees	-	-
Tax Fees	-	-
All Other Fees	-	-

(1)	Audit Fees are the aggregate fees billed by the independent auditor for the audit of the consolidated annual financial statements, reviews of interim financial statements, and attestation services that are provided in connection with statutory and regulatory filings or engagements.

Generally, the board of directors approves in advance audit and non-audit services to be provided by our independent auditors. In other cases, in accordance with Rule 2-01(c)(7) of Securities and Exchange Commission Regulation S-X, the board of directors has delegated preapproval authority to our Chief Executive Officer for matters that arise or otherwise require approval between regularly scheduled meetings of the board of directors, provided that such approvals are reported to the board of directors at its next regularly scheduled meeting.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit No.	Description of Exhibit
3.1	Articles of Incorporation (filed as exhibit to our Form SB-2 Registration Statement filed on April 21, 2004 and incorporated by reference herein)
3.2	Bylaws (filed as exhibit to our Form SB-2 Registration Statement filed on April 21, 2004 and incorporated by reference herein)
3.3	Amendment to the Articles of Incorporation changing the name to Nitro Petroleum Incorporated (filed as exhibit to our Form 10-KSB filed on May 15, 2006 and incorporated by reference herein)
10.1	Nitro Petroleum Incorporated 2008 Stock Incentive Plan (filed as exhibit to our Form 8-K filed on July 16, 2008)
10.2	Nitro Petroleum Incorporated 2009 Stock Incentive Plan (filed as exhibit 4.01 to our Registration Statement on Form S-8 filed on August 25, 2009)
10.3	Nitro Petroleum Incorporated 2010 Stock Incentive Plan (filed as exhibit 99 to our Registration Statement on Form S-8 filed on July 30, 2010)
14	Code of Ethics (filed as exhibit to our Form 10-KSB filed on May 15, 2006 and incorporated by reference herein)
31.1	Rule 13a-14 Certification of Chief Executive Officer and Interim Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer and Interim Chief Financial Officer
99.1	Report of Ramsey Property Management LLC

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NITRO PETROLEUM INCORPORATED

By: /s/ James G. Borem
James G. Borem
Chief Executive Officer and Interim Financial Officer

Date: August 18, 2011

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

Name	Title	Date

/s/ James G. Borem	Director, Chief Executive	August 18, 2011
	Officer and Interim Chief Financial Officer

/s/ Larry Wise	Director	August 18, 2011

/s/ Gunther Weisbrich	Director	August 18, 2011

INDEX TO EXHIBITS

Exhibit No.	Description of Exhibit	Method of Filing

3.1	Articles of Incorporation	Incorporated herein by reference

3.2	Bylaws	Incorporated herein by reference

3.3	Amendment to the Articles of Incorporation changing the name to Nitro Petroleum	Incorporated herein by reference

10.1	Nitro Petroleum Incorporated 2008 Stock Incentive Plan	Incorporated herein by reference

10.2	Nitro Petroleum Incorporated 2009 Stock Incentive Plan	Incorporated herein by reference

10.3	Nitro Petroleum Incorporated 2010 Stock Incentive Plan	Incorporated herein by reference

14	Code of Ethics	Incorporated herein by reference

31.1	Rule 13a-14 Certification of Chief Executive Officer and Interim Chief Financial Officer	Filed herewith electronically

32.1	Section 1350 Certification of Chief Executive Officer and Interim Chief Financial Officer	Filed herewith electronically

99.1	Report of Ramsey Property Management LLC	Filed herewith electronically

PART I – FINANCIAL INFORMATION NITRO PETROLEUM INCORPORATED FINANCIAL INFORMATION

	Page

Report of Independent Registered Public Accounting Firm	F-2

Balance Sheets as of January 31, 2011 and 2010	F-3

Statements of Operations for the Years Ended January 31, 2011 and 2010	F-4

Statements of Stockholders’ (Deficit) for the Years Ended January 31, 2011 and 2010	F-5

Statements of Cash Flows for the Years Ended January 31, 2011 and 2010	F-6

Notes to Financial Statements	F-7 – F-15

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Nitro Petroleum, Inc.

624 W. Independence, Suite 101

Shawnee, OK 74804

We have audited the accompanying balance sheets of Nitro Petroleum, Inc. as of January 31, 2011 and 2010, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. Nitro Petroleum, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nitro Petroleum, Inc. as of January 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has generated revenues from operations but has substantial accumulated deficit and working capital deficiency and this raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The 2011 and 2010 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Killman, Murrell & Company, P.C.

Killman, Murrell & Company, P.C.

Odessa, Texas

August 8, 2011

F-2

NITRO PETROLEUM INCORPORATED
BALANCE SHEETS

					January 31,
				ASSETS	2011	2010

Current
	Cash				$ 40,501	$ 2,502
	Accounts receivable				106,173	76,195

			Total Current Assets		146,674	78,697

Property and equipment, net					44,622	51,978
Oil and gas properties, net - using full cost accounting					727,266	446,191

			Total Assets		$ 918,562	$ 576,866


LIABILITIES

Current Liabilities
	Accounts payable				$ 283,987	$ 268,946
	Revenue payable				92,736	60,840
	Due to related party				16,924	27,180
	Short-term notes payable				-	244,338

			Total Liabilities		393,647	601,304


				STOCKHOLDERS' EQUITY (DEFICIT)

Capital stock
	Authorized:
		2,000,000,000 common stock, $0.001 par value
		10,000,000 preferred stock, $0.001 par value
	Issued and outstanding:
		207,424,156 common shares (2010: 121,249,156)			207,424	121,249
Additional paid-in capital					5,687,470	4,687,476
Accumulated (deficit)					(5,369,979)	(4,833,163)

			Total Stockholders' Equity (Deficit)		524,915	(24,438)

			Total Liabilities And Stockholders' Equity (Deficit)		$ 918,562	$ 576,866

F-3

NITRO PETROLEUM INCORPORATED
STATEMENTS OF OPERATIONS



			Years Ended January 31,
			2011	2010

Revenues
	Oil and gas sales		$ 144,112	$ 120,035
	Well operator fees		80,555	10,134

		Total Revenues	224,667	130,169
Expenses
	Lease operating		108,699	150,428
	Production taxes		3,255	8,491
	Depreciation, depletion and amortization		25,356	59,302
	Impairment loss		-	150,000
	Interest expense		46,483	17,690
	General and administrative		577,690	567,317

		Total Expenses	761,483	953,228

Loss before provision for income taxes			(536,816)	(823,059)


Provision for income taxes			-	-


Net Loss			$ (536,816)	$ (823,059)


Basic and diluted loss per share			$ (0.00)	$ (0.01)

Weighted average number of shares
	outstanding-basic and diluted		139,173,708	102,549,152

F-4

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended January 31, 2011 and 2010


				Additional
		Common Shares		Paid-in	Accumulated
		Number	Par Value	Capital	Deficit	Total

Balance, as of January 31, 2009		100,049,156	$ 100,049	$ 4,327,676	$ (4,010,104)	$ 417,621
	Common stock issued for consulting fees	10,000,000	10,000	130,000		140,000
	Stock incentive plan	1,200,000	1,200	214,800		216,000
	Common stock issued for settlement of
	notes payable and accrued interest	10,000,000	10,000	15,000		25,000
	Net loss for the year	-	-	-	(823,059)	(823,059)

Balance, as of January 31, 2010		121,249,156	121,249	4,687,476	(4,833,163)	(24,438)
	Common stock issued for consulting fees	3,800,000	3,800	34,200		38,000
	Stock incentive plan	8,775,000	8,775	43,875		52,650
	Common stock issued for settlement of					-
	notes payable and accrued interest	15,494,000	15,494	398,965		414,459
	Common stock issued for oil and gas					-
	working interest	58,106,000	58,106	522,954		581,060
	Net loss for the year	-	-	-	(536,816)	(536,816)
Balance, as of January 31, 2011		207,424,156	$ 207,424	$ 5,687,470	$ (5,369,979)	$ 524,915

F-5

NITRO PETROLEUM INCORPORATED
STATEMENTS OF CASH FLOWS

			Years Ended January 31,
			2011	2010
Operating Activities
	Net loss for the period		$ (536,816)	$ (823,059)
	Adjustments for items not effecting cash:
		Depletion, depreciation and amortization	25,356	59,302
		Share based compensation	90,650	261,500
		Impairment loss	-	150,000
	Change in non-cash working capital balances related to operations
		Accounts receivable	(143,137)	11,255
		Other assets	-	26,152
		Accounts payable and accrued liabilities	45,162	(107,754)
		Revenue payable	31,896	21,531

Cash used in operating activities			(486,889)	(401,073)

Investing Activities
	Oil and gas investor funds, net of acquisition costs		275,844	(44,066)
	Proceeds from sale of oil and gas properties		120,300	200,000
	Acquisition of property and equipment		(1,000)	-

Cash provided by investing activities			395,144	155,934

Financing Activities
	Cash overdraft		-	(4,174)
	Proceeds from short term note payable		140,000	239,705
	Increase (decrease) in due to related party		(10,256)	11,180

Cash provided by financing activities			129,744	246,711

Increase in cash during the year			37,999	1,572

Cash, beginning of the year			2,502	930

Cash, end of the year			$ 40,501	$ 2,502

Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes		$ -	$ -
Cash paid during the year for interest		$ -	249

Non-cash investing and financing activities
	Acquisition of oil and gas properties	$ (581,060)	$ -
	Issuance of common stock	58,106	-
	Additional paid-in capital	522,954	-
	Settlement of promissory notes payable including
	accrued interest	(414,459)	(25,000)
	Issuance of common stock	15,494	10,000
	Additional paid-in capital	398,965	15,000
	Accounts receivable	113,159	-
	Acquisition of oil and gas properties	(113,159)	-
	Employee incentive plan liability	-	(94,500)
	Additional paid-in capital	-	94,500
		$ -	$ -

F-6

NITRO PETROLEUM INCORPORATED

NOTES TO THE FINANCIAL STATEMENTS

January 31, 2011 and 2010

Note 1

Nature and Continuance of Operations

Nitro Petroleum Incorporated (the “Company”) was incorporated in October 2003 in the State of Nevada and has established its corporate offices in Shawnee, Oklahoma. The Company is engaged primarily in the acquisition, development, production, exploration for, and the sale of oil, gas and natural gas liquids. All business activities are conducted in Texas and Oklahoma and the Company sells its oil and gas to a limited number of domestic purchasers.

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern. At January 31, 2011 the Company had not yet achieved profitable operations, has accumulated losses of $5,369,769 since its inception, has a working capital deficiency of $246,973 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.

Note 2

Summary of Significant Accounting Policies

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which have been made using careful judgment. Actual results may vary from these estimates.

The financial statements have, in management’s opinion been properly prepared within the framework of the significant accounting policies summarized below:

Cash and Cash Equivalents

The Company considers cash and cash equivalents to be all highly liquid debt instruments with a maturity when purchased of three months or less.

The Company maintains its cash balances in two financial institutions in Shawnee and Tulsa, Oklahoma. The balances at these institutions are generally insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of January 31, 2011 and 2010, the Company’s cash in both of these financial institutions were less that the federally insured limits.

Allowance for doubtful accounts

Accounts receivable are stated at the amount management expects to collect from balances outstanding at year end. Management provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance. Changes in the allowance have not been material to the financial statements.

Property and equipment

Equipment is recorded at cost and consists of office furniture, computer and a vehicle. Depreciation is provided using the declining balance method at 20% per annum.

Oil and Gas Properties

The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on a country-by-country (cost center) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.

Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated net proved reserves. Petroleum products and reserves are converted to a common unit of measure, using six (6) MCF of natural gas to one barrel of oil.

Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed annually to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.

F-7

Future net cash flows from proved reserves using average monthly prices, non-escalated and net of future operating and development costs are discounted to present value and compared to the carrying value of oil and gas properties.

Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the rate of depletion by more than twenty-five percent (25%).

Assets Retirement Obligations

The Company recognizes the fair value of a liability for an assets retirement obligation in the year in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability.

Changes in the liability for an asset retirement obligation due to the passage of time will be measured by applying an interest method of allocation. The amount will be recognized as an increase in the liability and an accretion expense in the statement of operations. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset. At January 31, 2011, the Company’s estimate of asset retirement obligation was not material.

Impairment of Long-Lived Assets

The Company has adopted FASB Codification Topic 360-10 (“ASC 360-10”), “Property, Plant and Equipment”, which requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Oil and gas properties accounted for using the full cost method of accounting, a method utilized by the Company, are excluded from this requirement, but will continue to be subject to the ceiling test limitations. At January 31, 2011, the company recognized an impairment charge of $0, (January 31, 2010, $150,000) related to the ceiling test limitations.

Income Taxes

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Basic and Diluted Loss Per Share

Basic loss per share is computed using the weighted average number of shares outstanding defined by FASB Accounting Standards Codification Topic 260, “Earnings Per Share” during the period. Fully diluted earnings (loss) per share are computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income (loss) position at the calculated date. As of January 31, 2011, the Company did not have any outstanding stock options or warrants.

Financial Instruments

The carrying value of cash, accounts receivable, settlement receivable, accounts payable and accrued liabilities, promissory notes payable and due to related party approximates their fair value because of the short maturity of these 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 instruments.

Revenue Recognition

Revenue from the sale of the oil and gas production is recognized when title passes from the operator of the oil and gas properties to purchasers.

Reclassifications

Certain amounts in the financial statements for 2010 have been reclassified to conform with 2011 presentation.

F-8

Recent Accounting Pronouncements

The FASB established the FASB Accounting Standards Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements issued for interim and annual periods ending after September 15, 2009. The codification has changed the manner in which U.S. GAAP guidance is referenced, but did not have an impact on our consolidated financial position, results of operations or cash flows.

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.” This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Accounting Standards Codification (“ASC”) 820. ASU 2010-06 amends ASC 820 to now require: (1) a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and (2) in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, ASU 2010-06 clarifies the requirements of existing disclosures. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. The Company will comply with the additional disclosures required by this guidance upon its adoption in January 2010.

Also in January 2010, the FASB issued Accounting Standards Update No. 2010-03, “Extractive Activities—Oil and Gas—Oil and Gas Reserve Estimation and Disclosures.” This ASU amends the “Extractive Industries—Oil and Gas” Topic of the Codification to align the oil and gas reserve estimation and disclosure requirements in this Topic with the SEC’s Release No. 33-8995, “Modernization of Oil and Gas Reporting Requirements (Final Rule),” discussed below. The amendments are effective for annual reporting periods ending on or after December 31, 2009, and the adoption of these provisions on December 31, 2009 did not have a material impact on our consolidated financial statements.

SEC’s Final Rule on Oil and Gas Disclosure Requirements

On December 31, 2008, the Securities and Exchange Commission, referred to in this report as the SEC, issued Release No. 33-8995, “Modernization of Oil and Gas Reporting Requirements (Final Rule),” which revises the disclosures required by oil and gas companies. The SEC disclosure requirements for oil and gas companies have been updated to include expanded disclosure for oil and gas activities, and certain definitions have also been changed that will impact the determination of oil and gas reserve quantities. The provisions of this final rule were effective for statements filed on or after January 1, 2010, and for annual reports for fiscal years ending on or after December 31, 2009.

In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value,” related to fair value measurement of liabilities. This update provides clarification that in circumstances in which a quoted price in an active market for an identical liability is not available, a reporting entity is required to measure fair value using one or more valuation techniques. This guidance is effective for the first reporting period beginning after issuance.

In May 2009, the FASB issued guidance under ASC 855 “Subsequent Events,” which sets forth: (1) the period after the balance sheet date during which management of reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The guidance was effective on a prospective basis for interim or annual financial periods ending after June 15, 2009.

In June 2008, the FASB updated its guidance under ASC 260, “Earnings Per Share.” This guidance clarified that all unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities and provides guidance on how to allocate earnings to participating securities and compute basic earnings per share using the two-class method. This guidance was effective for fiscal years beginning after December 15, 2008. The Company adopted this guidance on January 1, 2009. The adoption did not have a material impact on the Company’s earnings per share calculations.

F-9

Note 3

Oil and Gas Properties

At January 31, 2011 and 2010 the producing and undeveloped oil and gas properties were as follows:

		2011		2010

Cost
Montana Properties	$	62,266	$	62,266
Oklahoma Properties		844,000		545,925

		906,266		608,191

Less: Accumulated depletion		179,000		162,000

	$	727,266	$	446,191

Depletion expense for the years ended January 31, 2011 and 2010, was $17,000 and $54,000, respectively.

The following are descriptions of the oil and gas activities in 2011 and 2010:

a)	On February 26, 2010, the Company sold all of its interest in the Moreland and Farley leases for $100,000.

b)	The Company sold all of their interest in the Nancy Hubbard, Walker and Crouch’s 1 and 2 wells for $20,300. This sale closed on April 22, 2010.

On September 1, 2010, the Company acquired a 25% working interest in 7 well package located in Garvin County, Oklahoma. The Company acquired this interest by first purchasing the prospect and then selling off 55% of the ownership in the working interest to third party investors, gave a 20% carried working interest to the seller, retaining the balance of the working interest.

On September 29, 2010, the Company purchased a 20.83333% working interest in the Thompson #2-18 located in Garvin County, Oklahoma. The Company paid $10,417 for this working interest. On November 17, 2010, the Company sold 13.46774% of their interest, realizing $35,516. This amount reduced oil and gas properties in the Company’s balance sheet.

Effective January 1, 2011, the Company negotiated purchase agreements in which certain owners of working interest in the Crown and Quinlan leases would sell, transfer, assign, convey and deliver all right, title and interest in said leases to the Company in exchange for shares of the Company’s Common Stock. Pursuant to the terms of the Purchase Agreement, the Company assumed $113,159 of joint interest billings plus issued 58,106,000 shares of Common Stock to the Sellers interest in the Quinlan’s 1, 2, 3 and 4 and the Crown’s 1, 2 and 3 as the purchase price for the working interests. The Company recognized an aggregate cost of $694,219 for this transaction.

As a result of this transaction, the Company’s working interest in these leases increased as indicated in the following table.

Ownership Interest
Lease Name	Before Acquisition	After Acquisition

Crown 1&2	15.00%	88.75%
Crown 3	15.00%	88.75%
Quinlan 1	12.25%	62.111328%
Quinlan 2	29.44%	99.64%
Quinlan 3	15.00%	85.00%
Quinlan 4	15.00%	83.34%

F-10

Note 4

Property and Equipment

	January 31, 2011		January 31, 2010
	Cost	Accumulated Depreciation	Net	Net

Land	$ 30,769	$ -	$ 30,769	$ 30,769
Equipment	1,000	50	950	-
Office furniture	1,930	1,218	712	890
Computer	1,420	784	360	1,060
2007 Chevy Truck	26,749	15,193	11,556	19,259

	$ 61,868	$ 17,245	$ 44,347	$ 51,978

Note 5

Notes Payable and Short-Term Financing

On April 13, 2009, the Company entered into an agreement with C.U. Your Oil Rig Corporation (CUYOR), in which CUYOR advanced the Company a total of $150,000 with a term of 18 months at 15% interest. On January 12, 2010, the Company issued 10,000,000 share of common stock for $25,000. The Company was also authorized to convert the Note (or any portion thereof), including any accrued but unpaid interest due thereunder, into shares of the Company common stock at $0.002 per share. The Corporation and CUYOR may elect to convert the Note into shares of the Company common stock in various tranches, the terms of which shall be jointly agreed upon by the Company and CUYOR (see below). At January 31, 2011, this note had a balance of $0 and accrued interest of 0 (January 31, 2010, $141,337 and accrued interest of $1,104).

The Company has also obtained financing of $140,000 at various dates from an unrelated third parties during the year. These balances are due on demand and are not interest bearing.

On January 1, 2011, the Company entered into settlement agreements with the holders of the Company’s outstanding promissory notes that provide for the Company to pay the outstanding principal amounts and accrued and unpaid interest due on the notes through the issuance of the Company’s common stock, par value $0.001 per share to the holders of the notes. The Company issued 5,494,000 shares of common stock for payment of $364,259 of unpaid principal and $25,199 of accrued and unpaid interest.

Note 6

Income Taxes

At January 31, 2011, the Company has accumulated net operating loss carry forwards totaling $3,513,964, which may be applied against future years income and expire commencing in 2025.

Significant components of the Company’s future tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:

	2011		2010

Future income tax assets
Net tax operating loss carryforward	$	1,194,748	$	999,402
Other		381		381
Oil and gas properties		175,288		220,248
Less: Valuation allowance		(1,370,417)		(1,220,031)

	$	-	$	-

The Company recorded no income tax expense for the years ended January 31, 2011 and 2010, as a result of the net loss recognized in each of these years. Further, an income tax benefit was not recognized in either of the years due to the uncertainty of the Company’s ability to recognize the benefit from the net operating losses and, therefore, has recorded a full valuation allowance against the deferred tax assets.

F-11

The benefit for income taxes is different from the amount computed by applying the U.S. statutory corporate federal income tax rate to pre-tax loss as follows:

	2011		2010

Income tax benefit computed at the statutory rate of 34%	$	182,519	$	279,840
Increase (reduction ) in tax benefit Resulting from:

Permanent items		(32,133)		(89,977)
Valuation allowance		(150,386)		(189,863)

Income tax benefit	$	-	$	-

Note 7

Stock Incentive Plan

The Board of Directors adopted the Nitro Petroleum Incorporated 2008 Stock Incentive Plan (the “Plan”) on July 10, 2008. The Plan will be administered by the Board of Directors, or a committee of the Board of Directors and all officers, employees, directors and individual consultants of the Corporation will be allowed to participate in the Plan. The Plan has a term of ten years. Accordingly, no grants may be made under the Plan after July 10, 2018, but the Plan will continue thereafter while previous grants remain subject to the Plan.

The aggregate number of shares of common stock available under the Plan is 2,500,000 shares. The Plan authorizes the Board of Directors to grant restricted stock award and stock options. The Board of Directors may not grant incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended under the Plan until such time that the Plan is approved by the Corporation’s stockholders. Until such time, the Board may only grant nonstatutory stock options (any stock option that is not an incentive stock option), and restricted stock under the Plan. All grants under the Plan will be made in the discretion of the Board of Directors.

On July 10, 2008, the Corporation granted shares of restricted stock to the following officers and directors and in the amounts and subject to the vesting schedule set forth below:

Plan Participant	Restricted Shares Granted	Vesting Schedule

Larry Wise	1,500,000	1/3 Vested on grant date
		1/3 vesting on first anniversary of grant date
		1/3 vesting on second anniversary of grant date

Sharon Farris	150,000	1/3 Vested on grant date
		1/3 vesting on first anniversary of grant date
		1/3 vesting on second anniversary of grant date

James Kirby	50,000	1/3 Vested on grant date
		1/3 vesting on first anniversary of grant date
		1/3 vesting on second anniversary of grant date

William Thomas	50,000	1/3 Vested on grant date
		1/3 vesting on first anniversary of grant date
		1/3 vesting on second anniversary of grant date

Gunther Weisbrich	50,000	1/3 Vested on grant date
		1/3 vesting on first anniversary of grant date
		1/3 vesting on second anniversary of grant date

F-12

The Company has accounted for the cost of the Plan utilizing the Black-Scholes option pricing formula, which includes a computed volatility rate of 133.72% obtained through the historical price data of the Company’s stock beginning July 11, 2006 and ending July 10, 2008, the date this Plan was adopted. A risk-free rate of return of 2.57% was also used in the compensation expense as provided by the U.S. Treasury constant maturities. Other factors in computing the Plan’s valuation include a per option price of $0.18 per share, as this was the closing price of the Company’s stock on the date this Plan was adopted. Also, a 0% forfeiture rate has been assumed for all periods up to June 30, 2011, the final month of vesting. On June 11, 2009, the Board of Directors of the Company approved the accelerated vesting of all unvested restricted stock awards which were previously granted to the Company’s directors and officers pursuant to the Company’s plan. As a result of the accelerated vesting the remaining 1,200,000 shares became issuable. The expenses related to these awards were $0 and $216,000 for the years ended January 31, 2011 and 2010, respectively.

On August 25, 2009 the Company filed with the Securities and Exchange Commission Form S-8 changing the amount of shares available for the Plan to 10,000,000 shares.

On August 28, 2009, the Company issued 2,000,000 shares of common stock to James Mitchell and 2,000,000 shares of common stock to Lorne Torhjelm in exchange for consulting services from each for a six month term. The company recognized expense related to these issuances of $80,000 for the year ended January 31, 2010.

On January 21, 2010, the Company issued 6,000,000 shares of common stock to Richard Smith in exchange for consulting services. Mr. Smith will assist the Company in evaluating requirements for growth and expansion of the Company’s operations and assist in identifying potential business opportunities. The expense related to this issuance was $0 for the year ended January 31, 2011 and $60,000 for the year ended January 31, 2010.

The Board of Directors adopted the Nitro Petroleum Incorporated 2010 Stock Incentive Plan (the “Plan”) on July 30, 2010. The Plan will be administered by the Board of Directors, or a committee of the Board of Directors and all officers, employees, directors and individual consultants of the Corporation will be allowed to participate in the Plan. The Plan has a term of ten years. Accordingly, no grants may be made under the Plan after July 30, 2020, but the Plan will continue thereafter while previous grants remain subject to the Plan.

The aggregate number of shares of common stock available under the Plan is 17,500,000 shares. The Plan authorizes the Board of Directors to grant restricted stock award and stock options. The Board of Directors may not grant incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended under the Plan until such time that the Plan is approved by the Corporation’s stockholders. Until such time, the Board may only grant nonstatutory stock options (any stock option that is not an incentive stock option), and restricted stock under the Plan. All grants under the Plan will be made in the discretion of the Board of Directors.

On July 30, 2010, the Company issued 8,750,000 shares to management for consulting services and 25,000 shares to one director of the Company. The expense related to this issuance was $52,650 for the year ended January 31, 2011.

On January 1, 2011, the Company issued 3,800,000 shares of common stock for services rendered by a third party in assisting with the conversion of debt to equity shares and the exchange of stock for various working interest in wells operated by the Company. The expense related to this issuance was $38,000 for the year ended January 31, 2011.

Note 8

Related Party Transactions

During the year ended January 31, 2011 and 2010, the Company incurred management fees charged by a director of the Company totaling $80,000 and $59,500, respectively. Management fees paid to a Company under the control of the President of the Company for the year ended January 31, 2011 and 2010 amounted to $131,000 and $0, respectively.

Included in due to related party are amounts due to a Director of the Company as of January 31, 2011 in the amount of $5,000 ($16,000, January 31, 2010) and to Precision Petroleum Corporation, a related party in the amount of $11,424 as of January 31, 2011, ($11,180, 2010).

Note 9

Subsequent Events

On April 8, 2011, the Company signed a purchase agreement with CAVU Resources, Inc. (Buyer) in which the Company agreed to sell the oil and gas leases the Company has acquired in Montana, known as the Big Horn Lease Package. This agreement calls for a sales price of $300,000, in which $295,000 shall be in cash at closing and $5,000 shall be in stock of the Buyer as an earnest deposit. The closing of this sale is scheduled to take place in August 2011.

F-13

Note 10

Supplemental Oil and Gas Information (Unaudited)

	Full Cost
	2011		2010

Capitalized Costs Relating to Oil and Gas Producing Activities at January 31, 2010 and 2009
Unproved oil and gas properties	$	-	$	-
Proved oil and gas properties		906,266		608,191
Support equipment and facilities		-		-
		906,266		608,191

Less accumulated depreciation, depletion, amortization, and impairment		(179,000)		(162,000)
Net capitalized costs	$	727,266	$	446,191

Costs Incurred in Oil and Gas Producing Activities for the Year Ended January 31, 2011 and 2010
Property acquisition costs
Proved	$	418,375	$	-
Unproved	$	-	$	-
Exploration costs	$	-	$	-
Development costs	$	-	$	44,060
Amortization rate per equivalent barrel of production	$	10	$	23

Results of Operations for Oil and Gas Producing Activities for the Year Ended January 31, 2011
Oil and gas sales	$	144,112	$	120,035
Production costs		111,954		158,919
Impairment loss		-		150,000
Depreciation, depletion, and amortization		17,000		54,000
		15,158		(242,884)
Income tax expense		-		-
Results of operations for oil and gas producing activities (excluding corporate overhead and financing costs)	$	15,158	$	(242,884)

Reserve Information

The following estimates of proved and proved developed reserve quantities and related standardized measure of discounted net cash flow are estimates only, and do not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. All of the Company’s reserves are located in the United States.

Proved reserves are estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.

F-14

The following is a summary of a standardized measure of discounted net cash flows related to the Company’s proved oil and natural gas reserves. For these calculations, estimated future cash flows from estimated future production of proved reserves for the years ended January 31, 2011 and 2010 were computed using benchmark prices based on the unweighted arithmetic average of the first-day-of-the-month prices for oil and natural gas during each month of such fiscal years, as required by SEC Release No. 33-8995, “Modernization of Oil and Gas Reporting,” effective December 31, 2009. Future expenditures to be incurred in developing and producing the proved reserves were estimated assuming that existing conditions would continue over the economic lives of the individual leases and costs were not escalated for the future. Estimated future income tax expenses were calculated by applying future statutory tax rates (based on the current tax law adjusted for permanent differences and tax credits) to the estimated future pretax net cash flows related to proved oil and natural gas reserves, less the tax basis of the properties involved. The estimated future net cash flows are then discounted using a rate of 10 percent a year to reflect the estimated timing of the future cash flows.

	2011			2010
	Oil (Bbls)		Gas (Mcf)	Oil (Bbls)		Gas (Mcf)

Proved developed and undeveloped reserves
Beginning of year	16,250		28,959	83,088		71,156
Revisions of previous estimates	3,173		2,907	(64,867)		(39,865)
Improved recovery
Purchases of minerals in place	61,573		59,595	-		-
Extensions and discoveries	-		-	-		-
Production	(1,230)		(2.363)	(1,971)		(2,332)
Sales of minerals in place
End of year	79,766		89,098	16,250		28,959
Proved developed reserves
Beginning of year	10,213		13,968	31,069		41,638
End of year	50,238		48,019	10,213		13,968
Standardized Measure of Discounted Future Net Cash Flows at January 31, 2011 and 2010
Future cash flows		$	6,665,166		$	1,153,515
Future production costs			2,469,649			313,076
Future development costs			202,375			46,750
Future income tax expenses			-			-

Future net cash flows			3,993,142			793,689
10% annual discount for estimated timing of cash flows			(1,140,158)			(255,768)
Standardized measures of discounted future net cash flows relating to proved oil and gas reserves		$	2,852,984		$	537,921
The following reconciles the change in the standardized measure of discounted Future net cash flow during 2011 and 2010
Beginning of year		$	537,921		$	1,015,346
Sales of oil and gas produced, net of production costs			(32,158)			38,884
Net changes in prices and production costs			158,372			939,404
Extensions, discoveries, and improved recovery, less related costs			-			-
Development costs incurred during the year which were previously estimated			-			44,066
Net change in estimated future development costs			(155,625)			319,184
Revisions of previous quantity estimates			200,199			(2,810,205)
Net change from purchases and sales of minerals in place			3,028,665			-
Change of discount			(884,390)			222,042
Net change in income taxes			-			769,200
Other			-			-
End of year		$	2,852,984		$	537,921

F-15

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