10-K 1 paradigmoil10k.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________ FORM 10-K ________________________ (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2010 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _____ to _______ Commission file number: 333-103780 ---------------------------------- PARADIGM OIL AND GAS, INC. -------------------------------------------------------------------------------- (Exact name of small business issuer in its charter) Nevada 33-1037546 ---------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1307 W Main St., Ste 247 B, 75156 Gun Barrel City, Texas ----------------------------------------- --------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (903) 880 1161 Securities Registered Under Section 12(b) of the Exchange Act: None Securities Registered Under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value ------------------------------ (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes No [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions 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 (Do not check if a smaller Smaller reporting company [X] reporting company) filer Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes No [X] The Company's stock is traded on the OTC-BB. As of April 18, 2011, there were 23,887,826 shares of stock held by non-affiliates. As of April 14, 2011, 53,287,826 shares of the common stock of the registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE None. PART I Item 1. Business. Cautionary Statement Regarding Forward-Looking Statements ========================================================= This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and uncertainty. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this report. Forward-looking statements are often identified by words like: "believe", "expect", "estimate", "anticipate", "intend", "project" and similar expressions or words which, by their nature, refer to future events. In some cases, you can also identify forward-looking statements by terminology such as "may", "will", "should", "plans", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" on page 7, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. 2 Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. References to CA$ refer to Canadian Dollars and references to common shares refer to common shares in our capital stock. As used in this annual report, the terms "we", "us", "our", and "Paradigm" mean Paradigm Oil And Gas, Inc., and its predecessor corporation Paradigm Enterprises, Inc. unless otherwise indicated. Paradigm is an exploration stage company. There is no assurance that commercially viable mineral deposits exist on the claim we have under option or that commercially viable petroleum reserves exist on the properties we have acquired, farmed into or have under option. Further exploration, rework and/or drilling will be required before a final evaluation as to the economic and legal feasibility of our projects is determined. Glossary of Exploration Terms ============================= The following terms, when used in this report, have the respective meanings specified below: AFE Authority For Expenditure - form used when wells are drilled by multiple parties to determine the good faith anticipated cost of the subject well and to specify each of the partners expected financial contribution to the drilling and completion costs. APO After payout - terms of revenue sharing under which the participants receive the proceeds of the well following the point where all costs have been reimbursed including acquisition, drilling and completion. Back-in The reversionary interest of a farmor, lessor or of an assignor of a lease whereunder the farmer, lessor or assignor is to become entitled to a specific share of the working interest when specified costs have been recovered from production. BOE Barrels of oil equivalent; converting volumes of natural gas to oil equivalent volumes using a ratio of six Mcf of natural gas to one Bbl of oil. BOPD Barrels of oil per day. BPO Before Payout - terms of revenue sharing under which the participants receive the proceeds of the well up to the point where all costs have been reimbursed including acquisition, drilling and completion. Completion The installation of permanent equipment for the production of oil or gas. Development Well A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. Drill Spacing The area prescribed by applicable well spacing Units (DSUs) regulations for the granting of a permit for the drilling of a well; the area of land assigned in the granting of a well permit; the area in which it has been determined by regulation that one well can efficiently drain. The size of the DSU may vary from 10 acres in oil fields to 640 acres (one section) in gas fields. 3 Dry Hole or Dry Well A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes. Exploratory Well A well drilled to find and produce oil or gas reserves not classified as proved, to find a new production reservoir in a field previously found to be productive of oil or gas in another reservoir or to extend a known reservoir. Farm-In See Farm-out (following) Farm-Out An agreement pursuant to which the owner of a working interest in an oil and gas lease assigns the working interest or a portion hereof to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a "farm-in" and the assignor issues a "farm-out." Infill Drilling The drilling of an additional well or wells provided for by an existing spacing order to more adequately drain a reservoir. Mcfg/D Thousand cubic feet of gas per day - the standard unit for measuring the volume of natural gas from a well or line; MMcf is one million cubic feet (also Mcf, Bcf (billion), Tcf (trillion)). Operator The individual or company responsible for the exploration, development and production of an oil or gas well or lease. PSI Pounds per square inch - an indication of the degree of pressure. Reserves Refers to proved reserves only. RoFeR Right of First Refusal Royalty An interest in an oil and gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner's royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner. Working Interest An interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations. The share of production to which a working interest owner is entitled will always be smaller than the share of costs that the working interest owner is required to bear, with the balance of the production accruing to the owners of royalties. 4 Description of Business ======================= Overview ======== We were incorporated as Paradigm Enterprises, Inc. in the state of Nevada on July 15, 2002. On February 7, 2005 we changed our name to Paradigm Oil And Gas, Inc. On January 28, 2010, Paradigm Oil & Gas Inc. entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired Company") a Texas corporation. The Transaction was considered to be a reverse acquisition. The acquisition date now becomes the inception date of the Company. From July, 2002 to December, 2004, we were in the business of the exploration and development of a mineral property of approximately 1,236 acres in size in south-western, British Columbia. The property was without known reserves and our program was exploratory in nature. The Board of Directors decided to abandon its interest in this mineral property on August 26, 2005. We are now engaged in the exploration, development, acquisition and operation of oil and gas properties. Because oil and gas exploration and development requires significant capital and our assets and resources are limited, we participate in the oil and gas industry through the purchase of small interests in either producing wells or oil and gas exploration and development projects. From January 28, 2010, the date of the reverse acquisition, the Company now holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment in the State of Texas, USA., and is now engaged in the rework and development of those properties. Business of Issuer We are an exploration company focused on developing North American oil and natural gas reserves. Our current focus is on the exploration of our land portfolio comprised of working interests in highly prospective acreage in the State of Texas and in the Southern Alberta Foothills area in Canada; and North Central Alberta, Canada. We have not been involved in any bankruptcy, receivership or similar proceeding. Other than the reverse acquisition on January 28, 2010, when the acquisition date became the inception date of the Company, there has not been any material reclassification or merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of business. OUR CURRENT BUSINESS -------------------- PETROLEUM EXPLORATION, DEVELOPMENT AND RECOVERY Effective January 28, 2010, Paradigm Oil & Gas Inc. entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired Company") a Texas corporation, whereby the Company has issued 42,000,000, US$.001 Par value common shares to unrelated shareholders in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired company. The Acquired company is now a 100% owned subsidiary of the Company. The Acquired Company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,538.90. These costs have been capitalized on the acquired company's books at cost as Oil and Gas Properties under Lease. 5 The oil and gas properties are comprised of 4 leases totaling approximately nine hundred and thirty four (934) net mineral Acres, all located in the State of Texas, USA. 692 acres in Kaufman County, carry a 80% Net Revenue Interest, 40 acres located in the County of Wood, carry a 80% Net Revenue Interest, 122.37 acres located in the County of Henderson carry a 81.25% Net Revenue Interest and 80 acres in the County of Wichita carry a 75% Net Revenue Interest. Combined there are a total of 9 existing previously producing wells and available spacing to support the drilling of approximately 30 new wells in the 3800' to 9000' range and approximately 50 new wells in the 800' to 1,800' range. On June 22, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired the Corsicana lease. The cost to acquire this lease amounted to $ 20,700 for a 50% working interest in the 80% Net Revenue Interest. The lease has 9 previously producing wells and have spacing over a total of 60 acres to support the potential of 17 new wells to depths of up to 2000 feet. The Corsicana lease is located in Navarro County, Texas. On June 25, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired 2 additional Chilson leases, known as Chilson B. The cost to acquire these leases amounted to $ 17,977 for a 100% working interest in the 81% Net Revenue Interest. Combined the 2 leases have 5 previously producing wells and have spacing over a total of 154 acres to support the potential of 37 new wells to depths of up to 2000 feet. The new Chilson leases are adjacent to the existing Chilson lease the Company has which are all located in Wichita County, Texas. On May 20, 2010 the Company's subsidiary, Paradigm Integrated Technology Solutions Inc., entered into a Transfer of Technology and Know How Agreement for the world wide marketing rights for the Transportable Enhanced Oil Recovery Platform. Under the terms of the agreement the Company agreed to purchase the first system which includes the exclusive ownership in the related technology and know how. $ 50,000 was paid on signing the agreement and $50,000 was to be paid within thirty days of signing the agreement towards the purchase of the first system and an additional $ 50,000 on delivery of the equipment. To date the Company has paid $ 161,471 towards this program and has taken delivery of the first system. In addition, the purchase of the next 10 systems carry an additional $ 10,000 charge per system above the list purchase price of the system for a total of $ 100,000, however the Company is under no obligation to purchase further systems. The first system was received on September 29, 2010 and has been fully tested and is now commissioned for production use which is occurring in the 4th quarter. The Transportable Enhanced Oil Recovery Platform is a portable production system than can be easily and economically moved from well to well and quickly installed to remove Oil from the existing well bore. This allows for quick Oil recovery without the time and expense currently required to implement the infrastructure need to produce Oil today. By utilizing this system, wells can be produced from immediately and monitored as to flow rates to determine which wells are suitable for making additional investment for a more permanent operational infastructure. The company has begun to utilize this technology on its existing properties and is in the process to introduce this technology to the market place. BUSINESS PRIOR TO ACQUISITION ON JANUARY 28, 2010 Petroleum exploration --------------------- On December 06, 2004, we entered into two participation proposal agreements with Win Energy Corporation ("Win"), an arms-length Calgary, Alberta based private corporation whereby the Corporation could acquire an interest in two oil and gas drilling projects in Alberta, Canada for the payment of a total of $506,014 (subsequently reduced to $358,756 with the sale of half of the interest back to Win in June, 2005). On January 25, 2005, the Corporation concluded final payments and finalized the agreements. In 2007 Win was acquired by Compton Petroleum Corporation ("Compton"). From hereon all references will be made to Compton. 6 HILLSPRINGS PROPERTY Paradigm paid $207,383 to Compton to acquire a 5% working interest in one section (640 acres) in the Hillsprings Property (Township 10, Range 34, Section 29 W4), Alberta, Canada. In 2008, due to the low prices for natural gas and the lack of sustainable production from the property we took an impairment charge against the Todd Creek property and wrote the value down to 0. TODD CREEK PROPERTY Paradigm paid $298,631 to Compton to acquire a 10% working interest in 13.75 sections (8800 acres) in the Todd Creek Property, Alberta, Canada. In June, 2005, we sold 50% of our interest back to Compton for net proceeds of $127,349 (value of the interest less certain unpaid operating expenses) as of the date of this report, Paradigm holds a 5% in the Todd Creek property and has paid a net cost of $149,316 to acquire its interest. During the second quarter of 2005, a well located in Todd Creek property was drilled to a specifically targeted depth. This well is located in 13-28-9-2W5 in Alberta, Canada and we will refer to this well as the "13-28 well." The 13-28 well was evaluated and tested. The operator encountered gas reservoirs and concluded that this well is a potential gas well. This well was tied into a newly constructed gas processing plant and production commenced in September 2006. To date we have received no revenue from this well due to the fact we owe Compton drilling costs. In January 2007, we completed the drilling of a second well in the Todd Creek Prospect located in 13-33-8-2 in Alberta, Canada and we will refer to this well as the "13-33 well." Reports by other farmin partners indicate that no economic hydrocarbons are present. We are delinquent in our payments to Compton. Until we are current on our payments we will not receive any further information regarding the property. In 2008, due to the low prices for natural gas and the lack of sustainable production from the property we took an impairment charge against the Todd Creek property and wrote the value down to 0. SAWN LAKE PROJECT On February 15, 2005 Paradigm entered into a Farmout and Option Agreement with 1132559 Alberta Ltd., a private Alberta corporation whereby Paradigm will farm in to a 5% interest in a test well at Township 91, Range 13 Section 36 W5M SE , and a similar interest in an additional option well at Township 91, Range 12, Section 29 W5M NW in the Sawn Lake, Alberta oil and gas project. Paradigm will also have a right of first refusal to participate in each drilling spacing unit through a farm-in on the lands held by Deep Well Oil and Gas in the Sawn Lake project in which 1132559 Alberta Ltd has an interest. The final terms of the option for the additional DSUs are yet to be agreed upon by both parties. Paradigm will earn 100% of the farmor's interest (an undivided 10% interest in the drilling spacing unit) before payout (BPO), reverting to 50% of the farmor's interest (an undivided 5% interest) after payout (APO). Paradigm will have earned a 5% interest in the remaining wells to be drilled in that drilling spacing unit. In order to earn its interest in the initial test well, total costs of the test well, estimated to be CA $216,489, up to the point of commercial oil sales are to be borne one hundred percent (100%) by Paradigm. Total costs, estimated to be CA $216,489, of the option well up to the point of commercial oil sales are also to be borne one hundred percent (100%) by Paradigm in order to earn its undivided interest. Payment of the full AFE amount is due upon invoicing of Paradigm by the operator (1132559 Alberta Ltd.) for each of the test and option wells. Paradigm is a full participant in the well. 1132559 Alberta Ltd. claims Paradigm is in default and they are not a participant in the well. Due to the ongoing dispute the cost of defending the Companies rights to the Sawn Lake property may cost more than the value of the property. In 2008 the Company took an impairment charge against the Sawn Lake property and wrote the value down to 0. Item 1(A) Risk Factors Market for Our Products and Services 7 Each oil and gas property that we now own and those that we may later acquire a percentage of interest in, will have an operator who will be responsible for marketing production. The availability of a ready market for oil and gas, and the prices of such oil and gas, depends upon a number of factors, which are beyond our control. These include, among other things: o the level of domestic production; o actions taken by foreign oil and gas producing nations; o the availability of pipelines with adequate capacity; o the availability and marketing of other competitive fuels; o fluctuating and seasonal demand for oil, gas and refined products; and o the extent of governmental regulation and taxation (under both present and future legislation) of the production, importation, refining, transportation, pricing, use and allocation of oil, gas, refined products and alternative fuels. In view of the many uncertainties affecting the supply and demand for crude oil, gas and refined petroleum products, it is not possible to predict accurately the prices or marketability of the gas and oil produced for sale. Competition The oil producing properties and exploratory drilling prospects, and gas industry is highly competitive in all its phases. Properties in which we have an interest will encounter strong competition from many other oil and gas producers, including many that possess substantial financial resources, in acquiring economically desirable producing properties and exploratory drilling prospects, and in obtaining equipment and labor to operate and maintain their properties. Patents, Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor Contracts We do not own, either legally or beneficially, any patent or trademark. Research and Development We did not incur any research and development expenditures for the period ended from January 28, 2010 (inception) to December 31, 2010. Existing and Probable Governmental Regulation We monitor and comply with current government regulations that affect our activities, although our operations may be adversely affected by changes in government policy, regulations or taxation. There can be no assurance that we will be able to obtain all of the necessary licenses and permits that may be required to carry out our exploration and development programs. It is not expected that any of these controls or regulations will affect our operations in a manner materially different than they would affect other natural gas and oil companies operating in the areas in which we operate. 8 Canadian Government Regulation and US State of Texas Regulation The natural gas and oil industry is subject to extensive controls and regulations imposed by various levels of government. It is not expected that any of these controls or regulations will affect our operations in a manner materially different than they would affect other natural gas and oil companies of similar size. Pricing and Marketing Natural Gas In the United States in the State of Texas, we are focused on Oil production. Oil is sold to refineries at spot prices. In Canada, the price of natural gas sold in interprovincial and international trade is determined by negotiation between buyers and sellers. Natural gas exported from Canada is subject to regulation by the NEB and the Government of Canada. Exporters are free to negotiate prices and other terms with purchasers, provided that the export contracts continue to meet certain criteria prescribed by the NEB and the Government of Canada. Natural gas exports for a term of less than two years or for a term of two to 20 years (in quantities of not more than 30,000 m3/day), must be made pursuant to an NEB order. Any natural gas export to be made pursuant to a contract of longer duration (to a maximum of 25 years) or a larger quantity requires an exporter to obtain an export license from the NEB and the issue of such a license requires the approval of the Governor in Council. The government of Alberta also regulates the volume of natural gas that may be removed from the province for consumption elsewhere based on such factors as reserve availability, transportation arrangements and market considerations. Royalties and Incentives In addition to federal regulation, each province has legislation and regulations that govern land tenure, royalties, production rates, environmental protection and other matters. The royalty regime is a significant factor in the profitability of natural gas and oil production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the mineral owner and the lessee. Crown royalties are determined by government regulation and are generally calculated as a percentage of the value of the gross production, and the rate of royalties payable generally depends in part on prescribed reference prices, well productivity, geographical location, field discovery date and the type or quality of the petroleum product produced. In the United States in the State of Texas, mineral rights owners usually have a royalty paid to them which range from 5-25% of net revenue. Land Tenure Crude natural gas and oil located in the western provinces is owned predominantly by the respective provincial governments. Provincial governments grant rights to explore for and produce natural gas and oil pursuant to leases, licenses and permits for varying terms from two years and on conditions set forth in provincial legislation including requirements to perform specific work or make payments. Natural gas and oil located in such provinces can also be privately owned and rights to explore for and produce such natural gas and oil are granted by lease on such terms and conditions as may be negotiated. In the United States in the State of Texas, mineral owners sell and lease those rights to Operators who provide the infrastructure and support to develop and produce from the property. Leases usually remain in effect as long as work is being performed on the property or they are held by production. Compliance with Environmental Laws We did not incur any costs in connection with the compliance with any federal, state, or local environmental laws. However, costs could occur at any time through industrial accident or in connection with a terrorist act or a new project. Costs could extend into the millions of dollars for which we could be totally liable. In the event of liability, we would be entitled to contribution from other owners so that our percentage share of a particular project would be the percentage share of our liability on that project. However, other owners may not be willing or able to share in the cost of the liability. Even if liability is limited to our percentage share, any significant liability would wipe out our assets and resources. 9 On June 18, 2009 the Canadian government passed the new Environmental Enforcement Act ("EEA"). The EEA was created to strengthen and amend nine existing Statutes that relate to the environment and to enact provisions respecting the enforcement of certain Statutes that relate to the environment. The EEA amends various enforcement, offence, penalty and sentencing provisions to deter offenders from committing offences under the EEA by setting minimum and maximum fines for serious offences. The EEA also gives enforcement officers new powers to investigate cases and grants courts new sentencing authorities that ensure penalties reflect the seriousness of the pollution and wildlife offences. The EEA also expands the authority to deal with environmental offenders by: 1.) specifying aggravating factors such as causing damage to wildlife or wildlife habitat, or causing damage that is extensive, persistent or irreparable; 2.) providing fine ranges higher for corporate offenders than for individuals; 3.) doubling fine ranges for repeat offenders; 4.) authorizing the suspension and cancellation of licenses, permits or other authorizations upon conviction; 5.) requiring corporate offenders to report convictions to shareholders; and 6.) mandating the reporting of corporate offences on a public registry. Going Concern The Company's significant operating losses raise substantial doubt about the ability to continue as a going concern. Inherent in the Company's business are various risks and uncertainties, including its limited operating history, historical operating losses, dependence upon strategic alliances, and the historical success rate of oil and gas exploration. Management's plan is to acquire interests in certain oil and gas properties with production and to rework existing wells to bring them on line for production. As shown in the accompanying financial statements, the Company has incurred a net loss of $2,491,991 for the period ending December 31, 2010 from January 28, 2010 (inception) through December 31, 2010. The Company has no revenue. The Company's future success is primarily dependent upon the existence of oil and gas in quantities which are commercially viable to produce, on properties for which the Company owns a working interest or an option to acquire an interest and/or through its successful deployment of the Company's Transportable Enhanced Oil Recovery Platform (T-EOR) and the Joint Venture Production Program. The Company's success will also be dependent upon its ability to raise sufficient capital to fund its rework and exploration programs and, to exploit the discovery on a timely and cost-effective basis. Item 1(B) Unresolved Staff Comments None Item 2. Properties PROPERTY ACQUIRED BY ACQUISITION OF INTERGRATED OIL AND GAS SOLUTIONS INC. ON JANUARY 28, 2010 The Acquired Company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,539. These costs have been capitalized on the acquired company's books at cost as Natural gas and oil properties, Unproved properties. The oil and gas properties are comprised of 4 leases totaling approximately nine hundred and thirty four (934) net mineral Acres, all located in the State of Texas, USA. And are summarized as follows; Chilson Property, 80 acres in the County of Wichita carry a 87.5% Net Revenue Interest. There are 7 existing wells on the property that have previously produced. Approximately 69 new wells can be drilled to depths that vary between 800 to 5,000 feet. 10 Lett Finley Property, Consists of 2 leases-40 acres located in the County of Wood, carry a 75% Net Revenue Interest, and 122.37 acres located in the County of Henderson carry a 81.25% Net Revenue Interest There are 2 existing wells on the properties that have previously produced. 2 new offset wells can be drilled to 9,500 feet and another 7 infield wells can be drilled. Lumpkin Property 692 acres in Kaufman County, carry a 80% Net Revenue Interest. This lease is considered an exploration field with existing production nearby. 17 new wells can be drilled to 9,000 feet. On June 22, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired the Corsicana lease. The cost to acquire this lease amounted to $ 20,700 for a 50% working interest in the 80% Net Revenue Interest. The lease has 9 previously producing wells and have spacing over a total of 60 acres to support the potential of 17 new wells to depths of up to 2000 feet. The Corsicana lease is located in Navarro County, Texas. On June 30, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired 2 additional Chilson leases, known as Chilson B. The cost to acquire these leases amounted to $ 17,977 for a 100% working interest in the 81% Net Revenue Interest. Combined the 2 leases have 5 previously producing wells and have spacing over a total of 154 acres to support the potential of 37 new wells to depths of up to 2000 feet. The new Chilson leases are adjacent to the existing Chilson lease the Company has which are all located in Wichita County, Texas. PETROLEUM PROPERTIES PRIOR TO JANUARY 28, 2010 ---------------------------------------------- HILLSPRINGS In December 2004, we entered into a participation proposal with Compton Corporation whereby we could acquire an interest in the Hillsprings exploratory oil and gas drilling project about 100 miles south of Calgary in the Alberta foothills for the payment of a total of $207,383 excluding drilling costs. We acquired a 5% interest in one section (640 acres) of land located at Section 34, Township 5, Range 29 W4M. In 2008, due to the low prices for natural gas and the lack of sustainable production from the property we took an impairment charge against the Todd Creek property and wrote the value down to 0. TODD In December 2004, we entered into a second participation proposal with Compton whereby we could acquire an interest in the Todd exploratory oil and gas drilling project also about 100 miles south of Calgary in the foothills of the Rocky Mountains for the payment of a total of $298,631 including drilling costs. On January 25, 2005, we concluded final payments and finalized the agreements whereby we acquired a 10% interest in 13.75 sections (8800 acres) of land located at Section 16, Township 9, Range 2 W5 and an option to December 31, 2006 to earn a 7.5% interest in an additional seven sections 4480 acres) in the surrounding area by contributing 10% of the drilling costs. Contributions to each well drilled will earn an interest in two sections. On June 18, 2005, the Corporation received a net payment of CA $117,442.50 from Compton Corporation for the sale of 50% of Paradigm's 10% interest in the Todd Creek Oil and Gas Property to Win, the original vendor. Paradigm now holds a 5% interest in the Todd Creek 13-28 well. On June 27, 2005, we announced that drilling of the Todd Creek Well had been moved into the final completion stage which may take up to 50 days to complete. The operators have placed the well on "tight hole" status and further news will be released upon completion of testing. As of the date of this report, that status continues; we will release further information as it comes available. "Tight hole" is a petroleum industry term used colloquially in which the performance data of a well is closely guarded. During this period, all information about the well - depth, formations, drilling rates, logs and other pertinent data - is not shared or made public. We have not been given any further information regarding the Todd Creek property as we are delinquent in our payments to Compton. 11 A test well drilled in Section 16, Township 9, Range 2 W5 is included in the transaction, the results of which have not been released. Further details will be provided once the tight hole status has been lifted. The next proposed well will likely be drilled at location 13-28-9-2W5 with anticipated production from two reservoirs. Estimates indicate initial potential daily production could reach 400 barrels of oil equivalent per day based upon the flow rates from adjacent and similarly structured wells. It is anticipated that it will require more than 20 such wells to fully exploit the reservoirs in the project area. Producing wells in the area typically are of long life with minimal declines. The gas is sweet with minimal sulfur or CO2 and generally receives excellent prices. Existing wells on the Todd Creek prospect typically produce at depths between 1,600 and 1,900 meters. We are delinquent in our payments to Compton. Until we are current on our payments we will not receive any further information regarding the property. In 2008, due to the low prices for natural gas and the lack of sustainable production from the property we took an impairment charge against the Todd Creek property and wrote the value down to 0. SAWN LAKE On February 18, 2005, we announced that we have farmed into a 10% interest in a major heavy oil exploratory project located the Sawn Lake area of the Peace River region of Alberta in a project owned by 1132559 Alta. Ltd. The general terms of the farm-in agreement is that Paradigm will pay 10% to earn the full 10% interest until payout, and will retain 5% interest after payout. Paradigm's participation in any subsequent wells in that Drilling Spacing Unit (DSU) will be at 5% to earn an equal 5% interest. The first well will be drilled on DSU located at Township 91, Range 13 W5M, SE Section 36. Paradigm has also negotiated participation in another well in Township 91, Range 12 W5M, NW Section 29 under the same terms. Furthermore, Paradigm will have the option to participate in all future 1132559 Alta. Ltd.'s interests in Sawn Lake wells under terms to be negotiated. Other operators targeting the deeper Slave Point Formation have previously drilled much of the land. Because of the earlier extensive exploration for deeper light oil, Sawn Lake project is able to benefit from data collected by others pertaining to the drilling of 67 wells that penetrated and partially delineated the Bluesky Formation heavy oil reservoir. This acquisition is in line and consistent with Paradigm's investment strategy to acquire small interests in a variety of domestic and international upstream oil and gas projects to develop a high impact and diversified portfolio. Due to the ongoing dispute the cost of defending the Companies rights to the Sawn Lake property may cost more than the value of the property. In 2008 the Company took an impairment charge against the Sawn Lake property and wrote the value down to 0. Oil and Gas Reserve Analyses Currently the leases that have been acquired have not been developed in a way that allows our Petroleum Engineers to assign estimated net proved oil and gas reserves and the present value of estimated cash flows from those reserves. The Company is currently performing work on the Chilson property Lease to provide the required information of logging each well to provide the information to the Petroleum Engineers and bringing it back into production. The Company currently has no proved reserves on the leases. The Company is currently working to establish reserves. Item 3. Legal Proceedings We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. Item 4. Submissions of Matters to a Vote of Security Holders There was no matter submitted during the fiscal year 2010 covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. 12 PART II Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Public Market for Common Stock ============================== The common shares of Paradigm Oil and Gas, Inc. are quoted on the OTC BB. The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. On December 31, 2010, the shareholders' list of our common shares showed 44 registered shareholders holding 42,626,281 shares and various broker-dealers holding 10,661,545 shares in an indeterminate number of names. There were 53,287,826 shares outstanding. We have researched indirect holdings registered to the various depository institutions and stock brokerage firms, and estimate that there approximately 1,000 additional beneficial shareholders beyond the 44 registered shareholders as of December 31, 2010. We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our intention is to retain future earnings for use in our operations and the expansion of our business. High Low Fiscal 2010 First Quarter $0.70 $0.20 Second Quarter $2.04 $0.40 Third Quarter $0.50 $0.21 Fourth Quarter $0.92 $0.16 Fiscal 2009 First Quarter $1.00 $0.25 Second Quarter $1.50 $0.05 Third Quarter $1.09 $0.25 Fourth Quarter $0.60 $0.10 13 Dividend Policy --------------- The Company has not declared or paid cash dividends or made distributions in the past and the Company does not anticipate that it will pay cash dividends or make distributions in the foreseeable future. The Company currently intends to retain and invest future earnings to finance its operations. Equity Compensation Plan Information ------------------------------------ None Recent Sales of Unregistered Securities --------------------------------------- None Changes in Securities ===================== The Corporation had 53,287,826 shares of common stock issued and outstanding as of December 31, 2010. Item 6. Selected Financial Data. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and therefore are not required to provide the information required under this item. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS All statements other than statements of historical fact included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" which follows, are forward-looking statements. Forward-looking statements involve various important assumptions, risks, uncertainties and other factors which could cause our actual results to differ materially from those expressed in such forward-looking statements. Forward-looking statements in this discussion can be identified by words such as "anticipate," "believe," "could," "estimate," "expect," "plan," "intend," "may," "should" or the negative of these terms or similar expressions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievement. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including but not limited to, competitive factors and pricing ressures, changes in legal and regulatory requirements, cancellation or deferral of customer orders, technological change or difficulties, difficulties in the timely development of new products, difficulties in manufacturing, commercialization and trade difficulties and general economic conditions as well as the factors set forth in our public filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report or the date of any document incorporated by reference, in this Annual Report. We are under no obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. 14 For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934. Our consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. Overview ======== We were incorporated as Paradigm Enterprises, Inc. in the state of Nevada on July 15, 2002 and established a year end of December 31. On February 7, 2005 we changed our name from Paradigm Enterprises, Inc. to Paradigm Oil And Gas, Inc. From July, 2002 to December, 2004, we were in the business of the exploration and development of a mineral property in British Columbia. The Company decided to abandon its interest in this mineral property and on August 26, 2005. We have not spent anything on research and development activities. On December 06, 2004, we entered into two participation proposals with Win Energy Corporation. On June 18, 2005, the Company received a payment of $147,258 from Win for the sale of 50% of the Company's 10% interest in the Todd Creek Property and currently holds a 5% interest in the project. On February 15, 2005, Paradigm entered into a Farmout and Option Agreement with 1132559 Alberta Ltd., a private Alberta corporation whereby Paradigm will farm in to a 5% interest in a test well at Township 91, Range 13 W5M, SE Section 36, and a similar interest in an additional option well at Township 91, Range 12 W5M, NW Section 29 in the Sawn Lake, Alberta, oil and gas project. In March 2006, a well was drilled in Section 36. The well is not producing at this time and Paradigm is waiting for further information from the operator on their plan of operations. Effective January 28, 2010, Paradigm Oil & Gas Inc. entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired Company") a Texas corporation, whereby the Company has issued 42,000,000, US$.001 Par value common shares to unrelated shareholders in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired Company . The Transaction is considered to be a reverse acquisition. The acquisition date now becomes the inception date of the Company. The Acquired Company is now a 100% subsidiary of Paradigm. The Acquired Company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,539. These costs have been capitalized on the acquired company's books at cost as Oil and Gas Properties under Lease. The oil and gas properties are comprised of 4 leases totaling approximately nine hundred and thirty four (934) net mineral Acres, all located in the State of Texas, USA. And are summarized as follows; Chilson Property, 80 acres in the County of Wichita carry a 87.5% Net Revenue Interest. There are 7 existing wells on the property that have previously produced. Approximately 69 new wells can be drilled to depths that vary between 800 to 5,000 feet. Lett Finley Property, Consists of 2 leases-40 acres located in the County of Wood, carry a 75% Net Revenue Interest, and 122.37 acres located in the County of Henderson carry a 81.25% Net Revenue Interest There are 2 existing wells on the properties that have previously produced. 2 new offset wells can be drilled to 9,500 feet and another 7 infield wells can be drilled. Lumpkin Property 692 acres in Kaufman County, carry a 80% Net Revenue Interest. This lease is considered an exploration field with existing production nearby. 17 new wells can be drilled to 9,000 feet. 15 On May 20, 2010 the Company formed Paradigm Integrated Technology Solutions Inc., as a wholly owned subsidiary to conduct business related to technologies that enhance secondary oil recovery. On May 20, 2010 the Company's subsidiary, Paradigm Integrated Technology Solutions Inc., entered into a Transfer of Technology and Know How Agreement for the worldwide marketing rights for the Transportable Enhanced Oil Recovery Platform. Under the terms of the agreement the Company agreed to purchase the first system which includes the exclusive ownership in the related technology and know how. $ 50,000 was paid on signing the agreement and $50,000 was to be paid within thirty days of signing the agreement towards the purchase of the first system and an additional $ 50,000 on delivery of the equipment. To date the Company has paid $ 161,471 towards this program and has taken delivery of the first system. In addition, the purchase of the next 10 systems carry an additional $ 10,000 charge per system above the list purchase price of the system for a total of $ 100,000, however the Company is under no obligation to purchase further systems. The first system was received on September 29, 2010 and has been fully tested and is now commissioned for production use which is occurring in the 4th quarter. On June 22, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired the Corsicana lease. The cost to acquire this lease amounted to $ 20,700 for a 50% working interest in the 80% Net Revenue Interest. The lease is located in Navarro County, Texas. On June 30, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired 2 additional Chilson leases, known as Chilson B. The cost to acquire these leases amounted to $ 17,977 for a 100% working interest in the 81% Net Revenue Interest. The new Chilson leases are adjacent to the existing Chilson lease the Company has which are all located in Wichita County, Texas. We have not been involved in any bankruptcy, receivership or similar proceeding nor has there been any material reclassification or merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of business other than the acquisition mentioned above on January 28, 2010. Results of Operations ===================== Paradigm was incorporated on July 15, 2002. On January 28, 2010, Paradigm Oil & Gas Inc. entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired Company") a Texas corporation. The Transaction was considered to be a reverse acquisition. The acquisition date now becomes the inception date of the Company. The period for the period ended from January 28, 2010 (inception) to December 31, 2010, is presented in the following discussion. Since our inception we have used our common stock, and entered into convertible loan agreements to raise capital for our operational and corporate expenses, retire debt, lease acquisitions and for the purchase of equipment and other capital. Net cash provided by financing activities from inception on January 28, 2010 to December 31, 2010 amounted $ 734,918 as a result of proceeds received loans converted to shares our common stock, $ 35,321 from net advances from an officer/ shareholder loan and $ 142,500 from a convertible note. We have not generated any revenues from any of our operations for the period ended from January 28, 2010 (inception) to December 31, 2010. REVENUES -------- 16 Financial Condition and Changes in Financial Condition The Company had no revenues from the sale of oil and gas in the period ended from January 28, 2010 (inception) to December 31, 2010. EXPENSES -------- Consolidated Operating expenses for the period ended from January 28, 2010 ( inception) to December 31, 2010 amounted $ 446,423. The expenses for the period is attributable to the activity the Company experienced due to its newly acquired properties through the reverse acquisition of Intergrated Oil and Gas Solutions Inc effective January 28, 2010. During the period work programs commenced on the Chilson and Corsicana properties. To date the Company spent $ 73,841 in field labor required to prepare the leases and existing wells for production and work on the preparation and testing of the Transportable Enhanced Oil Recovery Platform , $ 14,745 in lease costs, $ 10,000 in legal fees regarding title searches and related access and lease acquisition costs, $ 3,049 in lease maintenance, $ 14,022 in travel costs to the properties regarding work crews and equipment, $ 5,571 in utility costs to bring power to the property and $ 1,452 was spent in natural gas & oil exploration costs for the period. Overall Field operation expenses for the period ended from January 28, 2010 ( inception) to December 31, 2010 amounted $122,720. IMPAIRMENT EXPENSE: Paradigm did not record any impairment expense for the period ended from January 28, 2010 ( inception) to December 31, 2010. General Expenses totalled $ 323,703 for the period ended from January 28, 2010 ( inception) to December 31, 2010. The significant items were; accounting, quarterly review and audit fees which amounted to $ 59,925, administration which includes bank charges and admin support amounted to $12,966, interest on the note payable and convertible note totalled $ 6,105, investor relations includes press releases and web site content amounted to $ 9,875, legal fees primarily related to the reverse acquisition, lease acquisition and contract review, totalled $ 26,615, management fees were $ 92,302, office expenses were $ 13,632 and maintenance was $ 2,157, professional and consulting fees of $ 58,187 related to advice on financing strategies, activities, introductions and presentations to capital markets, rent paid was $ 2,250 and telephone was stated at $ 12,271 and includes internet and communication costs, transfer agent fees amounted to $ 5,394 and travel costs of $ 16,273 were incurred to meet with financial advisors and acquisition and joint venture candidates. These costs are considered to be consistent with the ramp up of activities associated with the acquisition and the start of rework programs for oil and gas properties of this nature. Other Income/(Expense) Items; Gain from share issue on debt conversion On September 28, 2010 a convertible note in the amount of $ 734,918 was converted at $ 0.35 per share for a total of 2,099,768 Common Shares. The share price was $ 0.33 on the closing of this transaction, as a result a gain of $ 41,995 was as a Gain from issued shares on debt conversion. Expense on Assumption of Liabilities on Acquisition On a year to date basis there was an expense on assumption of liabilities on acquisition which was booked in the period ended March 31, 2010. 17 On the effective date of the acquisition, additional paid in capital was increased by $ 8,358,000.This was offset by $ 8,400,000 to record the basis in Intergrated Oil and Gas Solutions Inc. An expense of $ 633,279 was then recorded to recognize the assumption of liabilities on the acquisition. Loss from share issue on debt conversion On the effective date of the conversion, additional paid in Capital was increased by $ 1,791,000. A loss of $ 1,440,000 was then recognized to match the conversion to the book value of the convertible debenture. These charges were booked in the period ended March 31, 2010. Income tax provision As a result of the operating loss, there has been no provision for the payment of income taxes to date, or from the date of inception. However, Paradigm has incurred operating losses and approximately $ 2,258,488, which, if unutilized, will expire through 2030. Future tax benefits, which may arise as a result of these losses, and have been offset by a valuation allowance. Net Loss for the period ended from January 28, 2010 (inception) to December 31, 2010 amounted to ($ 2,477,707). Combined with foreign currency adjustments of ($ 14,284) the total comprehensive loss was ($ 2,491,991). Current Assets As of December 31, 2010 cash was recorded at $ 68,644, Employee Advances was $ 7,059 to cover contractors and employees performing field services, a note receivable of $ 25,050 was set up for work that was performed on the Corsicana property and is owing to the Company from the other working interest owner on the property, a $ 45,807 related party receivable was advanced for acquisitions and $ 52,500 was sent to the Texas Railroad Commission for the prepaid operating bond and set up fee recorded as Bond RRC. With the purchase of one of the leases, there was existing Oil in the storage tank on the lease and additional oil was collected from a test run of the Transportable Enhanced Oil Recovery Platform which amounted to $ 7,823 which has been accounted for as inventory. Production Equipment $ 196,124 During the 2nd quarter the Company's subsidiary, Paradigm Integrated Technology Solutions Inc., entered into a Transfer of Technology and Know How Agreement for the world wide marketing rights for the Transportable Enhanced Oil Recovery Platform. Under the terms of the agreement the Company agreed to purchase the first system which includes the exclusive ownership in the related technology and know how. $ 50,000 was paid on signing the agreement and $50,000 was to be paid within thirty days of signing the agreement towards the purchase of the first system and an additional $ 50,000 on delivery of the equipment. To date the Company has paid $ 161,471 towards this program and has taken delivery of the first system. In addition, the purchase of the next 10 systems carry an additional $ 10,000 charge per system above the list purchase price of the system for a total of $ 100,000, however the Company is under no obligation to purchase further systems. The first system was received on September 29, 2010 and has been fully tested and is now commissioned for production use. Natural Gas and Oil Properties Natural gas and oil properties remained at $ 601,566. 18 Liquidity and Capital Resources As of the period ended from January 28, 2010 (inception) to December 31, 2010, we have yet to generate any revenues from our business operations. Since our inception we have used our common stock, and entered into convertible loan agreements to raise capital for our operational and corporate expenses, retire debt, lease acquisitions and for the purchase of equipment and other capital. Net cash provided by financing activities from inception on January 28, 2010 to December 31, 2010 amounted $ 734,918 as a result of proceeds received loans converted to shares our common stock, $ 36,521 from net advances from an officer/ shareholder loan and $ 142,500 from a convertible note. On September 28, 2010 the convertible note in the amount of $734,918 was converted at $ 0.35 per share for a total of 2,099,768 Common Shares at a par value of $ 2,100. Additional paid in capital increased by $ 690,823. The share price was $ 0.33 on the closing of this transaction, as a result a gain of $ 41,995 was recognized and recorded as a Gain from issued shares on debt conversion. 8% convertible notes payable were entered into during the 4th quarter for a total of $ 142,500 in cash proceeds issued as follows on: October 6, 2011 $ 50,000 November 18, 2011 40,000 December 20, 2011 52,500 ---------------- $ 142,500 ---------------- As of December 31, 2010, our total assets which consist of cash, advances, a note and related party receivable, inventory, furniture, production equipment and oil and gas properties, were stated at $ 820,295. Our total liabilities amounted to $ 484,707. Working capital stood at $ (277,824). Management continues to source additional financing and analyze Oil production acquisitions to support the Company's cash requirements during the Company's development phase. There are no assurances that the Company will be successful with these initiatives. For the period ended from January 28, 2010 (inception) to December 31, 2010, our net loss was $ 2,477,707 ($0.05) per share. The loss per share was based on a period weighted average of 45,956,889 common shares outstanding. Plan of Operation ================= For the current fiscal year we will concentrate our efforts on our projects in the petroleum sector. The Company will continue to rework the current wells that have been acquired on the leases the Company controls. Furthermore effort will be spent on marketing and signing agreements that utilize the Transportable Enhanced Oil Recovery Portable Platform to generate revenue. We do not expect any changes or more hiring of employees since contracts will be given to consultants and sub-contractor specialists in specific fields of expertise for the exploration work. Following industry trends and demands, we are also considering the acquisition of other petroleum properties or an interest in such projects. In either situation, a new public offering would be needed. We are delinquent in our payments to Compton and will not receive any further information until full payment is made. 19 Future Operations ================= Presently, our revenues are not sufficient to meet operating and capital expenses. We have incurred operating losses since inception, and this is likely to continue through fiscal 2011. Management forecasts that we will require additional capital to fund our ongoing operating expenses and working capital requirements for the next twelve months. We plan to raise the additional capital required to meet the balance of our estimated funding requirements for the next twelve months, primarily through the private placement of our securities, loans, the sale of interests in successful projects and/or through cash flows. We do not anticipate that we will be able to satisfy any of these funding requirements internally until we significantly increase our revenues. There can be no assurance that the Company would be successful in raising additional capital to funds these operations. Critical Accounting Policies ---------------------------- Our financial statements were prepared in conformity with U.S. generally accepted accounting principles. As such, management is required to make certain estimates, judgments and assumptions that they believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following: The Financial Accounting Standards Board ("FASB") issued authoritative guidance on the FASB Accounting Standards Codification ("ASC") and the hierarchy of generally accepted accounting principles, codified in ASC 105, Generally Accepted Accounting Principles. The codification was effective for interim or annual periods ending after September 15, 2009, and impacted the Company's financial statement disclosures beginning with the year ending December 31, 2009 as all future references to authoritative accounting literature will be referenced in accordance with the Codification. The FASB has issued authoritative guidance on Non-controlling Interests in Consolidated Financial Statements. The new codification code is ASC 810, Consolidation. This statement changes the way the consolidated income statement is presented when non-controlling interests are present. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. The implementation of this pronouncement did not have a significant impact on the financial statements of the Company. The FASB has issued authoritative guidance on Business Combinations. The new codification code is ASC 805, Business Combinations. This statement retains the fundamental requirements that the acquisition method of accounting be used, and applies to all business entities, including mutual entities that previously used the pooling of interest method of accounting for some business combinations. The implementation of this pronouncement did not have a significant impact on the financial statements the Company. The FASB has issued authoritative guidance on subsequent events, which was primarily codified into Topic 855, Subsequent Events, in the ASC. The guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of ASC 855 did not have a material effect on the Company's financial statements and related disclosures. 20 Going Concern ------------- These consolidated financial statements have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. These consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary if we are unable to continue as a going concern. In order to continue as a going concern, we require additional financing. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to continue as a going concern, we would likely be unable to realize the carrying value of our assets reflected in the balances set out in the preparation of the financial statements. 21 Item 8. Financial Statements and Supplementary Data. Page ----- Report of Independent Registered Public Accounting Firm.................. F-2 Consolidated Balance Sheets at December 31, 2010 and January 28, 2010.... F-3 Consolidated Statement of Operations for the period ended from January 28, 2010 (inception) through December 31, 2010......... F-4 Consolidated Statement of Comprehensive (Loss) for the period from January 28, 2010 (inception) through December 31, 2010......... F-5 Consolidated Statement of Changes in Shareholders' Equity for the period from January 28, 2010 (inception) through December 31, 2010......... F-6 Consolidated Statement of Cash Flows for the period from January 28, 2010 (inception) through December 31, 2010......... F-7 Notes to Consolidated Financial Statements............................... F-8 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Paradigm Oil and Gas, Inc. Gun Barrel City, Texas We have audited the accompanying consolidated balance sheets of Paradigm Oil and Gas, Inc. (the "Company") (an exploration stage company) as of December 31, 2010 and January 28, 2010 (inception) and the related consolidated statements of operations, comprehensive loss, changes in shareholders' equity and cash flows for the period from January 28, 2010 (inception) through December 31, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Paradigm Oil and Gas, Inc. at December 31, 2010 and January 28, 2010, and the consolidated results of their operations and their cash flows for the period from January 28, 2010 (inception) through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has no revenues and has a working capital deficiency, both of which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Turner, Stone & Company, L.L.P. Certified Public Accountants Dallas, Texas April 18, 2011 F-2 PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Balance Sheets December 31, 2010 and January 28, 2010 December 31, January 28, 2010 2010 ------------- ------------- Assets Current assets: Cash $ 68,644 $ -- Employee advances 7,059 -- Note receivable 25,050 -- Related party receivable 45,807 -- Inventory 7,823 -- ------------- ------------- Total current assets 154,383 -- Furniture and fixtures, net of $ 1,747 in accumulated depreciation 22,605 -- Production equipment (Note 6) 196,124 -- Natural gas and oil properties Unproved (Note 7) 601,566 541,539 ------------- ------------- 820,295 541,539 ------------- ------------- Bond RRC 52,500 -- ------------- ------------- Total assets $ 1,027,178 $ 541,539 ============= ============= Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 168,210 $ -- Advances from shareholder 76,546 -- Short term convertible notes and accrued interest 143,885 -- Note payable and accrued interest 96,066 -- ------------- ------------- Total current liabilities 484,707 -- ------------- ------------- Total liabilities 484,707 -- ------------- ------------- Commitments and contingencies (Notes 7b, 8 and 16) Shareholders' equity: Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued or outstanding -- -- Common stock, $.001 par value; 300,000,000 shares authorized, 53,287,826 and 188,058 shares issued and outstanding 53,288 188 Additional paid-in capital 2,981,174 541,351 Accumulated deficit during the exploration stage (2,477,707) -- Accumulated comprehensive loss (14,284) -- ------------- ------------- Total shareholders' equity 542,471 541,539 ------------- ------------- $ 1,027,178 $ 541,539 ============= ============= The accompanying notes are an integral part of these consolidated financial statements. F-3 PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Statement of Operations For period from January 28, 2010 (Inception) through December 31, 2010 January 28, 2010 (Inception) Through December 31, 2010 ------------- Field operation expenses: Labor $ 73,841 Lease costs 14,785 Legal 10,000 Maintenance 3,049 Natural gas and oil exploration costs 1,452 Travel 14,022 Utilities 5,571 ------------- Total field operation expenses 122,720 ------------- General expenses: Accounting and audit 59,925 Administration 12,966 Advertising and promotion 570 Depreciation 1,747 Insurance 782 Interest 6,105 Investor relations 9,875 Legal fees 26,615 Management fees 92,302 Meals and entertainment 1,705 Office 13,632 Office maintenance 2,157 Professional and consulting fees 58,187 Rent 2,250 Telephone 12,271 Transfer agent fees 5,394 Travel 16,273 Utilities 947 ------------- Total general expenses 323,703 ------------- Loss from operations (446,423) Other income expense: Assumption of liabilities in acquisition 633,279 Loss from shares issued on debt conversion 1,398,005 ------------- Net loss $ (2,477,707) ============= Basic and diluted loss per share $ 0.05 ============= Basic and diluted weighted average common shares outstanding 45,956,889 ============= The accompanying notes are an integral part of these consolidated financial statements. F-4 PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Statement of Comprehensive Loss For period from January 28, 2010 (Inception) through December 31, 2010 January 28, 2010 (Inception) Through December 31, 2010 ------------- Net loss $ (2,477,707) Other comprehensive loss: Foreign currency translation adjustments (14,284) ------------- Comprehensive loss $ (2,491,991) ============= The accompanying notes are an integral part of these consolidated financial statements. F-5 PARADIGM OIL AND GAS, INC (An Exploration Stage Company) Consolidated Statement of Changes in Shareholders Equity For the period ended from January 28, 2010 (Inception) through December 31, 2010

The accompanying notes are an integral part of these consolidated financial statements. F-6 PARADIGM OIL AND GAS, INC. (An Exploration Stage Company) Consolidated Statement of Cash Flows For the period from January 28, 2010 (Inception) Through December, 2010 January 28, 2010 (Inception) Through December 31, 2010 ------------- Cash flows from operating activities: Net loss $ (2,477,707) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,747 Assumption of liabilities in acquisition 633,279 Loss from shares issued on debt conversion 1,398,005 ------------- (444,676) Changes in operating assets and liabilities: Employee advances (7,059) Inventory (7,823) Accrued interest 6,075 Accounts payable and accrued liabilities 11,927 ------------- Net cash used in operating activities (441,556) Cash flows from (used in) investing activities: Note receivable (25,050) Related party receivable (45,807) Bond RRC (52,500) Furniture and fixtures (24,352) Production equipment (196,124) Purchases of natural gas and oil properties (60,027) Cash acquired in acquisition 121 ------------- Net cash used in investing activities (403,739) ------------- Cash flows from financing activities: Proceeds from convertible debenture payable 734,918 Proceeds from advances from shareholder 54,051 Repayments for advances from shareholder (17,530) Proceeds from short term convertible notes 142,500 Net cash provided by financing activities 913,939 ------------- Net change in cash 68,644 Cash, beginning of period -- ------------- Cash, end of period $ 68,644 ============= Non cash financing activities Supplemental disclosure of cash flow information: Foreign currency translation of liabilities $ (14,284) Assumption of accounts payable in acquisition $ 147,510 Assumption of advances from shareholder in acquisition $ 40,025 Assumption of note payable in acquisition $ 85,864 Assumption of convertible debt in acquisition $ 360,000 Issuance of common stock for convertible debt $ (1,094,918) The accompanying notes are an integral part of these consolidated financial statements. F-7 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (1) BASIS OF PRESENTATION Organization Paradigm Enterprises, Inc. (the "Company") was incorporated in the state of Nevada on July 15, 2002 to engage in the acquisition, exploration and development of oil and gas properties. On February 7, 2005 the Company changed its name to Paradigm Oil and Gas, Inc. Effective January 28, 2010, Paradigm Oil & Gas Inc. entered into a share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired Company") a Texas corporation. The Transaction is considered to be a reverse acquisition. The acquisition date now becomes the inception date of the Company. The Company is considered an exploration stage company, as it has not generated revenues from its operations. Reverse merger of Intergrated Oil and Gas Solutions Inc. On January 28, 2010, the Company entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired Company") in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired Company. Paradigm issued 42,000,000 of its $.001 par value shares common shares representing 82% of the fully-diluted shares of the Company in exchange for 100% of the Acquired Company's outstanding shares. The Acquired Company is now a 100% subsidiary of the Company. The Acquired Company holds 100% working interests in certain oil and gas leases along with certain oil and gas production equipment. The total purchase price to acquire these assets amounted to $541,539. These costs have been capitalized on the Acquired Company's books at cost as natural gas and oil properties, unproved properties. Subsidiary formed: Paradigm Integrated Technology Solutions Inc. On May 20, 2010 the Company formed Paradigm Integrated Technology Solutions Inc., as a wholly owned subsidiary to conduct business related to technologies that enhance secondary oil recovery. Going Concern These financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than through a process of forced liquidation. The Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. Inherent in the Company's business are various risks and uncertainties, including its limited operating history, historical operating losses, dependence upon strategic alliances, and the historical success rate of oil and gas exploration. Management's plan is to acquire interests in certain oil and gas properties with production and to rework existing wells to bring them on line for production. As shown in the accompanying financial statements, the Company has incurred a net loss of $2,477,707 for the period from January 28, 2010 (inception) through December 31, 2010. The Company has no revenue. The Company's future success is primarily dependent upon the existence of oil and gas in quantities which are commercially viable to produce, on properties for which the Company owns a working interest or an option to acquire an interest and/or through it's successful deployment of the Company's Transportable Enhanced Oil Recovery Platform (T-EOR) and the Joint Venture Production Program . The Company's success will also be dependent upon its ability to raise sufficient capital to fund its rework and exploration programs and, to exploit the discovery on a timely and cost-effective basis. F-8 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Recent accounting pronouncements During the period ended December 31, 2010, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company's financial position or operating results. The Company will monitor these emerging issues to assess any potential future impact on its consolidated financial statements. Use of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 results could differ from those estimates. The oil and gas industry is subject, by its nature, to environmental hazards and clean-up costs. At this time, management knows of no substantial costs from environmental accidents or events for which the Company may be currently liable. In addition, the Company's oil and gas business makes it vulnerable to changes in prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. Fair value of financial instruments In accordance with the reporting requirements of Accounting Standards Codification ("ASC") Topic No. 825, Financial Instruments, (ASC 825) the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the consolidated financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of employee advances, note receivable, related party receivable, accounts payable and accrued liabilities and advances from shareholder approximate their carrying amounts due to the nature and short maturity of these instruments. The carrying values of the short-term convertible notes and note payable approximate their fair value since they bear market rates of interest and other terms. Principles of Consolidation The consolidated financial statements for the period from January 28, 2010 (inception) through December 31, 2010 include the accounts of Paradigm Oil and Gas, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Cash Cash consists of cash on deposit with high quality major financial institutions, and to date the Company has not experienced losses on any of its balances. The carrying amounts approximate fair market value due to the liquidity of these deposits. For purposes of the balance sheets and statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. At December 31, 2010 the Company had $68,644 in cash. F-9 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Inventory Inventory consists of crude oil held in storage tanks. Inventory is stated at market based on anticipated selling prices. Furniture and equipment Property and equipment are stated at the Company's cost and are depreciated on a straightline basis over five-seven years. Maintenance and repair costs are expensed when incurred while major improvements are capitalized. Depreciation expense amounted to $1,747 for the period from January 28, 2010 (inception) through December 31, 2010. Oil and Gas Properties The Company uses the successful efforts method of accounting for oil and gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs are expensed. Costs of drilling and equipping productive wells, including development dry holes and related production facilities are capitalized. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives. The Company provides for depreciation, depletion and amortization of its investment in producing oil and gas properties on the unit-of-production method, based upon independent reserve engineers' estimates of recoverable oil and gas reserves from the property. Properties will continue to be carried as an asset pending determination of whether proved reserves have been found only as long as: i) the property has found a sufficient quantity of reserves to justify its completion as a producing property if the required capital expenditure is made and ii) there is enough geological and engineering evidence that supports a commercially producible quantity of reserves exist from a previously drilled well on the property. If the well properties cannot support any of these criteria, the property is assumed to be impaired, and its costs are charged to expense. The impairment of unamortized capital costs is measured at a combined lease level and is reduced to fair value if it is determined that the sum of expected future net cash flows is less than the net book value. Paradigm determines if impairment has occurred through either adverse changes or as a result of the annual review of all the fields combined. Net loss per Common Share Basic net loss per share is computed by dividing the net loss available to common shareholders (the numerator) for the period by the weighted average number of common shares outstanding (the denominator) during the period. The computation of diluted earnings is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. For the period from January 28, 2010 (inception) through December 31, 2010, basic and fully diluted loss per share are the same since the calculation of diluted per share amounts would result in an anti-dilutive calculation. Income Taxes The Company accounts for income taxes under the provisions of the ASC Topic No. 740 , Income Taxes (ASC 740) which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. F-10 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign Currency Translation The Company's functional currency is the Canadian dollar; however, the accompanying financial statements and footnotes refer to United States ("U.S.") dollars unless Canadian dollars are specifically designated with "CDN". The accounts of the Company's foreign operations have been translated into United States dollars. Assets and liabilities of those operations are translated in U.S. dollars using exchange rates as of the balance sheet date; income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are included in accumulated other comprehensive loss, a separate component of shareholders' equity. Stock-based Compensation The Company records stock-based compensation in accordance with ASC Topic No. 718, Compensation - Stock Compensation (ASC 718), using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. Asset Retirement Obligations The Company has adopted ASC Topic No. 410 Asset Retirement and Environmental Obligations (ASC 410), which requires that asset retirement obligations ("ARO") associated with the retirement of a tangible long-lived asset, including natural gas and oil properties, be recognized as liabilities in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated assets. The cost of tangible long-lived assets, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the assets. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted cash flows are accreted to the expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company's credit-adjusted risk-free interest rate. To date, insufficient information has been available for management to determine the Company's asset retirement obligations, which primarily relates to the plugging and abandonment of its wells. Accordingly, no liabilities have been recorded. The Company is delinquent in its payments to a joint venture partner. Canadian Association of Petroleum Landmen rules dictate the Company will not receive payment from producing wells until the joint venture partner recovers its costs and a penalty. As such, management believes no obligation should be recorded at this time. Joint Ventures All exploration and production activities are conducted jointly with others and, accordingly, the accounts reflect only the Company's proportionate interest in such activities. Environmental Protection and Reclamation Costs The operations of the Company have been, and may be in the future, affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restorations costs. Both the likelihood of new regulations and their overall effect upon the Company may vary from region to region and are not predictable. The Company's policy is to meet or, if possible, surpass standards set by relevant legislation, by application of technically proven and economically feasible measures. Environmental expenditures that relate to ongoing environmental and reclamation programs will be charged against statements of operations as incurred or capitalized and amortized depending upon their future economic benefits. The Company does not currently anticipate any material capital expenditures for environmental control facilities because all property holdings are at early stages of exploration. Therefore, estimated future removal and site restoration costs are presently considered minimal. F-11 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of Long-Lived Assets The Company reviews its long-lived assets to be held and used, including unproved oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets. In such circumstances, the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Revenue Recognition The Company uses the sales method of accounting for natural gas and oil revenues. Under this method, revenues are recognized upon the passage of title, net of royalties. Revenues from natural gas production are recorded using the sales method. When sales volumes exceed the Company's entitled share, an overproduced imbalance occurs. To the extent the overproduced imbalance exceeds the Company's share of the remaining estimated proved natural gas reserves for a given property, the Company records a liability. At December 31, 2010, the Company had no overproduced imbalances. Fair Value Measurements ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. (3) NOTE RECEIVABLE The Company advanced funds regarding the Corsicana lease acquisition and work program. The note receivable represents amounts due from the other 50% owner concerning their share of costs. The amount due is $ 25,050 and is non-interest bearing. (4) RELATED PARTY TRANSACTIONS An officer and shareholder of the Company has loaned the Company $76,546. The loan is interest free and has no formal terms of repayment. A note receivable in the amount of $ 45,807 is due from a shareholder of the Company at December 31, 2010. The loan is interest free and has no formal terms of repayment. (5) BOND RRC The Company has $ 50,000 on deposit with the Texas Railroad Commission (RRC) to establish an operators bond. In order to operate wells on properties in Texas, the RRC requires a bond be established by the operating party. The bond is put into a fund to cover any liability on a property which an operator fails to rectify or pay. The deposit is refundable when a operator ceases to be an operator and leaves the wells and property in a approved condition or transfers the property and wells to another bonded operator. F-12 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (6) PRODUCTION EQUIPMENT On May 20, 2010 the Company's subsidiary, Paradigm Integrated Technology Solutions Inc., entered into a Transfer of Technology and Know How Agreement for the worldwide marketing rights for the Transportable Enhanced Oil Recovery Platform. Under the terms of the agreement the Company agreed to purchase the first system which includes the exclusive ownership in the related technology and know how. $ 50,000 was paid on signing the agreement and $ 50,000 was to be paid within thirty days of signing the agreement towards the purchase of the first system and an additional $ 50,000 on delivery of the equipment. The Company has taken delivery of the first system. In addition, the purchase of the next 10 systems carry an additional $ 10,000 charge per system above the list purchase price of the system for a total of $ 100,000, however the Company is under no obligation to purchase further systems. The first system has been received, fully tested and was commissioned for operation in the 4th quarter. (7) NATURAL GAS AND OIL PROPERTIES On January 28, 2010, the Company entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired Company") in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired Company. The Acquired Company is now a 100% subsidiary of the Company. The Acquired Company holds 100% working interests in certain oil and gas leases along with certain Oil and Gas production equipment. The costs to acquire these assets have amounted to $541,539. These costs have been capitalized on the acquired company's books at cost as Natural gas and oil properties, Unproved properties. The oil and gas properties are comprised of 4 leases totaling approximately nine hundred and thirty four (934) net mineral Acres, all located in the State of Texas, USA. 692 acres in Kaufman County, carry a 80% Net Revenue Interest, 40 acres located in the County of Wood, carry a 87.5% Net Revenue Interest, 122.37 acres located in the County of Henderson carry a 81.25% Net Revenue Interest and 80 acres in the County of Wichita carry a 75% Net Revenue Interest. Combined there are a total of 9 existing previously producing wells and available spacing to support the drilling of approximately 30 new wells in the 3800' to 9000' range and approximately 50 new wells in the 800' to 1,800' range. On June 22, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired the Corsicana lease. The cost to acquire this lease amounted to $ 20,700 for a 50% working interest in the 80% Net Revenue Interest. The lease has 9 previously producing wells and have spacing over a total of 60 acres to support the potential of 17 new wells to depths of up to 2000 feet. The Corsicana lease is located in Navarro County, Texas. On June 30, 2010 the Company's subsidiary, Intergrated Oil and Gas Solutions Inc. acquired 2 additional Chilson leases, known as Chilson B. The cost to acquire these leases amounted to $ 17,977 for a 100% working interest in the 81% Net Revenue Interest. Combined the 2 leases have 5 previously producing wells and have spacing over a total of 154 acres to support the potential of 37 new wells to depths of up to 2000 feet. The new Chilson leases are adjacent to the existing Chilson lease the Company has which are all located in Wichita County, Texas. a) Participation Proposal Agreements On January 25, 2005, the Company closed two participation proposal agreements with Win Energy Corporation ("Win"), an unrelated Calgary, Alberta based private corporation. In November 2007 Win was acquired by Compton Petroleum Corporation ("Compton") The Company acquired an interest in two exploration projects in Alberta, Canada for the total payments of $506,014. F-13 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (7) NATURAL GAS AND OIL PROPERTIES (continued) Todd Creek Property ------------------- During January 2005, the Company paid Win $298,631 (less a $50,000 deposit paid in December 2004) to acquire a 10% interest in the Todd Creek Property (10-34-5-29W4) located in Alberta, Canada. On June 18, 2005, the Company received a payment of $ 147,258 from Win for the sale of 50% of the Company's 10% interest in the Todd Creek Property. During the second quarter of 2005, a well located in Todd Creek property was drilled to a specifically targeted depth. The well was evaluated and tested. The operator encountered gas reservoirs and concluded that this well is a potential gas well. This well was tied into a newly constructed gas processing plant and production commenced in September 2006. The Company has received no revenue from this well as the Company has not paid to Win our full share of the costs of drilling or to tie in the well. To date the Company has received no further information about the Todd Creek project. The Company does not expect to receive further information from the operator until the Company has paid all outstanding invoices in full. Included in accounts payable is an amount of $130,611 owing to Win/Compton. In 2008, due to the low prices for natural gas and the lack of sustainable production from the property we took an impairment charge against the Todd Creek property and wrote the value down to $ 0. Hillsprings Property -------------------- During January 2005, the Company acquired a 5% interest in the Hillsprings Property (10-34-5-29W4) located in Alberta, Canada at a cost of $207,383. The Company held an option to acquire an additional 5% interest by paying an additional $207,383 to Win, the option expired on July 1, 2005 unexercised. The Hillsprings Property currently has no proven reserves. The Company is currently in default of its payments to Win/Compton. The Company will have to pay Win/Compton the amounts owed in 2008.To pay the amounts owing to Win/Compton the Company will need to raise funds. This could potentially be dilutive to current shareholders. Alternatively the Company could sell the properties to realize value. b) Farmout and Option Agreement Sawn Lake Property ------------------ On February 14, 2005 the Company entered into a farmout and Option Agreement with a private Alberta corporation for consideration of $152,423. The Company will farm-in to a 5% interest in a test well, and a similar interest in an additional option well in the Sawn Lake area located in Alberta, Canada. The Company will earn 100% of the farmout's interest (an undivided 10% interest in the drilling spacing unit) before payout, reverting to 50% of the farmout's interest (an undivided 5% interest) after payout. In order to earn its interest in the initial test well, total costs of the test well, estimated to be $173,200, up to the point of commercial oil sales are to be borne 100% by the Company in order to earn its undivided interest. In conjunction with the year end audit in 2008 and 2007, 1132559 Alberta Ltd alleged that the Company was in default of the Sawn Lake Property farmout agreement over which their note payable (refer to note 8) is secured by 100% of the first proceeds of production of the Sawn Lake Property. Accordingly 1132559 Alberta Ltd's position is that they own the Sawn Lake Property farmout agreement. The Company does not believe there has been any default and maintains its ownership in the Sawn Lake farmout agreement. Due to the ongoing dispute the cost of defending the Company's rights to the Sawn Lake Property may cost more than the value of the property. In 2008 the Company took an impairment charge against the Sawn Lake property and wrote the value down to $ 0. F-14 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (7) NATURAL GAS AND OIL PROPERTIES (continued) The natural gas and oil properties are accounted for on a consolidated basis as follows; December 31, 2010 ------------- Chilson Property Acquisition cost January 28, 2010 $ 121,774 Cost of work program 21,350 ------------- $ 143,124 ------------- Lett Finlay Property Acquisition cost January 28, 2010 $ 308,708 ------------- $ 308,708 ------------- Lumpkin Property Acquisition cost January 28, 2010 $ 111,057 ------------- $ 111,057 ------------- Chilson B Acquisition cost June 30, 2010 $ 17,977 ------------- $ 17,977 ------------- Corsicana Acquisition cost June 22, 2010 $ 20,700 ------------- $ 20,700 ------------- Todd Creek Property Acquisition cost $ 298,631 Cash call 52,102 Refund (17,022) Written off (50,000) Impairment expense (283,711) ------------- $ - ------------- Hillsprings Property Acquisition cost $ 207,383 Impairment expense (207,383) ------------- $ - ------------- Sawn Lake Property Farmout and option agreement $ 152,423 Impairment expense (152,423) ------------- $ - ------------- Total Natural Gas and Oil Properties $ 601,556 ============= F-15 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (8) SHORT TERM CONVERTIBLE NOTES The Company has entered into a series of Short Term Convertible Notes bearing annual interest of 8% which mature 180 days after the issue date (maturity date). The note plus interest can be converted in whole or in part to common shares at the holder's option at the later of the maturity date or the default date. The Conversion price is calculated as 55% of the market price which is determined by averaging the lowest 3 day closing price over the last 10 trading day period ending one trading day prior to the day the conversion notice was sent by facsimile. If the note plus interest is not paid or converted on the maturity, then default interest begins to accrue on the whole amount bearing annual interest of 22%. Conversion Price During Major Announcements In the event the Company (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Company is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Company or (ii) any person, group or entity (including the Company) publicly announces a tender offer to purchase 50% or more of the Company's Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth above. For purposes hereof, "Adjusted Conversion Price Termination Date" shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this paragraph has been made, the date upon which the Company (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this paragraph to become operative. The Company may prepay the note plus accrued interest at any time after 91 days after the issue date and ending up to 180 days after the issue date. The total amount calculated to be prepaid will bear an additional charge of 75% of the calculated prepaid amount. December 31, 2010 ------------- Issue Date October 6, 2011 $ 50,000 November 18, 2011 40,000 December 20, 2011 $ 52,500 ------------- 142,500 Accrued Interest 1,385 ------------- $ 143,885 ============= The Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the notes (based on the Conversion Price of the Notes in effect from time to time). F-16 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (8) SHORT TERM CONVERTIBLE NOTES (continued) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more than three (3) business days after the Deadline, the Company shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Company fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Company by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. (9) NOTE PAYABLE The Company is indebted under a note payable to 1132559 Alberta Ltd, bearing annual interest of 7% and secured by 100% of the first proceeds of production under the Farmout and Option Agreement for the Sawn Lake Property. There are no fixed repayment terms. The Company may be in default of this note as more fully explained in Note 7b of the December 31, 2010 financial statements. December 31, 2010 ------------- 1132559 Alberta Ltd $ 96,066 ============= (10) CONVERTIBLE NOTE PAYABLE On April 22, 2009 the Company converted $360,000 of accounts payable to a convertible note payable. The note was non-interest bearing and due on demand any time after December 31, 2009. The holder of the note had the option to convert the note into common shares of the Company at a price of $.04 per share. Conversion of Convertible Notes Payable On February 2, 2010, holders of $360,000 of convertible notes payable, elected to under the terms of the agreement to convert their debt to shares of the Company. The Company issued 9,000,000 common shares in full and final settlement of the $360,000 debt. The price of the common shares on the date of issuance was $.20. The Company recognized a loss of $1,440,000 on the conversion of the debt. After the conversion of the convertible notes payable the Company had 51,188,058 common shares issued and outstanding. F-17 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (11) CONVERTIBLE DEBENTURE PAYABLE The Company received a series of fundings throughout the second and third quarters of 2010 totaling $ 734,918 by way of a Convertible Debenture. The Debenture was convertible to common shares at the Company's option at a price to be negotiated by September 30, 2010. Up to September 30, 2010 the note was interest free. If the note was not converted by September 30, 2010, the note was to begin to accumulate interest at an annual rate of 12%. On September 28, 2010 the note was converted at $ 0.35 per share for a total of 2,099,768 Common Shares. The Company recorded a gain on conversion of $ 41,995. See Note 13. (12) INCOME TAXES Income Tax Provision: a) The provision for income taxes differs from the result which would be obtained by applying the statutory rate of 34% to income before income taxes. December 31, 2010 ------------- Loss before income taxes $ (2,478,000) ============= Income tax benefit at 34% (estimated) 842,500 Unrecognized benefit of operating loss carry forwards $ (842,500) ------------- Income tax benefit $ -- ============= b) Significant components of the Company's deferred income tax assets are as follows: December 31, 2010 ------------- Operating loss carry-forwards $ 2,478,000 Mineral interest and natural gas and oil properties -- ------------- 2,478,000 Statutory tax rate 34.0% ------------- Deferred income tax asset 842,500 Valuation allowance (842,500) ------------- Net deferred tax assets $ -- ============= The Company has incurred operating losses of approximately $ 2,478,000 which, if unutilized, will expire through to 2030. Future tax benefits, which may arise as a result of these losses, have been offset by a valuation allowance. The change in valuation allowance for the year ended December 31, 2010 was $842,500. The Company accounts for corporate income taxes in accordance with ASC Topic 740 Income Taxes. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, future tax benefits, such as those from net operating loss carry forwards, are not recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as set forth below in the period that includes the enactment date. F-18 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (12) INCOME TAXES (continued) The Company has a deferred tax asset relating to the depreciation and depletion difference between generally accepted accounting principles and tax and relating to the Company's net operating losses was insignificant at December 31, 2010, and which has been fully offset by a valuation allowance. The Company does not have any other significant deferred tax assets or liabilities. The net operating loss carry forwards are available to offset future taxable income of the Company. These net operating losses expire through 2030. The Company is not current in filing its tax returns. (13) SHAREHOLDERS' EQUITY Common Stock Effective January 28, 2010, Paradigm Oil & Gas Inc. (the "Company"), a Nevada corporation, entered into a Share exchange agreement with the shareholders of Intergrated Oil and Gas Solutions Inc. (the "Acquired company") a Texas corporation, whereby the Company has issued 42,000,000, US$.001 par value common shares to unrelated shareholders in exchange for their one hundred percent (100%) interest in all of the capital stock of the Acquired company The Acquired company is now a 100% subsidiary of the Company. Prior to the Acquisition, there were 188,058 shares of the Company's common stock outstanding. Immediately following the Acquisition, there are 42,188,058 shares of common stock outstanding. On the effective date of the acquisition, additional paid in capital was increased by $ 8,358,000. This was adjusted by $ 8,400,000 to record the basis in Intergrated Oil and Gas Solutions Inc. An expense of $ 633,279 was then recorded to recognize the assumption of Paradigms' liabilities assumed at the time of the acquisition. b) On February 2, 2010 the convertible note payable of $ 360,000 was converted into common shares at $ .04 per share. 9,000,000 shares were issued to the convertible note holders. On the effective date of the conversion, additional paid in capital was increased by $ 1,791,000. A loss of $ 1,440,000 was then recognized to match the conversion to the book value of the convertible note. On September 28, 2010 convertible debentures in the amount of $ 734,918 were converted at $ 0.35 per share for a total of 2,099,768 Common Shares at a par value of $ 2,100. Additional paid in capital increased by $ 690,823. The share price was $ 0.33 on the closing of this transaction, as a result a gain of $ 41,995 was recognized and recorded as a Gain from issued shares on debt conversion. As of December 31, 2010 there were 53,287,826 Common Shares outstanding. (14) NATURAL GAS AND OIL EXPLORATION RISK Exploration Risk The Company's future financial condition and results of operations will depend upon prices received for its natural gas and oil production and the cost of finding, acquiring, developing and producing reserves. Substantially all of its production is sold under various terms and arrangements at prevailing market prices. Prices for natural gas and oil are subject to fluctuations in response to changes in supply, market uncertainty and a variety of other factors beyond its control. Other factors that have a direct bearing on the Company's prospects are uncertainties inherent in estimating natural gas and oil reserves and future hydrocarbon production and cash flows, particularly with respect to wells that have not been fully tested and with wells having limited production histories; access to additional capital; changes in the price of natural gas and oil; availability and cost of services and equipment; and the presence of competitors with greater financial resources and capacity. F-19 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 Distribution Risk The Company is dependent on the operator to market any oil production from its wells and any subsequent production which may be received from other wells which may be successfully drilled on the Prospect. It relies on the operator's ability and expertise in the industry to successfully market the same. Prices at which the operator sells gas/oil both in intrastate and interstate commerce, will be subject to the availability of pipelines, demand and other factors beyond the control of the operator. The Company and the operator believe any oil produced can be readily sold to a number of buyers. Foreign Operations Risk The Company is exposed to foreign currency fluctuations, political risks, price controls and varying forms of fiscal regimes or changes thereto which may impair its ability to conduct profitable operations as it operates internationally and holds foreign denominated cash and other assets. (15) CONTRACTUAL OBLIGATIONS AND COMMITMENTS The Company is in default of its obligation to Compton Petroleum in respect to the Todd Creek Property, as it has not paid the full share of costs of drilling or to complete the well. As a result the Company has received no further information about the Todd Creek project. The Company does not expect to receive further information from the operator until all outstanding participation costs have been paid. In conjunction with the year end audit in 2007 and 2008, 1132559 Alberta Ltd alleged that the Company was in default of the Sawn Lake Property Lake farmout agreement over which their note payable (refer to note 9) is secured by 100% of the first proceeds of production of the Sawn Lake Property. Accordingly 1132559 Alberta Ltd position is that they own the Sawn Lake Property Lake farmout agreement. The Company does not believe there has been any default and maintains its ownership in the Sawn Lake farmout agreement. (16) SUBSEQUENT EVENTS Subsequent to December 31, 2010 the Company entered into short term convertible notes on January 28, 2011 and on March 9, 2011 and received cash proceeds of $ 35,000 and $ 25,000 respectively. Terms and conditions were the same as previous short term convertible notes entered into and as outlined in Note 8. (17) SUPPLEMENTAL INFORMATION ON OIL AND GAS DATA (Unaudited) The following tables set forth supplementary disclosures for the Company's oil and gas producing activities in accordance with ASC No. 932, Extractive Activities - Oil and Gas (ASC 932). F-20 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (17) SUPPLEMENTAL INFORMATION ON OIL AND GAS DATA (Unaudited)(continued) Capitalized Costs Relating to Oil and Gas Producing Activities: Period from January 28, 2010 (Inception) Though December 31, 2010 ------------- Capitalized Costs: Oil & gas properties $ 601,556 ------------- Total Capitalized Costs 601,556 Less: Accumulated depreciation, depletion, amortization, and valuation allowance -- ============= Net Capitalized Costs $ 601,556 ============= Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities: Period from January 28, 2010 (Inception) Though December 31, 2010 ------------- Acquisition of properties $ 580,206 Exploration Development 21,350 ------------- Total Costs Incurred $ 601,556 ============= The Company engaged an independent petroleum engineer to evaluate the Company's unproved oil and gas reserves as of December 31, 2010. Based on the report prepared by the engineer, the Company will need to raise approximately $1,450,000 in order to begin developing its oil and gas properties. Results of Operations from Oil and Gas Producing Activities: During the period from January 28, 2010 (inception) through December 31, 2010 the company spent $ 122,720 on lease development activities. (18) STOCK OPTIONS/STOCK-BASED COMPENSATION AND WARRANTS The Company approved a stock option plan in October 2010 ("2010 Stock Option Plan") to provide incentives to employees, directors, officers, and consultants and under which 5,000,000 shares of common stock have been reserved for issuance. The options are non-statutory stock options and are valued at the fair market value of the stock on the date of grant. The stock subject to the option on the date of the grant and, in some cases, may not be less than 110% of such fair market value. The exercise price of non-statutory options may not be less than 100% of the fair market value of the stock on the date of grant. The options expire 5 years after the date of grant. On October 15, 2010, the Board of Directors granted 150,000 of options under this 2010 Stock Option Plan. The Company granted 150,000 options in aggregate, to one employee pursuant to an employment agreement. These options were granted at a price of $ 0.30 per share. 75,000 options vest on May 31, 2011 and 75,000 on May 3, 2012. As of April 18, 2011 no options have been exercised. F-21 PARADIGM OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 28, 2010 (Inception) through December 31, 2010 (18) STOCK OPTIONS/STOCK-BASED COMPENSATION AND WARRANTS (continued) The Company accounts for stock-based compensation under the provisions of FASB ASC 718-10-55. This statement requires the Company to record an expense associated with the fair value of stock-based compensation. The Company uses the Black- Scholes option valuation model to calculate stock-based compensation at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. The Company used the simplified method to determine the expected term of the options due to the lack of sufficient historical data. Changes in these assumptions can materially affect the fair value estimate. The total fair value of the options is recognized as compensation over the vesting period. (19) EMPLOYMENT AGREEMENT The President and CEO Ron Polli has an employment agreement with the Company. The agreement provides for an annual salary of $ 60,000 per annum based on weeks worked and a provision to be granted options under a separate option agreement as disclosed in Note 18. The agreement can be terminated with 30 days notice by either party. F-21 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosures On June 17, 2008 the board of directors of the Company replaced STS Partners with Turner Stone & Company, LLC as our auditors. There have been no disagreements with our accountants on issues of accounting or financial disclosures. Item 9A(T). Controls and Procedures a) Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of its President and Chief Executive Officer, who is its principal executive officer, completed an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this Form 10-K. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms, and that such information is accumulated and communicated to management, including the President and Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company's President and Chief Executive Officer concluded that the Company's disclosure controls and procedures, as of the end of the fiscal year covered by this Form 10-K - were not effective because of the late filing of the Company's annual financial statements. Pursuant to the requirements of Section 13 or 15(d) 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. (b) Management's Annual Report on Internal Control over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act and for assessing the effectiveness of internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2010. In making its assessment of internal control over financial reporting, management used the criteria established in Internal Control -- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. This assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of those controls. Based on the results of this assessment, management has concluded that the Company's internal control over financial reporting were not effective because of the late filing of the Company's annual financial statements as of December 31, 2010. This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this Annual Report on Form 10-K. (c) Changes in Internal Control over Financial Reporting There were no changes in the Company's internal control over financial reporting that occurred during the period ended from January 28, 2010 (inception) to December 31, 2010 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information None 22 PART III Item 10. Directors, Executive Officers, and Corporate Governance All directors of our company hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. The officers of our company are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal. Our directors, executive officers and other significant employees, their ages, positions held and duration each person has held that position, are as follows: ================= ============================= ===== ======================= Name Position Held with the Age Date First Elected Corporation / Appointed ================= ============================= ===== ======================= Ron Polli President and CEO 45 July 1, 2010 ----------------- ----------------------------- ----- ----------------------- Brian Kennedy Director and CFO 55 April 5, 2010 ----------------- ----------------------------- ----- ----------------------- Business Experience =================== The following is a brief account of the education and business experience of each director, executive officer and key employee, indicating each person's principal occupation during the period, and the name and principal business of the organization by which he was employed. Ron Polli has over 25 years experience in executive management and business development and has had marketing and sales leadership roles within the technology industry. Prior to accepting this new position, Mr. Polli was appointed on May 21, 2010 as President of the Company's technology subsidiary, Paradigm Integrated Technology Solutions Inc. Prior to his appointment, Mr. Polli had been consulting with the Paradigm Oil and Gas management team since September 2009. Since 2009, Mr. Polli was President of Stripper Solutions LLC, a distributor for BlackStorm Flexible Tubing Systems, a new and patented product for the production of oil in shallow wells. Here Mr. Polli developed a distribution network, recruiting distributors both nationally and internationally, focusing on new and innovative technologies in the oil recovery industry. Brian Kennedy has over 30 years of business experience and during his career has held several CEO and CFO positions with both public and private companies. His experience spans areas of general management, business planning, accounting and financial reporting, treasury functions, intellectual property and licensing, mergers and acquisitions, and Board of Director positions. Mr. Kennedy is a Chartered Accountant and has a Bachelor of Business Administration degree from York University. Previously Mr. Kennedy was CEO of Luxell Technologies, listed on the Toronto Stock Exchange, where under his leadership grew the company from a $0.25 share value to over $9.00. Over the last 3 years, Mr. Kennedy worked on numerous oil and gas recovery projects, whereby utilizing new technologies he successfully increased the production output of the wells. Our directors, executive officers and control persons have not been involved in any of the following events during the past five years: 1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 23 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or 4. being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. Paradigm does not have any committees of the board of directors at this time. The board of directors does not have a nominations committee because there is one director and shareholder suggestions would be known to the entire board. As such, the board of directors believes there will be sufficient communication by shareholders with the board about matters and nominees to be brought to its attention. Paradigm's sole director functions as an audit committee and performs some of the same functions as an audit committee including: (1) selection and oversight of the Company's independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; and (3) engaging outside advisors. Paradigm's board of directors has determined that its director is not an "audit committee financial expert" within the meaning of the rules and regulations of the SEC. Paradigm's board of directors has determined, however, that its director is able to read and understand fundamental financial statements and has business experience that results in that member's financial sophistication. Accordingly, the board of directors believes that its director has the sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee would have. Item 11. Executive Compensation. Summary Compensation Table The following table sets forth information concerning all compensation paid or accrued by us to our President and Chief Executive Officer and Chief Financial Officer during the fiscal period ended December 31, 2010. None of the officer receives compensation in excess of $100,000 per year. Long-Term Name and Annual Compensation Compensation Awards Principal Fiscal Stock Options All Other Position Year Salary Bonus Granted Compensation ------------------------------------------------------------- ------------------ Ron Polli 2010 $33,387 -- 150,000 -- President -- Brian Kennedy 2010 $58,915 -- -- -- Chief Financial Officer Stock Option Grants During the period ended from January 28, 2010 (inception) to December 31, 2010 we granted - on October 14, 2010, 150,000 stock options at a strike price of $ 0.30 to Ron Polli. 75,000 vest on May 31, 2011 and 75,000 vest on May 3, 2012. The options expire 5 years from the date of granting. Options Exercised and Year-End Option Values The following table sets forth certain information regarding the value of unexercised options held by the named executive officer as of December 31, 2010. 24 Fiscal Year-End Option Values(1)

Stock Option Plan Paradigm has a stock option plan for officers, directors, employees or consultants. 150,000 options have been granted under this plan issued to Ron Polli as indicated above. Options granted remain in effect for 5 years. Compensation of Directors The Company does not pay any compensation to directors. Director Compensation

Marc Juliar resigned on June 21, 2010 Brian Kennedy was appointed on April 5, 2010 We have no plan for compensating our directors for their service. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. No director received and/or accrued any compensation for their services as a director, including committee participation and/or special assignments. Employment Agreements Ron Polli has an employment agreement with the Company. The agreement provides for an annual salary of $ 60,000 per annum based on weeks worked and a provision to be granted options under a separate option agreement as noted above. The agreement can be terminated with 30 days notice by either party. There are no other other management agreements with our directors or executive officers and we do not anticipate that written agreements will be put in place in the foreseeable future. 25 Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of April 18, 2011, certain information with respect to the beneficial ownership of our common shares by each shareholder known to us to be the beneficial owner of 5% of our common shares, and by each of our officers and directors. Each person has sole voting power with respect to the common shares, except as otherwise indicated. Beneficial ownership consists of a direct interest in the common shares, except as otherwise indicated. ================================================================================ Name of Amount and Nature Percentage of Beneficial Owner of Beneficial Ownership Class(1) ================================================================================ Black Pearl Petroleum Inc 25,200,000 47.29% -------------------------------------------------------------------------------- Brian Kennedy 2,100,000 (Director) 3.94% -------------------------------------------------------------------------------- Asia Investment Real Estate Group 2,100,000 (Director) 3.94% Corp ================================================================================ (1) Based on 53,287,826 shares outstanding as of April 18, 2011 and, as to a specific person, shares issuable pursuant to the conversion or exercise, as the case may be, of currently exercisable or convertible debentures, share purchase warrants and stock options within 60 days. Item 13. Certain Relationships and Related Transactions and Director Independence. The Related Party Receivable of $ 45,807 was advanced to a related for acquisitions. The Shareholder loan of $ 76,546 is owing to a shareholder/officer of the Company. Item 14. Principal Accounting Fees and Services The following table presents fees for professional services rendered by Turner Stone & Company for the audit of the Company's financial statements as of the year end December 31, 2010. Period Ended 2010 ------------ Audit Fees $ 12,500 Audit Related Fees $ - Tax Fees $ - All other Fees $ 12,000 Item 15. Exhibits and Financial Statement Schedules a) The following documents are filed as a part of this Report: 1. Financial Statements. The following financial statements of Paradigm Oil & Gas, Inc. are included in Item 8: 26 Report of Independent Registered Public Accounting Firm. Balance Sheet as of December 31, 2010. Statements of Operations for the period ended from January 28, 2010(inception) to December 31, 2010. Statement of Comprehensive Loss for the period ended from January 28, 2010(inception) to December 31, 2010. Statements of Changes in Stockholders' Equity for the period from January 28, 2010(inception) to December 31, 2010. Statements of Cash Flows for the period ended from January 28, 2010(inception) to December 31, 2010. Notes to Financial Statements. 2. Financial Statement Schedule(s): All schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable. The following are exhibits to this Annual Report 31.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003. 31.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003. 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. -------------------------------------------------------------------------------- SIGNATURES ========== Pursuant to the requirements of Section 13 or 15(d) 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. PARADIGM OIL AND GAS, INC. -------------------------- (Registrant) By: /s/ Brian Kennedy --------------------------------------------------- Brian Kennedy, Director and Chief Financial Officer By: /s/ Ron Polli --------------------------------------------------- Ron Polli, President and Chief Executive Officer Date: April 18, 2011 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 27 --------------------------------------------------------------------------------

Paradigm Oil & Gas, Inc. 10-K