Massive Interactive, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Massive Interactive, Inc.	exhibit_32-2.htm
EX-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. - Massive Interactive, Inc.	exhibit_31-1.htm
EX-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. - Massive Interactive, Inc.	exhibit_31-2.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Massive Interactive, Inc.	exhibit_32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarter ended September 30, 2012

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission file number 0-53892

Xtreme Oil & Gas, Inc.

(Name of small business issuer in its charter)

Nevada		20-8295316
(State or other jurisdiction of incorporation or organization)		(I.R.S Employer Identification No.)

5700 W. Plano Parkway, Suite 3600	75093
(Address of principal executive offices)	(Zip Code)

(214) 432-8002
(Registrant’s telephone number, including area code)

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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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 x No 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.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x

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

State the number of shares outstanding of each of the issuer's classes of common equity as of November 14, 2012: 45,680,814.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

XTREME OIL & GAS , INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of September 30, 2012 and December 31, 2011

	2012			2011
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	1,347		$	484,970
Cash - restricted		75,313			75,322
Accounts receivable - trade, net		38,550			192,296
Work in process		-			505,038
Prepaid expenses		325,000			-
Deferred financing costs		-			164,831
Inventory		-			62,028
Total Current Assets		440,210			1,484,485

PROPERTY AND EQUIPMENT:
Furniture and fixtures		53,044			53,044
Oil and natural gas properties (successful efforts method)		8,522,935			7,547,166
		8,575,979			7,600,210
Less-Accumulated depreciation, depletion and amortization		110,946			103,499
Net property and equipment		8,465,033			7,496,711

OTHER ASSETS
Deposits		7,887			7,537
Total Other Assets		7,887			7,537
TOTAL ASSETS	$	8,913,130		$	8,988,733

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,580,583		$	1,789,482
Deposits payable		335,000			1,514,244
Advances, related parties		115,000			-
Accounts payable – related parties		1,126,320			-
Short-term notes payable – related parties		250,000			-
Convertible notes payable, net of debt discount		902,267			261,799
Derivative liability		541,573			2,737,824
Total Current Liabilities		4,850,743			6,303,349

LONG-TERM LIABILITIES
Asset retirement obligation		300,000			300,000
Total-long term liabilities		300,000			300,000
TOTAL LIABILITIES		5,150,743			6,603,349
Commitments and contingencies

STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 49,999,000 shares authorized; none issued and outstanding		-			-
Non-transferable preferred stock, $.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; 45,516,777 and 45,364,390 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		45,516			45,364
Additional paid-in capital		36,131,913			36,063,970
Accumulated deficit		(32,415,043	)		(33,723,951	)
Total Stockholders' Equity		3,762,387			2,385,384
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	8,913,130		$	8,988,733

See accompanying notes to consolidated financial statements.

XTREME OIL & GAS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three months			Three months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Revenues:
Income from sales of working interest, net	$	238,454		$	115,000		$	1,270,934		$	2,336,078
Oil and gas sales		9,489			7,766			56,324			57,911
TOTAL REVENUES		247,943			122,766			1,327,258			2,393,989

EXPENSES:
Production costs		66,942			50,389			102,828			144,221
Workover costs		6,338			-			28,874			-
Depreciation, depletion and amortization expense		101,353			3,282			172,278			10,280
General and administrative expenses		465,819			590,237			1,212,927			1,518,399
Loss on disposal of properties		204,649			21,603			233,266			37,461
TOTAL OPERATING EXPENSES		845,101			665,511			1,750,173			1,710,361
INCOME (LOSS) FROM OPERATIONS		(597,158	)		(542,745	)		(422,915	)		683,628

OTHER INCOME/(EXPENSE)
Gain on settlement		3,201			16,223			930,972			16,223
Amortization of debt discount		(640,478	)		(234,059	)		(1,179,364	)		(270,228	)
Interest expense, net		(81,090	)		(80,580	)		(216,036	)		(89,652	)
Derivative income (loss)		851,549			(3,388,778	)		2,276,758			(3,420,865	)
Gain (loss) on extinguishment of debt		-			147,066			(80,507	)		147,066
Total other income (expense)		133,182			(3,540,128	)		1,731,823			(3,617,456	)
NET INCOME (LOSS)	$	(463,976	)	$	(4,082,873	)	$	1,308,908		$	(2,933,828	)

EARNINGS (LOSS) PER COMMON SHARE-BASIC	$	(0.01	)	$	(0.09	)	$	0.03		$	(0.07	)
EARNINGS (LOSS) PER COMMON SHARE-DILUTED	$	(0.01	)	$	(0.09	)	$	0.03		$	(0.07	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC		45,403,966			45,700,493			45,390,507			45,120,687
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – DILUTED		45,403,966			45,700,493			45,390,507			45,120,687

See accompanying notes to consolidated financial statements.

XTREME OIL & GAS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2012 and 2011
(Unaudited)
	2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,308,908	$	(2,933,828)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization		172,278		10,280
Bad debt expense		182,018		-
Loss on debt extinguishment		80,507		(147,066)
Common stock issued for services		63,095		234,568
Gain on settlement		(930,972)		(16,223)
Income from sales of working interest		(1,270,934)		(2,336,079)
Loss on disposal of properties		233,266		37,461
Amortization of debt discount		1,179,364		270,228
Derivative (income) loss		(2,276,758)		3,420,865
Changes in operating assets and liabilities:
Accounts receivable - trade		(28,272)		26,588
Development work in process		-		(210,471)
Prepaid expenses		(325,000)		-
Inventory		-		(61,009)
Other assets		(350)		(1,000)
Accounts payable and accrued expenses		727,082		120,464
Accounts payable – related parties		151,200		-
Deposits payable		1,520,475		70,000
Net cash provided by (used in) operating activities		785,907		(1,515,222)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		150,000		220,000
Capital expenditures		(1,245,634)		(818,556)
Net cash used in investing activities		(1,095,634)		(598,556)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on convertible notes payable		(538,896)		(160,000)
Proceeds from convertible notes payable		-		2,520,000
Proceeds from notes payable		-		50,000
Proceeds from advances – related parties		115,000		-
Proceeds from notes payable – related parties		250,000		-
Proceeds from sale of common stock		-		305,000
Proceeds from sale of treasury stock		-		120,000
Net cash provided by (used in) financing activities		(173,896)		2,835,000

Net change in cash		(483,623)		721,222
CASH AT BEGINNING PERIOD		484,970		657,475
CASH AT END OF PERIOD	$	1,347	$	1,378,697
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest expense	$	138,946	$	-
Deposits applied to sale of assets	$	2,849,719	$	2,985,481
Development work in process reclassified to oil and gas properties	$	505,038	$	303,129
Accounts payable – related party issued for oil and gas properties	$	75,600	$	-
Accounts payable – related party issued for oil and gas properties applied to sale of assets	$	1,050,720	$	-
Inventory reclassified to oil and gas properties	$	62,028	$	-
Common stock issued for leasehold interests and equipment	$	-	$	15,000
Common stock issued for accrued interest	$	5,000	$	-

See accompanying notes to consolidated financial statements.

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Regulation S-K. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2011 included in the Company’s Form 10-K. The interim unaudited consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

Accounting Estimates

The preparation of the accompanying unaudited consolidated financial statements requires the use of estimates that affect the reported amounts of assets, liabilities, revenues, expenses and contingencies. These estimates include, but are not limited to, estimates related to revenue recognition, allowance for doubtful accounts, inventory valuation, tangible and intangible long-term asset valuation, obligations and commitments. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current estimates.

Reclassifications

Certain amounts in the prior period consolidated financial statements may have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

Management does not expect the impact of any other recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.

2. HISTORY AND NATURE OF BUSINESS

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.

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

2. HISTORY AND NATURE OF BUSINESS - CONTINUED

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.

Oil and Natural Gas Properties

The Company has the following oil and natural gas properties:

Oil and gas property:	December 31, 2011		Additions		Dispositions		September 30, 2012
West Thrifty / Quita Field	$	4,984,040	$	141,921	$	25,546	$	5,100,415
Texas 5 Star		528,089		-		-		528,089
Smoky Hill		577,951		713,049		60,179		1,230,821
Hancock/Robinson		62,323		-		-		62,323
Lionheart		1,198,326		76,800		-		1,275,126
Gotcheye SWD		-		1,021,418		695,257		326,161
Flint Creek / Oil Creek		196,437		-		196,437		-
Total	$	7,547,166	$	1,953,188	$	977,419	$	8,522,935

Saltwater Disposal Property

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.

The Flint Creek/Oil Creek property was written off at September 30, 2012 as unrecoverable.

3. RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2012, a director advanced $115,000 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. See Note 7 for more details. These amounts are included in accounts payable – related parties on the consolidated balance sheet as of September 30, 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. See Note 7 for more details. These amounts are included in accounts payable – related parties on the consolidated balance sheet as of September 30, 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). See Note 7 for more details. These amounts are included in accounts payable – related parties on the consolidated balance sheet as of September 30, 2012.

On June 11, 2012 a director loaned $50,000 to the Company. The loan is non-interest bearing and due on September 30, 2012. 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.

On June 11, 2012 an officer loaned $200,000 to the Company. The loan is non-interest bearing and due on September 30, 2012. 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.

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

4. 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 and November 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.

5. 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.

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 reset and conversion features. The conversion price will be reduced in the event the Company issues or sells any shares of common stock less than the conversion price. 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.

In regards to the September 12, 2011 notes, the Company recognized a derivative liability of $1,484,806 on December 31, 2011 and a change in fair value of $(688,947) for the nine months ended September 30, 2012, and redemptions of $538,896 for the nine months ended September 30, 2012 resulting in a derivative liability of $256,963 at September 30, 2012.

In regards to the September 12, 2011 warrants, the Company recognized a derivative liability of $1,253,018 on December 31, 2011 and a change in fair value of $(968,408) for the nine months ended September 30, 2012, resulting in a derivative liability of $284,610 at September 30, 2012.

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

	Nine months ended September 30, 2012
Derivative liability	December 31, 2011		Fair Value Adjustments			Redemptions			September 30, 2012
Notes	$	1,484,806	$	(688,947	)	$	(538,896	)	$	256,963
Warrants		1,253,018		(968,408	)		-			284,610
	$	2,737,824	$	(1,657,355	)	$	(538,896	)	$	541,573

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

6. STOCKHOLDERS’ EQUITY

Capital Structure

The Company is authorized to issue up to 200,000,000 shares of common stock, $0.001 par value per share. The holders of the common stock do not have any preemptive right to subscribe for, or purchase, any shares of any class of stock.

The Company is authorized to issue up to 49,999,000 shares of preferred stock, $0.001 par value per share of which none were issued and outstanding as of September 30, 2012.

The Company has one class of Preferred Stock and Nontransferable Preferred Stock. The Nontransferable Preferred Stock, consisting of 1,000 shares, is all owned by Mr. McAndrew, the Company’s chief executive officer.

Common Stock

In the nine months ended September 30, 2012, we issued 75,464 restricted shares of our common stock to consultants valued at $63,095.

During the nine months ended September 30, 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 September 30, 2012.

In the nine months ended September 30, 2012, we issued 76,923 shares of our common stock to a convertible note holder as conversion of $5,000 of accrued interest.

7. CONTINGENCIES

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. A remaining accounts receivable balance of $173,842 was written off at September 30, 2012. The Flint Creek/Oil Creek property was written off at September 30, 2012 as unrecoverable.

On March 30, 2010, each of Baker Hughes, Pan American Drilling, Native American Drilling and other service providers began legal proceedings against us in Logan County District Court in Oklahoma demanding judgment for past due invoices in excess of $75,000. We have settled with all service providers in this suit except for Baker Hughes whose bills we continue to dispute.

On June 8, 2012, the Company agreed to acquire a 9.255321%, before payout, working interest in the Saltwater Disposal well (Gotcheye SWD) from the KD Family, LLC for $464,000 and a 6.382980%, before payout, working interest in the Lionheart well for $36,000 from the NCAL, LLC. The KD Family, LLC and the NCAL, LLC are both owned by Mr. Nicholas DeVito, the Company’s chief operation officer. The saltwater disposal working interest was resold in June 2012 by the Company for $535,480.

On June 8, 2012, the Company agreed to acquire a 9.255321%, before payout, working interest in the Saltwater Disposal well (Gotcheye SWD) from the WMDM Family Partnership for $464,000 and a 6.382980%, before payout, working interest in the Lionheart well for $36,000 from the WMDM Family Limited Partnership. The WMDM Family Limited Partnership is owned by wife of Mr. McAndrew’s, the Company’s chief executive officer. The saltwater disposal working interest was resold in June 2012 by the Company for $535,480.

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

7. CONTINGENCIES – Continued

On June 8, 2012, the Company agreed to acquire a 1.595745%, before payout, working interest in the Saltwater Disposal well (Gotcheye SWD) from Ms. Phyllis Wingate for $80,000 and a 0.638298% working interest in the Lionheart well for $3,600 from Ms. Phyllis Wingate, our Corporate Secretary. The saltwater disposal working interest was resold in June 2012 by the Company for $92,300.

8. EARNINGS PER SHARE

For the three and nine months ended September 30, 2012, dilutive securities existed. Diluted earnings per share reflect the potential dilution of security that could share in the earnings of an entity, such as convertible preferred stock, stock options, warrants or convertible securities.

The calculation of diluted earnings per share for the three and nine months ended September 30, 2012 does not include 6,810,269 shares of common stock assuming the warrants issued with the convertible notes payable, as discussed above, were exercised due to their anti-dilutive effect.

The calculation of diluted earnings per share for the three and nine months ended September 30, 2012 does not include 6,130,375 shares of common stock assuming the convertible notes payable, as discussed above, were converted due to their anti-dilutive effect.

9. INCOME TAXES

At September 30, 2012, the Company had an unused net operating loss carryover of approximately $6,299,000 that is available to offset future taxable income which expires beginning in 2028 and ending in 2031.

The ability of the Company to utilize NOL carryforwards to reduce future federal taxable income and federal income tax is subject to various limitations under the Internal Revenue Code of 1986, as amended. The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes, including the issuance or exercise of rights to acquire stock, the purchase or sale of stock by 5% stockholders, as defined in the Treasury regulations, and the offering of stock during any three-year period resulting in an aggregate change of more than 50% in the beneficial ownership of the Company.

In the event of an ownership change (as defined for income tax purposes), Section 382 of the Code imposes an annual limitation on the amount of a corporation's taxable income that can be offset by these carryforwards. The limitation is generally equal to the product of (i) the fair market value of the equity of the company multiplied by (ii) a percentage approximately equivalent to the yield on long-term tax exempt bonds during the month in which an ownership change occurs. In addition, the limitation is increased if there are recognized built-in gains during any post-change year, but only to the extent of any net unrealized built-in gains (as defined in the Code) inherent in the assets sold. Certain NOLs acquired through various acquisitions are also subject to limitations.

There are no significant differences between the Company’s operating results for financial reporting purposes and for income tax purposes.

10. SUBSEQUENT EVENTS

The Company failed to make its October 12, 2012 and November 12, 2012 payments on the convertible debt instrument on time. 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 October 2012, we issued 164,037 shares of our common stock to certain convertible note holders as conversion of $26,039 of accrued interest and principal.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Part I. Items 2 and 3 hereof, as well as within this Report generally. All statements, other than statements of historical facts, concerning, among other things, planned capital expenditures, potential increases in oil and natural gas production, the number and location of wells to be drilled in the future, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. One should consider carefully the statements under the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC (the “Form-10K”), which describe factors that could cause our actual results to differ from those anticipated in the forward-looking statements, including, but not limited to, the following factors:

our ability to successfully develop our undeveloped acreage primarily held in Texas;

volatility in commodity prices for oil and natural gas;

the possibility that the industry may be subject to future regulatory or legislative actions (including any additional taxes and changes in environmental regulation);

the presence or recoverability of estimated oil and natural gas reserves and the actual future production rates and associated costs;

the potential for production decline rates for our wells to be greater than we expect;

our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fully develop our undeveloped acreage positions;

our ability to replace oil and natural gas reserves;

environmental risks;

drilling and operating risks;

exploration and development risks;

competition, including competition for acreage in resource-style areas;

management’s ability to execute our plans to meet our goals;

our ability to retain key members of senior management and key technical employees;

our ability to obtain goods and services, such as drilling rigs and tubulars, and access to adequate gathering systems and pipeline take-away capacity, necessary to execute our drilling program;

our ability to secure firm transportation for natural gas we produce and to sell natural gas at market prices;

general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business, may be less favorable than expected, including the possibility that the economic recession and credit crisis in the United States will be prolonged, which could adversely affect demand for oil and natural gas and make it difficult to access financial markets;

continued hostilities in the Middle East and other sustained military campaigns or acts of terrorism or sabotage; and

other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our business, operations or pricing.

Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in the section entitled “Risk Factors” included in the Form 10-Q. All forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this document. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued

Overview

Xtreme Oil & Gas, Inc. is a growing independent energy company focused on the acquisition, development, ownership, operation and investment in energy-related businesses and assets, including, without limitation, the acquisition, exploration and development of natural gas and crude oil, and other related businesses which management believes have potential for improved production rates and resulting income by application of both conventional and non-conventional improvement and enhancement techniques. As of September 30, 2012 we own working interests in over 10,000 acres of oil and gas leases in Kansas, Texas and Oklahoma that now include 10 gross producing wells and 55 gross non-producing wells. Xtreme plans to pursue an ongoing reworking and drilling program to increase production from its properties.

During the second quarter 2012, the Saltwater Disposal well project was placed into full time operations. 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.

Our revenues are derived from the sale of oil and gas products and sale of interests, principally in drilling programs. In 2008 we derived a small amount of revenue from contract drilling on one project, the Oil Creek, but have no plans to engage in contract drilling in the future.

When we sell working interests in our leases, we maintain a deposits payable liability and recognize revenue as the development related to the working interest is completed. After completion, costs incurred to maintain wells and related equipment and lease and well operating costs are charged to expense as incurred.

We have been an operating company since 2006 with the acquisition of Emerald Energy and have had revenues from operations for more than four years.

Results of Operations.

For the Nine Months Ended September 30, 2012 compared to 2011

Revenues

For the nine months ended September 30, 2012, revenue was $1,327,258 a decrease of approximately $1,067,000 from $2,393,989 for the nine months ended September 30, 2011. Decrease in revenue was due primarily to the difference in the gain from sale of working interest for the nine months ended September 30, 2012. Oil and gas revenues are principally from the Texas Five Star project. Oil and gas revenues were essentially flat due to several equipment failures that required repair.

Expenses

Oil production costs for the nine months ended September 30, 2012 totaled $102,828, a decrease of approximately $41,000 from $144,221 for the nine months ended September 30, 2011. The decrease is due to reduced production costs on all of our properties. Production costs exceeded oil and gas revenues in 2012 and 2011 because of higher costs of maintenance and continued additional operations to increase future production on certain wells in Texas. Oil and gas production costs are principally from the Texas Five Star project.

General and administrative expenses totaled $1,212,927 for the nine months ended September 30, 2012, a decrease of approximately $305,000, from $1,518,399 for the nine months ended September 30, 2011. These general and administrative expense differences are largely driven by costs of professional services.

Loss on disposal of properties totaled $233,266 for the nine months ended September 30, 2012, an increase of approximately $195,805, from $37,461 for the nine months ended September 30, 2011 due to the write off of the Oil Creek property.

Other Income/(Expenses)

Gain on Settlement relates to the net cost recovery after expenses for litigation and repairs incurred by the Company from the damages to the Lionheart well totaled $930,972 for the nine months ended September 30, 2012, an increase of $914,749 from the nine months ended September 30, 2011. We expect to use the remaining proceeds of these settlements to redevelop the property and attempt to produce oil from other depths in an undamaged part of the wellbore.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued

Other income and expense are largely driven by our debt offering in September 2011. Amortization of debt discount and interest expense totaled $1,395,400 for the nine months ended September 30, 2012. Derivative income related to the convertible debt and warrants issued in the offering was $2,276,758 for the period ended September 30, 2012. This income, a non-cash charge, is particularly volatile as we incurred, for example, derivative expense of $3,420,865 in the period ended September 30, 2011 related to another debt offering during that period.

Net Income

For the nine months ended September 30, 2012, we had a net income of $1,308,908 compared with a net loss of $2,933,828 for nine months ended September 30, 2011. This increase in net income was due primarily to gain on settlement of litigation and non-cash derivative income related of convertible debt instruments during the period ended September 30, 2012.

For the nine months ended September 30, 2012 and 2011, our earnings per share, on a basic and diluted basis, was and $0.03 and $(0.07), respectively.

For the Three Months Ended September 30, 2012 compared to 2011

Revenues

For the three months ended September 30, 2012, revenue was $247,943, an increase of approximately $125,000 from $122,766 for the three months ended September 30, 2011. The increase was principally due to an increase in the gain from working interest sales. Revenue for oil sales for the three months ended September 30, 2012 was $9,489.

Currently, most of our revenues have come from the gains on sales of working interest in our oil and gas properties, such sales reflecting approximately 96% of our revenues in the third quarter of 2012 and approximately 94% of our revenues in the third quarter of 2011.

Expenses

Oil production costs for the three months ended September 30, 2012 totaled $66,942, an increase of approximately $16,000 from $50,389 for the three months ended September 30, 2011. The increase is due to maintenance activities on all of our properties.

General and administrative expenses totaled $465,819, for the three months ended September 30, 2012, a decrease of approximately $124,000, from $590,237 for the three months ended September 30, 2011. This decrease in general and administrative expense is largely driven by decrease in expenses for professional services delivered. These expenses, incurred in 2012, included salaries, utilities and rent, consulting fees, and presentation fees.

Loss on disposal of properties totaled $204,649 for the three months ended September 30, 2012, an increase of approximately $183,406, from $21,603 for the three months ended September 30, 2011 due to the write off of the Oil Creek property.

Other Income/(Expenses)

Other income and expense are largely driven by our debt offering in September 2011. Amortization of debt discount and interest expense totaled $721,568 for the three months ended September 30, 2012. Derivative income related to the convertible debt and warrants issued in the offering was $851,549 for the quarter. This income, a non-cash charge, is particularly volatile as we incurred, for example, derivative expense of $3,388,778 in the three months ended September 30, 2011 related to another debt offering during that period.

Net Income

For the three months ended September 30, 2012, we had a net loss of $463,976 compared to a loss of $4,082,873 for the three months ended September 30, 2011. This change in net loss was primarily due to accounting charges taken for derivative instruments during the period ended September 30, 2012. Our losses from operations increased in the third quarter of 2012 to a loss of $597,158 from a loss of $542,745 in the third quarter of 2011. The increased operating loss essentially reflects the increase in loss on disposal of properties, depreciation, depletion and amortization expenses, and production costs, partially offset by the increase in working interest revenue and lower general and administrative expenses.

For the three months ended September 30, 2012 and 2011, our loss per share on a basic and diluted basis was $0.01 and $0.09, respectively.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued

Liquidity and Capital Resources

Our first audited financial statements were for fiscal years 2008 and 2009 and had a going concern qualification. The audit for fiscal 2010 and 2011 had the same qualification.

Our plan has been for our field operations to provide sufficient liquidity for daily operating capital and further development. We have also sold working interests in our properties and incurred debt to also provide capital to acquire properties and develop them when the cash flow from those operations would sustain our operations and provide for growth. Though each of our properties indicate significant reserves or potential, currently all of our properties need additional capital to develop, and we have failed to make payments on indebtedness incurred in September 2011, indebtedness in which we are in default.

In need of capital to develop properties and expand, in June 2012 we pursued several funding opportunities based on the belief that the assets owned, if developed, would satisfy our current operating and development needs and provide for our growth. With a $325,000 deposit advanced by affiliates of the company, we obtained a commitment for a $20,000,000 debt instrument with a close indicated in the early summer 2012 from the RO Financial Group. Two other discussions we chose not to pursue would have resulted in significant dilution or debt and warrants that would not be beneficial.

Although we have been assured both verbally and in writing that the funding by the RO Financial Group engaged in June of this year remains imminent, we began to pursue various alternatives to that financing. Our plan is to bring to fruition one or more of these plans as soon as possible to continue to develop our existing properties, and expand our business, probably in the development of the salt water disposal business.

Financing Plans

On June 8 2012, three of our executives and one Director sold back working interest in the Saltwater Disposal Well to the Company for $1,050,720 and the Company subsequently resold that interest for $1,212,475. See Note 7 to the consolidated financial statements for further detail.

As discussed above, in June 2012, we signed an agreement with the RO Financial Group that will give us access to a $20,000,000 line of credit facility. One director and an officer advanced the company $250,000 of the $325,000 placement fee required to commence the loan process. See Note 3 to the consolidated financial statements. This financing has not yet closed as of the date of this filing.

Cash flow provided by operations was $785,907 for the nine months ending September 30, 2012. Cash flow used in investing activities was $1,095,634 for the nine months ended September 30, 2012. Cash flow used by financing activities was $173,896 for the nine months ended September 30, 2012.

Deposits payable at September 30, 2012 include $335,000 for the Smoky Hill Two well Project in process at September 30, 2012.

The Saltwater Disposal project, completed in the second quarter of 2012, was accepting water from customers for the entire quarter and is now shut in awaiting a larger pump to be installed. Gross charges to customers for the third quarter were approximately $16,500.

Development is continuing on the first well on the Smoky Hill Project. During second quarter of 2012 frac fluid continued to be pumped off and the well encountered operational problems when a casing pipe developed a leak and contaminated the hole. The wellbore has been cleaned but residual problems continue, problems that we anticipate will abate as we gain production during the fourth quarter.

Convertible notes payable are presented net of debt discount. Principal balance at September 30, 2012 was $1,787,305. Unamortized debt discount at September 30, 2012 was $885,038. The Company delayed scheduled payments on the convertible notes for the months of June, July, August, September, October, and November 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.

As of September 30, 2012, we are unable to determine whether we will generate sufficient cash from our oil and gas operations to fund our operations for the next twelve months. Although we expect cash flow from operations to rise as our operations improve and the number of projects we successfully develop grows, we believe that we will raise, probably through the private placement of equity securities, additional capital to assure we have the necessary liquidity for 2012.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. – continued

Our cash requirements, mostly for corporate expenses, are projected to be approximately $80,000 per month or $960,000 for the next 12 months, and our drilling activity has been funded from drilling programs. Revenue from existing oil production is not yet consistent on a monthly basis, and we cannot predict whether our cash flows from the future completion of our current drilling operations and Saltwater Disposal Well will be sufficient to meet our monthly cash requirements.

To continue with our business plan including the funding of operations, we may require additional capital to develop properties and believe that we will continue to raise capital and generate revenue by selling interest in prospects to investors through drilling programs and through future offerings of equities.

If required, our ability to obtain additional financing from other sources also depends on many factors beyond our control, including the state of the capital markets and the prospects for business growth. The necessary additional financing may not be available or may be available only on terms that would result in excessive further dilution to the current owners of our common stock or at unreasonable costs of capital.

ITEM 4. Controls and Procedures

As of the end of the quarter ended September 30, 2012, our Chief Executive Officer, Willard G. McAndrew, and Chief Financial Officer, Roger Wurtele, with the participation of our Chief Operating Officer, reviewed our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon our evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be included in this report is (i) accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls or other factors during the fiscal quarter ended September 30, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 30, 2010, each of Baker Hughes, Pan American Drilling, Native American Drilling and other service providers began legal proceeding against us in Logan County District Court in Oklahoma demanding judgment for past due invoices in excess of $75,000. We have settled with all service providers 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. We settled all claims between all parties in confidential settlements dated March 5, 2012 which included debt forgiveness income from cancellation of vendor balances.

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES

We sold and issued the unregistered securities described below. We believe that each of the securities transactions described below was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) as a transaction not involving any public offering and Regulation D promulgated under the Securities Act of 1933. In each case, the number of investors was limited, the investors were either all accredited and/or otherwise qualified, had access to material information about the issuer, and restrictions were placed on the resale of the securities sold.

Shares issued for Cash

In the nine months ended September 30, 2012, we did not sell any shares to investors.

Shares issued for Services

In the nine months ended September 30, 2012, we issued 75,464 restricted shares of our common stock to consultants valued at $63,095.

During the period ended September 30, 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 September 30, 2012.

In the nine months ended September 30, 2012, we issued 76,923 shares of our common stock to a convertible note holder as conversion of $5,000 of accrued interest.

We believe that each of the securities transactions described below was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) as a transaction not involving any public offering and Regulation D promulgated under the Securities Act of 1933. In each case, the number of investors was limited, the investors were either all accredited and/or otherwise qualified, had access to material information about the issuer, and restrictions were placed on the resale of the securities sold.

Securities issued for Working Interests

In the nine months ended September 30, 2012, we issued working interests in the Saltwater Disposal Project valued at $2,585,719.

ITEM 6. EXHIBITS

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.

SIGNATURES

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

	Xtreme Oil & Gas, Inc.:

Date: November 14, 2012	By:	/s/ Willard G. McAndrew III
		Name: Willard G. McAndrew III
		Title: Chief Executive Officer


Date: November 14, 2012	By:	/s/ Roger Wurtele
		Name: Roger Wurtele
		Title: CFO, Principal Accounting Officer

In accordance with the Securities and Exchange Act, this Form 10K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	Xtreme Oil & Gas, Inc.:

Date: November 14, 2012	By:	/s/ Willard G. McAndrew III
		Name: Willard G. McAndrew III
		Title: Director

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