UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2014

[ ]

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

For the transition period from to

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XUN ENERGY, INC.

(Exact name of registrant as specified in its charter)


Nevada	000-53466	90-0669916
State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

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

(Address of Principal Executive Offices) (Zip Code)

(775)-200-0505

(Issuer’s telephone number, including area code)

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

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

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

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


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

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

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date:

7,201,613,163 shares of common stock are issued and outstanding as of October 20, 2014.

XUN ENERGY, INC.

INDEX

ITEM 1. FINANCIAL STATEMENTS

XUN ENERGY, INC.

INDEX


	PART I. – FINANCIAL INFORMATION	Page

Item 1.	Condensed Consolidated Balance Sheets at August 31, 2013 (unaudited) and May 31, 2013 (audited)	3

	Condensed Consolidated Statement of Operations for the Three Months ended August 31, 2014 and August 31, 2013 (unaudited)	4

	Condensed Consolidated Statements of Stockholders Deficit to August 31, 2014 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended August 31, 2014 and August 31, 2013 (unaudited)	6

	Supplemental Disclosure With Respect To Cash Flows for the Three Months Ended August 31, 2014 and August 31, 2013 (unaudited)	7

	Notes to Interim Condensed Consolidated Financial Statements as of August 31, 2014 (unaudited)	8

XUN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of AUGUST 31, 2014 and MAY 31, 2014

(Expressed in U.S. dollars)


		August 31, 2014		May 31, 2014
		(Unaudited)		(Audited)
ASSETS
Current Assets:
Cash	$	3,216	$	9,213
Accounts Receivable		11,684		-
Other Current Assets		24,167		384,082
Total Current Assets		39,067		393,295

Property, Plant and Equipment, net		517,385		942,250
Total Property, Plant and Equipment		517,385		942,250
Other Assets:
Intangible Assets - Legal and Contractual
Rights - Oil and Gas Leases		-		536,250
Total Legal and Contractual		-		536,250
Total Intangible Assets		-		536,250
Total Other Assets		-		536,250
Total Assets		556,452		1,871,795
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses		2,513,967		2,396,452
Loans payable		343,707		354,034
Convertible Promissory Notes, net of discount		288,283		295,484
Total Current Liabilities		3,145,957		3,045,970
Stockholders' Deficit:
Preferred Stock, par value $0.0001, 50,000,000 shares authorized,
600,000 Series B issued and outstanding		60		60
Common Stock, par value $0.0001, 15,000,000,000 shares authorized,
7,151,568,163 and 5,790,957,053 shares issued and outstanding, respectively		715,157		579,096
Paid in Capital		2,268,367		2,327,566
Accumulated Deficit		(5,573,089)		(4,080,897)
Total Stockholders' Deficit		(2,589,505)		(1,174,175)
Total Liabilities and Stockholders' Deficit	$	556,452	$	1,871,795

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

XUN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED AUGUST 31, 2014 AND AUGUST 31, 2013

(UNAUDITED)

(Expressed in U.S. dollars)


		For the 3 months ended August 31, 2014		For the 3 months ended August 31, 2013

Revenue
Revenue - Operations		24,123		-
Total Revenue	$	24,123	$	-

Lease Operating Expenses		11,736		-

Gross Profit		12,387		-

Expenses
General and Administrative		156,959		301,484
Oil and Gas leases forfeitures		536,250		-
Other Asset Impairment		417,186		-
Other Current Assets Impairment		365,000		-
Total Expenses		1,475,395		301,484
Loss before income taxes		(1,463,008)		(301,484)

Other income (expense)		(29,184)		(137,442)

Provision for Income Taxes		-		-

Net Loss	$	(1,492,192)	$	(438,927)

Basic
Loss per Common Shares		a		a

Fully Diluted
(Loss) per Common Shares		a		a

Weighted Average
Basic Number of Common Shares		6,989,360,571		421,895,286
Fully Diluted Common Shares		6,989,360,571		421,895,286

a = Less than ($0.01) per share

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


XUN ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 2014 AND MAY 31, 2014
(Expressed in U.S. dollars)


	Preferred Stock Shares			Preferred Stock Amount	Common Stock Shares		Common Stock Amount		Additional Paid in Capital		Retained Earnings		Total Equity
Balance, May 31, 2013		-		-	385,460,240		38,546		2,876,422		(3,453,899)		(538,931)
Common Stock cancelled Consultants	-			-	(20,000,000)		(2,000)		(998,000)		-		(1,000,000)
Common stock issued to Directors	-			-	180,000		18		111		-		129
Common stock issued to Lenders for Interest					357,119,310		35,712		(6,170)		-		29,542
Common Stock issued to reduce CPN's	-			-	5,068,197,503		506,820		(27,215)		-		479,605
Discount on CPN's	-			-	-		-		182,478		-		182,478
Series B Preferred Shares	600,000			60	-		-		299,940		-		300,000
Net loss for the period	-			-	-		-		0		(626,997)		(626,997)
Balance, May 31, 2014	600,000			60	5,790,957,053		579,096		2,327,565		(4,080,897)		(1,174,175)
Common stock issued to Lenders for Interest					320,777,777		32,078		(15,605)		-		16,473
Common Stock issued to reduce CPN's	-			-	1,039,833,333		103,983		(43,593)		-		60,390
Net loss for the period	-			-	-		-		-		(1,492,192)		(1,492,192)
Balance, August 31, 2014, (Unaudited)	600,000		$	60	7,151,568,163	$	715,157	$	2,268,367	$	(5,573,089)	$	(2,589,505)

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

XUN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MAY 31, 2014 AND MAY 31, 2013

(UNAUDITED)

(Expressed in U.S. dollars)


		For the 3 months ended August 31, 2014		For the 3 months ended August 31, 2013

Net Cash Used in Operating Activities
Net Loss	$	(1,492,192)	$	(438,927)
Adjustments to Reconcile Net Loss to Cash Used in Operating Activities
Adjustments, Noncash Items, to Reconcile Net Loss to Cash Used in Operating Activities
Share based – interest		16,472		1,500
Non-cash amortization - debt discount		22,095		52,142
Non-cash Oil and Gas leases forfeitures		536,250		-
Non-cash Other Asset Impairment		417,186		-
Non-cash Other Current Assets		365,000		-
Non-cash - Interest-discount		-		72,717
Depletion		7,680		-
Adjustments, Noncash Items, to Reconcile Net Loss to Cash Used in Operating Activities		1,364,683		126,359
(Increase) Decrease in Operating Assets
Accounts receivable and accrued receivables		(11,684)		-
Other Current Assets		(5,084)		128,753
(Increase) Decrease in Operating Assets		(16,768)		128,753
Increase (Decrease) in Operating Liabilities
Accrued Interest		(11,484)		12,183
Accounts payable and accrued liabilities		117,515		79,175
Increase (Decrease) in Operating Liabilities		106,031		91,358
Adjustments to Reconcile Net Loss to Cash Used in Operating Activities		1,453,946		346,470
Net Cash Used in Operating Activities		(38,246)		(92,457)
Net Cash Used in Investing Activities
Payments to Acquire Intangible Assets		-		(125)
Net Cash Used in Investing Activities		-		(125)
Net Cash Provided by Financing Activities
Repayments of Short-term Debt		(10,500)		-
Proceeds from Short-term Debt		42,750		72,500
Net Cash Provided by Financing Activities		32,250		72,500
Cash, Period Decrease		(5,996)		(20,082)
Cash, beginning of period		9,213		23,400
Cash, at end of period	$	3,216	$	3,318

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

XUN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MAY 31, 2014 AND AUGUST 31, 2013

SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS

(UNAUDITED)

(Expressed in U.S. dollars)


		For the 3 months ended August 31, 2014		For the 3 months ended August 31, 2013
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS:
Cash paid for income taxes	$	-	$	-
Cash paid for interest		-		-
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Debt Discount - non cash capitalization, net		-		55,109
Common Stock issued for repayment of loans	$	60,390	$	114,350

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

XUN ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

AUGUST 31, 2014

NOTE 1: ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

NATURE OF BUSINESS

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

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

The Company commenced operations on March 16, 2011 commencing with a workover program on one of its oil wells in Kentucky.

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

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

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

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

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

On June 2, 2014, the Company completed Rice #15 oil well in Pennsylvania and began production of the Rice #15 crude oil well. By August 31, 2014, Rice #15 produced 369.5 barrels of crude oil since oil began streaming on June 16, 2014. The Rice #15 has settled in and is producing between 1 and 2 barrels of oil per day with water production between 4 to 6 barrels of water per day. During the 3 month period ending August 31, 2014, 296 gross barrels of crude oil were sold, net 243 barrels of crude oil.

On August 31, 2014, the Company forfeited its rights to drill on the Corse and Lalley oil and gas leases in Venango County, Pennsylvania. The Company retains its drilling rights on the Rice 3, Rice 4, Rice 6 and Rice 14 by "Held By Production" and drilling permits which expire on April 28, 2015.

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

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

FISCAL YEAR

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

PRINCIPLES OF CONSOLIDATION

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

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The interim consolidated financial statements of Xun Energy, Inc. as of August 31, 2014, and for the three months then ended are unaudited. However, in the opinion of management, the interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly Xun Energy, Inc.’s consolidated financial position as of August 31, 2014, and the results of its consolidated operations and its cash flows for the three months ended August 31, 2014, and 2013. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2015. The accompanying consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2014.

EARLY ADOPTION OF ASU 2014-10

During the year ended May 31, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.

USE OF ESTIMATES

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

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

Carrying value of oil and gas properties;

Income taxes;

Asset retirement obligations;

Legal contingencies and environmental risks and exposures.

EARNINGS PER SHARE

Basic earnings per share amounts are computed by dividing the net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share are computed by dividing the net income (loss) by the weighted average number of common shares outstanding and the weighted average number of preferred shares outstanding fully converted. The fully diluted weighted average common shares does not include potential dilution of convertible promissory notes.

CASH EQUIVALENTS

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

PROPERTY AND EQUIPMENT

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

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

Tangible costs include but are not limited to: leasehold costs (location fees); well head; pump jacks with gear box, skid and motor; polish rod, brass liners; oil tanks, brine tanks; tank battery plumbing; oil separator and pipelines; tubing; rods; bottom hole pump assemblies; fencing and gates; and miscellaneous fixtures and fittings for each well.

Intangible costs includes but are not limited to: management costs; site permits; site survey and staking locations; road excavation and preparation; location excavation and stoning well locations; tank battery excavation and stoning; pipeline installation labor; drilling

services; service rig costs; surface casing; cement casing; nuclear logging; notching; engineering; hydrofacing; waste water disposal and treatment; site remediation; and various services and rentals necessary to drill and complete an oil or gas well to bring it into production including testing and commissioning.

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

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

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

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

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

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

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

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

The Schedule of Property and Equipment details are as follows:


Schedule of Plant, Property and Equipment

Description		August 31, 2014 (Unaudited)		May 31, 2014
Work in Progress-Intangible	$	208,472	$	694,035
Work in Progress-Tangible		42,343		140,965
Rights (leases)		85,800		107,250
Subtotal		336,614		942,250
Rice #15		188,450		0
Depletion and Depreciation		-7,680		0
Net Plant - Oil Wells, End of period	$	517,385	$	942,250

OIL AND GAS EXPLORATION

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

OIL AND GAS DEVELOPMENT - OFFSET DRILLING

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

OIL AND GAS DEVELOPMENT - NON-PRODUCING OIL AND GAS WELL WORKOVER PROGRAM

The Company may acquire oil and gas leases that have non-producing (abandoned) oil and gas wells and decide to place the oil and gas well intro production. The Company’s Development - workover program consists of re-entering or completing a workovers on an oil or gas well that has a historical evidence of oil or gas production or that is currently producing oil and gas at a fractional output compared to when the oil and gas wells first came into production. Workover activities include one or more of a variety of remedial operations on a producing well or inactive well to try to increase production. All costs of a workover are capitalized and amortized (depletion) on a per-unit of barrel equivalent of production based on a new proven reserves study. Workover Development programs that do not establish a proven reserve will have the workover costs charged to operating expenses.

OIL AND GAS RESERVES

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

INTANGIBLE ASSETS - LEGAL AND CONTRACTUAL – RIGHTS

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

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

The Schedule of Oil and Gas Rights are as follows:


Schedule of Oil and Gas Rights

Description		August 31, 2014 (Unaudited)		May 31, 2014
Acquisitions/Work in Progress	$	536,250	$	536,250
Capitalized as Fixed Assets		0		0
Forfeitures during the period		536,250		0
Impairments during the period		0		0
Oil and Gas Leases, End of period	$	0	$	536,250

OIL AND GAS REVENUE RECOGNITION

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

GENERAL AND ADMINISTRATIVE EXPENSES

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

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

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

INCOME TAX POLICY

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

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

NOTE 3: OTHER CURRENT ASSETS

On May 15, 2014, the Company entered into two Secured Loan and Coupon Agreements (SLCA) to complete the Rice #15 oil well. The SLCA requires the Company to pay interest at a fixed amount of $15,600 (Coupon) due immediately upon execution of the SLCA, payable from the net proceeds of the production of crude oil from the Rice #15 oil well. Based on a $100 crude oil price, it is expected the SLCA's will be paid off from the first 1,300 barrels of crude oil produced. The Coupon will be amortized at the rate of $12 per barrel of crude oil produced as interest expense, refer to NOTE 13: LOANS PAYABLE, Short Term Loans, for additional detail.

The Company had 74 barrels of crude oil inventory from the Rice #15 oil well on August 31, 2014 with a cost of $2,916, $40 per barrel, which is lower than market. The Company values the inventory on a moving average basis based on direct costs incurred during the production period including Depletion and Depreciation.


Schedule of Other Current Assets

Other Current Assets		August 31, 2014 (Unaudited)		May 31, 2014
Other Current Assets, Beginning Balance	$	384,082	$	981,000
Prepaid Legal		-982		(4,018)
Financial Services		-365,000		(608,500)
Crude Oil Inventory		2,916		0
Prepaid Interest - SCLA Coupons		-2,100		15,600
Refundable Advance		5,000		0
Cash Deposits		250		0
Other Current Assets, Balance end of period	$	24,166	$	384,082

The Company charged to operating expenses $365,000 of prepaid financial services during the 3 month period ending August 31, 2014 relating to the Company seeking a 3(a)10 exemption relating to a debt settlement claim, refer to NOTE 23: DEBT SETTLEMENT CLAIM, for additional information.

NOTE 4: OTHER ASSETS

The Schedule of Other Assets are as follows:


Schedule of Other Assets

Description - Other Assets		August 31, 2014 (Unaudited)		May 31, 2014
Rights - Oil and Gas Leases	$	0	$	536,250
Incorporation Costs		0		70
Total Other Assets	$	0	$	536,320

NOTE 5. ADVERTISING

The Company’s policy regarding advertising is to expense advertising when incurred. The Company had no advertising expenses for the year ending August 31, 2014 and no advertising expenses for the year ending May 31, 2014.

NOTE 6. GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has continued net losses from inception (December 20, 2007) to August 31, 2014. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management is planning to raise additional funds through debt or equity offerings. There is no guarantee that the Company will be successful in these efforts. There is no guarantee that the Company will be successful generating profits from its oil and gas operations. There is no guarantee that the Company will be able to drawdown on the $15 Million Reserve Equity Financing Agreement with AGS Capital Group, LLC, refer to NOTE 21: FINANCING AGREEMENTS for additional detail.

NOTE 7: RELATED PARTY TRANSACTIONS

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

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

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

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

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

On March 20, 2014, President, CEO and Director, Jerry G. Mikolajczyk, loaned the Company $5,000 to be applied against the purchase of Series B Preferred Shares. The loan is unsecured and non-interest bearing.

On May 6, 2014, President, CEO and Director, Jerry G. Mikolajczyk, loaned the Company $5,000 to be applied against the purchase of Series B Preferred Shares. The loan is unsecured and non-interest bearing.

The Company issued an aggregate of 45,000 shares for the three month period ending February 28, 2014 with an average price of $0.000153 per share on May 13, 2014 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail.

The Company issued 600,000 Series B Preferred shares on May 13, 2014 to President, CEO and Director, Jerry G. Mikolajczyk, for $300,000. The unsecured loans for $35,000 with Jerry G. Mikolajczyk and a $265,000 reduction in the short term loan to Jerry G. Mikolajczyk d/b/a Lighthouse Investments was applied against the purchase of the Series B Preferred Shares.

The Company issued an aggregate of 45,000 shares for the three month period ending May 31, 2014 with an average price of $0.000173 per share on May 30, 2014 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier, refer to NOTE 17: EXECUTIVE AND BOARD COMPENSATION for additional detail.

NOTE 8. INCOME TAXES

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During each fiscal year from 2008 thru 2015, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset of approximately $1,641,687 (assuming a 35% effective tax rate) generated by the loss carry-forward has been fully reserved as of August 31, 2014 and $1,127,171 as of May 31, 2014.

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

The Company did not identify any material uncertain tax positions on tax returns filed as of August 31, 2014 and as of May 31, 2014. The Company did not recognize any interest or penalties for unrecognized tax benefits as of August 31, 2014 and as of May 31, 2014.

NOTE 9. NET OPERATING LOSSES

The Company has a net operating loss carry-forward of $4,690,535 as of August 31, 2014 and $3,220,489 as of May 31, 2014. The NOL is a tax operating loss which will expire 20 years from the date the loss was incurred. The accumulated NOL are temporary differences between reporting financial income (losses) and taxable income and does not contain any components of permanent tax differences.

NOTE 10: STOCKHOLDERS’ DEFICIT

AUTHORIZED

The Company is authorized to issue 15,000,000,000 shares of $0.0001 par value common stock and 50,000,000 shares of preferred stock, par value $0.0001. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

The Preferred Stock may be divided into and issued in series. The Board of Directors of the Corporation is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. The Board of Directors of the Corporation is authorized, within any limitations prescribed by law and this Article, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of Preferred Stock.

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

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

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

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

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

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

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

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

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

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

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

On May 5, 2014, the Board of Directors of the Company amended Item 3 of the rights of the Series B Preferred Shares (Series B Shares) as follows:

The holder of Series B Shares may cast the number of votes at a shareholders meeting or by written consent that equals to a vote of 0.000093333% for each Series B Share held relative to the holders of common stock on a fully dilutive basis.

On May 12, 2014, the Company filed a Certificate of Designation for 750,000 Series B Preferred Shares with the Nevada Secretary of State, refer to NOTE 15: CORPORATE ACTIONS.

On May 15, 2014, the Company filed a Certificate of Amendment to the Company’s certificate of incorporation with the Nevada Secretary of State, which increased the Company’s authorization to issue 15,000,000,000 shares of $0.0001 par value common stock, refer to NOTE 15: CORPORATE ACTIONS.

ISSUED AND OUSTANDING

As of August 31, 2014, the Company had issued and outstanding 7,151,568,163 common stock shares and 600,000 Series B preferred stock shares.

For the 3 month period ending the August 31, 2014, the Company issued the following common stock shares:

The Company issued 24,166,666 shares on June 3, 2014 for $1,450 pursuant to the conversion of a Convertible Promissory Note dated July 2, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

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

The Company issued 110,000,000 shares on June 3, 2014 for $6,600 pursuant to the conversion of a Convertible Promissory Note dated August 29, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

The Company issued 177,444,444 shares on June 10, 2014 for $8,872 for interest pursuant to the conversion of a Convertible Promissory Note dated June 5, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

The Company issued 273,333,333 shares on June 16, 2014 for $16,400 pursuant to the conversion of a Convertible Promissory Note dated August 29, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

The Company issued 158,333,333 shares on July 7, 2014 for $9,500 pursuant to the conversion of a Convertible Promissory Note dated August 29, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

The Company issued 21,666,667 shares on July 7, 2014 for $1,300 for interest pursuant to the conversion of a Convertible Promissory Note dated August 29, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

The Company issued 274,000,000 shares on July 30, 2014 for $16,640 pursuant to the conversion of a Convertible Promissory Note dated September 30, 2013. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

The Company issued 300,000,000 shares on August 19, 2014 for $15,000 pursuant to the conversion of a Convertible Promissory Note and interest payable dated February 12, 2014. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.


Schedule Of Stock Issued for the 3 month Period ending August 31, 2014

Date	Common Stock Shares	Common Stock issued to reduce CPN's	CPN Amount	Common Stock issued for interest	Interest Amount
Balance on May 31, 2014	5,790,957,053
June 3, 2014	45,833,333	24,166,666	$ 1,450	21,666,667	$ 1,300
June 3, 2014	110,000,000	110,000,000	$ 6,600
June 10, 2014	177,444,444	-	$ 0	177,444,444	$ 8,872
June 16, 2014	273,333,333	273,333,333	$ 16,400
July 7, 2014	180,000,000	158,333,333	$ 9,500	21,666,667	$ 1,300
July 30, 2014	274,000,000	274,000,000	$ 16,440
August 19, 2014	300,000,000	200,000,000	$ 10,000	100,000,000	$ 5,000
3 months ending August 31, 2014	1,360,611,110	1,039,833,333	$ 60,390	320,777,777	$ 16,472
Balance as of August 31, 2014	7,151,568,163

NOTE 11: RECENT ACCOUNTING PRONOUNCEMENTS

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

NOTE 12: CHANGE OF CONTROL

On May 31, 2011, Mr. Jerry G. Mikolajczyk, the Company's President, CEO and Director, acquired 180,000,000 common shares of the Company from Mr. Peter Matousek, former President, CEO and Director of the Company. The acquisition by Mr. Mikolajczyk gave him control of 57.6% of the issued and outstanding shares of the Company. Subsequent to May 31, 2011, Mr. Mikolajczyk acquired additional shares directly and indirectly in the Company. As of Mr. Mikolajczyk’s last Form 4 filed with the SEC on October 1, 2014, Mr. Mikolajczyk is beneficial owner of 188,636,421 (3.26%) of the issued and outstanding shares of the Company and 600,000 Series B Preferred Shares as of August 31, 2014. The Series B Preferred Shares provides Mr. Mikolajczyk voting rights equal to 56% on a fully dilutive basis.

NOTE 13: LOANS PAYABLE

SHORT TERM LOANS

The Company has loans in the amount of $133,249, non-interest bearing and unsecured, with our President, CEO and Director, Jerry G. Mikolajczyk d/b/a Lighthouse Investments. The loan has no due date. The Company accrued $0 interest as of August 31, 2014.

On March 28, 2011, the Company entered into Redemption Agreement with Peter Matousek, the Company’s former president, currently vice president of investors relations and director, which provides in part for the Company to redeem from Mr. Matousek a total of 140 million shares of the Company’s common stock at a price of $87,500 or $0.000625 per share.

The stock redemption agreement is a non-callable 3-year note. The principal will accrue interest at the rate of 0.55% (IRS Short Term AFR – April 2011) per annum, until March 31, 2014 (the “Maturity Date”). Principal plus all accrued interest will be due on the Maturity Date. On May 31, 2011, Mr. Matousek assigned the unsecured Note Payable of $87,500 plus accrued interest to Comtax Services, Inc. The Company has defaulted on the payment of the principal and accrued interest due on March 31, 2014. There are no penalties or default provisions in the redemption agreement. The Company accrued $1,651 interest as of August 31, 2014.

On March 28, 2011, the Company entered into redemption agreements with four shareholders, which in total provided for the redemption of 60 million shares of the Company’s common stock. The purchase price for the 60 million shares totaled $37,500 or $0.000625 per share. The terms of the stock redemption, agreement is a non-callable 3-year note (Notes). The principal will accrue interest at the rate of 0.55% (IRS Short Term AFR – April 2011) per annum, until March 31, 2014 (the “Maturity Date”). Principal plus all accrued interest will be due on the Maturity Date. The maturity date has passed on the Stock Redemption Agreements. Three of the four redemption agreements are to 3rd party shareholders for an aggregate of $28,125. The Company has defaulted on the payment of the principal and accrued interest due on March 31, 2014 to the four redemption agreements. There are no penalties or default provisions in the redemption agreements. The Company accrued $531 interest as of August 31, 2014 for the three 3rd party Notes with the fourth Stock Redemption Agreement holder being our President, CEO and Director, Jerry G. Mikolajczyk.

On July 15, 2011, our President, CEO and Director, Jerry G. Mikolajczyk, acquired 100% interest in Womack Holdings, Inc. Womack Holdings, Inc. holds one of the four Notes payable, $9,375, by the Company. The Company has defaulted on the payment of the principal and accrued interest due on March 31, 2014. There are no penalties or default provisions in the redemption agreement. The Company accrued $177 interest as of August 31, 2014 for the Womack Holdings, Inc. Note.

SCLA #1 - On May 15, 2014, the Company entered into a Secured Loan and Coupon Agreement (SLCA#1) with a 3rd party for $31,000 and a fixed interest coupon of $6,200 for an aggregate of $37,200. The SLCA #1is secured with the crude oil production of the Rice #15 oil well. The repayment terms of SCLA#1 are from the net proceeds of the Rice #15 oil well, less 15% for general lease operating expenses. SCLA#1 has first charge on the net revenue production of Rice #15. SLCA#1 requires the Company to pay interest at a fixed amount of $6,200 (Coupon), due immediately upon execution of SLCA#1, from the net proceeds of the production of crude oil from the Rice #15 oil well. Based on $100 crude oil price, it is expected that SLCA#1 should be paid off from the first 517 barrels of crude oil produced. The Coupon is amortized on a prorated basis as interest expense as SCLA#1 is paid. As of August 31, 2014, the Company has a liability of $26,700 for SCLA#1.

SCLA #2 - On May 15, 2014, the Company entered into a Secured Loan and Coupon Agreement (SLCA#2) with a 3rd party for $47,000 and a fixed interest coupon of $9,400 for an aggregate of $56,400. The SLCA#2 is secured with the crude oil production of the Rice #15 oil well. The repayment terms of SCLA#2 are from the net proceeds of the Rice #15 oil well, less 15% for general lease operating expenses. SCLA#2 has second charge on the net revenue production of Rice #15, after SCLA#1 until the loan and coupon is discharged. SLCA#2 requires the Company to pay interest at a fixed amount of $9,400 (Coupon), due immediately upon execution of SLCA#2, from the net proceeds of the production of crude oil from the Rice #15 oil well. Based on a $100 crude oil price, it is expected that SLCA#2 should be paid off from approximately 783 barrels of crude oil produced after SCLA#1 is paid off. The Coupon will be amortized on a prorated basis as interest expense as SCLA#2 is paid. As of August 31, 2014, the Company has a liability of $56,400 for SCLA#2.


Schedule of Short Terms Loans
	August 31, 2014
Short Term Loan	Loan	Interest	Total Loan Due
Mikolajczyk, Jerry - assigned from Comtax Services, Inc.	$ 133,249	$ 0	$ 133,249
Stock Redemption - Mikolajczyk acquisition	9,375	177	9,552
Stock Redemption - 3rd party - assigned from Matousek	87,500	1,651	89,151
Stock Redemption - 3rd party	9,375	177	9,552
Stock Redemption - 3rd party	9,375	177	9,552
Stock Redemption - 3rd party	9,375	177	9,552
SCLA #1	22,600	4,100	26,700
SCLA #2	47,000	9,400	56,400
Total Short Terms Loans	$ 327,849	$ 15,858	$ 343,707

CONVERTIBLE PROMISSORY NOTES (CPN)

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

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

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

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

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

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

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

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

CPN#4B - On February 7, 2014, the Company negotiated an ASSIGNMENT AND ASSUMPTION AGREEMENT (AAA) for $29,300 plus accrued interest of $4,200, 10% Convertible Promissory Note (CPN#4B), previously issued on October 19, 2012, assigned from CPN#4, due on October 18, 2014, reducing its obligations on CPN#4 to $36,355 plus accrued interest. CPN#4B, $33,500 was converted to common stock by the Note holder, refer to NOTE 10: STOCKHOLDERS' DEFICIT, for additional detail.

On May 5, 2014, the Company negotiated an ASSIGNMENT AND ASSUMPTION AGREEMENT (AAA) for $30,200 plus accrued interest of $4,617, 10% Convertible Promissory Note (CPN#18), previously issued on October 19, 2012, assigned from CPN#4, due on October 18, 2014, reducing its obligations on CPN#4 to $6,155 plus accrued interest, refer to NOTE 13: LOANS PAYABLE, CPN#18, for additional detail.

As of August 31, 2014, the Company has a liability of $6,155 plus accrued interest of $4,173 for CPN#4.

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

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

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

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

As of August 31, 2014, the Company accrued interest of $10,854.

CPN#6 - On February 14, 2012, the Company issued a Promissory Note for $100,000 with Altmann Revocable Living Trust, Rlt. (ALRT) which became due December 31, 2012 with interest calculated at 8% per annum. The Company amended the $100,000 Promissory Note plus accrued interest of $7,036 to an unsecured one year 8% Convertible Promissory Note (CPN#6) effective January 1, 2013 due on January 1, 2014 for $100,000 with accrued interest of $7,036. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at the Conversion Price which shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price is 80% of the Market Price. "Market Price" means the average of the Closing Prices (as defined below) for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Company via facsimile (the "Conversion Date"). "Closing Price" means, for any security as of any date, the closing price on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Company’s common stock is listed or traded). The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company may prepay CPN#6 in advance in full or in part at any time and from time to time without premium or penalty. "Fixed Conversion Price" shall mean $0.0001. As of August 31, 2014, the Company accrued interest of $20,362.

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

CPN#16 - On September 30, 2013, the Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#16) due on July 2, 2014 for $27,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder. The Conversion Price shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#16. The Company may prepay CPN#16 at any time for the period beginning on the date of the CPN#16 and ending on the date which is ninety (90) days following the date of the CPN#16, the CPN#16 may be prepaid by the Company upon payment to the note holder of an amount equal to the

outstanding principal amount of the CPN#16 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#16 and ending on the date which is one hundred twenty (120) days following the date of CPN#16, the Company may prepay the CPN#16 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#16 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#16 and ending on one hundred eighty (180) days following the date of this CPN#16, the Company may prepay the CPN#16 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#16 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#16, the Company shall have no right of prepayment. CPN#16 cannot be converted below the fixed price of $0.00005. As of August 31, 2014, the Company has a liability of $11,060 and accrued interest of $1,591 for CPN#16.

CPN#18 - On May 5, 2014 the Company issued an unsecured 12 month 10% Convertible Promissory Note (CPN#18) due on May 9, 2015 for $34,817. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder. The Conversion Price shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). "Market Price" means the average of the lowest three (3) Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#18. The Company may prepay CPN#18 in whole or in part, at any time, and from time to time, with premium, where the Company and the note holder have approved the prepayment and premium in writing. CPN#18 cannot be converted below the fixed price of $0.00005. As of August 31, 2014, the Company has a liability of $23,817 and accrued interest of $772 for CPN#18.

CPN#19 - On May 9, 2014, the Company issued an unsecured 12 month 10% Convertible Promissory Note (CPN#19) due on May 9, 2015 for $37,000. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder. The Conversion Price shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). "Market Price" means the average of the lowest three (3) Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Company’s issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#19. The Company may prepay CPN#19 at any time for the period beginning on the date of the CPN#19 and ending on the date which is one hundred eighty (180) days following the date of the CPN#19, the CPN#19 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#19 multiplied by 135% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#19, any prepayments must be approved by both parties in writing. CPN#19 cannot be converted below the fixed price of $0.00005.. As of August 31, 2014, the Company accrued interest of $1,125.

CPN#20 - on June 25, 2014, the Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#20) due on March 25, 2015 for $42,750. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder. The conversion price (the “Conversion Price”) shall equal the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 57.5% multiplied by the Market Price (as defined herein) (representing a discount rate of 42.5%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board (the “OTCQB”), OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by the Holder or, if the OTCQB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. In the case that the Company’s Common Stock is not deliverable by DWAC, an additional 5% discount will apply. In the case that the Company’s Common Stock is “chilled” for deposit into the DTC system and only eligible for clearing deposit, an additional 7.5% discount shall apply. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Company and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is

tradable for any period on the OTCQB, OTCQB or on the principal securities exchange or other securities market on which the Common Stock is then being traded. “Fixed Conversion Price” shall mean $0.00005. The Company may prepay the amounts outstanding hereunder pursuant to the following terms and conditions: (I) at any time during the period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#20 to prepay the outstanding CPN#20 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#20 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#20 plus (y) Default Interest; (II) at any time during the period beginning the day which is thirty one (31) days following the Issue Date and ending on the date which is sixty (60) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#20 to prepay the outstanding CPN#20 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#20 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#20 plus (y) Default Interest; (III) at any time during the period beginning the day which is sixty one (61) days following the Issue Date and ending on the date which is ninety(90) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#20 to prepay the outstanding CPN#20 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#20 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#20 plus (y) Default Interest; (IV) at any time during the period beginning the day which is ninety one (91) days following the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#20 to prepay the outstanding CPN#20 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#20 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#20 plus (y) Default Interest; (V) at any time during the period beginning the day which is one hundred twenty one (121) days following the Issue Date and ending on the date which is one hundred fifty (150) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#20 to prepay the outstanding CPN#20 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 145%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#20 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#20 plus (y) Default Interest; (VI) at any time during the period beginning the day which is one hundred fifty one (151) days following the Issue Date and ending on the date which is one hundred eighty (180) days following the Issue Date, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of CPN#20 to prepay the outstanding CPN#20 (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of CPN#20 plus (x) accrued and unpaid interest on the unpaid principal amount of CPN#20 plus (y) Default Interest; (VII) after the expiration of one hundred eighty (180) following the date of CPN#20, the Company shall have no right of prepayment. CPN#20 cannot be converted below the fixed price of $0.00005. As of August 31, 2014, the Company accrued interest of $628.

The Company analyzed the conversion option of the Notes CPN#20 for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to ratchet provision of the above conversion options for the Notes issued.

ASC DISCLOSURE

In accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total debt discounts of zero, and $55,109 for the variable conversion feature of the convertible debts incurred during the three month period ending August 31, 2014 and August 31, 2013, respectively. The discount will be amortized to debt discount over the term of the debentures using the effective interest method. As of August 31, 2014 and May 31, 2014, the debt discount (acceleration of the discount attributable to the conversions on the loan) on the CPN's was $57,848 and $56,100 respectively. The Company recorded $22,095 and $52,142 of debt discount expense pursuant to the amortization of the convertible promissory note discounts during the three month period ending August 31, 2014 and August 31, 2013, respectively. The Company recorded $4,815 and $12,010 of interest expense for convertible promissory notes during the three month period ending August 31, 2014 and August 31, 2013, respectively.

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

NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

As of August 31, 2014 and May 31, 2014, the carrying value of accounts payable, short term loans and convertible promissory notes approximated fair value due to the short-term nature and maturity of these instruments.

NOTE 15: CORPORATE ACTION

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

On May 12, 2014, the Company filed a Certificate of Designation for 750,000 Series B Preferred Shares with the Nevada Secretary of State.

On May 14, 2014, the shareholders of the Company, holding 57.145% of the outstanding voting power of the Company, agreed to increase the authorized shares of common stock, par value $0.0001 to 15,000,000,000.

NOTE 16: COMMITMENTS

The Company entered into a Management and Financial Service Agreement with Dr. William D. Spier for a 7.25-month period commencing October 23, 2012 and ending May 31, 2013 whereby Dr. Spier was paid $29,032 in cash payments. The agreement was renewed for an additional 12 months at $7,500 per month ending May 31, 2014. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.

On May 30, 2014, the Board of Directors renewed the Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2015. Mr. Spier will receive 5,000 shares per month of the Company’s common stock in consideration for his serving on the Company’s Board of Directors.

On May 30, 2014, the Board of Directors renewed the Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2015. Mr. Matousek will receive 5,000 shares per month of the Company’s common stock in consideration for his serving on the Company’s Board of Directors.

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

The Company renewed the Management and Financial Service Agreement with Mr. Peter Matousek for a 12 month period commencing June 1, 2014 and ending May 31, 2015 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.

The Company renewed the Management and Financial Service Agreement with Dr. William D. Spier for a 12 month period commencing June 1, 2014 and ending May 31, 2015 whereby Dr. Spier will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.

On August 31, 2014, the Board of Directors renewed the Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2015. Mr. Mikolajczyk will receive 5,000 shares per month of the Company’s common stock in consideration for his serving on the Company’s Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to his engagement as a Director of the Company except 3^rd party or travel expenses. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million.

NOTE 17: EXECUTIVE AND BOARD COMPENSATION

Mr. Wayne St. Cyr was appointed our Executive Vice President, Marketing and Strategic Development on January 1, 2011. His employment contract terminated on December 31, 2011. The Company has not renewed the contract with Mr. Ct. Cyr and has retained Mr. St. Cyr on a month to month basis. The Company is accruing $10,000 per month for Mr. Wayne St. Cyr's services.

Mr. Jerry G. Mikolajczyk was appointed our President, Chief Executive Officer and Chief Financial Officer on May 31, 2011 effective June 1, 2011. His employment contract terminated on May 31, 2012. The Company has not renewed the contract with Mr. Mikolajczyk and has retained Mr. Mikolajczyk on a month to month basis. The Company is accruing $10,000 per month for Mr. Mikolajczyk's services.

Mr. Peter Matousek was appointed our Vice President – Investor Relations on May 31, 2011. His employment contract terminated May 31, 2012. Mr. Matousek continued as Vice President – Investor Relations between May 31, 2012 and May 31, 2014 with the Company accruing $7,500 per month for Mr. Matousek's services. The Company renewed the Management and Financial Service Agreement with Mr. Peter Matousek for a 12 month period commencing June 1, 2014 and ending May 31, 2015 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company is accruing $7,500 per month for Mr. Matousek's services.

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

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

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

The Company authorized and approved an aggregate of 45,000 shares for the three month period ended August 31, 2012 with an average price of $0.040333 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier. The 45,000 shares were issued to the Board on October 26, 2012.

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

The Company authorized and approved an aggregate of 45,000 shares for the three month period ended November 30, 2012 with an average price of $0.012282 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.

The Company authorized and approved an aggregate of 45,000 shares for the three month period ended February 28, 2013 with an average price of $0.010927 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.

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

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

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

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

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

The Company issued an aggregate of 45,000 shares for the three month period ending February 28, 2014 with an average price of $0.000153 per share on May 13, 2014 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier. The issuance of the common stock was exempt from registration under Section 4(a) (2) of the Securities Act.

The Company entered renewed the Management and Financial Service Agreement with Dr. William D. Spier for a 12 month period commencing June 1, 2014 and ending May 31, 2015 whereby Dr. Spier will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.

The Company issued an aggregate of 45,000 shares for the three month period ending May 31, 2014 with an average price of $0.000173 per share on May 30, 2014 to the Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier. The issuance of the common stock was exempt from registration under Section 4(a) (2) of the Securities Act.

The Schedule of Board Compensation below represents the shares issued or approved to the Board with the 5-Day Average Share Closing Price for each month during the three month period ending August 31, 2014:


Schedule of Board Compensation

Month	Board Shares Approved, Not Issued	Board Shares Issued	5 Day Average Share Closing Price	Cost Base
June	15,000	0	$ 0.000120	$ 1.80
July	15,000	0	0.000100	1.50
August	15,000	0	0.000100	1.50
Quarter Total	45,000	0	$ 0.000107	$ 4.80

NOTE 18: EXECUTIVE AND BOARD CHANGES

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

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

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

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

On May 30, 2014, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2015.

On May 30, 2014, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2015.

On August 31, 2014, Company entered into a Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2015.

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

NOTE 19: VENANGO 30 WELL LOCATION

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

The Company paid $585,000 in the form of 11,700,000 shares of common stock (Shares) of the Company for the rights. As of August 31, 2014, the assignor is a related party holding the 11,700,000 Shares, 0.1636% of the issued and outstanding Shares of the Company.

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


Lease Name	Net Revenue Interest Breakdown
Rice	Master Lease Lessor - 12.5% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 82.5% royalty interest;

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

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

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

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

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

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

On December 18, 2012, pursuant to the POA, the Operator invoiced the Company $835,000 for the drilling and completion of five oil wells on the Rice lease. The Company has recorded the transaction capitalizing the drilling and completions as work in progress. The liability is included in the Company's Accounts Payable. The Company impaired $417,186 of the $835,000 for the period ending August 31, 2014. VEP is one the Company's creditors that is participating in the Debt Settlement Claim, refer to NOTE 23: DEBT SETTLEMENT CLAIM, for additional information.

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

On August 26, 2013, the Company's operator, Vencedor Energy Partners (VEP), completed the drilling, casing and cementing of our first oil well of the 30 well drilling program. Rice oil well number 15 was drilled to the Target Depth of 1,050' on the Rice lease, in Venango County, PA. Samples were taken during the drilling program for analysis. Petroleum odors were emitted at the 720', 745', and 915' levels of the wellbore, indicating oil presence at these depths. The review of the drill cuttings (samples) from the Rice #15 supported the need for a wire line log to be conducted on the well. VEP's geologist confirmed that the samples taken on August 26, 2013 revealed a well formed zone in the Venango 2 and also potential lenses in the Venango 1 and Red Valley sequence.

On June 2, 2014, the Company completed Rice #15 oil well in Pennsylvania and began production of the Rice #15 crude oil well. By August 31, 2014, Rice #15 produced 369.5 barrels of crude oil since oil began streaming on June 16, 2014. The Rice #15 has settled in and is producing between 1 and 2 barrels of crude oil per day with water production between 4 to 6 barrels of water per day. During the 3 month period ending August 31, 2014, 296 gross barrels of crude oil were sold, net 243 barrels of crude oil, for an average sales price of $99 per net barrel. Operating costs, including Depletion and Depreciation, averaged $40 per gross barrel, $48 per net barrel.

There is no guarantee as to how much longer Rice#15 will produce oil and there are no assurances that if Rice #15 produces oil that it will be profitable.

The company will need to raise additional funds to drill the oil and gas wells and there is no guarantee that the company will be successful in raising the funds necessary to complete the second or any of the remaining 4 offset oil and gas wells.

NOTE 20: TERMINATION OF FINANCIAL CONSULTING SERVICES AGREEMENT

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

NOTE 21: FINANCING AGREEMENTS

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

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

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

After a series of withdrawals of the Registration Statement, on Form S-1 by the Company, on February 4, 2014, the Company filed a Registration Statement, on Form S-1, registering the shares of common stock of the Company as follows:

33,333,334 shares of the Company's common stock (the “Put Shares”) that the Company may put to AGS pursuant to the Financing Agreement between AGS and the Company, dated November 27, 2013, and 4,081,633 commitment shares of the Company's common stock that the Company paid to AGS as a fee for providing the facility.

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

On March 26, 2014, the Securities and Exchange Commission (the “SEC”) declared the Registration Statement on Form S-1 (the “Registration Statement”) of Xun Energy, Inc., (the “Company”), filed on February 4, 2014, effective. The Registration Statement registers for sale 37,414,967 shares of the Company’s common stock pursuant to an amended and restated reserve equity financing agreement (the “Financing Agreement”) previously issued or to be issued to AGS Capital Group, LLC (“AGS”).

NOTE 22: XUN OIL MARKETING DIVISION

Over the last several years, the Company’s President and CEO, Jerry G. Mikolajczyk, acted as an intermediary to facilitate petroleum product and precious metals transactions between sizeable Buyers and Sellers. He did this on a pro bono basis. In the fall of 2013, Mr. Mikolajczyk was approached by active and committed buyers to assist them in sourcing and procuring refined petroleum products in new markets. Since Mr. Mikolajczyk's experience in this area of petroleum and metals marketing is significant, the Company formed a division, headed by Mr. Mikolajczyk to capitalize on opportunities in procurement services for active buyers. The Company calls this division Xun Oil Marketing (XOM) and it is now in the research and actuation evaluation stage of development so it can ultimately initiate the following business objectives:

Purchase high quality petroleum products from reputable Suppliers;

Establish long term Supplier contracts;

Sell high quality petroleum products to Majors;

Establish long term sales agreements with the Majors; and

Establish long term relationships and creditability with Suppliers and Buyers based on product quality, delivery performance, service and flexibility.

On May 25, 2014, the Company, through its wholly owned subsidiary, Xun Oil Corporation, entered into a Joint Venture Agreement (JV002) with an arm's length 3rd party to collaborate with the 3rd party in completing its obligation on a 61 million barrel Aviation Jet Fuel FOB Rotterdam, over a 13 month period, Sales and Purchase Agreement (SPA) dated July 27, 2013 with a supplier of Aviation Jet Fuel. JV002 is subject to financing and is subject to changes to the SPA with the supplier.

There can be no assurance that JV002 will be able to obtain the financing required to purchase the 61 million barrels of aviation jet fuel. There can be no assurance that the supplier will agree to the contemplated changes to the spa.

The Company will participate as a 50% joint venture partner in the 61 million barrel Aviation Jet Fuel purchase and sale. JV002 plans to sell the Aviation Jet Fuel at prevailing market prices to Major buyers. (i.e. airlines, end users of aviation jet fuel).

There can be no assurance that JV002 will be able to sell the aviation jet fuel should it be successful in obtaining financing for the aviation jet fuel and obtain the necessary changes to the spa. Even if JV002 was successful in selling the aviation jet fuel, there can be no assurance that the sale of the aviation jet fuel will be profitable or that the company will be able to generate sufficient revenues to operate profitably.

The Company has not committed to begin full operations of XOM until the Company has concluded with its research and actuation evaluation. As of August 31, 2014, the Company has spent $15,055 on business development expenses for XOM which is included in our operating expenses.

There are no assurances that the company will commence operations of XOM. There are no assurances that should the company commence operations in XOM, XOM will generate revenue. There are no assurances that should the company generate revenue in XOM, that XOM or the company will be profitable.

On June 1, 2014, the Company entered into a SPA (JV003) for 8,450,000 metric tons of Aviation Jet Fuel FOB Rotterdam, over a 13 month period, with a Supplier subject to financing.

There can be no assurance that JV003 will be able to obtain the financing required to purchase the 8.54 million metric tons of aviation jet fuel. There can be no assurance that JV003 will be able to sell the aviation jet fuel should it be successful in obtaining financing for the aviation jet fuel. Even if JV003 was successful in selling the aviation jet fuel, there can be no assurance that the sale of the aviation jet fuel will be profitable or that the company will be able to generate sufficient revenues to operate profitably.

On August 1, 2014, JV002 received a financial commitment from a 3rd party financier to fund the 61 million barrel Aviation Jet Fuel SPA subject to the contemplated changes in the SPA with the Supplier.

There can be no assurance that the supplier will agree to the contemplated changes to the spa. There can be no assurance that JV002 will be able to sell the aviation jet fuel should it be successful in obtaining financing for the aviation jet fuel and obtain the necessary changes to the spa. Even if JV002 was successful in selling the aviation jet fuel, there can be no assurance that the sale of the aviation jet fuel will be profitable or that the company will be able to generate sufficient revenues to operate profitably.

The Company entered into a Profit and Sharing Agreement (JV003) on August 18, 2014 with an arm's length 3rd party for the financing of 20% of a 8,540,000 metric ton SPA for Aviation Jet Fuel FOB Rotterdam. The SPA is subject to XOM obtaining financing for 100% of the 8,450,000 metric ton SPA.

There can be no assurance that JV003 will be able to obtain the remaining 80% financing required to purchase the 8.54 million metric tons of aviation jet fuel. There can be no assurance that JV003 will be able to sell the aviation jet fuel should it be successful in obtaining financing for the aviation jet fuel. Even if JV003 was successful in selling the aviation jet fuel, there can be no assurance that the sale of the aviation jet fuel will be profitable or that the company will be able to generate sufficient revenues to operate profitably.

On August 15, 2014, JV002 was informed by the Supplier that the July 27, 2013 SPA for 61 million barrels of Aviation Jet Fuel FOB Rotterdam was terminated and that a new transaction shall be executed requiring JV002 to issue a fresh Irrevocable Commercial Purchase Order (ICPO) and a new SPA for the 61 million barrels of Aviation Jet Fuel FOB Rotterdam.

On August 20, 2014, JV002 issued the ICPO to the Supplier for the 61 million barrels of Aviation Jet Fuel FOB Rotterdam.

There can be no assurance that the supplier will agree to the new spa. There can be no assurance that JV002 will be able to sell the aviation jet fuel should it be successful in obtaining the spa. Even if JV002 was successful in selling the aviation jet fuel, there can be no assurance that the sale of the aviation jet fuel will be profitable or that the company will be able to generate sufficient revenues to operate profitably.

NOTE 23: DEBT SETTLEMENT CLAIM

On September 5, 2014, a complaint (the “Complaint”) was filed against the Company in the Superior Court of Connecticut, Judicial District of Danbury (the “Court”) by Equity Capital Ventures, Inc. (“ECVI”) for the Company’s failure to pay $1,834,935 in debt obligations (the “Debt”) which ECVI had acquired from 11 persons (the “Debt Assignors”) through the execution of Debt Claim Purchase Agreements.

The Debt Assignors consist of creditors of the Company including insiders of the Company that voluntarily assigned all or a portion of their receivable from the Company to ECVI subject to approval of a court. By a Stipulation between the Company and ECVI, the Company has agreed to settle the Debt in reliance on the 3(a)10 exemption from the Securities Act of 1933’s registration requirements pending a fairness hearing before the Court. The Stipulation, if approved by court order, provides for the issuance of shares of the Company’s common stock to ECVI (the “3(a)(10) Stock Issuance”) for resale by ECVI, resulting in sale proceeds to ECVI of approximately $2,038,818. ECVI shall retain $203,883 of the sale proceeds and shall transfer and deliver the $1,834,935 balance to the Debt Assignors.

Should this action be approved by the Court, there will be dilution to the Company’s stockholders. There are no assurances that the Court will approve the Stipulation and the 3(a)10 Stock Issuance. Further, there are no assurances that should the Court approve the 3(a)10 Stock Issuance that there will be a market for the common stock that will be issued to the ECVI.

NOTE 24: SUBSEQUENT EVENTS

On September 8, 2014, the Supplier for JV002 confirmed the terms and conditions of the SPA for 61 million barrels of Aviation Jet Fuel FOB Rotterdam. The SPA is subject to JV002 executing a Charter Party Agreement (CPA) with its nominated shipping company

to deliver the Aviation Jet Fuel to Rotterdam and paying 50% of the cost of the vessel for first delivery to Rotterdam. Refer to NOTE 22: XUN OIL MARKETING DIVISION, for additional information and risk disclosures.

On September 12, 2014, JV002 executed the CPA to deliver the Aviation Jet Fuel to Rotterdam. The CPA requires JV002 to pay for 50% of the vessel for the first delivery to Rotterdam. Refer to NOTE 22: XUN OIL MARKETING DIVISION, for additional information and risk disclosures.

On September 26, 2014, JV002 paid its 50% share of the vessel for the first delivery to Rotterdam. There can be no assurance that JV002 will be able to sell the aviation jet fuel should JV002 be successful closing on the aviation jet fuel purchase when the aviation jet fuel arrives at Rotterdam. Even if JV002 was successful in selling the aviation jet fuel, there can be no assurance that the sale of the aviation jet fuel will be profitable or that the company will be able to generate sufficient revenues to operate profitably. Refer to NOTE 22: XUN OIL MARKETING DIVISION, for additional information and risk disclosures.

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

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

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2014 contains “forward-looking statements”. Generally, the words “believes”, “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements which include, but are not limited to, statements concerning the Company’s expectations regarding its working capital requirements, financing requirements, business prospects, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected.

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

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

OTHER PERTINENT INFORMATION

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

General

The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties in August 2012 that allow it to drill oil and

gas wells in Venango County, Pennsylvania. One oil well was drilled and completed on the Rice lease (Rice #15) that is producing crude oil and has settled in as a "Stripper" oil well. The Company has drilling permits to drill four more offset oil wells on the Rice lease. There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the remaining 4 oil and gas well locations; there are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 4 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas be produced from one or more of the 5 oil and gas well locations, that the Company will be profitable.

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

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

Our focus is to generate cash flow.

Mission Statement

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

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

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

Strategy

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

· Generating cash flow,

Securing financing to acquire our planned acquisitions,

Exercising capital discipline,

Ensuring financial strength, and

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

Xun Oil Marketing Division

The Company began its evaluation of establishing an oil marketing division to provide the procurement services for physical commodity trading. The Xun Oil Marketing Division (XOM), is lead by Jerry G. Mikolajczyk, our President, capitalizing on his expertise, experience and industry connections, in developing XOM. The research and evaluation is based on the following primary business objectives:

Purchase high quality petroleum products from reputable Suppliers;

Establish long term Supplier contracts;

Sell high quality petroleum products to Majors;

Establish long term sales agreements with the Majors; and

Establish long term relationships and creditability with Suppliers and Buyers based on product quality, delivery performance, service and flexibility.

The Company has not committed to begin full operations of the Xun Oil Marketing Division until the Company has concluded with its research and evaluation. There are no assurances that the Company will commence operations of XOM. There are no assurances that should the Company commence operations in XOM, that XOM will generate revenue. There are no assurances that should the Company generate revenue in XOM, that XOM or the Company will be profitable.

Subsequent Events:

On September 8, 2014, the Aviation Jet Fuel supplier for XOM's JV002 confirmed the terms and conditions for an SPA for 61 million barrels of Aviation Jet Fuel FOB Rotterdam. The SPA is subject to JV002 executing a Charter Party Agreement (CPA) with its nominated shipping company to deliver the Aviation Jet Fuel to Rotterdam and paying 50% of the cost of the vessel for first delivery to Rotterdam.

On September 9, 2014, the Company was named in a Debt Settlement Claim for $1,834,935 (hereinafter referred to "DSC"). The DSC consists of creditors of the Company including insiders of the Company that voluntarily assigned all or a portion of their receivable from the Company to the Plaintiff subject to approval of a court. The Company has agreed to settle the DSC relying on the 3(a)10 exemption pending a Fairness Hearing.

On September 12, 2014, JV002 executed the CPA to deliver the Aviation Jet Fuel to Rotterdam. The CPA requires JV002 to pay for 50% of the vessel for the first delivery to Rotterdam.

On September 26, 2014, JV002 paid its 50% share of the vessel for the first delivery to Rotterdam.

THERE CAN BE NO ASSURANCE THAT JV002 WILL BE ABLE TO SELL THE AVIATION JET FUEL SHOULD JV002 BE SUCCESSFUL CLOSING ON THE AVIATION JET FUEL PURCHASE WHEN THE AVIATION JET FUEL ARRIVES AT ROTTERDAM. EVEN IF JV002 WAS SUCCESSFUL IN SELLING THE AVIATION JET FUEL, THERE CAN BE NO ASSURANCE THAT THE SALE OF THE AVIATION JET FUEL WILL BE PROFITABLE OR THAT THE COMPANY WILL BE ABLE TO GENERATE SUFFICIENT REVENUES TO OPERATE PROFITABLY.

Introduction

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

We have a limited operating history of oil and gas production and no proven reserves, no production and negative cash flow. To date, we have had limited revenues and have not been able to generate sustainable positive earnings on a Company-wide basis. Our management cannot provide any assurances that the Company will ever operate profitably. As a result of our limited operating history, we are more susceptible to the numerous business, investment and industry risks that have been described in Item 1A. Risk Factors of our Annual Report on Form 10K for the fiscal year ended May 31, 2014 .

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

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

Our inability to generate sufficient revenue during the three month period ending August 31, 2014 is due primarily to difficulties in our ability to raise sufficient funds necessary to close on the financing to complete the drilling and completion program on the remaining 4 oil and gas well locations in Venango County, Pennsylvania. There are no assurances that the Company will be successful in raising sufficient funds to accomplish our goals and objectives.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED

AUGUST 31, 2014 AND AUGUST 31, 2013.

Results of Operations

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

Three Months Ended August 31, 2014 Compared to Three Months Ended August 31, 2013

Revenues

We generated $24,123 in revenue for the three months ending August 31, 2014 and no revenues for the three months ending August 31, 2013. Our operations to date have been financed by the sale of our common stock and third party loans.

Lease operating expenses for the three months ended August 31, 2014 and August 31, 2013 totalled $11,736 and zero, respectively. Our single largest lease operating expense for the three months ended August 31, 2014 has been the depletion and depreciation of the capital cost of the drilling and completing the oil well including infrastructure costs.

General and Administrative expenses, including financial consulting fees, for the three months ended August 31, 2014 and August 31, 2013 totalled $1,475,395 and $301,484 respectively. The largest expense is the impairment of the 25 Venango County oil and gas leases, the impairment of assets that may be paid on a non-cash basis stemming from a 3(a)10 exemption as a settlement of certain liabilities of the Company when securities are issued in exchange for other securities, not for cash, and the fairness of the exchange is approved by a court or a governmental entity.

Other Expenses for the three months ended August 31, 2014 and August 31, 2013 totalled $29,184 and $137,442 respectively. The Other Expenses include debt interest, amortized discounts and extraordinary.

For the three months ended August 31, 2014 we had a net loss of ($1,492,192) and a net loss of ($438,927) for the three months ended August 31, 2013.

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

Liquidity and Capital Resources

Assets and Liabilities

Our primary financial resource is our base of unproven oil and gas leases. Our ability to fund our capital expenditure program is dependent upon the availability of capital resource financing. In this fiscal year, we planned on spending approximately $9,000,000 in new capital investments for the purchase of the Texas Falls oil and gas leases and the drilling of 23 new oil and gas wells on these leases. Factors such as changes in operating margins due to changes in the price of oil and gas and the availability of capital resources-- could increase or decrease our ultimate level of expenditures during the remaining fiscal year.

The changes in our capital resources at August 31, 2014 compared with August 31, 2013 are:


Changes in our capital resources
				(Unaudited)
		August 31, 2014		August 31, 2013		Increase (Decrease)	Percentage Change

Cash	$	3,216	$	9,213	$	(5,996)	65.09%
Current Assets		39,067		393,295		(354,228)	90.07%
Total Assets		556,452		1,871,795		(1,315,343)	70.27%
Current Liabilities		3,145,956		3,045,970		99,986	3.28%
Total Liabilities		3,145,956		3,045,970		99,986	3.28%
Working Capital Deficit	$	3,106,890	$	2,652,676	$	454,214	17.12%

Our working capital deficit increased by $454,214 from $2,652,676 as of August 31, 2013 to $3,106,890 as of August 31, 2014. This increase in the deficit was due to the amount of resources we expended to source financing for the drilling and completions for the remaining 25 oil and gas leases in Venango County, PA; complete all the necessary SEC filings; and, support the drilling and completions work program on the Rice Lease in Venango County, PA.

Over the past three months, we expended our resources to raise funds to complete our 29 oil well drilling program in Venango County, PA, to attempt to raise funds for the acquisition of oil and gas leases that meet our criteria, to raise sufficient funds to fund a drilling and completions programs once we acquired oil and gas leases, updating our prior SEC filings with XBRL interactive data files, and completing our fiscal year end consolidated statements and SEC filings and the research for the Xun Oil

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

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

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

Cash Flows

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


Cash Flow Used in Operating activities:
		(Unaudited)
		August 31, 2014		August 31, 2014		Increase (Decrease)	Percentage Change
Net cash provided by (used in) operating activities	$	(38,246)	$	(92,457)	$	(54,211)	58.63%
Net cash provided by (used in) investing activities		-		(125)		(125)	100.00%
Net cash provided by (used by) financing activities	$	32,250	$	72,500	$	(40,250)	55.52%

Cash flow from operating activities is derived from changes in the balances of payables, or other non-oil property asset account balances. For the three months ended August 31, 2014, we had a negative cash flow from operating activities of $38,246, in comparison to a negative cash flow of $92,457 for the three months ended August 31, 2013. This change of $54,211 was the result of a increase in our payables balance and a decrease in our current assets. Variations in cash flow from operating activities may affect our level of development expenditures. Our expenditures consist primarily of our General and Administrative (G&A) expenses, which consist of consulting and professional services, employee compensation, legal, accounting, travel and other G&A expenses, which we have incurred in order to address necessary organizational activities.

Cash Flow Used in Investing activities:

Cash flow used by investing activities was zero for the three months ended August 31, 2014. This is in comparison to $125 investing activities used for the three months ended August 31, 2013.

Cash Flow from Financing activities:

Cash flow from financing activities is derived from short term debt account balances or in equity, account balances excluding retained earnings. Cash flow provided by financing activities was $32,250 for the three months ended August 31, 2014. This is in comparison to $72,500 provided by financing activities for the three months ended August 31, 2013. We anticipate it will be necessary to rely on additional funding from the debt financing and from capital markets in the current fiscal year to complete the 4 oil well drilling and completions program in Venango County, P.A. other acquisitions and to discharge our debts.

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

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

Plan of Operation For Remaining Fiscal Year

We will attempt to continue to source equity or debt financing, or Joint Venture partners for our operating costs and for our oil and gas well drilling programs or attempt to identify a profitable acquisition candidate. Pursuant to the May 7, 2013 Reserve Equity Financing Agreement with AGS Capital Group, LLC ("AGS"), we have the right to issue up to $15,000,000 of our common stock to AGS over the course of three years. We have had discussions with several companies and individuals for alternative funding and/or Joint Ventures. However, we have not come to terms with any company or individual as of August 31, 2014. We will attempt to finance our operating expenses with additional debt or through equity financing.

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

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended August 31, 2014 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the 1934 Act. Based on this evaluation, management concluded that as of August 31, 2014 our disclosure controls and procedures were effective.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Internal Control over Financial Reporting

During the period covered by this Quarterly Report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 13d-15(d) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we report that the financial reporting is not effective. We attribute this to limited manpower resources and the potential hiring of a CFO to address this.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our Form 10-K filed September 12, 2014.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SINCE MAY 31, 2014.

The Company issued 300,000,000 shares on August 19, 2014 for $15,000 pursuant to the conversion of a Convertible Promissory Note dated February 12, 2014. The issuance of the common stock was exempt from registration under Section 3(a)(9) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable

ITEM 5. OTHER INFORMATION

None.


ITEM 6 EXHIBITS		INCORPORATED BY REFERENCE

Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date	Filed Furnished Herewith
4.01	Resignation Letter of Weinberg & Baer LLC dated October 2, 201	8K	10.1	10/07/14
4.02	Letter from Weinberg & Baer LLC dated October 6, 2014 regarding changes in Registrant’s certifying accountant	8K	16.1	10/07/14
31.1	Certificate of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1	Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
32.2	Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X

SIGNATURES

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


	XUN ENERGY, INC.

Date: October 20, 2014	By:	/s/ Jerry G. Mikolajczyk
		Jerry G. Mikolajczyk
		Chief Executive Officer (principal executive officer)

Date: October 20, 2014	By:	/s/ Jerry G. Mikolajczyk
		Jerry G. Mikolajczyk
		Chief Financial Officer (principal financial officer and principal accounting officer)

Xun Energy, Inc. 10-Q