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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 quarterly period ended February 28, 2014


OR


[  ]

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


For the transition period from                      to                     

 

[f10q20140228002.gif]

XUN ENERGY, INC.

(Exact name of registrant as specified in its charter)


Nevada


000-53466


90-0669916

State or Other Jurisdiction of Incorporation)


(Commission File Number)


(I.R.S. Employer Identification No.)


12759 NE Whitaker Way, #C453, Portland, Oregon, 97230

(Address of Principal Executive Offices) (Zip Code)


(775)-200-0505

(Issuers telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)


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

 

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

 

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

Large accelerated filer [   ]       Accelerated filer [   ]       Non-accelerated filer [   ]       Smaller reporting company [X]

 

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

 

Indicate the number of shares outstanding of each of the issuers classes of Common Stock as of the latest practicable date: 3,457,718,684 shares of common stock are issued and outstanding as of April 14, 2014.


1


XUN ENERGY, INC.


INDEX


 

 

PART I. FINANCIAL INFORMATION

 

        Page

 

 

 

 

 Item 1.

 Financial Statements 

 


 

 

 

 

 

 Consolidated Balance Sheets at  February 28, 2014 (unaudited) and May 31, 2013 (audited) 

 

3

 

 

 

 

 

Unaudited Consolidated Statement of Operations for the Three and Nine Months ended February 28, 2014 and February 28, 2013 and from  Inception (December 20, 2007) to February 28, 2014

 

4

 

 

 

 

 

Consolidated Statements of Stockholders Equity (Deficit) from Inception (December 20, 2007) to February 28, 2014 (unaudited)

 

5


 

 

 

 

Consolidated Statements of Cash Flows  for the Nine Months Ended February 28, 2014 and February 28, 2013 and  Cumulative since Inception to February 28, 2014 (unaudited) 

 

6






Supplemental Disclosure With Respect To Cash Flows for the Nine Months Ended February 28, 2014 and February 28, 2013 and  Cumulative since Inception to February 28, 2014 (unaudited) 


8

 

 

 

 

 

Notes to Interim Consolidated Financial Statements as of  February 28, 2014

 

9

 

 

 

 

 Item 2.  

Managements Discussion and Analysis of Financial Condition and Results of Operation 

 

36

 

 

 

 

 Item 3.

 Quantitative and Qualitative Disclosure About Market Risk 

 

 44

 

 

 

 

 Item 4.   

 Controls and Procedures 

 

 44





 

PART II. OTHER INFORMATION

 


 

 

 

 

 Item 1

 Legal Proceedings.

 

44

 

 

 

 

Item 1A.

 Risk Factors

 

 44

 

 

 

 

 Item 2. 

 Unregistered Sales of Equity Securities and Use of Proceeds. 

 

44

 

 

 

 

 Item 3.

 Defaults Upon Senior Securities. 

 

 48

 

 

 

 

 Item 4.

 Mine Safety Disclosures. 

 

48

 

 

 

 

 Item 5. 

 Other Information 

 

48

 

 

 

 

 Item 6.

 Exhibits 

 

49


2



ITEM 1.      FINANCIAL STATEMENTS



XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

As of FEBRUARY 28, 2014  and  MAY 31, 2013

(Expressed in U.S. dollars)




February 28, 2014


May 31, 2013



 (Unaudited)


(Audited)

ASSETS





Current Assets:





 

  Cash

$

3,887 

$

23,400 

  Other Current Assets

$

3,482 

$

981,000 

Total Current Assets

$

7,369 

$

1,004,400 

Fixed Assets:





 Property, Plant and Equipment

 

942,250 

 

942,250 

Total Property, Plant and Equipment

$

942,250 

$

942,250 

Other Assets:

 


 


  Intangible Assets - Legal and Contractual





    Rights - Oil and Gas Leases

$

536,250 

$

536,250 

   Incorporation Costs

$

$

70 

  Total Legal and Contractual

$

536,250 

$

536,320 

  Total Intangible Assets

$

536,250 

$

536,320 

Total Other Assets

$

536,250 

$

536,320 

Total Assets

$

1,485,869 

$

2,482,970 

LIABILITIES AND STOCKHOLDERS'  EQUITY (DEFICIT)





Current  Liabilities:

 


 


  Accounts payable and accrued expenses

$

1,992,577 

$

2,083,337 

  Loans payable

$

550,260 

$

544,746 

  Convertible Promissory Notes, net of discount

$

443,812 

$

393,818 

Total Current Liabilities

$

2,986,649 

$

3,021,901 

Stockholders' Equity (Deficit):





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

 


 


none issued and outstanding

$

$

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

 


 


2,428,318,684 and 385,460,240 shares issued and outstanding, respectively

$

242,832 

$

38,546 

Paid in Capital

$

2,131,661 

$

2,876,422 

Accumulated Deficit

$

(3,875,273)

$

(3,453,899)

Total Stockholders' Equity (Deficit)

$

(1,500,780)

$

(538,931)

Total Liabilities and Stockholders' Equity (Deficit)

$

1,485,869 

$

2,482,970 


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


3

 

XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2014 AND  2013

AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2014

(UNAUDITED)

(Expressed in U.S. dollars)




For the three months ended February 28, 2014


For the three months ended February 28, 2013


For the nine months ended February 28, 2014


For the nine months ended February 28, 2013


December 20, 2007 (Inception) To February 28, 2014












Revenue

 

 

 

 

 

 

 

 

 

 

Revenue - Operations

$

$

$

$

$

4,637 

Total Revenue

$

$

$

$

$

4,637 












Cost of Goods Sold

$

$

$

$

$

1,653 












Gross Profit

$

$

$

$

$

2,984 












Expenses

 


 


 


 


 


General and Administrative

$

133,489 

$

563,126 

$

81,803 

$

1,166,156 

$

2,974,877 

Loss before income taxes

$

(133,489)

$

(563,126)

$

(81,803)

$

(1,166,156)

$

(2,971,893)












Other income (expense)

$

(80,700)

$

(14,116)

$

(339,570)

$

(30,321)

$

(903,380)












Provision for Income Taxes

$

$

$

$

$












Net (Loss)

$

(214,189)

$

(577,242)

$

(421,373)

$

(1,196,477)

$

(3,875,273)



   









Basic and Diluted











(Loss) per Common Shares

 

a

 

a

 

a

 

a

 

 












Weighted Average











Number of Common Shares*1

 

1,506,394,268

 

363,533,551


883,451,067


349,784,346

 

 












a = Less than ($0.01) per share

 

 

 

 

 

 

 

 

 

 


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


4

 

XUN ENERGY, INC. AND SUBSIDIARIES

 

(A DEVELOPMENT STAGE COMPANY)

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE PERIOD FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2014

 

(UNAUDITED)

 

(Expressed in U.S. dollars)




Common Stock Shares*1

 

Common Stock Amount

 

Additional Paid in Capital

 

Accumulated Deficit

 

Total Equity

Inception December 20, 2007

 

$

$

$

$

Common stock issued  to Directors


400,000,000 

$

40,000 

$

(35,000)

$

$

5,000 

Common stock issued - Private Placement

 

110,416,000 

$

11,042 

$

44,166 

$

$

55,208 

Net loss for the year



$


$


$

(85)

$

(85)

Balance, May 31, 2008

 

510,416,000 

$

51,042 

$

9,166 

$

(85)

$

60,123 

Net loss for the year



$


$


$

(50,170)

$

(50,170)

Balance, May 31, 2009

 

510,416,000 

$

51,042 

$

9,166 

$

(50,255)

$

9,953 

Net loss for the year



$


$


$

(50,744)

$

(50,744)

Balance, May 31, 2010

 

510,416,000 

$

51,042 

$

9,166 

$

(100,999)

$

(40,791)

Common stock issued  to Directors


75,000 

$

$

9,243 

$

$

9,250 

Common stock issued - Asset Purchase

 

1,259,000 

$

126 

$

62,824 

$

$

62,950 

Common stock issued


741,000 

$

74 

$

36,976 

$

$

37,050 

Common stock issued  to Consultant


10,000 

$

$

1,099 

$

$

1,100 

Common stock retirement

 

(200,000,000)

$

(20,000)

$

(105,000)

$

$

(125,000)

Net loss for the period


$

--- 

$

$

(614,593)

$

(614,593)

Balance, May 31, 2011

 

312,501,000 

$

31,250 

$

14,308 

$

(715,592)

$

(670,034)

Common stock issued  to Directors


142,500 

$

14 

$

7,373 

$

$

7,387 

Common stock issued  to Consultant

 

18,000,000 

$

1,800 

$

898,200 

$

$

900,000 

Net loss for the period







$

(985,517)

$

(985,517)

Balance, May 31, 2012

 

330,643,500 

$

33,064 

$

919,881 

$

(1,701,108)

$

(748,164)

Common stock issued  to Directors


211,129 

$

21 

$

5,409 

$

$

5,430 

Common stock issued for Assets

 

11,700,000 

$

1,170 

$

583,830 

$

$

585,000 

Common Stock issued to Consultants


40,281,633 

$

4,028 

$

1,845,972 

$

$

1,850,000 

Common stock issued to Lenders for Interest

 

1,165,839 

$

117 

$

11,369 

$

$

11,486 

Common Stock issued to reduce CPN's


19,458,139 

$

1,946 

$

28,675 

$

$

30,622 

Common Stock Cancelled - Note 3

 

(18,000,000)

$

(1,800)

$

(898,200)

$

$

(900,000)

Discount on CPN's


$

$

379,486 

$

$

379,486 

Net loss for the period

 

$

$

$

(1,752,791)

$

(1,752,791)

Balance, May 31, 2013


385,460,240 

$

38,546 

$

2,876,422 

$

(3,453,899)

$

(538,931)

Common Stock issued to reduce CPN's

 

128,305,789 

$

12,831 

$

101,519 

$

$

114,350 

Common stock issued to Lenders for Interest


1,363,636 

$

136 

$

1,364 

$

$

1,500 

Discount on CPN's

 

$

$

55,109 

$

$

55,109 

Net loss for the period


$

$

$

(438,928)

$

(438,928)

Balance, August 31, 2013

 

515,129,665 

$

51,513 

$

3,034,414 

$

(3,892,827)

$

(806,899)

Common Stock issued to reduce CPN's


418,145,389 

$

41,814 

$

58,416 

$

$

100,230 

Common stock issued to Lenders for Interest

 

14,008,836 

$

1,401 

$

4,516 

$

$

5,917 

Discount on CPN's



$


$

67,609 

$

$

67,609 

Common stock issued  to Directors

 

90,000 

$

$

105 

$

$

114 

Common Stock cancelled Consultants*2


(20,000,000)

$

(2,000)

$

(998,000)

$

$

(1,000,000)

Net loss for the period

 


$


$


$

231,743 

$

231,743 

Balance, November 30, 2013


927,373,890 

$

92,737 

$

2,167,060 

$

(3,661,084)

$

(1,401,286)

Common Stock issued to reduce CPN's


1,388,521,427 

$

138,852 

$

(44,532)

$

$

94,319 

Common stock issued to Lenders for Interest

 

112,423,367 

$

11,243 

$

(867)

$

$

10,376 

Discount on CPN's


$

$

10,000 

$

$

10,000 

Net loss for the period


$

$

$

(214,189)

$

(214,189)

Balance, February 28, 2014

 

2,428,318,684 

$

242,832 

$

2,131,661 

$

(3,875,273)

$

(1,500,780)

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

*2      Note 2 - Refer to NOTE 3 of the Notes to Financial Statements

 

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


5

 

XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2014 AND FEBRUARY 28, 2013

AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2014

(UNAUDITED)

(Expressed in U.S. dollars)



 

For the nine months ended February 28, 2014

 

For the nine months ended February 28, 2013

 

December 20, 2007 (Inception) to February 28, 2014

Net Cash Provided by (Used in) Operating Activities







Net Income (Loss), Including Portion Attributable to Noncontrolling Interest

$

(421,373)

 $

(1,196,477)

 $

(3,875,273)

Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities

Adjustments, Noncash Items, to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities

Share based - compensation

$

114 

$

4,473 

$

23,281 

Share based - interest

$

17,792 

$

7,957 

$

29,278 

Share based - financial services

$

(1,000,000)

$

782,500 

$

25,000 

Non-cash amortization - debt discount

$

167,938 

$

79,182 

$

284,889 

Non-cash - Inventory

$

$

$

283 

Non-cash - Interest-discount

$

131,491 

$

$

131,491 

Gain on debt extinqishment

$

$

(2,342)

$

(30,000)

Corporate Overhead allocated to Fixed Assets

$

$

(58,500)

$

(60,822)

Depletion

$

$

$

835 

Other Current Assets

$

977,518 

$

7,557 

$

421,775 

Accrued Interest

$

12,976 

$

24,934 

$

47,489 

Adjustments, Noncash Items, to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities

$

307,829 

$

845,761 

$

873,499 

Increase (Decrease) in Operating Capital

 


   


   


Increase (Decrease) in Operating Assets

 


   


   


Accounts receivable and accrued receivables

$

$

$

18,840 

Oil and Gas leases impairment

$

$

$

5,583 

Oil and Gas leases fortetures

$

$

$

399,743 

Other Asset Impairment

$

70 

$

$

190 

Bonds

$

$

500 

$

500 

Increase (Decrease) in Operating Assets

$

70 

$

500 

$

424,856 

Increase (Decrease) in Operating Liabilities

$


$


$


Accounts payable and accrued liabilities

$

(90,761)

$

639,476 

$

1,992,577 

Increase (Decrease) in Operating Liabilities

$

(90,761)

$

639,476 

$

1,992,577 

Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities

$

217,138 

$

1,485,737 

$

3,290,932 

Net Cash Provided by (Used in) Operating Activities

$

(204,235)

$

289,260 

$

(584,341)


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


6

 

XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2014 AND FEBRUARY 28, 2013

AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2014

(UNAUDITED)

(Expressed in U.S. dollars)



 

For the nine months ended February 28, 2014


For the nine months ended February 28, 2013


December 20, 2007 (Inception) to February 28, 2014

Net Cash Provided by (Used in) Operating Activities

$

(204,235)

$

289,260 

$

     (584,341)

Net Cash Provided by (Used in) Investing Activities

 


  


  


Payments to Acquire Property, Plant, and Equipment

$

$

(835,000)

$

     (852,637)

Payments to Acquire Intangible Assets

$

$

$

         (5,773)

Payments to Acquire Other Productive Assets

$

$

$

            (500)

Net Cash Provided by (Used in) Investing Activities

$

$

(835,000)

$

     (858,910)

Net Cash Provided by (Used in) Financing Activities

 


  


  


Proceeds from issuance of common stock

$

$

10,000 

$

      160,208

Repayments of Short-term Debt

$

$

(20,500)

$

     (127,142)

Proceeds from Short-term Debt

$

184,722 

$

556,309 

$

   1,414,072

Net Cash Provided by (Used in) Financing Activities

$

184,722 

$

545,809 

$

   1,447,138

Cash and Cash Equivalents, Period Increase (Decrease)

$

(19,513)

$

69 

$

          3,887

Cash and Cash Equivalents, beginning of period

$

23,400 

$

$

                  -

Cash and Cash Equivalents, at end of period

$

3,887 

$

69 

$

3,887


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


7

XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2014 AND FEBRUARY 28, 2013

AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2014

SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS

UNAUDITED)

(Expressed in U.S. dollars)




 

For the nine months ended February 28, 2014


For the nine months ended February 28, 2013


December 20, 2007 (Inception) to February 28, 2014

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS:

 


 


 


 Cash paid for income taxes

$

-

$

-

$

-

 Cash paid for interest                                      

$

-

$

-

$

222

 NON-CASH FINANCING AND INVESTING ACTIVITIES:

 


 


 


Convertible Promissory Note - non-cash capitalization

$

-

$

10,000

$

51,879

 Prepaid Expenses - non-cash capitalization

$

-

$

910,000

$

1,850,000

 Purchase of Intangible Assets - non-cash capitalization

$

-

$

585,000

$

585,000

 Debt Discount - non cash capitalization, net

$

132,718

$

247,119

$

460,325

Common Stock issued for repayment of loans

$

308,900

$

-

$

391,400


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


8

 

XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 28, 2014



NOTE 1: ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS


NATURE OF BUSINESS

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


The Company was incorporated under the laws of the state of Nevada on December 20, 2007 as Real Value Estates, Inc. On July 20, 2010, the Company changed its name to Xun Energy, Inc


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


On August 31, 2012, the Company acquired 30 oil and gas well locations in Venango County, Pennsylvania with an option to acquire an additional 15 oil and gas locations. Work commenced on the first 5 oil well locations on the Rice lease in Venango, County, Pennsylvania, USA in March  2013 and as of February 28, 2014 the roads and drill pads were constructed, and Rice #15 was drilled to a target depth of 1,050'. Drilling samples and observations confirmed intersecting oil bearing lenses. On September 16, 2013 the Company's operator, Vencedor Energy Partners (VEP), completed the nuclear wire line log on Rice #15 on the Rise Lease, in Venango County, PA. Verbal reports from the logging crew and staff on site were very positive when the logging tool pulled out of the well bore was covered with crude oil. On September  25, 2013 the Company's operator, Vencedor Energy Partners (VEP), reported the analysis of the wire-line log on Rice #15 on the Rise Lease, Venango County, PA. VEP reported the following:

1.

The Venango-First has two separated lenses, one is about 6 feet, 762'-766', and another 9 foot section, 788'-797', and both have decent porosity. The sand thickness has developed at this location along with its oil saturations. The upper and lower lenses both have a fair to good oil show.

2.

The Venango-Second has 16 feet of formation on the bottom lens, 916'-932', with good porosity and saturation and another 4 feet above it, 908'-912' that's producible with lesser values. The porosity on the lower lens has a fair to excellent show of oil with a poorer oil show in the upper lens portion.

3.

VEP recommended the balance of the infrastructure on the Rice Lease be completed first. After the infrastructure is installed, then Rice #15 well should be completed for production.


On June 25, 2013, the Company incorporated a wholly owned subsidiary, Xun Oil of Pennsylvania Corporation, in the Commonwealth of Pennsylvania, USA.


OPERATING COMPANY


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


NOTE  2: SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES


FISCAL YEAR


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


PRINCIPLES OF CONSOLIDATION


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

 

9


UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS


The interim consolidated financial statements of Xun Energy, Inc. as of February 28, 2014, and for the three and nine months then ended, and cumulative from inception, are unaudited. However, in the opinion of management, the interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly Xun Energy, Inc.s consolidated financial position as of February 28, 2014, and the results of its consolidated operations and its consolidated cash flows for the nine months ended February 28, 2014, and 2013, and cumulative from inception. These results are not necessarily indicative of the results expected for the calendar year ending May 31, 2014. The accompanying consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States of America (GAAP). Refer to the Companys audited financial statements as of May 31, 2013, filed with the SEC for additional information, including significant accounting policies.


INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)


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


USE OF ESTIMATES

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


·

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

·

Carrying value of oil and gas properties;

·

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

·

Income taxes;

·

Asset retirement obligations;

·

Legal contingencies and environmental risks and exposures.


EARNINGS PER SHARE


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


CASH EQUIVALENTS


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


PROPERTY AND EQUIPMENT

 

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


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


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


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


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


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


10


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

 

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

 

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

 

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


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


The Schedule of  Plant, Property and Equipment details are as follows:


Schedule of  Plant, Property and Equipment






Description

 

February 28, 2014

 

May 31, 2013

Work in Progress-Intangible

$

694,035

$

694,035

Work in Progress-Tangible

$

140,965

$

140,965

Rights (leases)

$

107,250

$

107,250

Subtotal

$

942,250

$

942,250

Depletion

$

0

$

0

Depreciation

$

0

$

0

Net Plant - Oil Wells, End of period

$

942,250

$

942,250


OIL AND GAS EXPLORATION


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


OIL AND GAS DEVELOPMENT - OFFSET DRILLING

 

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


11


OIL AND GAS DEVELOPMENT - WORKOVER PROGRAM


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


OIL AND GAS RESERVES


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


 INTANGIBLE ASSETS - LEGAL AND CONTRACTUAL - RIGHTS


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


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


The Schedule of Oil and Gas Rights are as follows:


Schedule of Oil and Gas Rights






Description

 

February 28, 2014

 

May 31, 2013

Acquisitions/Work in Progress

$

536,250

$

643,500 

Capitalized as Fixed Assets

 $

0

 $

(107,250)

Forfeitures during the period

$

0

$

Impairments during the period

$

0

$

Oil and Gas Leases, End of period

$

536,250

$

536,250 


OIL AND GAS REVENUE RECOGNITION

 

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


GENERAL AND ADMINISTRATIVE EXPENSES


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


 ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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


INCOME TAX POLICY


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


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


NOTE 3: OTHER CURRENT ASSETS


The Other Current Assets account consists of inventory and prepaid expenses. On August 31, 2012, the Company entered into consulting contract is with Prodigy Asset Management, Inc. (PAM) is for $1,000,000 for a 24 month period effective August 31, 2012. As one of the considerations for the services to be provided by PAM, the Company paid PAM 20 Million shares of the Company on execution of the agreement. The Company charged $1,000,000 as a prepaid financial services expense and is amortizing the prepaid expense over 24 months. On October 31, 2013 the Company and PAM mutually agreed to terminate the August 31, 2012 Financing Facilities Consulting Agreement and cancelled the 20 million shares issued to PAM and unwound the associated costs including $500,000 included as Other Current Assets.


12


The Schedule of Other Current Assets are as follows:



Schedule of Other Current Assets






Other Current Assets

 

February 28, 2014

 

May 31, 2013

Other Current Assets, Beginning Balance

$

981,000 

$

833,274 

Prepaid Legal

$

(4,018)

$

(3,274)

Prepaid Financial Services

$

(973,500)

$

1,336,000 

Less: Amortization

$

$

(1,185,000)

Other Current Assets, Balance end of period

$

3,482 

$

981,000 


NOTE 4: OTHER ASSETS


The Schedule of Other Assets are as follows:

Schedule of Other Assets






Description - Other Assets

 

February 28, 2014

 

May 31, 2013

Rights - Oil and Gas Leases

$

536,320

$

536,250

Trademarks

$

0

$

0

Incorporation Costs

$

-70

$

70

Bonds

$

0

$

0

Total Other Assets

$

536,250

$

536,320


NOTE 5. ADVERTISING


The Companys policy regarding advertising is to expense advertising when incurred. The Company had  incurred any advertising expense as of February 28, 2014.


NOTE 6. GOING CONCERN


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has net losses for the period from inception (December 20, 2007) to February 28, 2014. This condition raises substantial doubt about the Companys ability to continue as a going concern. The Companys continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Management is planning to raise additional funds through debt or equity offerings. There is no guarantee that the Company will be successful in these efforts. There is no guarantee that the Company will be successful generating profits from its oil and gas operations. There is no guarantee that the Company will be able to drawdown on the $15 Million Reserve Equity Financing Agreement with AGS Capital Group, LLC, refer to NOTE 22: FINANCING AGREEMENTS for additional detail.


NOTE 7: RELATED PARTY TRANSACTIONS


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


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


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


13


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


Prior to June 1, 2011, our President, CEO and Director, Jerry G. Mikolajczyk, performed services for the Company on a consulting contract through a consulting agency, Comtax Services, Inc. (Comtax). From April 1, 2010 to February 28, 2011, Comtax charged a fixed monthly fee of $2,500, a minimum of 10 hours per month for Mr. Mikolajczyk, an aggregate of $27,500 for the 11 months for Mr. Mikolajczyks services to the Company. For the period March 1, 2011 to May 31, 2011, Comtax charged the Company an aggregate of $387,275 (1,106.5 hours) for the services of Mr. Mikolajczyk plus $10,974 in travel expenses Mr. Mikolajczyk incurred on behalf of the Company. On October 31, 2012, Comtax assigned the trade payables to Mr. Mikolajczyk d/b/a/ Lighthouse Investments, as unsecured Promissory Notes. The Promissory Notes, an aggregate of $398,249, are non-interest bearing with no due date. Mr. Mikolajczyk was an officer of Comtax until his resignation on May 31, 2011 and terminated his consulting contract with Comtax as of May 31, 2011 prior to accepting his executive and director positions with the Company.


The Company issued an aggregate of 142,500 shares for the period ending May 31, 2012 with an average price of $0.0518 per share to the Executive and Board pursuant to a Management and Financial Service Agreement with Mr. Peter Matousek and a Board Member Compensation Agreement with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Kevin M. Grapes, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail.


The Company issued an aggregate of 180,000 shares for the period ending May 31, 2013 with an average price of $0.01846 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail.


On May 1, 2013, President, CEO and Director, Jerry G. Mikolajczyk, loaned to the Company $20,000 to be applied against the purchase of Series B Preferred Shares. The loan is unsecured and non-interest bearing.


The Company issued an aggregate of 90,000 shares for the six month period ending November 30, 2013 with an average price of $0.001267 per share on November 27, 2013 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail.


On January 22, 2014, President, CEO and Director, Jerry G. Mikolajczyk, loaned to the Company $5,000 to be applied against the purchase of Series B Preferred Shares. The loan is unsecured and non-interest bearing.


NOTE 8.  INCOME TAXES


The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During each fiscal year from 2008 thru 2014, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset of approximately $1,356,345  (assuming a 35% effective tax rate) generated by the loss carry-forward has been fully reserved as of February 28, 2014.  


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


The Company did not identify any material uncertain tax positions on tax returns filed. The Company did not recognize any interest or penalties for unrecognized tax benefits.


NOTE 9. NET OPERATING LOSSES


As of February 28, 2014, the Company has a net operating loss carry-forward of $3,875,273. The net operating loss is a tax permanent operating loss which will expire 20 years from the date the loss was incurred.


NOTE 10: STOCKHOLDERS EQUITY


AUTHORIZED


The Company is authorized to issue 5,000,000,000 shares of $0.0001 par value common stock and 50,000,000 shares of preferred stock, par value $0.0001. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company. Preferred Stock or series thereof, if provided, by the Board of Directors of the Company, shall have voting rights, such Preferred Stock or series shall vote only on a share for share basis with the Common Stock on any matter, including but not limited to the election of directors, for which such Preferred  Stock or series has such rights.


On July 20, 2010, the Company filed a Certificate of Amendment to the Companys certificate of incorporation with the Nevada Secretary of State, which increased the Companys authorization to issue 5,000,000,000 shares of $0.0001 par value common stock, refer to NOTE 15: CORPORATE ACTIONS.


14


On November 30, 2011 and January 12, 2013, the Board of Directors of the Company approved the allocation of 4,000,000 of the 50,000,000 authorized Preferred Shares of the Company as Series A Preferred Shares with the following rights:

·

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

·

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


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


On April 29, 2013, the Board of Directors of the Company approved  the authorization of seven hundred fifty thousand (750,000) Preferred Shares, designated as Series B Preferred Shares (Series B Shares), with a value of fifty cents ($0.50) per Series B Preferred Share, each with the following rights:


1.

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

2.

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

3.

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

4.

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

5.

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


The Series B Preferred Shares would be offered by the discretion of the President to existing shareholders holding more than 10% of the issued and outstanding shares of the Company or to directors of the Company. The subscribers for the Series B Shares will agree to execute a Series B Shares Unanimous Shareholders Agreement which will include right of first refusal to buy or sell the Series B Shares between the Series B Share holders or directors of the Company.


ISSUED AND OUTSTANDING


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


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


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


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


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


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


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


15


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


The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Executive and Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Jerry G. Mikolajczyk, Mr. Kevin M. Grapes and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012.  The balance,  31,129 shares, cost of $2,106 for the period March 1, 2012 to May 31, 2012, were issued to the Board on June 25, 2012.


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

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


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


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


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


The Company authorized and approved 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on October 26, 2012.


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


The Company authorized and approved 45,000 shares for the period ended November 30, 2012 with an average price of $0.012167 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on December 18, 2012.

 

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


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


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


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


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


The Company issued 2,857,143 shares on May 2, 2013 for $12,000 pursuant to the conversion of a Convertible Promissory Note dated October 26, 2012.


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


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


16


The Company issued 1,700,000 shares on May 10, 2013 for $6,800 including $1,300 for interest pursuant to the conversion of a Convertible Promissory Note dated October 26, 2012.


The Company issued 4,811,707 shares on May 13, 2013 for $19,728 including $2,228 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 45,000 shares on May 31, 2013  for the period ended May 31, 2013 with an average price of $0.010333 per share for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.

The Company issued 5,714,286 shares on June 13, 2013 for $12,000 pursuant to the conversion of a Convertible Promissory Note dated December 6, 2012.


The Company issued 5,000,000 shares on June 17, 2013 for $13,750 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 7,380,952 shares on June 19, 2013 for $15,500 pursuant to the conversion of a Convertible Promissory Note dated December 6, 2012.


The Company issued 4,000,000 shares on July 8, 2013 for $4,600 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 9,090,909 shares on July 15, 2013 for $10,000 and 1,363,636 shares for $1,500 for interest, both pursuant to the conversion of a Convertible Promissory Note dated December 6, 2012.


The Company issued 12,195,121 shares on July 22, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 14,285,714 shares on August 9, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 20,689,655 shares on August 20, 2013 for $12,000 pursuant to the Stock and Securities Exchange Agreement for a Convertible Promissory Note dated October 19, 2012.


The Company issued 16,949,152 shares on August 26, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 33,000,000 shares on August 27, 2013 for $16,500 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 20,408,163 shares on September 4, 2013 for $10,000 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 19,186,046 shares on September 9, 2013 for $8,250 pursuant to a Convertible Promissory Note dated October 19, 2012.


The Company issued 27,500,000 shares on September 16, 2013 for $8,250 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 26,950,185 shares on September 17, 2013 for $11,319 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 33,300,000 shares on September 20, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.

 

The Company issued 27,272,727 shares on September 25, 2013 for $9,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013.


The Company issued 20,833,333 shares on October 4, 2013 for $5,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013.


17


The Company issued 37,500,000 shares on October 11, 2013 for $7,500 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 20,090,864 shares on October 11, 2013 for $5,331 and 7,589,856 shares for $2,014 for interest, both pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 34,090,909 shares on October 17, 2013 for $7,500 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013.


The Company issued 29,411,764 shares on October 31, 2013 for $5,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013.


The Company cancelled 20 million shares on October 31, 2013 issued to Prodigy Asset Management, LLC pursuant to the mutually agreed termination of  the August 31, 2012 Financing Facilities Consulting Agreement.


The Company issued 7,692,308 shares on November 7, 2013 for $1,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013.


The Company issued 45,000,000 shares on November 8, 2013 for $4,500 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012.


The Company issued 34,454,545 shares on November 14, 2013 for $3,790 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013.


The Company issued 34,454,545 shares on November 19, 2013 for $3,790 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013.


The Company issued 6,418,980 shares on November 27, 2013 for $3,903 for interest pursuant to a Convertible Promissory Note dated January 1, 2013.


The Company issued an aggregate of 90,000 shares for the six month period ending November 30, 2013 with an average price of $0.001267 per share on November 27, 2013 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier. The issuance of the common stock was exempt from registration under Section 4(a) (2) of the Securities Act.

 

The Company issued 90,000,000 shares on December 3, 2013 for $9,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,333,333 shares on December 11, 2013 for $2,060 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,000,000 shares on December 12, 2013 for $1,700 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,333,333 shares on December 16, 2013 for $2,060 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 100,000,000 shares on December 18, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 46,500,000 shares on December 23, 2013 for $2442 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issue 45,050,000 shares on January 6, 2014 for $4,505  pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issue 77,780,000 shares on January 6, 2014 for $7,778 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


18


The Company issued 56,000,000 shares on January 15, 2014 for $2,800 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,333,333 shares on January 22, 2014 for $2,060 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

 

The Company issued 72,000,000 shares on January 27, 2014 for $3,780 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on February 5, 2014 for $4,320 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 77,000,000 shares on February 5, 2014 for $3,850 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 77,400,000 shares on February 10, 2014 for $4,063 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 66,000,000 shares on February 11, 2014 for $3,960 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issue 90,000,000 shares on February 12, 2014 for $4,500 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on February 14, 2014 for $4,320 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 96,000,000 shares on February 14, 2014 for $4,800 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 84,865,100 shares on February 14, 2014 for $8,487 pursuant to the conversion of a Convertible Promissory Note dated August 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on February 21, 2014 for $5,040 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 18,333,333 shares on February 24, 2014 for $1,100 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 21,666,667 shares on February 24, 2014 for $1,300 for interest pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 51,238,095 shares on February 26, 2014 for $2,960 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 65,134,900 shares on February 26, 2014 for $6,513 pursuant to the conversion of a Convertible Promissory Note dated August 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 12,976,700 shares on February 26, 2014 for $1,298 for interest pursuant to the conversion of a Convertible Promissory Note dated August 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


NOTE 11: RECENT ACCOUNTING PRONOUNCEMENTS


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


19


NOTE 12: CHANGE OF CONTROL


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


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



Schedule of Ownership and Percentage of Control


Name of

 Beneficial Owner


Class of Voting Stock

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

Percentage of Class  [1]

Donald Lynch

Common Stock

80,000,000

15.67%

Peter Matousek

Common Stock

320,000,000

62.69%

All Officers & Directors As a Group (2 Persons)


Common Stock


400,000,000


78.37% [1]

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

 



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


On May 31, 2011, Mr. Jerry G. Mikolajczyk, the Company's President, CEO and Director, acquired 180,000,000 common stock shares of the Company from Mr. Peter Matousek, former President, CEO and Director of the Company. The acquisition by Mr. Mikolajczyk gave him control of 57.6% of the issued and outstanding shares of the Company. Subsequent to May 31, 2011, Mr. Mikolajczyk acquired additional shares directly and indirectly in the Company. As of Mr. Mikolajczyks last Form 4 filed with the SEC on December 16, 2013, Mr. Mikolajczyk is beneficial owner of 188,594,421 (7.77%) of the issued and outstanding shares of the Company as of February 28, 2014.


NOTE 13: LOANS PAYABLE


SHORT TERM LOANS


The Company has loans in the amount of $398,249, non-interest bearing and unsecured, with our President, CEO and Director, Jerry G. Mikolajczyk d/b/a Lighthouse Investments. The loan has no due date. The Company accrued $0 interest as of February 28, 2014.


The Company has a loan in the amount of $25,000, is non-interest bearing and unsecured, with our President, CEO and Director, Jerry G. Mikolajczyk. The loan has no due date. The Company accrued $0 interest as of February 28, 2014.


On March 28, 2011, the Company entered into Redemption Agreement with Peter Matousek, the Companys president and director, which provides in part for the Company to redeem from Mr. Matousek a total of 140 million shares of the Companys common stock at a price of $87,500 or $0.000625 per share. The terms of the stock redemption, agreement is a non-callable 3-year note. The principal will accrue interest at the rate of 0.55% (IRS Short Term AFR April 2011) per annum, until March 31, 2014 (the Maturity Date). Principal plus all accrued interest will be due on the Maturity Date.


On May 31, 2011, Mr. Matousek assigned the unsecured Note Payable of $87,500 plus accrued interest to Comtax Services, Inc. The Company accrued $1,407 interest as of February 28, 2014.


On March 28, 2011, the Company entered into redemption agreements with four shareholders, which in total provided for the redemption of 60 million shares of the Companys common stock. The purchase price for the 60 million shares totaled $37,500 or $0.000625 per share. The terms of the stock redemption, agreement is a non-callable 3-year note (Notes). The principal will accrue interest at the rate of 0.55% (IRS Short Term AFR April 2011) per annum, until March 31, 2014 (the Maturity Date). Principal plus all accrued interest will be due on the Maturity Date.


On July 15, 2011, our President, CEO and Director, Jerry G. Mikolajczyk, acquired 100% interest in Womack Holdings, Inc. Womack Holdings, Inc. holds one of the four Notes payable, $9,375, by the Company. The Company accrued $151 interest as of February 28, 2014 for the Womack Holdings, Inc. Note.


20



Three of the four redemption agreements are to 3rd party shareholders for an aggregate of $28,125. The Company accrued $453 interest as of February 28, 2014 for the three 3rd party Notes.

 

Schedule of Short Terms Loans


February 28, 2014

Other Current Asset

Loan

Interest

Total Loan

Mikolajczyk, Jerry - assigned from Comtax Services, Inc.

$

398,249

$

0

$

398,249

Mikolajczyk, Jerry - Deposit on Series B Preferred Stock

$

25,000

$

0

$

25,000

Stock Redemption - Mikolajczyk acquisition

$

9,375

$

151

$

9,526

Stock Redemption - 3rd party - assigned from Matousek

$

87,500

$

1,407

$

88,907

Stock Redemption - 3rd party

$

9,375

$

151

$

9,526

Stock Redemption - 3rd party

$

9,375

$

151

$

9,526

Stock Redemption - 3rd party

$

9,375

$

151

$

9,526

Total Short Terms Loans

$

548,249

$

2,011

$

550,260


CONVERTIBLE PROMISSORY NOTES (CPN)


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

  

1.

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

2.

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


On April 30, 2013, Comtax Services, Inc. assigned $75,000 of the principal of CPN#4 to a third party, CPN#8, reducing the Company's obligations on CPN#4 to $156,160. CPN#8, $75,000, was converted to common stock by the Note holder, refer to NOTE 10: STOCKHOLDERS' EQUITY,  for additional detail.


On August 15, 2013, Comtax Services, Inc. assigned their interest in $45,000 of the principal of CPN#4 to a third party, CPN#4A reducing the Company's obligations to Comtax Services, Inc. to $111,160 with an option for the Assignee to acquire an additional $45,505 in principal of CPN#4 plus accrued interest.


On September 20, 2013, Comtax Services, Inc. assigned their interest in $45,505 of the principal and $7,136 of the accrued interest of CPN#4 to a third party, CPN#4A reducing the Company's obligations to Comtax Services, Inc. to $65,655.


CPN#4A, $95,505 plus accrued interest, was converted to common stock by the Note holder, refer to NOTE 10: STOCKHOLDERS' EQUITY,  for additional detail.


On October 18, 2013, the Company amended CPN#4, amending the Maturity Date of CPN#4 to be October 18, 2014 with the rest and remainder of the terms and conditions of CPN#4 remaining in full force and effect without change or modification.


CPN#4B - On February 7, 2014, the Company negotiated a ASSIGNMENT AND ASSUMPTION AGREEMENT (AAA) for $29,300 plus accrued interest of $4,200, 10% Convertible Promissory Note (CPN#4B), previously issued on October 19, 2012, assigned from CPN#4, due on October 18, 2014, reducing its obligations on CPN#4 to $36,355 plus accrued interest. The AAA allows the Assignee to exchange the debt obligation of the Company based a fixed rate of $.00005 upon which Assignee delivering to the Company the Exchange Notice. The Exchange price shall not be below the par value, $0.00005, of the common stock of the Company, and accrued interest of $4,200 remaining as a liability by the Company on CPN#4b. As of February 28, 2014, the Company has a liability of $24,800 plus accrued interest of $4,200 for CPN#4B. CPN#4B liability was reduced with the Holder converting a portion of the debt to common stock of the Company, refer to NOTE 10: STOCKHOLDERS' EQUITY,  for additional detail.


As of February 28, 2014, the Company has a liability of $36,355 plus accrued interest of $7,968 for CPN#4.


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


21


1.

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

2.

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


On November 30, 2013, the Company amended CPN#5 amending the Maturity Date of CPN#5 to be November 30, 2014 with the rest and remainder of the terms and conditions of CPN#5 remaining in full force and effect without change or modification.


As of February 28, 2014, the Company accrued interest of $7,729.


CPN#6 - On February 14, 2012, the Company issued a Promissory Note for $100,000and is carrying a contingent liability of $30,000, with Altmann Revocable Living Trust, Rlt. (ALRT), totaling $130,000 which became due December 31, 2012 with interest calculated at 8% per annum. The Company amended the $100,000 Promissory Note plus accrued interest of $7,036 to an unsecured one year 8% Convertible Promissory Note (CPN#6) effective January 1, 2013 due on January 1, 2014 for $100,000 with accrued interest of $7,036. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at the Conversion Price which shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price is 80% of the Market Price. "Market Price" means the average of the Closing Prices (as defined below) for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Company via facsimile (the "Conversion Date"). "Closing Price" means, for any security as of any date, the closing price on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Companys common stock is listed or traded). The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. The Company may prepay CPN#6 in advance in full or in part at any time and from time to time without premium or penalty. "Fixed Conversion Price" shall mean $0.0001. As of February 28, 2014, the Company accrued interest of $16,329.


On January 22, 2014, the Company amended CPN#6 amending the Maturity Date of CPN#6 to be December 31, 2014 with the rest and remainder of the terms and conditions of CPN#6 remaining in full force and effect without change or modification.


CPN#10 - The Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#10) on May 13, 2013 due on February 17, 2014 for $42,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder. The Conversion Price shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Companys securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#10. The Company may prepay CPN#10 at any time for the period beginning on the date of the CPN#10 and ending on the date which is ninety (90) days following the date of the CPN#10, the CPN#10 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#10 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#10 and ending on the date which is one hundred twenty (120) days following the date of CPN#10, the Company may prepay the CPN#10 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#10 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#10 and ending on one hundred eighty (180) days following the date of this CPN#10, the Company may prepay the CPN#10 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#10 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#10, the Company shall have no right of prepayment. The floor price of $0.00005. As of February 28, 2014, the Company accrued interest of $2,711.


CPN#11 - The Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#11) on May 29, 2013 due on March 1, 2014 for $37,750. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder. The conversion price (the Conversion Price) shall equal the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Companys securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The "Variable Conversion Price" shall mean 57.5% multiplied by the Market Price (as defined herein) (representing a discount rate of 42.5%).  Market Price means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.  Trading Price means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board (the OTCQB), OTCQB or applicable trading market as reported by a reliable reporting service (Reporting Service) designated by the Holder or, if the OTCQB is not the principal trading market for such security, the closing bid price of such security


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on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the pink sheets by the National Quotation Bureau, Inc.  In the case that the Companys Common Stock is not deliverable by DWAC, an additional 5% discount will apply.  In the case that the Companys Common Stock is chilled for deposit into the DTC system and only eligible for clearing deposit, an additional 7.5% discount shall apply.  If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Company and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes.  Trading Day shall mean any day on which the Common Stock is tradable for any period on the OTCQB, OTCQB or on the principal securities exchange or other securities market on which the Common Stock is then being traded.  Fixed Conversion Price shall mean $0.00005. The Company may prepay the amounts outstanding hereunder pursuant to the following terms and conditions:  (I) at any time during the period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#11 to prepay the outstanding CPN#11 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#11 plus (x) accrued and unpaid interest on the unpaid principal amount of  CPN#11 plus (y) Default Interest; (II) at any time during the period beginning the day which is thirty one (31) days following the Issue Date and ending on the date which is sixty (60) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#11 to prepay the outstanding CPN#11 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of  CPN#11 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#11 plus (y) Default Interest; (III) at any time during the period beginning the day which is sixty one (61) days following the Issue Date and ending on the date which is ninety(90) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#11 to prepay the outstanding CPN#11 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#11 plus (x) accrued and unpaid interest on the unpaid principal amount of  CPN#11 plus (y) Default Interest; (IV) at any time during the period beginning the day which is ninety one (91) days following the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#11 to prepay the outstanding CPN#11 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#11 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#11 plus (y) Default Interest; (V) at any time during the period beginning the day which is one hundred twenty one (121) days following the Issue Date and ending on the date which is one hundred fifty (150) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#11 to prepay the outstanding CPN#11 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 145%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#11 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#11 plus (y) Default Interest; (VI) at any time during the period beginning the day which is one hundred fifty one (151) days following the Issue Date and ending on the date which is one hundred eighty (180) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#11 to prepay the outstanding CPN#11 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#11 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#11 plus (y) Default Interest; (VII) after the expiration of one hundred eighty (180) following the date of CPN#11, the Company shall have no right of prepayment. As of February 28, 2014, the Company has a liability of $24,505plus accrued interest of $2,132for CPN#11. CPN#11 liability was reduced with the Holder converting a portion of the debt to common stock of the Company, refer to NOTE 10: STOCKHOLDERS' EQUITY,  for additional detail.


CPN#12 - On June 5, 2013, the Company issued an unsecured Convertible Promissory Note (CPN#12) for $250,000 plus accrued and unpaid interest and other fees with a $25,000 original issue discount (the OID). The Note Holder paid $25,000 consideration on closing of CPN#12 (CPN#12A). On September 26, 2013, the Company drew down an additional $25,000 on CPN#12 (CPN#12B). The Note Holder may pay additional consideration to the Company in such amounts and at such dates as Note Holder may choose in its sole discretion. The Maturity Date is one year from the effective date of each payment (the Maturity Date) and is the date upon which the Principal Sum of the Note, as well as any unpaid interest and other fees, shall be due and payable. The Conversion Price is the lesser of $0.006 or 60% of the average of the two lowest trade prices in the 25 trading days previous to the conversion, but no lower than $0.00005 (in the case that conversion shares are not deliverable by DWAC an additional 10% discount will apply; and if the shares are ineligible for deposit into the DTC system and only eligible for Xclearing deposit an additional 5% discount shall apply; in the case of both an additional cumulative 15% discount shall apply). Unless otherwise agreed in writing by both parties, at no time will the Note Holder convert any amount of the Note into common stock that would result in the Note Holder owning more than 4.99% of the common stock outstanding. The Company may repay the CPN at any time on or before 90 days from the effective date, after which the Company may not make further payments on the CPN prior to the Maturity Date without written approval from Note Holder. If the Company repays the CPN on or before 90 days from the effective date, the Interest Rate shall be zero percent (0%). If the Company does not repay the CPN on or before 90 days from the effective date, a one-time Interest charge of 12% shall be applied to the Principal Sum. Any interest payable is in addition to the OID, and that OID (or prorated OID, if applicable) remains payable regardless of time and manner of payment by Borrower.


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CPN#12 is structured to be advanced to the Company at the discretion of the Note Holder. The Company has drawn down $50,000 of the $225,000 allowable, is obligated to pay $5,556 of the OID ($50,000/$225,000 x $25,000 (OID)) and a one time interest fee of $6,666 for an aggregate of $62,222. As of February 28, 2014, the Company has a liability of $49,072 for CPN#12 plus $0 accrued interest. CPN#12 liability was reduced with the Holder converting a portion of the debt to common stock of the Company, refer to NOTE 10: STOCKHOLDERS' EQUITY,  for additional detail.


CPN#13 - On July 2, 2013, the Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#13) due on April 8, 2014 for $32,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder.  The Conversion Price shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Companys securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#13. The Company may prepay CPN#13 at any time for the period beginning on the date of the CPN#13 and ending on the date which is ninety (90) days following the date of the CPN#13, the CPN#13 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#13 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#13 and ending on the date which is one hundred twenty (120) days following the date of CPN#13, the Company may prepay the CPN#13 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#13 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#13 and ending on one hundred eighty (180) days following the date of this CPN#13, the Company may prepay the CPN#13 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#13 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#13, the Company shall have no right of prepayment. The floor price of $0.00005. As of February 28, 2014, the Company accrued interest of $1,717.


CPN#15 - On August 29, 2013, the Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#15) due on June 3, 2014 for $32,500. The funds were deposited on September 12, 2013. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder.  The Conversion Price shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Companys securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#15. The Company may prepay CPN#15 at any time for the period beginning on the date of the CPN#15 and ending on the date which is ninety (90) days following the date of the CPN#15, the CPN#15 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#15 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#15 and ending on the date which is one hundred twenty (120) days following the date of CPN#15, the Company may prepay the CPN#15 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#15 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#15 and ending on one hundred eighty (180) days following the date of this CPN#15, the Company may prepay the CPN#15 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#15 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#15, the Company shall have no right of prepayment. The floor price of $0.00005. As of February 28, 2014, the Company accrued interest of $1,767.


CPN#16 - On September 30, 2013, the Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#16) due on July 2, 2014 for $27,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder.  The Conversion Price shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Companys securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary


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distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#16. The Company may prepay CPN#16 at any time for the period beginning on the date of the CPN#16 and ending on the date which is ninety (90) days following the date of the CPN#16, the CPN#16 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#16 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#16 and ending on the date which is one hundred twenty (120) days following the date of CPN#16, the Company may prepay the CPN#16 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#16 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#16 and ending on one hundred eighty (180) days following the date of this CPN#16, the Company may prepay the CPN#16 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#16 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#16, the Company shall have no right of prepayment. The floor price of $0.00005. As of February 28, 2014, the Company accrued interest of $1,085.


CPN#17 - .On February 12, 2014, the Company issued an unsecured Convertible Promissory Note (CPN#17) for $150,000 plus accrued and unpaid interest and other fees. The Note Holder paid $10,000 consideration on closing of CPN#17 (CPN#17A). The Company may repay CPN#17A at any time on or before 90 days from the Effective Date at a premium of 150%. The interest rate is ZERO during the first 90 days of the Effective Date. If the Borrower does not repay CPN#17A on or before 90 days from the Effective Date, 12% Interest will be applied to the Principal Sum accrued from the effective date of payment by the Lender to the Company. A 50% prepayment penalty fee will be added to the Principal amount drawn down by the Borrower each time the Lender advances funds on this Promissory Note. The Lender has the right at any time after 180 days from the Effective Date, at its election, to convert all or part of the outstanding and unpaid Principal Sum and accrued interest (and any other fees) into shares of fully paid and non-assessable shares of common stock of the Borrower as per this conversion formula: Fixed conversion price of $.00005 per share. As of February 28, 2014, the Company accrued interest of $389.


ASC DISCLOSURE


In accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total debt discounts of $132,718, and $379,486 for the variable conversion feature of the convertible debts incurred during the nine months ended February 28, 2014 and the fiscal year ended May 31, 2013, respectively. As of February 28, 2014, the debt discount on the CPN's was $131,491 and $210,657 as of May 31, 2013. The discount will be amortized to debt discount over the term of the debentures using the effective interest method. The Company recorded $167,938 and $116,768 of debt discount expense pursuant to the amortization of the convertible promissory note discounts during the nine months ended February 28, 2014 and the fiscal year ended May 31, 2013, respectively. The Company recorded $30,254 and $36,064 of interest expense for convertible promissory notes the during the nine months ended February 28, 2014 and the fiscal year ended May 31, 2013, respectively.


In accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued are not embedded derivative features, and these are included in Loan Payable on the balance sheet.


NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS


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


The Companys financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:


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


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


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


The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange.


As of February 28, 2014 and May 31, 2013, the carrying value of accounts payable and loans approximated fair value due to the short-term nature and maturity of these instruments.


NOTE 15: CORPORATE ACTION


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

 

·

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

·

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

·

An 80:1 forward split of the Companys issued and outstanding common stock.


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


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


NOTE 16: COMMITMENTS


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

 

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

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


The Company entered into a Management and Financial Service Agreement with Dr. William D. Spier for a 7.25-month period commencing October 23 and ending May 31, 2013 whereby Dr. Spier was paid $29,032 in cash payments. The agreement was renewed for an additional 12 months at $7,500 per month ending May 31, 2014. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.


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On May 30, 2013, the Board of Directors renewed the Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2014. Mr. Spier will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors.


On May 30, 2013, the Board of Directors renewed the Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2014. Mr. Matousek will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors.


On August 31, 2013, the Board of Directors renewed the Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2014. Mr. Mikolajczyk will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors.


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


NOTE 17: EXECUTIVE AND BOARD COMPENSATION


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


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


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

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


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


On May 22, 2012, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2013. Dr. Spier will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses.


On May 25, 2012, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2013. Mr. Matousek will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses.


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The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Board pursuant to a Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Kevin M. Grapes, Mr. Peter Matousek and Dr. William D. Spier. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012.  The balance,  31,129 shares, cost of $2,106 for the period March 1, 2012 to May 31, 2012,  were issued to the Board on June 25, 2012.


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


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


The Company authorized and approved an aggregate of 45,000 shares for the period ended November  30, 2012 with an average price of $0.01228 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.


The Company authorized and approved an aggregate of 45,000 shares for the period ended February 28, 2013 with an average price of $0.01093 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.


On May 30, 2013, the Board of Directors renewed the Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2014. Mr. Spier will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million.


On May 30, 2013, the Board of Directors renewed the Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2014. Mr. Matousek will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million.


On May 31, 2013, the Company entered into a Management and Financial Service Agreement with Dr. William D. Spier as Treasurer of the Company for a 12-month period commencing June 1, 2013 and ending May 31, 2014 whereby Dr. Spier will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million.


The Company authorized and approved an aggregate of 45,000 shares for the period ended May 31, 2013 with an average price of $0.01033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.


On August 31, 2013, the Board of Directors renewed the Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2014. Mr. Mikolajczyk will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million.


28

 

The Company issued an aggregate of 90,000 shares for the six month period ending November 30, 2013 with an average price of $0.001267 per share on November 27, 2013 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier.


The Schedule of Board Compensation below represents the shares issued or approved to the Board with the 5-Day Average Share Closing Price for each month during the nine months ending February 28, 2014:


 

Schedule of Board Compensation






Month

Board Shares Approved, Not Issued

Board Shares Issued

5 Day Average Share Closing Price

Cost Base

June

0

15,000

$0.00274

$41.10

July

0

15,000

$0.00222

$33.30

August

0

15,000

$0.00112

$16.80

Quarter Total

0

45,000

$0.00203

$91.20

September

0

15,000

$0.00094

$14.10

October

0

15,000

$0.00038

$5.70

November

0

15,000

$0.00020

$3.00

Quarter Total

0

45,000

$0.00051

$22.80

December

15,000

0

$0.00018

$2.70

January

15,000

0

$0.00010

$1.50

February

15,000

0

$0.00010

$1.50

Quarter Total

45,000

0

$0.000127

$5.70

Year Total

45,000

90,000

$0.000867

$119.70


The following Schedule of Executive Compensation discloses compensation paid/accrued during the nine months ended February 28, 2014 to the Companys Officers and the most highly compensated executive officer whose total compensation exceeded $100,000 for the period ended February 28, 2014 (Collectively, the Named Executive Officers). No restricted stock awards, long-term incentive plan payouts or other types of compensation, other than the compensation identified in the table below, were paid/accrued to the Named Executive Officers during the period.


2014 Schedule of Executive Compensation

Through to February 28, 2014

Name and Principal Position

Salary[1]

Bonus

StockAward



Option Awards

Total Salary

Jerry G. Mikolajczyk, President/CEO/CFO

$90,000

0

0

0

$90,000

Wayne St. Cyr, Executive Vice President

$90,000

0

0

0

$90,000

Peter Matousek, VP-Investor Relations

$67,500

0

0

0

$67,500

Dr. William D. Spier, Treasurer

$67,500

0

0

0

$67,500







Note 1 - Does not include stock compensation as Board members



NOTE 18: COMMON SHARES PURCHASE LITIGATION


On May 10, 2011, the Company accepted an Offer to Purchase from Lea Kennedy d/b/a LuxemBarings (Purchaser) to purchase $10 million of the Companys common stock based on the average of 5 consecutive trading days close prior to date of closing. The Offer to Purchase was scheduled to close on or before June 24, 2011. The Purchaser failed to complete the transaction, after mutually agreed extensions of the closing date. The Company has retained legal counsel to take legal action against the Purchaser for failing to complete the purchase transaction and for damages to the Company as a result of the failure to complete the transaction.


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


On July, 8, 2013,  the Company was awarded a judgment dismissing, without prejudice, the legal action between Xun Energy, Inc., as Plaintiff and Lea Kennedy, an individual, d/b/a LUXEMBARINGS, as Defendant. The Company filed for a voluntary dismissal without prejudice on the legal action.


The Company has recognized losses, at cost, in the financial statements for the period ended May 31, 2012 and legal costs for the period ending February 28, 2014.


NOTE 19: EXECUTIVE AND BOARD CHANGES


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


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


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


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

 

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


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


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


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On May 30, 2013, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2014.


On May 30, 2013, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2014.


On August 31, 2013, Company entered into a Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2014.


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


 

NOTE 20:  VENANGO 30 WELL LOCATION


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


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


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


Lease Name

Net Revenue Interest Breakdown

Rice

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



Lalley

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



Corse

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


The Agreement allows the Company to have the exclusive right to explore, operate, produce all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced (Oil and Gas) from Oil and Gas deposits contained within and under the well location and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the well location and other lands for the production of Oil and Gas to the Company. A well location is defined as a circle having a radius of 150 feet with the well, to a depth as allowed in the Master Lease, at the center thereof.


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


Lease Name

Locations

Rights

Rice

Up to 10

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




Lalley

Up to 8

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




Corse

Up to 15

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


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


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


31


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


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


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


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


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


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


On March 30, 2013, the Company's operator, Vencedor Energy Partners, began site work on the Rice lease.


On August 26, 2013, the Company's operator, Vencedor Energy Partners (VEP), completed the drilling, casing and cementing of our first oil well of the 30 well drilling program. Rice oil well number 15 was drilled to the Target Depth of 1,050' on the Rice lease, in Venango County, PA. Samples were taken during the drilling program for analysis. Petroleum odors were emitted at the 720', 745', and 915' levels of the wellbore, indicating oil presence at these depths.  The review of the drill cuttings (samples) from the Rice #15 supported the need for a wire line log to be conducted on the well. VEP's geologist confirmed that the samples taken on August 26, 2013 revealed a well formed zone in the Venango 2 and also potential lenses in the Venango 1 and Red Valley sequence. Oil saturation is estimated at 30-35% for the Venango sequence with a strong show in the Red Valley sequence. The log will provide enough details to determine other key factors in determining whether or not the oil well should be put into production.


On September 16, 2013 the Company's operator, Vencedor Energy Partners (VEP), completed the nuclear wire line log on Rice #15 on the Rise Lease, in Venango County, PA. Verbal reports from the logging crew and staff on site were very positive when the logging tool pulled out of the well bore was covered with crude oil.


On September  25, 2013 the Company's operator, Vencedor Energy Partners (VEP), reported the analysis of the wire-line log on Rice #15 on the Rise Lease, Venango County, PA. VEP reported the following:

1.

The Venango-First has two separated lenses, one is about 6 feet, 762'-766', and another 9 foot section, 788'-797', and both have decent porosity. The sand thickness has developed at this location along with its oil saturations. The upper and lower lenses both have a fair to good oil show.

2.

The Venango-Second has 16 feet of formation on the bottom lens, 916'-932', with good porosity and saturation and another 4 feet above it, 908'-912' that's producible with lesser values. The porosity on the lower lens has a fair to excellent show of oil with a poorer oil show in the upper lens portion.

3.

VEP recommended the balance of the infrastructure on the Rice Lease be completed first. After the infrastructure is installed, then Rice #15 well should be completed for production.


On February 4, 2014, four of the five drilling permits on the Rice lease expired. The Operator, VEP, initiated the process to renew the four expired permits. The process for obtaining permits may take 60 days or longer to obtain from the Pennsylvania Department of Environmental Protection.


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


32


NOTE 21:  TERMINATION OF FINANCIAL CONSULTING SERVICES AGREEMENT


On December 18, 2012, the Company issued a Notice of Termination to Vaquero Private Capital, Inc. (VPC) for breach of contract by VPC, terminating the September 4, 2012 twelve month Financial Consulting Services Agreement (the Agreement) effective as of June 1, 2012, pursuant to which VPC would provide consulting services in connection with the Companys business affairs and assist the Company in raising capital.  In consideration of the services to be provided by VPC, the Company paid VPC a prepaid fee of $810,000 in the form of 16.2 million common shares of the Company. The Company has placed a Stop Order on the transference of 16.2 million shares pending resolution of the breach of contract by VPC.


NOTE 22: FINANCING AGREEMENTS


On May 7, 2013, the Company entered into a reserve equity financing agreement (the Financing Agreement) with AGS Capital Group, LLC, (AGS). Pursuant to the Financing Agreement, the Company has the right, but not the obligation, to issue $15,000,000 of the Companys common stock to AGS over the course of 3 years. The Company has full control and discretion over the timing and amount of any shares that they sell to AGS when the Market Price, as defined in the Financing Agreement, is $0.50 or higher per share. For each advance, the Company may issue an amount of stock up to $250,000. Such advance will not exceed more than 200% of the average daily trading volume for the previous 10 trading days. The purchase price of the shares shall be set at ninety percent (90%) of the average of the three (3) lowest closing bid prices of the stock during the ten (10) consecutive weekday trading days (the Pricing Period) immediately after the date on which the Company provides an advance notice. The Company, at its option, may select a safety net price for any specified advance which the Company will not sell shares to AGS under that advance when the Purchase Price (Market Price less 10% discount) falls below such safety net price during the Pricing Period. The Company issued 4,081,633 shares of common stock as a commitment fee deposit towards the commitment fee of $40,000 to be deducted from the first advance.


On May 7, 2013, the Company entered into a registration rights agreement with AGS (the RRA, and along with the Financing Agreement, the Agreements).  According to the RRA, the Company must file a registration statement on Form S-1, registering the shares of common stock which may be issued to AGS pursuant to the Financing Agreement within thirty (30) days of the date of the RRA.

Prior to the date of the Agreements, AGS had no material interaction, other than the negotiation of the Agreements, with the Company.


On May 29, 2013, the Company filed a Registration Statement, Form S-1,  registering  the shares of common stock of the Company as follows:

1.

75,000,000 shares of the Company's common stock (the Put Shares) that the Company will put to AGS pursuant to Financing Agreement between AGS and the Company, dated May 7, 2013, and

2.

4,081,633 commitment shares of the Company's common stock the Company paid to AGS as a fee for providing the facility.


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


On July 1, 2013, the Company requested the withdrawal of the Registration Statement, Form S-1 (Registration No. 333-188906)  because the related reserve equity financing agreement with AGS contained provisions that result in the selling stockholder not being irrevocably bound to purchase the shares that the Company elects to sell under the agreement. No securities were sold pursuant to the Registration Statement.


On July 11, 2013, the Company entered into a amended and restated reserve equity financing agreement (the Financing Agreement) with AGS Capital Group, LLC, (AGS). Pursuant to the Financing Agreement, the Company has the right, but not the obligation, to issue $15,000,000 of the Companys common stock to AGS over the course of 3 years. The Company has full control and discretion over the timing and amount of any shares that they sell to AGS when the Market Price, as defined in the Financing Agreement, is $0.50 or higher per share. For each advance, the Company may issue an amount of stock up to $250,000. Such advance will not exceed more than 200% of the average daily trading volume for the previous 10 trading days. The purchase price of the shares shall be set at ninety percent (90%) of the average of the three (3) lowest closing bid prices of the stock during the ten (10) consecutive weekday trading days (the Pricing Period) immediately after the date on which the Company provides an advance notice. The Company, at its option, may select a safety net price for any specified advance which the Company will not sell shares to AGS under that advance when the Purchase Price (Market Price less 10% discount) falls below such safety net price during the Pricing Period. The Company issued 4,081,633 shares of common stock as a commitment fee deposit towards the commitment fee of $40,000 to be deducted from the first advance. Prior to the date of the Agreement, AGS had no material interaction with the Company, other than the negotiation of the Agreement and the negotiation and execution of the original reserve equity financing agreement and registration rights agreement.


33


On July 11, 2013, the Company also entered into a registration rights agreement with AGS (the RRA, and along with the Financing Agreement, the Agreements).  According to the RRA, the Company must file a registration statement on Form S-1, registering the shares of common stock which may be issued to AGS pursuant to the Financing Agreement within thirty (30) days of the date of the RRA. Prior to the date of the Agreement, AGS had no material interaction with the Company, other than the negotiation of the Agreement and the negotiation and execution of the original reserve equity financing agreement and registration rights agreement.


On September 17, 2013 the Company filed a Registration Statement, Form S-1,  registering  the shares of common stock of the Company as follows:

1.

75,000,000 shares of the Company's common stock (the Put Shares) that the Company will put to AGS pursuant to Financing Agreement between AGS and the Company, dated May 7, 2013, and

2.

4,081,633 commitment shares of the Company's common stock the Company paid to AGS as a fee for providing the facility.


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


On November 27, 2013, the Company amended the reserve equity financing agreement (the Amendment) with AGS. The amendment clarifies Section 2.1, Advances to include a new defined term, Exercise Market Price, which shall mean the average of the 3 lowest Closing Bid Prices of the Companys Common Stock prior to any Advance Notice Date. The Amendment did not further change or amend the terms and conditions of the Amended and Restated Reserve Equity Financing Agreement (the Financing Agreement"), between the Company and AGS dated July 11, 2013.


On December 16, 2013 the Company filed an amended Registration Statement, Form S-1/A,  registering  the shares of common stock of the Company as follows:

1.

33,333,334 shares of the Company's common stock (the Put Shares) that the Company will put to AGS pursuant to Financing Agreement between AGS and the Company, dated November 27, 2013, and

2.

4,081,633 commitment shares of the Company's common stock the Company paid to AGS as a fee for providing the facility.


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


On January 16, 2014 the Company filed an amended Registration Statement, Form S-1/A,  registering  the shares of common stock of the Company as follows:

1.

33,333,334 shares of the Company's common stock (the Put Shares) that the Company will put to AGS pursuant to Financing Agreement between AGS and the Company, dated November 27, 2013, and

2.

4,081,633 commitment shares of the Company's common stock the Company paid to AGS as a fee for providing the facility.


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


On February 3, 2014, the Company requested the Securities and Exchange Commission (the Commission) consent to the withdrawal of the Companies Registration Statement on Form S-1 (Registration No. 333-191200), together with all exhibits and amendments thereto (the Registration Statement). The Company requested the withdrawal of the Registration Statement because terms of the reserve equity financing agreement were renegotiated after the Company filed the Registration Statement. No securities were sold pursuant to the Registration Statement.


34


On February 4, 2014 the Company filed a Registration Statement, Form S-1,  registering  the shares of common stock of the Company as follows:

1.

33,333,334 shares of the Company's common stock (the Put Shares) that the Company will put to AGS pursuant to Financing Agreement between AGS and the Company, dated November 27, 2013, and

2.

4,081,633 commitment shares of the Company's common stock the Company paid to AGS as a fee for providing the facility.


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


NOTE 23: SUBSEQUENT EVENTS


The Company issued 121,000,000 shares on March 7, 2014 for $6,050 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

The Company issue 90,000,000 shares on March 2, 2014 for $4,500 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on March 3, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 140,000,000 shares on March 25, 2014 for $7,000 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on March 26, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 77,400,000 shares on March 26, 2014 for $4,064 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


On March 26, 2014, the Securities and Exchange Commission (the SEC) declared the Registration Statement on Form S-1 (the Registration Statement) of the Company, filed on February 4, 2014, effective. The Registration Statement registers for sale 37,414,967 shares of the Companys common stock pursuant to an amended and restated reserve equity financing agreement (the Financing Agreement) previously issued or to be issued to AGS Capital Group, LLC (AGS). Pursuant to the Financing Agreement, the Company has the right, but not the obligation, to issue $15,000,000 of the Companys common stock to AGS over the next 3 years. The Company has full control and discretion over the timing and amount of any shares that they sell to AGS when the Exercise Market Price, as defined in the Financing Agreement, is $0.50 or higher per share. For each advance, the Company may issue an amount of stock up to $250,000. Such advance will not exceed more than 200% of the average daily trading volume for the previous 10 trading days. The purchase price of the shares shall be set at ninety percent (90%) of the average of the three (3) lowest closing bid prices of the stock during the ten (10) consecutive weekday trading days (the Pricing Period) immediately after the date on which the Company provides an advance notice. The Company, at its option, may select a safety net price for any specified advance which the Company will not sell shares to AGS under that advance when the Purchase Price (Market Price less 10% discount) falls below such safety net price during the Pricing Period. The Company issued 4,081,633 shares of common stock as a commitment fee deposit towards the commitment fee of $40,000 to be deducted from the first advance.


The Company issued 72,000,000 shares on March 28, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issue 145,000,000 shares on April 3, 2014 for $7,250 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


35


The Company issued 72,000,000 shares on April 4, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 168,000,000 shares on April 9, 2014 for $8,400 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


 Managements Discussion and Analysis of Financial Condition and Results of Operations.


The following managements discussion and analysis (MD&A) is managements assessment of the historical financial and operating results of the Company during the period covered by the financial statements. This MD&A should be read in conjunction with the audited consolidated financial statements and the related notes and other information included elsewhere in this Quarterly Report on Form 10-Q.


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2014 contains forward-looking statements. Generally, the words believes, anticipates, may, will, should, expect, intend, estimate, continue, and similar expressions or the negative thereof or comparable terminology are intended to identify  forward-looking statements which include, but are not limited to, statements concerning the Companys expectations regarding its working capital requirements, financing requirements, business prospects, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected.

 

These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein.

 

Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 


OTHER PERTINENT INFORMATION

 

When used in this report, the terms "Xun Energy," the "Company," "we," "our," and "us" refer to Xun Energy, Inc., a Nevada corporation.  

          

General


The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 30 oil and gas wells with an option to acquire an additional 15 oil and gas well locations for drilling and completion in Venango County, Pennsylvania. There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations; there are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas will be produced from one or more of the 30 oil and gas well locations, that the Company will be profitable.


The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada. There is no assurance that we will be successful in raising the necessary funds to acquire any of producing oil and gas properties.


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


36


Our focus is to generate cash flow.


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


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


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



Lease Name

Net Revenue Interest Breakdown

Rice

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

Lalley

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

Corse

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


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


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



 

Lease Name

Locations

Rights

Rice

Up to 10

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

Lalley

Up to 8

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

Corse

Up to 15

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


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


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


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


37


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


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


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

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


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


On March 28, 2013, our Operator commenced site preparation on the Rice Lease, well numbers 3, 5, 6, 14 and 15.


On August 26, 2013, the Company's operator, Vencedor Energy Partners (VEP), completed the drilling, casing and cementing of our first oil well of the 30 well drilling program. Rice oil well number 15 was drilled to the Target Depth of 1,050' on the Rice lease, in Venango County, PA. Samples were taken during the drilling program for analysis. Petroleum odors were emitted at the 720', 745', and 915' levels of the wellbore, indicating oil presence at these depths.  The review of the drill cuttings (samples) from the Rice #15 supported the need for a wire line log to be conducted on the well.


VEP's geologist confirmed that the samples taken on August 26, 2013 revealed a well formed zone in the Venango 2 and also potential lenses in the Venango 1 and Red Valley sequence. Oil saturation is estimated at 30-35% for the Venango sequence with a strong show in the Red Valley sequence. The log will provide enough details to determine other key factors in determining whether or not the oil well should be put into production.


On September 16, 2013 the Company's operator, Vencedor Energy Partners (VEP), completed the nuclear wire line log on Rice #15 on the Rise Lease, in Venango County, PA. Verbal reports from the logging crew and staff on site were very positive when the logging tool pulled out of the well bore was covered with crude oil and on September 25, 2013 the Company's operator, Vencedor Energy Partners (VEP), reported the analysis of the wire-line log on Rice #15 on the Rise Lease, Venango County, PA. VEP reported the following:

1.

The Venango-First has two separated lenses, one is about 6 feet, 762'-766', and another 9 foot section, 788'-797', and both have decent porosity. The sand thickness has developed at this location along with its oil saturations. The upper and lower lenses both have a fair to good oil show.

2.

The Venango-Second has 16 feet of formation on the bottom lens, 916'-932', with good porosity and saturation and another 4 feet above it, 908'-912' that's producible with lesser values. The porosity on the lower lens has a fair to excellent show of oil with a poorer oil show in the upper lens portion.

3.

VEP recommended the balance of the infrastructure on the Rice Lease be completed first. After the infrastructure is installed, then Rice #15 well should be completed for production.


On February 4, 2014, four of the five drilling permits on the Rice lease expired. The Operator, VEP, initiated the process to renew the four expired permits. The process for obtaining the permits may take 60 days or longer to obtain from the Pennsylvania Department of Environmental Protection.


As of February 28, 2014, the Company paid for the construction of the tank battery and tanks and is waiting for the Company's Operator to complete the construction of the tank battery pad and the installation the 210 barrel storage tank for the crude oil.  


Mission Statement


·

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

·

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

·

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


38


Strategy


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

·    Generating cash flow,

·

Securing financing to acquire our planned acquisitions,

·

Exercising capital discipline,

·

Ensuring financial strength, and

·

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


Subsequent Events:


The Company issued 121,000,000 shares on March 7, 2014 for $6,050 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issue 90,000,000 shares on March 2, 2014 for $4,500 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on March 3, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 140,000,000 shares on March 25, 2014 for $7,000 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on March 26, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 77,400,000 shares on March 26, 2014 for $4,064 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


On March 26, 2014, the Securities and Exchange Commission (the SEC) declared the Registration Statement on Form S-1 (the Registration Statement) of the Company, filed on February 4, 2014, effective. The Registration Statement registers for sale 37,414,967 shares of the Companys common stock pursuant to an amended and restated reserve equity financing agreement (the Financing Agreement) previously issued or to be issued to AGS Capital Group, LLC (AGS). Pursuant to the Financing Agreement, the Company has the right, but not the obligation, to issue $15,000,000 of the Companys common stock to AGS over the next 3 years. The Company has full control and discretion over the timing and amount of any shares that they sell to AGS when the Exercise Market Price, as defined in the Financing Agreement, is $0.50 or higher per share. For each advance, the Company may issue an amount of stock up to $250,000. Such advance will not exceed more than 200% of the average daily trading volume for the previous 10 trading days. The purchase price of the shares shall be set at ninety percent (90%) of the average of the three (3) lowest closing bid prices of the stock during the ten (10) consecutive weekday trading days (the Pricing Period) immediately after the date on which the Company provides an advance notice. The Company, at its option, may select a safety net price for any specified advance which the Company will not sell shares to AGS under that advance when the Purchase Price (Market Price less 10% discount) falls below such safety net price during the Pricing Period. The Company issued 4,081,633 shares of common stock as a commitment fee deposit towards the commitment fee of $40,000 to be deducted from the first advance.


The Company issued 72,000,000 shares on March 28, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


39


The Company issue 145,000,000 shares on April 3, 2014 for $7,250 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on April 4, 2014 for $4,320 for interest pursuant to the conversion of a Convertible Promissory Note dated May 13, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

                The Company issued 168,000,000 shares on April 9, 2014 for $8,400 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


Introduction


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


We have a limited operating history of oil and gas production and no proven reserves, no production and negative cash flow. To date, we have had limited revenues and have not been able to generate sustainable positive earnings on a Company-wide basis. Our management cannot provide any assurances that the Company will ever operate profitably. As a result of our limited operating history, we are more susceptible to the numerous business, investment and industry risks that have been described in Item 1A. Risk Factors of this Annual Report on Form 10K.


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


Our acquisition of the 30 oil and gas well locations, with the option for an additional 15 oil and gas well locations, in Venango County, Pennsylvania on August 31, 2012 will require $7,500,000 to complete the drilling and completions program. We have not completed our financing to be able to pay for the 30 oil and gas well drilling and completions program. We have an agreement with AGS Capital Group, LLC for a $15 Million Reserve Equity Financing (REF) which requires the Company to register 37 Million shares with the SEC. There is no guarantee that the Company will be successful in registering the 37 Million shares with the SEC or any guarantee that the Company will be successful in drawing down on the REF.


We have applied for a $5 Million Small Business Administration (SBA) loan for the 30 oil and gas well program in Venango County, Pennsylvania. There is no guarantee that the Company will be approved for an SBA Loan or close on a SBA loan.   


We have applied for a $5 Million Small Business Administration (SBA) loan in Texas for the acquisition of the Falls Project which consists of 24 producing oil and gas leases in the State of Texas. There is no guarantee that the Company will be approved for an SBA Loan, close on a SBA loan or close on the acquisition of the Falls Project.


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


Our inability to generate revenue during the three month period ending February 28, 2014 is due primarily to difficulties in our ability to raise sufficient funds necessary to close on the financing to complete the drilling and completion program on the 30 oil and gas well locations in Venango County, Pennsylvania. There are no assurances that the Company will be successful in raising sufficient funds to accomplish our goals and objectives.


40


COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 2014 AND FEBRUARY 28, 2013 AND FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2014.

Results of Operations

The following discussion and analysis of our results of operations and financial condition for the three and nine months ended February 28, 2014 should be read in conjunction with our unaudited interim consolidated financial statements and related notes included in this report, as well as our most recent annual report on Form 10-K for the year ended May 31, 2013 filed with the SEC.

Three Months Ended February 28, 2014 Compared to Three Months Ended February 28, 2013

 

 Revenues


We generated no revenues for the three months ending February 28, 2014 and the three months ending February 28, 2013. Total revenue from December 20, 2007 (Inception) through February 28, 2014 were $4,637. Our operations to date have been financed by the sale of our common stock and third party loans.


Operating expenses for the three months ended February 28, 2014 and February 28, 2013 totalled $133,489 and $563,126. Total operating expenses from December 20, 2007 (Inception) through February 28, 2014 were $2,974,877. Our single largest expense for the three months ended February 28, 2014 has been consulting fees totalling $105,000 and $105,375 for financial consulting for the three months ended February 28, 2013. Total consulting fees from December 20, 2007 (Inception) through February 28, 2014 were $1,528,333.


               General and Administrative expenses, including financial consulting fees, for the three months ended February 28, 2014 and February 28, 2013 totalled $133,489 and $563,126 respectively. Total General and Administrative expenses from December 20, 2007 (Inception) through February 28, 2014 were $2,974,877.


               Other Expenses including debt interest, amortized discounts and extraordinary expenses, for the three months ended February 28, 2014 and February 28, 2013 totalled $80,700 and $14,116 respectively. Total Other Expenses from December 20, 2007 (Inception) through February 28, 2014 were $903,380.


                For the three months ended February 28, 2014 we had a net loss of ($214,189) and a net loss of ($577,242) for the three months ended February 28, 2013.  Total losses since December 20, 2007 (Inception) were ($3,875,273).  


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

 

 Nine Months Ended February 28, 2014 Compared to Nine Months Ended February 28, 2013

 

 Revenues


We generated no revenues for the nine months ending February 28, 2014 and the nine months ending February 28, 2013. Total revenue from December 20, 2007 (Inception) through February 28, 2014 were $4,637. Our operations to date have been financed by the sale of our common stock and third party loans.


Operating expenses for the nine months ended February 28, 2014 and February 28, 2013 totalled $81,803 and $1,166,156. Total operating expenses from December 20, 2007 (Inception) through February 28, 2014 were $2,974,877. Our single largest expense for the nine months ended February 28, 2014 has been consulting fees totalling $315,000 and $277,032 for financial consulting for the nine months ended February 28, 2013. Total consulting fees from December 20, 2007 (Inception) through February 28, 2014 were $1,528,333.


General and Administrative expenses, including financial consulting fees, for the nine months ended February 28, 2014 and February 28, 2013 totalled $81,803 and $1,166,156 respectively. Total General and Administrative expenses from December 20, 2007 (Inception) through February 28, 2014 were $2,974,877.


Other Expenses including debt interest, amortized discounts and extraordinary expenses, for the nine months ended February 28, 2014 and February 28, 2013 totalled $339,570 and $30,321 respectively. Total Other Expenses from December 20, 2007 (Inception) through February 28, 2014 were $903,380.


41


For the nine months ended February 28, 2014 and February 28, 2013, we had a net loss of ($421,373) and ($1,196,477).  Total losses since December 20, 2007 (Inception) were ($3,875,273).


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


Liquidity and Capital Resources


Assets and Liabilities


Our primary financial resource is our base of our unproven oil and gas leases. Our ability to fund our capital expenditure program is dependent upon the availability of capital resource financing. In this fiscal year, we planned on spending approximately $5,000,000 in new capital investments for a 30 well oil and gas drilling program on our ability to raise $5,000,000 in funding. Factors such as changes in operating margins due to changes in the price of oil and gas and the availability of capital resources could increase or decrease our ultimate level of expenditures during the remaining fiscal year.


The changes in our capital resources at February 28, 2014 compared with February 28, 2013 are:




February 28, 2014


February 28, 2013


Increase (Decrease)

Percentage Change









 Cash  

$

3,887

$

69

$

3,818 

5,511.81%

 Current Assets  

$

7,369

$

953,287

$

(945,918)

-99.23%

 Total Assets  

$

1,485,869

$

2,431,977

$

(946,108)

-38.90%

 Current Liabilities  

$

2,986,649

$

2,495,483

$

491,166 

19.68%

 Total Liabilities  

$

2,986,649

$

2,621,807

$

364,842 

13.92%

 Working Capital Deficit  

$

2,979,280

$

1,542,196

$

1,437,084 

93.18%


               Our working capital deficit increased by $1,437,084 from $1,542,196 as of February 28, 2013 to $2,979,280  as of February 28, 2014. This increase in the deficit was due to the amount of resources that were expended to source financing for the drilling and completions of our 30 oil and gas leases in Venango County, PA, complete all the necessary SEC filings and the drilling and completions work program on the Rice Lease in Venango County, PA.


Over the last nine months, we expended our resources on raising funds to complete our 30 oil well drilling program in Venango County, PA, attempting to raise funds for the acquisition of oil and gas leases that meet our criteria, to raise sufficient funds to fund a drilling and completions programs once we acquired oil and gas leases, updating our prior SEC filings with XBRL interactive data files, completing our fiscal year end consolidated statements and SEC filings. Our business is capital intensive. Our ability to grow is dependent upon favorably obtaining outside debt and capital and generating cash flows from operating activities necessary to fund our investment activities. There is no assurance that we will be able to achieve profitability. Since our future operations will continue to be dependent on successful development activities and our ability to seek and secure capital from external sources, should we be unable to achieve sustainable profitability this could cause any equity investment in the Company to become worthless.


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


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


Cash Flows


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


42


Cash Flow Used in Operating activities:



February 28, 2014


February 28, 2013


Increase (Decrease)

Percentage Change

 Net cash provided by (used in) operating activities  

$  

(186,442)

$  

289,260 

$

475,703 

-164.45%

 Net cash provided by (used in) investing activities  

$

$

(835,000)

$

(835,000)

N/A

 Net cash provided by (used by) financing activities  

$

166,930 

$

545,809 

$

(378,879)

-69.42%


Cash flow from operating activities is derived from changes in the balances of payables, or other non-oil property asset account balances. For the nine months ended February 28, 2014, we had a negative cash flow from operating activities of $186,442, in comparison to a cash flow of $289,260 for the nine months ended February 28, 2013. This change of $475,703 was the result of a increase in our payables balance and a decrease in our current assets. Variations in cash flow from operating activities may affect our level of development expenditures. Our expenditures consist primarily of our General and Administrative (G&A) expenses, which consist of consulting and professional services, employee compensation, legal, accounting, travel and other G&A expenses, which we have incurred in order to address necessary organizational activities.


Cash Flow Used in Investing activities:


Cash flow used by investing activities was zero for the nine months ended February 28, 2014. This is in comparison to $835,000 investing activities used for the nine months ended February 28, 2013.


Cash Flow from Financing activities:


Cash flow from financing activities is derived from short term debt account balances or in equity, account balances excluding retained earnings. Cash flow provided by financing activities was $166,930 for the nine months ended February 28, 2014. This is in comparison to $545,809 provided by financing activities for the nine months ended February 28, 2013. We anticipate it will be necessary to rely on additional funding from the debt financing and from capital markets in the current fiscal year to complete the 30 oil well drilling and completions program in Venango County, P.A. other acquisitions and to discharge our debts.


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


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


Plan of Operation For Remaining Fiscal Year


We will attempt to continue to source equity or debt financing, or Joint Venture partners for our operating costs and for our oil and gas well drilling programs or attempt to identify a profitable acquisition candidate. Our Reserve Equity Finance agreement with AGS Capital Group, LLC for $15 Million requires the Company to register 37 Million shares of our stock with the SEC. This will take time to become effective. There is no guarantee that the Company will be successful in registering the 37 Million shares with the SEC. We have had discussions with several companies and individuals for funding and/or Joint Ventures. However, we have not come to terms with any company or individual as of February 28, 2014. We will attempt to finance our operating expenses with additional debt or through equity financing.


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


43


Off-Balance Sheet Arrangements

 

               We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable.


ITEM 4. CONTROLS AND PROCEDURES                   

 

Item 9A. Controls and Procedures.

 

Disclosure controls and procedures.


Under the supervision and with the participation of our management, including our principal executive and principal financial officer, we evaluated, as of February 28, 2014, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. 


Internal Control over Financial Reporting


During the period covered by this Quarterly Report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 13d-15(d) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1.   LEGAL PROCEEDINGS.

 

  

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


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


On July, 8, 2013, the Company was awarded a judgment dismissing, without prejudice, the legal action between Xun Energy, Inc., as Plaintiff and Lea Kennedy, an individual, d/b/a LUXEMBARINGS, as Defendant. The Company filed for a voluntary dismissal without prejudice on the legal action.

 

ITEM 1A.   RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in our Form 10-K filed September 13, 2013.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SINCE MAY 31, 2013.


The Company issued 5,714,286 shares on June 13, 2013 for $12,000 pursuant to a Convertible Promissory Note dated December 6, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 5,000,000 shares on June 17, 2013 for $13,750 pursuant to a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


44

 

               The Company issued 7,380,952 shares on June 19, 2013 for $15,500 pursuant to a Convertible Promissory Note dated December 6, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 4,000,000 shares on July 8, 2013 for $4,600 pursuant to a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 10,454,545 shares on July 15, 2013 for $11,500 pursuant to a Convertible Promissory Note dated December 6, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 12,195,121 shares on July 23, 2013 for $10,000 pursuant to a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 14,285,714 shares on August 9, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 4(a)(2) of the Securities Act.   


The Company issued 20,689,655 shares on August 20, 2013 for $12,000 pursuant to the Stock and Securities Exchange Agreement for a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 16,949,152 shares on August 26, 2013 for $10,000 pursuant to a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 33,000,000 shares on August 27, 2013 for $16,500 pursuant to a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 20,408,163 shares on September 4, 2013 for $10,000 pursuant to a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 19,186,046 shares on September 9, 2013 for $8,250 pursuant to a Convertible Promissory Note dated October 19, 2012.  The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 27,500,000 shares on September 16, 2013 for $8,250 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 26,950,185 shares on September 17, 2013 for $11,319 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 33,300,000 shares on September 20, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 27,272,727 shares on September 25, 2013 for $9,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 20,833,333 shares on October 4, 2013 for $5,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 37,500,000 shares on October 11, 2013 for $7,500 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 20,090,864 shares on October 11, 2013 for $5,331 and 7,589,856 shares for $2,014 for interest, both pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,090,909 shares on October 17, 2013 for $7,500 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


45


The Company issued 29,411,764 shares on October 31, 2013 for $5,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company cancelled 20 million shares on October 31, 2013 issued to Prodigy Asset Management, LLC pursuant to the mutually agreed termination of  the August 31, 2012 Financing Facilities Consulting Agreement.


The Company issued 7,692,308 shares on November 7, 2013 for $1,000 pursuant to the conversion of a Convertible Promissory Note dated January 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 45,000,000 shares on November 8, 2013 for $4,500 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,454,545 shares on November 14, 2013 for $3,790 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,454,545 shares on November 19, 2013 for $3,790 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued an aggregate of 90,000 shares for the nine month period ending November 30, 2013 with an average price of $0.001267 per share on November 27, 2013 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier. The issuance of the common stock was exempt from registration under Section 4(a) (2) of the Securities Act.

 

The Company issued 6,418,980 shares on November 27, 2013 for $3,903 for interest pursuant to a Convertible Promissory Note dated January 1, 2013. The issuance of the common stock was exempt from registration under Section 4(a) (2) of the Securities Act.


The Company issued 90,000,000 shares on December 3, 2013 for $9,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,333,333 shares on December 11, 2013 for $2,060 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,000,000 shares on December 12, 2013 for $1,700 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,333,333 shares on December 16, 2013 for $2,060 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 100,000,000 shares on December 18, 2013 for $10,000 pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 46,500,000 shares on December 23, 2013 for $2441 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

 

The Company issue 45,050,000 shares on January 6, 2014 for $4,505  pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


46


The Company issue 77,780,000 shares on January 6, 2014 for $7,778 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 56,000,000 shares on January 15, 2014 for $2,800 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 34,333,333 shares on January 22, 2014 for $2,060 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on January 27, 2014 for $3,780 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on February 5, 2014 for $4,320 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 77,000,000 shares on February 5, 2014 for $3,850 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 77,400,000 shares on February 10, 2014 for $4,063 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 66,000,000 shares on February 11, 2014 for $3,960 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issue 90,000,000 shares on February 12, 2014 for $4,500 for interest pursuant to the conversion of a Convertible Promissory Note dated October 19, 2012. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on February 14, 2014 for $4,320 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 96,000,000 shares on February 14, 2014 for $4,800 pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 84,865,100 shares on February 14, 2014 for $8,487 pursuant to the conversion of a Convertible Promissory Note dated August 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 72,000,000 shares on February 21, 2014 for $5,040 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 18,333,333 shares on February 24, 2014 for $1,100 pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 21,666,667 shares on February 24, 2014 for $1,300 for interest pursuant to the conversion of a Convertible Promissory Note dated May 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


47


The Company issued 51,238,095 shares on February 26, 2014 for $2,960 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 65,134,900 shares on February 26, 2014 for $6,513 pursuant to the conversion of a Convertible Promissory Note dated August 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


The Company issued 12,976,700 shares on February 26, 2014 for $1,298 for interest pursuant to the conversion of a Convertible Promissory Note dated August 1, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

 

None

 

ITEM 4.  MINE SAFETY DISCLOSURES.

 

Not Applicable

 

ITEM 5.  OTHER INFORMATION

 

None.


48


ITEM 6.   EXHIBITS INCORPORATED BY REFERENCE


Exhibit Number

Exhibit Description

Form

Exhibit

Filing Date

File/

Furnished Herewith

Other Events





8.01

Registration Statement, Form S-1 declared effective by the SEC

8-K

-

03/27/13


Material Contracts

10.01

Amended and Restated Reserve Equity Financing Agreement, between Xun Energy, Inc. and AGS Capital Group, LLC, dated November 27, 2013

8-K

99.1

12/02/13


10.02

Registration Rights Agreement, between Xun Energy, Inc. and AGS Capital Group, LLC, dated July 11, 2013

8-K

99.2

12/02/13


Rule 13a14(a)/15d-14(a) Certifications

31.1

Certificate of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002




X

31.2

Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002




X

32.1

Certificate of the Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




X

32.2

Certificate of the Chief Financial  Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




X


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


XUN ENERGY, INC.

  



Date: April 14, 2014

By:

/s/ Jerry G. Mikolajczyk



Jerry G. Mikolajczyk


 

Chief Executive Officer

(principal executive officer)

 



Date:  April 14, 2014

By:

/s/ Jerry G. Mikolajczyk



Jerry G. Mikolajczyk



Chief Financial Officer

(principal financial officer and principal accounting officer)



49