Massive Interactive 10-Q 2012 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarter ended March 31, 2012

OR

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

EXCHANGE ACT OF 1934

Commission file number 0-53892

Xtreme Oil & Gas, Inc.

(Name of small business issuer in its charter)

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

5700 W. Plano Parkway, Suite 3600	75093
(Address of principal executive offices)	(Zip Code)
(214) 432-8002
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

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

State the number of shares outstanding of each of the issuer's classes of common equity as of May 15, 2012: 45,396,866.

1

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

XTREME OIL & GAS , INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of March 31, 2012 and December 31, 2011
	2012		2011
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	265,371	$	484,970
Cash - restricted		75,322		75,322
Accounts receivable - trade, net		195,312		192,296
Accounts receivable, other		75,000		-
Work in process		-		505,038
Deferred financing costs		123,457		164,831
Inventory		62,028		62,028
Total Current Assets		796,490		1,484,485
PROPERTY AND EQUIPMENT:
Furniture and fixtures		61,794		53,044
Oil and natural gas properties (successful efforts method)		7,736,996		7,547,166
		7,798,790		7,600,210
Less-Accumulated depreciation, depletion and amortization		105,639		103,499
Net property and equipment		7,693,151		7,496,711
OTHER ASSETS
Deposits		7,537		7,537
Total Other Assets		7,537		7,537
TOTAL ASSETS	$	8,497,178	$	8,988,733
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,357,365	$	1,789,482
Deposits payable		579,000		1,514,244
Derivative liability		3,879,134		2,737,824
Total Current Liabilities		5,815,499		6,041,550
LONG-TERM LIABILITIES
Convertible notes payable, net		234,690		261,799
Asset retirement obligation		300,000		300,000
Total-long term liabilities		534,690		561,799
TOTAL LIABILITIES		6,350,189		6,603,349
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 49,999,000 shares authorized; none issued and outstanding		-		-
Non-transferable preferred stock, $.001 par value, 1,000 shares authorized,  1,000 shares issued and outstanding		1		1
Common stock, $.001 par value; 200,000,000 shares authorized; 45,380,366 and 45,364,390 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		45,380		45,364
Additional paid-in capital		36,080,521		36,063,970
Accumulated deficit		(33,978,913)		(33,723,951)
Total Stockholders' Equity		2,146,989		2,385,384
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	8,497,178	$	8,988,733

See accompanying notes to consolidated financial statements. 

2

XTREME OIL & GAS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2012 and 2011
(Unaudited)
	2012		2011
Revenues:
Income from asset sales and other, net	$	870,725	$	1,004,161
Oil and gas sales		21,125		13,094
TOTAL REVENUES		891,850		1,017,255
OPERATING EXPENSES:
Production costs		11,683		60,541
Workover costs		65,961		-
Depreciation, depletion and amortization expense		43,514		3,317
General and administrative expenses		410,250		491,823
Loss on disposal of properties		20,364		7,015
TOTAL OPERATING EXPENSES		551,772		562,696
INCOME FROM OPERATIONS		340,078		454,559
OTHER INCOME/(EXPENSE)
Gain on settlement		904,105		-
Amortization of debt discount		(293,006)		-
Interest expense, net		(64,829)		-
Derivative expense		(1,083,368)		-
Loss on debt extinguishment		(57,942)		-
Total other income (expense)		(595,040)		-
NET (LOSS) INCOME	$	(254,962)	$	454,559
(LOSS) INCOME PER SHARE-BASIC AND DILUTED	$	(0.01)	$	0.01
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED		45,373,168		43,842,888

See accompanying notes to consolidated financial statements.

3

XTREME OIL & GAS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2012 and 2011
(Unaudited)
	2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(254,962)	$	454,559
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation, depletion and amortization		43,514		3,317
Loss on debt extinguishment		57,942		-
Common stock issued for services		16,567		131,329
Gain on settlement		(904,105)		-
Income from sales of working interest		(870,725)		(1,004,161)
Loss on disposal of properties		20,364		7,015
Amortization of debt discount		293,006		-
Derivative expense		1,083,368		-
Changes in operating assets and liabilities:
Accounts receivable - trade		(3,016)		26,588
Development work in process		-		(110,300)
Other assets		-		(10,000)
Accounts payable and accrued expenses		396,988		(29,898)
Deposits payable		438,000		70,000
Net cash provided by (used in) operating activities		316,941		(461,551)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		150,000		-
Capital expenditures		(357,675)		(534,290)
Purchase of furniture and fixtures		(8,750)		-
Net cash used in investing activities		(216,425)		(534,290)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on convertible notes payable		(320,115)		-
Proceeds from sale of common stock		-		305,000
Proceeds from the sale of treasury stock		-		120,000
Net cash provided by (used in) financing activities		(320,115)		425,000
Net change in cash		(219,599)		(570,841)
CASH AT BEGINNING PERIOD		484,970		657,475
CASH AT END OF PERIOD	$	265,371	$	86,634
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest expense	$	64,829	$	-
Deposits previously received and applied to sale of assets	$	1,523,244	$	1,067,500
Development work in process reclassified to oil and gas properties	$	505,038	$	-
Common stock issued for leasehold interests and equipment	$	-	$	750,000

See accompanying notes to consolidated financial statements.

4

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

1. BASIS OF PRESENTATION

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

Accounting Estimates

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

Reclassifications

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

Recent Accounting Pronouncements

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

2. HISTORY AND NATURE OF BUSINESS

Xtreme Oil & Gas, Inc. (the “Company” formerly Xtreme Technologies, Inc.), a Nevada corporation formed on October 3, 2006 is organized to engage in the acquisition, operation and development of oil and natural gas properties located in Texas and the southeast region of the United States. Effective December 29, 2006, Xtreme Technologies, Inc., a then Washington corporation, acquired Emerald Energy Partners, Inc., (“Emerald”) a Nevada corporation, in exchange for the issuance of 7,960,000 shares of the Company’s common stock and changed the Company’s name to Xtreme Oil & Gas, Inc. (“Xtreme”).

For accounting purposes this transaction was treated as an acquisition of Xtreme Technologies, Inc. and a re-capitalization of Emerald.  Emerald is the accounting acquirer and the results of its operations carry over.  Accordingly, the operations of Xtreme Technologies, Inc. were not carried over and were adjusted to $0 at the date of the merger.

Nature of Business

Since its formation, the Company has been involved in the acquisition and management of fee mineral acreage and the exploration for and development of oil and natural gas properties, principally involving drilling wells located on the company’s mineral acreage.  The Company’s mineral properties and other oil and natural gas interests are all located in the United States, primarily in Oklahoma, Kansas, and Texas. The majority of the Company’s oil and natural gas production is from its Texas wells for 2012 and 2011.  Substantially all the Company’s oil and natural gas production is sold by the Company directly to independent purchasers.

The Company from time to time sells or otherwise disposes of its interest in oil and natural gas properties as part of the normal course of business.

 

5

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

2. HISTORY AND NATURE OF BUSINESS - CONTINUED

Oil and Natural Gas Properties

The Company has the following oil and natural gas properties:

Oil and gas property:	December 31, 2011		Additions		Dispositions		March 31, 2012
West Thrifty / Quita Field	$	4,984,040	$	-	$	-	$	4,984,040
Texas 5 Star		528,089		-		-		528,089
Smoky Hill		577,951		-		60,179		517,772
Hancock/Robinson		62,323		-		-		62,323
Lionheart		1,198,326		-		-		1,198,326
Gotcheye SWD		-		250,009		-		250,009
Flint Creek / Oil Creek		196,437		-		-		196,437
Total	$	7,547,166	$	250,009	$	60,179	$	7,736,996

Saltwater Disposal Property

During the first quarter 2012, work was completed on the Saltwater Disposal well project and we have completed additional testing to inject fluids required from the Oklahoma Corporation Commission. This project is ready to dispose of commercial quantities of saltwater.

3. CONVERTIBLE NOTES PAYABLE

On September 12, 2011, the Company raised $2,360,000 in convertible Notes.  The Notes bear an interest rate of 12% per annum and mature on September 12, 2013.  Under the convertible note agreements, the lender has the right to convert all or any part of the outstanding and unpaid principal and interest into shares of the Company’s common stock; provided however, that in no event shall the lender be entitled to convert any portion of the Notes that would result in the beneficial ownership by it and its affiliates to be more than 9.99% of the outstanding shares of the Company's common stock. The Notes are convertible at a fixed conversion price of $0.28 per share.  In addition, the company issued Warrants to acquire 6,810,269 shares of the Company’s common stock at a strike price of $0.28 per share.  The warrants expire on September 12, 2016. The conversion price of the notes and warrants will be reduced in the event the Company issues or sells any shares of common stock less than the conversion price.

6

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

4. DERIVATIVE INSTRUMENTS

The Company’s debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

The identification of, and accounting for, derivative instruments is complex.  Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur.  For bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using binomial option pricing model.  That model requires assumptions related to the remaining term of the instrument and risk-free rates of return, our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life of the option.

In connection with the issuance of the Notes and Warrants, the conversion features are accounted for as derivative liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date, due to anti-dilution reset features. The fair value was estimated on the date of grant using a binomial option-pricing model using the following weighted-average assumptions: expected dividend yield of 0%; expected volatility of 290%; risk-free interest rate of 0.05% and an expected holding period of 24 months for the Notes and 60 months for the Warrants. The resulting values, at the date of issuance, were allocated to the proceeds received and applied as a discount to the face value of the Notes and Warrants.  The Company recorded a derivative expense on the Notes of $649,212 at inception and a further derivative expense on the Warrants of $2,431,437 at inception.

In regards to the September 12, 2011 Note, the Company recognized a derivative liability of $1,484,806 on December 31, 2011 and a change in fair value of $789,218 for the quarter ended March 31, 2012, and redemptions of $320,115 for the quarter ended March 31, 2012 resulting in a derivative liability of $1,953,909 at March 31, 2012.

In regards to the September 12, 2011 Warrants, the Company recognized a derivative liability of $1,253,018 on December 31, 2011 and a change in fair value of $672,207 for the quarter ended March 31, 2012, resulting in a derivative liability of $1,925,225 at March 31, 2012.

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

	Quarter ended March 31, 2012
Derivative liability	December 31, 2011		Fair Value Adjustments		Redemptions		Total
Notes	$	1,484,806	$	789,218	$	(320,115)		1,953,909
Warrants		1,253,018		672,207		-		1,925,225
	$	2,737,824	$	1,461,425	$	(320,115)	$	3,879,134

5. STOCKHOLDERS’ EQUITY

Capital Structure

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

The Company is authorized to issue up to 49,999,000 shares of preferred stock, $0.001 par value per share of which none were issued and outstanding as of March 31, 2012.

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

7

XTREME OIL & GAS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

5. STOCKHOLDERS’ EQUITY – (CONTINUED)

Common Stock

Significant current period changes in stockholders’ equity during the three months ended March 31, 2012 consisted of the following:

In the first quarter of 2012, we issued 15,976 restricted shares of our common stock to consultants valued at $16,567.

6. CONTINGENCIES

On December 1, 2009, we began legal proceedings in McLain County District Court in Purcell, Oklahoma against D. Deerman, L.P. alleging breach of contract and demanding payment for fees owed, oil and gas production revenue and other expenses on the Oil Creek property in excess of $75,000 based on our contracted ownership percentage.  The suit also demands an accounting discovery for all items in dispute. On December 31, 2009, Deerman filed a counterclaim in the same court claiming breach of contract for drilling the Oil Creek property and demanding payment of $235,000 for expenses incurred. We are currently in the discovery phases of this action.

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

On April 27, 2010, we filed suit against Genie Well Services in U.S. District Court for the Western District of Oklahoma demanding restitution for damaging our Lionheart well for damages in excess of $75,000 based on their negligence that resulted in damaging the wellbore and added Crescent Services and Onsite Oiltools as additional defendants.   Genie filed a counterclaim for $53,110.50 for their services rendered after causing the damage.  We settled all claims between all parties in confidential settlements dated March 5, 2012 for $475,000.

7. SUBSEQUENT EVENTS

In the second quarter of 2012, we issued 16,500 restricted shares of our common stock to five consultants valued at $32,838.

8

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

SAFE HARBOR STATEMENT

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

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

· volatility in commodity prices for oil and natural gas;

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

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

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

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

· our ability to replace oil and natural gas reserves;

· environmental risks;

· drilling and operating risks;

· exploration and development risks;

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

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

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

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

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

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

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

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

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

9

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

Overview

Xtreme Oil & Gas, Inc. is a growing independent energy company focused on the acquisition, development, ownership, operation and investment in energy-related businesses and assets, including, without limitation, the acquisition, exploration and development of natural gas and crude oil, and other related businesses which management believes have potential for improved production rates and resulting income by application of both conventional and non-conventional improvement and enhancement techniques. As of March 31, 2012 we own working interests in over 10,000 acres of oil and gas leases in Kansas, Texas and Oklahoma that now include 10 gross producing wells and 55 gross non-producing wells. Xtreme plans to pursue an ongoing reworking and drilling program to increase production from its properties.

During the first quarter 2012 work was completed on the Saltwater Disposal well project and we received final approval to inject fluids from the Oklahoma Corporation Commission in September 2011.

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

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

Results of Operations.

For the Three Months Ended March 31, 2012 compared to 2011

Revenues

For the three months ended March 31, 2012, revenue was $891,850 a decrease of $125,405 from $1,017,255 for the three months ended March 31, 2011. The decrease was principally due to a reduction in income from working interest sales.   Revenue for oil sales for the three months ended March 31, 2012 was $21,125.

Currently, most of our revenues have come from the sale of working interest in our oil and gas properties, such sales reflecting approximately 98% of our revenues in the first quarter of 2012 and approximately 99% of our revenues in the first quarter of 2011. Accordingly, the decline in revenue reflects a decline in our sales of working interests, sales which declined to $870,725 in 2012 from $1,004,161 in 2011. This decline was modestly offset by an increase in sales of oil and gas, sales which totaled $13,094 in the earlier period compared to $21,125 in the later period.

When we sell working interests in our leases, we accrue a deposits payable liability and recognize revenue as the property related to the working interest is drilled. In the 2011 period, the revenues from the sale of working interests related to the West Thrifty prospect, and our oil and gas sales in 2012 relate to that activity. We are currently engaged in further development of that property to assure the success of 2011’s drilling activity. The revenue from sale of working interests in 2012 relate to our development of the salt water well and drilling on the Smoky Hills prospect, the saltwater well now fully operational in the second quarter of 2012 and drilling completed on the Smoky Hill prospect.

Expenses

Oil production costs for the three months ended March 31, 2012 totaled $11,683, a decrease of $48,858 from $60,541 for the three months ended March 31, 2011. The decrease is due to reduced maintenance activities on all of our properties.

General and administrative expenses totaled $410,250, for the three months ended March 31, 2012, a decrease of $81,573, from $491,823 for the three months ended March 31, 2011. This reduction in general and administrative expense is largely driven by reduction in expenses for services delivered.   These expenses, incurred in 2012, included salaries, utilities and rent, consulting fees, and presentation fees.

10

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

Other Income/(Expenses)

Net cost recovery after expenses for litigation and repairs incurred by the Company from the damages to the Lionheart well totaled $478,865 for the three months ended March 31, 2012, an increase of $478,865 from the three months ended March 31, 2011. We expect to use the remaining proceeds of these settlements to redevelop the property and attempt to produce oil from other depths in an undamaged part of the wellbore.

Other income and expense are largely driven by our debt offering in September 2011. Amortization of debt discount and interest expense totaled almost $360,000.  Derivative expense related to the convertible debt and warrants issued in the offering was $1,083,368 for the quarter. This expense, a non-cash charge, is particularly volatile as we incurred, for example, derivative income of almost $3,000,000 in the fourth quarter of 2011.

These debt related expenses were offset by income that arose out of our settlement of litigation relating to the Lionheart prospect.

Other expenses totaled $595,040 for the three months ended March 31, 2012 compared to $0 for the period ended March 31, 2011, an increase of $595,040.  The increase was due primarily to accounting charges taken for derivative instruments during the period ended March 31, 2012. Other income includes settlements with vendors totaling $425,240 and the settlement from damages to the Lionheart well totaling $478,865.

Net loss

For the three months ended March 31, 2012, we had net loss of $254,962 compared to a profit of $454,559 for the three months ended March 31, 2011. This change in net loss was primarily due to accounting charges taken for derivative instruments during the period ended March 31, 2012. Our operating profit declined in the first quarter of 2012 to $340,078 from $454,599, the decline in operating profit essentially reflecting the decline in revenue, $1,017,255 in the 2011 period to $891,850 in 2012. Other expenses, none in the 2011 quarter, were $595,040 in the 2012’s first quarter.

For the three months ended March 31, 2012 our net loss per share on a basic and diluted basis was $0.01 compared to a net income of $0.01 per share for the three months ended March 31, 2011.

Liquidity and Capital Resources

Cash flow provided by operations was $316,941 for the three months ending March 31, 2012. Cash flow used in investing activities was ($216,425) for the three months ended March 31, 2012. Cash flow used by financing activities was ($320,115) for the three months ended March 31, 2012. As of March 31, 2012, we are unable to determine whether we will generate sufficient cash from our oil and gas operations to fund our operations for the next twelve months. Although we expect cash flow from operations to rise as our operations improve and the number of projects we successfully develop grows, we believe that we will raise, probably through the private placement of equity securities, additional capital to assure we have the necessary liquidity for 2012.

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

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

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

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ITEM 4. Controls and Procedures

As of the end of the quarter ended March 31, 2012, our Chief Executive Officer, Willard G. McAndrew, and Chief Financial Officer, Roger Wurtele, with the participation of our Chief Operating Officer, reviewed our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon our evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be included in this report is (i) accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

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

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls or other factors during the fiscal quarter ended March 31, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On December 1, 2009, we began legal proceedings in McLain County District Court in Purcell, Oklahoma against D. Deerman, L.P. alleging breach of contract and demanding payment for fees owed, oil and gas production revenue and other expenses on the Oil Creek property in excess of $75,000 based on our contracted ownership percentage.  The suit also demands an accounting discovery for all items in dispute. On December 31, 2009, Deerman filed a counterclaim in the same court claiming breach of contract for drilling the Oil Creek property and demanding payment of $235,000 for expenses incurred. We are currently in the discovery phases of this action.

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

On April 27, 2010, we filed suit against Genie Well Services in U.S. District Court for the Western District of Oklahoma demanding restitution for damaging our Lionheart well for damages in excess of $75,000 based on their negligence that resulted in damaging the wellbore and added Crescent Services and Onsite Oiltools as additional defendants.   Genie filed a counterclaim for $53,110.50 for their services rendered after causing the damage.  We settled all claims between all parties in confidential settlements dated March 5, 2012.

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES

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

Shares issued for Cash

In the first quarter of 2012, we did not sell any shares to investors.

Shares issued for Services

In the first quarter of 2012, we issued 15,976 restricted shares of our common stock to consultants for $16,567 worth of services.  Our shares were valued at $1.04.

ITEM 6. EXHIBITS

31.1 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

	Xtreme Oil & Gas, Inc.:
Date: May 15, 2012	By:	/s/ Willard G. McAndrew III
		Name: Willard G. McAndrew III
		Title: Chief Executive Officer

Date: May 15, 2012	By:	/s/ Roger Wurtele
		Name: Roger Wurtele
		Title: CFO, Principal Accounting Officer

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

	Xtreme Oil & Gas, Inc.:
Date: May 15, 2012	By:	/s/ Willard G. McAndrew III
		Name: Willard G. McAndrew III
		Title: Director

Date: May 15, 2012	By:	/s/ E. L. Shockey
		Name: E.L. Shockey
		Title: Director

Date: May 15, 2012	By:	/s/Ed Allen
		Name: Rear Admiral Ed Allen
		Title: Director

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