!



UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM
10-K



| | ☑ | ANNUAL
                                                                                                                                    REPORT
                                                                                                                                    PURSUANT
                                                                                                                                    TO
                                                                                                                                    SECTION
                                                                                                                                    13
                                                                                                                                    OR
                                                                                                                                    15(d)
                                                                                                                                    OF
                                                                                                                                    THE
                                                                                                                                    SECURITIES
                                                                                                                                    EXCHANGE
                                                                                                                                    ACT
                                                                                                                                    OF
                                                                                                                                    1934
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For
the fiscal year ended December 31, 2012



OR



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



For
transition period ___ to ____



Commission
file number: 333-160517



PETRON
ENERGY II, INC.

(Name
of registrant in its charter)



|Nevada                                                       | 1311                                                                             | 26-
    3121630                      
|------------------------------------------------------------ | -------------------------------------------------------------------------------- | -------------------------------------
|(State
    or jurisdiction of incorporation or organization) | (Primary
        Standard
        Industrial Classification Code
        Number) | (IRS
    Employer Identification No.)



17950
Preston Road, Suite 960

Dallas,
Texas 75252

(Address
of principal executive offices)



(972)
272-8190

(Registrant's
telephone number)



SECURITIES
REGISTERED PURSUANT TO SECTION 12(B) OF

THE
EXCHANGE ACT:

None.



SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF

THE
EXCHANGE ACT:

None.



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☐ No☑.



Check whether
the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes☐ No☑



Check whether
the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes☑ 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 (or for such shorter period that the registrant was required to submit and post such files). Yes☐
No☐



Check if
there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ☑



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



|Large
    accelerated filer ☐ | Accelerated
                                             filer ☐
|----------------------------- | ----------------------------------------------------------------
|Non-accelerated
    filer ☐   | Smaller
                                 reporting company ☑    





---





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



The
aggregate market value of the Issuer's voting and non-voting common equity held by non-affiliates of the registrant, as of June
30, 2012, computed by reference to the closing price of such common equity on the Over-The-Counter Bulletin Board as of June 30,
2012, the end of the Registrant’s most recently completed second fiscal quarter was $2,223,196.44.



At
May 13, 2013, there were 39,959,244 shares of the registrant's $0.001 par value common stock issued and outstanding.





---





---











PETRON
ENERGY II, INC.

TABLE
OF CONTENTS



|         |  |                                                                                                                  | Page
    No.
|-------- |  | ---------------------------------------------------------------------------------------------------------------- | ------------
|         |  | PART I                                                                                                           |             
|Item 1.  |  | Business                                                                                                         | 4           
|Item 1A. |  | Risk Factors                                                                                                     | 13          
|Item 1B. |  | Unresolved Staff Comments                                                                                        | 23          
|Item 2.  |  | Properties                                                                                                       | 23          
|Item 3.  |  | Legal Proceedings                                                                                                | 23          
|Item 4.  |  | Mine Safety Disclosures                                                                                          | 24          
|         |  | PART II                                                                                                          |             
|Item 5.  |  | Market
    for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 24          
|Item 6.  |  | Selected Financial Data                                                                                          | 26          
|Item 7.  |  | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations                        | 26          
|Item 7A. |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                   | 32          
|Item 8.  |  | Financial Statements and Supplementary
    Data                                                                  | 33          
|Item 9.  |  | Changes
    in and Disagreements with Accountants on Accounting and Financial Disclosure                         | 60          
|Item 9A. |  | Controls and Procedures                                                                                          | 60          
|Item 9B. |  | Other Information                                                                                                | 62          
|         |  | Part III                                                                                                         |             
|Item 10. |  | Directors, Executive Officers
    and Corporate Governance                                                       | 62          
|Item 11. |  | Executive Compensation                                                                                           | 65          
|Item 12. |  | Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder Matters               | 67          
|Item 13. |  | Certain Relationships and Related
    Transactions, and Director Independence                                    | 69          
|Item 14. |  | Principal Accounting Fees and
    Services                                                                       | 70          
|         |  | Part IV                                                                                                          |             
|Item 15. |  | Exhibits and Financial Statement
    Schedules                                                                   | 71          
|         |  | Signatures                                                                                                       | 72          











FORWARD-LOOKING
STATEMENTS



This
Annual Report on Form 10-K contains forward-looking statements which involve risks and uncertainties, principally in the sections
entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations. “All statements other than statements of historical fact contained
in this Annual Report on Form 10-K, including statements regarding future events, our future financial performance, business strategy
and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking
statements by terminology including “anticipates,” “believes,” “can,”
“continue,” “could,” “estimates,” “expects,” “intends,”
“may,” “plans,” “potential,” “predicts,” or “should,”
or the negative of these terms or other comparable terminology. We do not make forward-looking statements unless we believe we
have a reasonable basis for doing so. These statements are only predictions and involve known and unknown risks, uncertainties
and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Annual Report on
Form 10-K, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New
risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all
factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially
from those contained in any forward-looking statements. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except
as expressly required by law.



You
should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Annual Report
on Form 10-K. Before you invest in our securities, you should be aware that the occurrence of the events described in the section
entitled “Risk Factors” and elsewhere in this Current Report on Form 8-K could negatively affect our business,
operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise
publicly any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform our statements to
actual results or changed expectations.



PART
I



|ITEM 1. | BUSINESS
|------- | --------





Corporate
History



The
Company was incorporated in Nevada in June 2007 as a development stage company which planned to operate as a restaurant holding
company, specializing in the development and expansion of proven independent restaurant concepts into multi-unit locations through
corporate-owned stores, licensing, and franchising opportunities, funding permitting. In connection with our entry into and the
closing of the Asset Purchase Agreement with Petron Energy Special Corp. (“Petron Special”), described below, we changed
our business focus to oil and gas exploration and production and related operations and ceased undertaking any restaurant related
operations.



Our
mailing address is 17950 Preston Road, Suite 960, Dallas, Texas 75252, and our telephone number is (972) 272-8190.



Acquisition
of Company by Petron Energy Special Corp.



On
August 9, 2011, David Cho, the Company’s then Chief Executive Officer and Director and then 54.4% owner of the Company’s
common stock (550,000,000 shares or 5,500,000 pre-forward split shares); Pete Wainscott, the Company’s then Director and
then 34.6% owner of the Company’s common stock (350,000,000 shares or 3,500,000 pre-forward split shares); and David M.
Loev the then 9.9% owner of the Company’s common stock (100,000,000 shares, or 1,000,000 pre-forward split shares) (collectively
the “Selling Shareholders”) entered into a Stock Purchase Agreement with Petron Special. Pursuant to the Stock
Purchase Agreement, the Selling Shareholders sold an aggregate of 1,000,000,000 shares (10,000,000 pre-forward split) shares of
the Company’s restricted common stock to Petron Special in consideration for $232,750 (the “Purchase Price”);
provided that a required term and condition of the closing of the Stock Purchase Agreement was that the Company had no liabilities
at closing. As such, a portion of the Purchase Price was used to satisfy the Company’s outstanding liabilities. As a result
of the Stock Purchase Agreement, Petron Special, and Mr. Floyd Smith (“Mr. Smith”) through his control of Petron Special,
became the owner of 98.9% of the Company’s outstanding shares.



4





Further, on August 12, 2011,
the Company entered into an Asset Purchase Agreement with Petron Special (“Petron Asset Purchase Agreement”). Under
the Petron Asset Purchase Agreement, the Company agreed to purchase substantially all of Petron Special’s assets (which
consist of various oil and gas interests, leases and working interests and equipment, collectively, the “Assets”)
and in consideration for 60,000,000 shares of the Company’s restricted common stock (the “Company Shares”). The
60,000,000 common shares were later adjusted to78,511,478. The 78,511,478 shares were exchanged for all the preferred
and common shares outstanding of Petron Special. The Petron Asset Purchase Agreement also
required Petron Special to indemnify the Company from any liability associated with the Assets for actions which took place prior
to the closing and for the Company to indemnify Petron Special against any liability associated with the Assets due to actions
which may take place after the closing. The Petron Asset Purchase Agreement also includes a “non-compete provision,”
which prohibits Petron Special and Floyd L. Smith from competing against the Company for a period of twelve (12) months from the
closing of the Petron Asset Purchase Agreement. Additionally, the Petron Asset Purchase Agreement required that the Company agree
to commit a minimum of $5,000 and 2,000,000 shares (20,000 pre-forward split shares) of common stock per month to investor relations
services following the closing; and allowed the Company to enter into employment agreements with certain employees of Petron Special
(provided that no such employment agreements, other than the Executive Employment Agreement with Mr. Smith have been entered into
or agreed to, to date).



Assumption
of Petron Special’s Agreement with ONE Energy Corp.



On
August 8, 2011, Petron Special entered into an Asset Acquisition Agreement with ONE Energy Capital Corp., ONE Energy International
Corp. and their affiliated parties (the “One Energy Asset Acquisition Agreement”). Pursuant to the One Energy Asset
Acquisition Agreement, Petron Special agreed to acquire the assets of ONE Energy Capital Corp., ONE Energy International Corp.
and their affiliated parties in aggregate consideration for shares of convertible preferred stock, contingent upon the mutual
agreement of final closing agreements. The final closing agreements were consummated on February 9, 2012, as elaborated in greater
detail below. Pursuant to the terms of the acquisition of the Company by Petron Special, the Company assumed Petron Special’s
rights and obligations under the One Energy Asset Acquisition Agreement.



Plan
of Reorganization and Asset Purchase Agreement with ONE Energy Corp. andAcquisition of
Knox County Leases



On
February 9, 2012, the Company entered into the “Plan of Reorganization
and Asset Purchase Agreement” with ONE Energy International Corp, (“OEI”) a Nevada Corporation, and its Affiliate
Companies, which was intended to represent the final closing definitive agreement contemplated by the One Energy Asset Acquisition
Agreement described above.  Under the terms of the Plan of Reorganization and Asset Purchase Agreement, the Company
acquired all of the owned by assets of OEI and its affiliates in exchange for 5,910,000 shares of the Company’s Series B
Convertible Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred
Stock were scheduled to convert into common stock shares of the Company having a total value of $5,910,000, based on the average
trading price of the Company’s common stock on the five trading days prior to the Conversion Date, which was on January
7, 2013. The Series B Preferred Stock vote one-for-one with the common stock shares of the Company and cannot be converted by
the holders thereof if such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s
issued and outstanding common stock. It is also anticipated that the shareholders receiving the Series B Preferred Stock described
also received warrants to purchase an aggregate of 10,000,000 shares of the Company’s common stock with an exercise price
of $0.08 per share.



Pursuant
to thePlan of Reorganization and Asset Purchase Agreement, the
Company received interests in the Knox County Leases in the State of Texas, which are described in greater detail below.



Acquisition
of Wagoner County Leases



On
September 28, 2011, the Company entered into two Oil and Gas Leases and obtained rights to conduct oil and gas exploration and
production activities on an aggregate of 320 acres (160 acres pursuant to each lease) located in Wagoner County, Oklahoma (the
“Wagoner County Leases”). Pursuant to the lease agreements, we agreed to pay the lessees under each of the
leases total consideration for such lease rights consisting of $10 at the time of the entry into the agreements and (a) 3/16th
of all oil produced from the leased property; (b) 3/16th of all gas of whatever nature or kind produced or sold from the leased
property; (c) 3/16th of the gross proceeds, from the mouth of the well, of any gas produced from any oil well and used to manufacture
gasoline; and (d) certain other nominal fees, during the period any well is shut-in. The leases have a term of one (1) year, provided
that they continue in effect thereafter for so long as oil or gas is produced on such leases by the Company, if any.

5









Change
in Control



As
a result of the Stock Purchase Agreement described above, Petron Special, and as a result of his control of Petron Special, Floyd
L. Smith, obtained majority voting control over the Company.  Furthermore, in connection with the Company’s entry into
the Executive Employment Agreement with Mr. Smith, Mr. Smith obtained rights to shares of the Company’s Series A Preferred
Stock, which allows him to vote 51% of our outstanding common stock on any and all shareholder matters (including the appointment
of Directors), thereby providing him continuing voting control over the Company, pursuant only to the terms and conditions of
the Certificate of Designation of the Company’s Series A Preferred Stock.



Recent
Changes in Officers and Directors



On
August 10, 2011, our Directors, David Cho and Pete Wainscott, increased the number of Directors of the Company to three, and appointed
Floyd L. Smith as a Director of the Company, pursuant to the power provided to the Board of Directors by the Company’s Bylaws
to fill the vacancy left by the increase. Immediately following such appointment, David Cho, our President, Chief Executive Officer,
Chief Financial Officer, Secretary, and Director resigned as an officer and Director of the Company and Pete Wainscott, our Director,
resigned as a Director of the Company and Floyd L. Smith was appointed as the Chief Executive Officer, Chief Financial Officer,
President, Secretary and Treasurer of the Company. Additionally, as a result of the resignations of Mr. Cho and Mr. Wainscott
as Directors of the Company, Mr. Smith became the sole Director of the Company.



On
August 15, 2011, Floyd L. Smith, our then sole Director, appointed David Knepper and Kenny Fox as Directors of the Company. Kenny
Fox resigned as a member of the Board of Directors on December 5, 2011. To date, our Board of Directors is currently composed
of Floyd L. Smith and David Knepper as its sole members.



Amendment
to Articles of Incorporation



On
September 7, 2011, the Company’s Board of Directors and then majority shareholder, Petron Special (which held approximately
98.9% of the Company’s outstanding shares of common stock and is controlled by Mr. Smith), approved the filing of a Certificate
of Amendment (the “Amendment”) to the Company’s Articles of Incorporation to affect (i) a name change
of the Company to “Petron Energy II, Inc.”; (ii) a forward stock split of the Company’s outstanding common
stock in a ratio of 100:1; and (iii) an increase in the Company’s authorized shares of stock to 1,000,000,000 shares of
common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share; each effective
as of October 15, 2011.



The
Amendment was filed with the Secretary of State of Nevada on September 9, 2011 and the Amendment was made effective with FINRA
at the open of business on October 17, 2011. As a result of the Amendment, the Company’s trading symbol on the Over-The-Counter
Bulletin Board changed to “RCNCD”, and the Company’s common stock traded under that symbol until November 29,
2011, at which time the Company’s symbol on the Over-The-Counter Bulletin Board changed to “PEII” in connection
with the name change affected by the Amendment. The effects of the Forward Split have been retroactively reflected throughout
this Report.



Reverse
Split



On
December 27, 2012, Petron Energy II, Inc., a Nevada corporation (the “Company”) effectuated a reverse split (the “Reverse
Split”) of its issued common shares whereby every ten (10) pre-split shares of common stock were exchanged for one (1) post-split
share of the Company's common stock.  As a result, the total issued shares of common stock of the Company decreased from
One Hundred Twenty Million Two Hundred Thirty Thousand Six Hundred and Eighty Eight (120,230,688) shares prior to the Reverse
Split to Twelve Million Twenty Three Thousand and Sixty Nine (12,023,069) shares following the Reverse Split.  FINRA confirmed
approval of the Reverse Split on December 20, 2012 and the Reverse Split became effective on December 27, 2012.

6









Private
Placement



In
August 2011, the Company sold an aggregate of 6,462,900 shares of the Company’s restricted common stock to twelve “accredited
investors” in private transactions for aggregate consideration of $387,774 or $0.06 per share in a private placement.



In
September and October 2011, the Company sold an aggregate of 4,333,300 shares of the Company’s restricted common stock to
nine “accredited investors” in private transactions for aggregate consideration of $259,998 or $0.06 per share.

During
the year ended December 31, 2012, the Company sold an aggregate of 717,175 (post-split) shares of the Company’s restricted
common stock to 43 “accredited investors” in private transactions for aggregate consideration of $838,326.



Business
Operations



The
Company is engaged primarily in the acquisition, development, production, exploration for and the sale of oil, gas and gas liquids
in the United States. As of December 31, 2012, the Company is operating in the states of Texas and Oklahoma. In addition, the
Company operates two gas gathering systems located in the Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline
consists of approximately 132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company
sells its oil and gas products primarily to a domestic pipeline and to other oil companies.



As
a result of the closing of the Petron Asset Purchase Agreement, the assumption of the One Energy Asset Acquisition Agreement,
the consummation of the Plan of Reorganization and Asset Purchase Agreement, and our acquisition of the Henderson and Knox County
TX, Tulsa and Wagoner County Leases, our business goal has changed to the creation of an asset base consisting of oil and gas
and natural gas properties which have a proven history of production. We have already made progress in connection with this goal
by our acquisition of the Henderson and Knox County TX, Tulsa and Wagoner County Leases and our acquisition of the Assets of Petron
Special pursuant to the Petron Asset Purchase Agreement described above.



We
hope to increase the value of the assets we acquire in the future through further acquisitions, drilling operations and the re-working
of wells. We plan to concentrate our development efforts in Texas and Oklahoma. The Petron Asset Purchase Agreement relates to
our acquisition from Petron Special of approximately one thousand five hundred leased acres, which include 59 existing wells which
will need to be reworked in an effort to attempt to re-establish commercial production (collectively the “Leases”).
We estimate the costs of reworking these wells at $35,000--$45,000 per well and estimate that it will take approximately two weeks
to rework each well, funding permitting. The producing properties acquired in connection with the Petron Asset Purchase Agreement
currently produce approximately three (3) barrels of oil per day (BOPD”). We also assumed the One Energy Asset Acquisition
Agreement, described above, pursuant to which we plan to acquire certain additional oil and gas producing properties located in
Texas, including an additional two thousand eight hundred leased acres which include 34 existing wells.



Our
operations are focused in the United States (Texas and Oklahoma) because we believe focusing our operations in the United States
offers us the following advantages:



•Low
risk opportunities;

•Growth
opportunities;

•Upside
profit potential in connection with oil and unconventional gas reserves; and

•Availability
of technological improvements which may increase oil and gas reserves.



Our
target market is the East Texas Cotton Valley, the Woodford Shale in Oklahoma and the Tannehill Sand in North Texas which we believe
each offer a high success rate with respect to developing producing wells and long term cash flow. The properties we acquired
through the Petron Asset Purchase Agreement and the rights we acquired in connection with the Henderson and Knox County TX, Tulsa
and Wagoner County OK Leases are all located in the areas described in the East Texas Cotton Valley, the Woodford Shale in Oklahoma
and the Tannehill Sand in North Texas.

7









The
East Texas Cotton Valley is a shale field made up of shale, sandstone, and clay deposits which have been shown to hold natural
gas deposits. The East Texas Cotton Valley field is located in east Texas in Rusk County, Panola County and Harris County. Several
companies including Goodrich Petroleum, Petrohawk Energy, Devon Energy and El Paso Energy have operations in the East Texas Cotton
Valley trend.



The
Woodford Shale, also known as the Devonian Woodford Shale is located in south and north eastern Oklahoma. The largest gas producer
in the Woodford Shale is Newfield Exploration; other operators include Devon Energy, Chesapeake Energy, Cimarex Energy and Antero
Resources.



The
Tannehill Sand field is located in Knox County in north central Texas.



The
production life from new and existing wells in each area typically has a life expectancy of 10 - 25 years. The Cotton Valley Trend
and Woodford Shale are primarily natural gas trends; however some wells provide oil production along with gas production. In addition
to the Woodford Shale, there are 4 separate pay zones (the Tyner, Misner, Burgen and Dutucher) which are oil pay zones, while
the Tannehill pay zone in Knox County, Texas is primarily an oil pay zone.



Subsequent
to the closing of the One Energy Asset Acquisition Agreement, we acquired additional interests which have a long-term history
of successful production and display characteristics of being an under developed asset. By applying new technologies, we hope
to exploit and produce more natural gas and oil from these assets. Additionally, the Company plans to engage primarily in the
exploration and development of oil and gas leases in Oklahoma, East and North Texas and Western Louisiana over the next two years
through one or more of the following activities: (i) acquisition of oil and gas leases (similar to the Wagoner County Leases);
(ii) contract drilling on leases owned by the Company through investment partnerships and banking relationships sponsored by the
Company; (iii) acquisition or oil and gas producing properties; and (iv) acquisition of oil and gas companies having properties
(producing and non-producing). Wells to be drilled by the Company will include both exploratory and development wells. We estimate
that newly drilled wells will have a total cost range including completion of approximately $125,000 - $150,000 and reworked wells
will have a total cost range of approximately $35,000 - $45,000.



We also
plan to operate the natural gas pipeline which we acquired as part of the Petron Asset Purchase Agreement and undertake exploration
and workover activities on oil and natural gas wells acquired in the acquisition.



Our currently
planned workover activities include “fracking,” as elaborated below, non-producing oil and natural gas wells in an
effort to increase and/or restart production from such wells.



Hydraulic
Fracturing ("Fracking")



When
sandstone rocks contain oil or gas in commercial quantities, recovery can be vastly improved by a process called fracturing (“fracking”)
which is used to increase permeability to its optimum level. Basically, to fracture a formation, a fracturing service company
pumps a specifically blended fluid down the well and into the formation under great pressure. Pumping continues until the formation
literally cracks open. Meanwhile, a special type of frack sand is mixed into the fracturing fluid. These materials are called
proppants.The proppant enters the fractures in the formation and when pumping is stopped and the pressure is allowed to
dissipate, the proppant remains in the fractures. Since the fractures try to close back together after the pressure on the well
is released, the proppant is needed to hold or prop the fractures open. These propped-open fractures provide passages for oil
or gas to flow into the well.



In
addition to new technology and fracking mixtures, a myriad of other technologies can be applied to produce increased production
results. We plan to constantly track different well completion strategies and production results to generate an approach that
will yield:



• Higher
initial flow rates;

• Slower
decline rates; and

• Improved
recoverability.

8









Horizontal
Wells



The
first recorded true horizontal well was drilled near Texon, Texas (just west of San Angelo), and was completed in 1929; however,
little practical application of horizontal wells occurred until the early 1980’s, by which time the advent of improved down
hole drilling motors and the invention of other necessary supporting equipment, materials, and technologies, particularly down
hole telemetry equipment, had brought some kinds of applications within the realm of commercial viability.



Horizontal
drilling is the process of drilling and completing, for production, a well that begins as a vertical or inclined linear bore which
extends from the surface to a subsurface location just above the target reservoir, then bears off on an arc to intersect the reservoir
at the “entry point”, and, thereafter, continues at a near-horizontal angle and will substantially or entirely remain
within the reservoir until the desired bottom hole location is reached.



The
technical objective of horizontal drilling is to expose significantly more reservoir rock to the well bore surface than can be
achieved via drilling of a conventional vertical well. The two primary benefits of horizontal drilling success are: 1) increased
productivity of the reservoir; and 2) prolongation of the reservoir’s commercial life.



An
offset to the benefits provided by successful horizontal drilling is its higher cost. However, we believe that it is probable
that the cost premium associated with horizontal drilling will continue to decline as horizontal drilling activity increases,
provided that there is the possibility that new and improved technology could add additional costs in the future.



Horizontal
wells generally have a higher productivity and pay zone contact per well than vertical wells, and allow operators to take advantage
of highly heterogeneous or layered reservoirs, like the Cotton Valley Sandstone which we plan to target. Horizontal drilling is
now utilized in a variety of carbonate and sandstone reservoirs across the country, including the Austin Chalk, James Lime, Woodbine
and the Barnett Shale in Texas.



We
plan to use horizontal wells in an effort to produce natural gas from the assets we acquired through the Asset Purchase Agreement.



PROJECTS



Our
three leased properties can be identified on the below map and consist of two leases in Oklahoma, the Tulsa County leases and
the Wagoner County Leases. In Texas, the Company operates the Knox County leases. All of these leases are described in more detail
below.









Tulsa
Leases



The
Company’s interest in the Tulsa project is 280 Acres over three leaseholds. The Company has a 75% working interest and a
60.9% net revenue interest.  The well’s average EUR (Estimated Ultimate Recovery) is 27,500 BOE, which consists
of 55% oil. There are 2 producing wells and 6 identified drilling locations.

9













Wagoner
County Leases





The Wagoner
Leases consist of 820 Acres with 8 producing wells. The Company has a 75% working interest in the leases and a 60.9% net revenue
interest. There are also 10 identified drilling locations. The well’s average EUR is 27,500 BOE, which consists of 55% oil.
This Lease has recompletion opportunities in water and natural gas injection, with 58 recompletion targets.









Knox
County Leases



The
Company has a 100% working interest in the Knox County lease and an 81.25% net working interest. The lease includes 2315 Acres
(as depicted below) and an additional option on 500 acres. There are 7 producing wells on the property and 2 identified drilling
locations. The average EUR’s are 15,000 BOE, which consists of 99% oil. There are recompletion opportunities for Water and
Natural Gas Injection and 48 Recompletion Targets.











10





Market
information



Of
the natural gas consumed in the United States in 2011, about 95% was produced domestically; thus, the supply of natural gas is
not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption.
The availability of large quantities of shale gas should enable the United States to consume a predominantly domestic supply of
gas for many years and produce more natural gas than it consumes.



The
U.S. Energy Information Administration's Annual Energy Outlook 2013 Early Releaseprojects U.S. natural gas production
to increase from 23.0 trillion cubic feet in 2011 to 33.1 trillion cubic feet in 2040, a 44% increase. Almost all of this increase
in domestic natural gas production is due to projected growth in shale gas production, which grows from 7.8 trillion cubic feet
in 2011 to 16.7 trillion cubic feet in 2040.



An
analysis in the Annual Energy Outlook 2012 indicates that the uncertainty in the size and economics of the domestic shale gas
resources could have a considerable impact on future domestic natural gas production and that 2035 shale gas production could
be between 9.7 trillion cubic feet and 20.5 trillion cubic feet. U.S. total natural gas production is projected to range between
26.1 trillion cubic feet and 34.1 trillion cubic feet.





Dependence
on one or a few major customers



The
nature of the oil and natural gas industry is not based on individual customers. Crude oil and natural gas products are sold to
local and international brokers as well as to refineries.



Competition



The
oil and gas industry is intensely competitive. This is particularly true in the competition for acquisitions of prospective oil
and natural gas properties and oil and gas reserves. We believe that the combination of: (i) the location of the leasehold acreage
in our Tulsa and Wagoner County Oklahoma Leases and in Knox County Texas Leases; (ii) our exploration, drilling, and production
expertise; and (iii) the experience and knowledge of our management and industry partners will enable us to compete effectively
in the oil and gas industry. Notwithstanding the above, we will still face stiff competition from a substantial number of major
and independent oil and gas companies that have larger technical staffs and greater financial and operational resources than we
do. Many of these companies not only engage in the acquisition, exploration, development, and production of oil and natural gas
reserves, but also have refining operations, market refined products, and own drilling rigs. We will also compete with other oil
and natural gas companies in attempting to secure drilling rigs and other equipment necessary for the drilling and completion
of wells.



Regulatory
matters and government regulations

11









Regulation
of Oil and Gas Production, Sales and Transportation



The
oil and gas industry is subject to regulation by numerous national, state and local governmental agencies and departments. Compliance
with these regulations is often difficult and costly and noncompliance could result in substantial penalties and risks. Most jurisdictions
in which we operate and plan to operate also have statutes, rules, regulations or guidelines governing the conservation of natural
resources, including the unitization or pooling of oil and gas properties and the establishment of maximum rates of production
from oil and gas wells. Some jurisdictions also require the filing of drilling and operating permits, bonds and reports. The failure
to comply with these statutes, rules and regulations could result in the imposition of fines and penalties and the suspension
or cessation of operations in affected areas.



We
intend to operate various gathering systems. The United States Department of Transportation and certain governmental agencies
regulate the safety and operating aspects of the transportation and storage activities of these facilities by prescribing standards.
However, based on current standards concerning transportation and storage activities and any proposed or contemplated standards,
we believe that the impact of such standards is not material to our operations, capital expenditures or financial position.



Regulatory
Matters/Environmental Regulation



Various
federal, state and local laws and regulations relating to the protection of the environment, including the discharge of materials
into the environment, may affect our planned exploration, development and production operations and the costs of those operations.
These laws and regulations, among other things, govern the amounts and types of substances that may be released into the environment,
the issuance of permits to conduct exploration, drilling and production operations, the handling, discharge and disposition of
waste materials, the reclamation and abandonment of wells, sites and facilities, financial assurance under the Oil Pollution Act
of 1990 and the remediation of contaminated sites. These laws and regulations may impose substantial liabilities for noncompliance
and for any contamination resulting from our planned operations and may require the suspension or cessation of operations in affected
areas.



The
environmental laws and regulations applicable to us and our planned operations include, among others, the following United States
federal laws and regulations:



|o | Clean Air Act,
    and its amendments, which governs air emissions;
|- | -------------------------------------------------------------------



|o | Clean Water Act,
    which governs discharges of pollutants into waters of the United States;
|- | ---------------------------------------------------------------------------------------------



|o | Comprehensive
    Environmental Response, Compensation and Liability Act, which imposes strict liability where releases of hazardous substances
    have occurred or are threatened to occur (commonly known as “Superfund”);
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|o | Resource Conservation
    and Recovery Act, which governs the management of solid waste;
|- | ----------------------------------------------------------------------------------------



|o | Oil Pollution
    Act of 1990, which imposes liabilities resulting from discharges of oil into navigable waters of the United States;
|- | -------------------------------------------------------------------------------------------------------------------------------------



|o | Emergency Planning
    and Community Right-to-Know Act, which requires reporting of toxic chemical inventories;
|- | ---------------------------------------------------------------------------------------------------------------



|o | Safe Drinking
    Water Act, which governs underground injection and disposal activities; and
|- | ---------------------------------------------------------------------------------------------



|o | U.S. Department
    of Interior regulations, which impose liability for pollution cleanup and damages.
|- | ------------------------------------------------------------------------------------------------------



We
plan to routinely obtain permits for facilities and operations in accordance with these applicable laws and regulations on an
ongoing basis as required by applicable laws.

12









Employees



The
Company currently has three (3) employees, including Floyd L. Smith, its Chief Executive Officer, President and Director.



Intellectual
Property



The
Company does not currently hold any intellectual property, patent rights, trademarks or copyrights. The Company does however maintain
a website at www.petronenergy.net. The information on, or that may be accessed through, our website is not incorporated by reference
into this filing and should not be considered a part of this filing.



ITEM
1A. RISK FACTORS.



Our
securities are highly speculative and should only be purchased by persons who can afford to lose their entire investment in our
Company. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant
extent. The Company's business is subject to many risk factors, including the following:



General
Risks Related To The Company



We
May Not Be Able To Continue Our Business Plan Without Additional Financing.



We
will need to raise significant funding in the future, including approximately $2.5
million to continue our operations for the next 12 months and approximately $10 million
in additional funding to expand our operations and acquire additional properties as described
above under “Plan of Operations.” In August 2011, the Company sold an aggregate of 6,462,900 shares of the Company’s
restricted common stock to twelve “accredited investors” in private transactions for aggregate consideration of $387,774
or $0.06 per share in a private placement. In September and October 2011, the Company sold an aggregate of 4,333,300 shares of
the Company’s restricted common stock to nine “accredited investors” in private transactions for aggregate consideration
of $259,998 or $0.06 per share.  During the year ended December 31, 2012, the Company sold an aggregate of 717,175 (post-split)
shares of the Company’s restricted common stock to 43 “accredited investors” in private transactions
for aggregate consideration of $838,326. In April of 2013 the Company secured a $5 million revolving line of credit.



Moving
forward we plan to rely on financing and additional funds from current investors of the Company and third party investors in order
to support our operations and pay our expenses. Additional funding will likely come from debt and/or equity financing from the
sale of our common stock. If we are successful in completing an equity financing, existing shareholders will experience dilution
of their interest in our Company. There are no assurances that we will be able to achieve further sales of our common stock or
any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations,
then we will not be able to continue our business operations. If we are unable to raise the funds we require, your investment
could become worthless.



Shareholders
May Be Diluted Significantly Through Our Efforts To Obtain Financing, Satisfy Obligations And/or Complete Acquisitions Through
The Issuance Of Additional Shares Of Our Common Stock Or Other Securities.



Wherever
possible, our Board of Directors will attempt to use non-cash consideration to satisfy the Company’s obligations. In many
instances, we believe that the non-cash consideration will consist of restricted shares of our common stock or other securities
(including the shares of convertible preferred stock that we have agreed to issue to shareholders of ONE Energy Capital Corp.,
ONE Energy International Corp. and their affiliated parties in connection with the Asset Acquisition Agreement described above).
Additionally, moving forward, we may attempt to conduct acquisitions and/or mergers of other entities or assets using our common
stock or other securities as payment for such transactions. Our Board of Directors has authority, without action or vote of the
shareholders, to issue all or part of the authorized but unissued shares of common stock and preferred stock with various preferences
and other rights. If such transactions occur, this may result in substantial dilution of the ownership interests of existing shareholders,
and dilute the book value of the Company’s common stock.

13









We
Are Party to a Plan of Reorganization and Asset Purchase Agreement Pursuant to Which We Paid Significant Consideration For The
Acquisition Of Certain Oil And Gas Assets, Which Consideration Caused Substantial Dilution To Our Existing Shareholders and May
Cause Dilution in the Future.





Pursuant
to the Plan of Reorganization and Asset Purchase Agreement, the Company agreed to acquire the assets of ONE Energy Capital Corp.,
ONE Energy International Corp. and their affiliated parties in aggregate consideration for 5,910,00 shares of the Company’s
Series B Convertible Preferred stock. Under the Plan of Reorganization and Asset Purchase Agreement, these shares of Series B Convertible
preferred stock convert into common shares of the Company having a total value of $5,910,000, based on the average trading price
of the Company’s common stock on the five days prior to the date of conversion; vote one-for-one with the common shares;
cannot be converted by the holders thereof if such conversion would result in the acquisition by such holder of more than 9.99%
of the Company’s outstanding stock (the “Ownership Limitation”). 4,189,542 shares of the Series B Convertible
stock have been converted into an aggregate of 19,255,145 shares of the common stock of the Company. At May 13, 2013, we had 1,720,458
shares of Series B Convertible Preferred Stock issued and outstanding which had not converted because of the Ownership Limitation.
The shareholders receiving the convertible preferred stock described above also received warrants to purchase an aggregate of 1,000,000
(post-split) shares of the Company’s common stock with an exercise price of $0.08 per share.





Our
Chief Executive Officer, Floyd L. Smith, Holds Series A Preferred Stock Which Will Provide Him Continuing Voting Control Over
the Company, And As A Result, He Will Exercise Significant Control Over Corporate Decisions.



Floyd
L. Smith, our President and Director, has beneficial ownership of the entire class of the Company’s Series A Preferred Stock,
which voting together as a class, have the right to vote 51% of the Company’s voting shares on any and all shareholder matters.
Additionally, the Company shall not adopt any amendments to the Company's Bylaws, Articles of Incorporation, as amended, make
any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the
Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock.
However, the Company may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock,
make technical, corrective, administrative or similar changes to such Certificate of Designations that do not, individually or
in the aggregate, adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.



The
Series A Preferred Stock also includes a provision which provides that in the event that Mr. Smith dies or becomes disabled within
eighteen months of the issuance date of the Series A Preferred Stock to Mr. Smith, that ASL Energy Corp. and or its assigns shall
have the right, with 61 days prior written notice to the Company to assume the ownership of and/or the rights associated with
such shares of Series A Preferred Stock (the “AssignmentRights”). Other than the Super Majority Voting
Rights, the Series A Preferred Stock does not have any other dividend, liquidation, conversion, or redemption rights, whatsoever.



As
a result of the above, Mr. Smith exercises control in determining the outcome of corporate transactions or other matters, including
the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to
prevent or cause a change in control. Any investors who purchase shares will be minority shareholders and as such will have no
say in the direction of the Company and the election of Directors. Investors in the Company should keep in mind that even if you
own shares of the Company's common stock and wish to vote them at annual or special shareholder meetings, your shares will have
no effect on the outcome of corporate decisions or the election of Directors. Furthermore, investors should be aware that Mr.
Smith may choose to elect new Directors to the Board of Directors of the Company and/or take the Company in a new business direction
altogether, and, as a result, current shareholders of the Company will have little to no say in such matters.



Shareholders
Who Hold Unregistered Shares Of Our Common Stock Are Subject To Resale Restrictions Pursuant To Rule 144, Due To Our Previous
Status As A “Shell Company.”



Pursuant
to Rule 144 of the Securities Act of 1933, as amended (“ Rule 144”), a “ shell company”
is defined as a company that has no or nominal operations; and, either no or nominal assets; assets consisting solely of cash
and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets. As such, prior
to the completion of the Asset Purchase Agreement and our related Form 8-K filing, we had been considered a “ shell company”
pursuant to Rule 144, and as such, sales of our securities pursuant to Rule 144 were not able to be made until: 1) we had ceased
to be a “ shell company,” which occurred after the closing the Asset Purchase Agreement); 2) we are subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and have filed all of our required periodic reports
for at least the previous one year period prior to any sale pursuant to Rule 144; and a period of at least twelve months has elapsed
from that date. “Form 10 information” has been filed with the Commission reflecting the Company’s status
as a “non-shell company,” incorporated by reference as filed with the Commission on Form 8-K on January 6,
2012.

14









Pursuant
to Rule 144, a one year waiting period from the time of filing was required to “cure” the Company’s previous
“shell” status. Our “shell” status was thus cured on January 6, 2013 and shareholders of the Company who
hold and purchase in the future any restricted securities of the Company will have Rule 144 available if all other requirements
of the rule are met.



We
Rely Upon Key Personnel And If They Leave Us, Our Business Plan And Results Of Operations Could Be Adversely Affected.



We
rely heavily on our Chief Executive Officer and Director, Floyd L. Smith (“Mr. Smith”). His experience and input creates
the foundation for our business and he is responsible for the directorship and control over our operations. We do currently have
an employment agreement with Mr. Smith (as described above), and we put into place a "key man" insurance policy
on Mr. Smith in the amount of $3,000,000. Moving forward, should we lose the services of Mr. Smith, for any reason, we will incur
costs associated with recruiting a replacement and delays in our operations. If we are unable to replace Mr. Smith with another
suitably trained individual or individuals, we may be forced to scale back or curtail our business plan. As a result of this,
your investment in us could become devalued or worthless and we may be forced to abandon or change our business plan.



Our
Management Lacks Experience In and With Publicly-Traded Companies.



While
we rely heavily on Floyd L. Smith, our Chief Executive Officer, President, Chief Financial Officer, Secretary, Treasurer and Director
and our other Director, David Knepper, they have no experience serving as an officer or Director of a publicly-traded company,
or experience with the reporting requirements which public companies are subject to. Consequently, our operations, earnings and
ultimate financial success could suffer irreparable harm due to their ultimate lack of experience with publicly-traded companies
in general.



Our
Insurance Coverage May Be Inadequate To Insure Against All Material Risks.



Moving
forward, we plan to acquire insurance against some, but not all of the potential risks and losses our operations are subject to.
There can be no assurance that insurance obtained by us will be adequate to and/or in sufficient amounts necessary to cover all
losses or liabilities. The occurrence of a significant event, not fully insured or indemnified against, could have materially
adverse effects on our financial condition and operations, which could lead to any investment in the Company becoming worthless.



We
May Not Be Able To Successfully Manage Our Growth, Which Could Lead To Our Inability To Implement Our Business Plan.



Our
growth is expected to place a significant strain on our managerial, operational and financial resources, especially considering
that we currently only have two Directors and one executive officer. Further, as we enter into additional contracts, we will be
required to manage multiple relationships with various consultants, businesses and other third parties. These requirements will
be exacerbated in the event of our further growth. There can be no assurance that our systems, procedures and/or controls will
be adequate to support our operations or that our management will be able to achieve the rapid execution necessary to successfully
implement our business plan. If we are unable to manage our growth effectively, our business, results of operations and financial
condition will be adversely affected, which could lead to us being forced to abandon or curtail our business plan and operations.



We
Have A Limited Operating History In Our Current Business Focus Of Oil And Gas Production And Because Of This It May Be Difficult
To Evaluate Our Chances For Success.



We
were formed in June 2007 as a company specializing in restaurant consulting and investment activities; provided that we only generated
limited revenues in connection with such operations, and changed our business focus to oil and gas exploration activities in connection
with our acquisition by Petron Special in August 2011 (described above). As such, we have a limited history in our current business
focus of oil and gas exploration. We are a relatively new company and, as such, run a risk of not being able to compete in the
marketplace because of our relatively short existence. New companies in the competitive environment of oil and gas exploration
may face significant competition, and as a result, we may be forced to abandon or curtail our business plan. Under such a circumstance,
the value of any investment in us may become worthless.



15







We
Incur Significant Increased Costs As A Result Of Operating As A Fully Reporting Company As Well As In Connection With Section
404 Of The Sarbanes Oxley Act.



We
incur legal, accounting and other expenses in connection with our status as a fully reporting public company. The Sarbanes-Oxley
Act of 2002 (the " Sarbanes-Oxley Act") and rules subsequently implemented by the SEC have imposed various requirements
on public companies, including requiring changes in corporate governance practices. As such, our management and other personnel
need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our
legal and financial compliance costs and make some activities more time-consuming and costly. The Sarbanes-Oxley Act requires,
among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures.
In particular, we must perform system and process evaluation and testing of our internal controls over financial reporting to
allow management to report on the effectiveness of our internal controls over financial reporting. Our testing may reveal deficiencies
in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 and
our continued status as a publicly reporting company will require that we incur substantial accounting, legal and filing expenses
and expend significant management efforts. We currently do not have an internal audit group, and we may need to hire additional
accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we
are not able to comply with the requirements of Section 404 in a timely manner, the market price of our stock could decline, and
we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional
financial and management resources.



Our
Articles Of Incorporation, As Amended, And Bylaws Limit The Liability Of, And Provide Indemnification For, Our Officers And Directors.



Our
Articles of Incorporation, as amended, generally limit our officers' and Directors' personal liability to the Company and its
stockholders for breach of fiduciary duty as an officer or Director except for breach of the duty of loyalty or acts or omissions
not made in good faith or which involve intentional misconduct or a knowing violation of law. Our Articles of Incorporation, as
amended, and Bylaws provide indemnification for our officers and Directors to the fullest extent authorized by the Nevada General
Corporation Law against all expense, liability, and loss, including attorney's fees, judgments, fines excise taxes or penalties
and amounts to be paid in settlement reasonably incurred or suffered by an officer or Director in connection with any action,
suit or proceeding, whether civil or criminal, administrative or investigative (hereinafter a " Proceeding")
to which the officer or Director is made a party or is threatened to be made a party, or in which the officer or Director is involved
by reason of the fact that he is or was an officer or Director of the Company, or is or was serving at the request of the Company
as an officer or director of another corporation or of a partnership, joint venture, trust or other enterprise whether the basis
of the Proceeding is an alleged action in an official capacity as an officer or Director, or in any other capacity while serving
as an officer or Director. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions
by the officers and Directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification
payment might deplete the Company's assets. Stockholders who have questions regarding the fiduciary obligations of the officers
and Directors of the Company should consult with independent legal counsel. It is the position of the Securities and Exchange
Commission that exculpation from and indemnification for liabilities arising under the Securities Act of 1933, as amended, and
the rules and regulations thereunder is against public policy and therefore unenforceable.



Risks
Relating To The Oil And Gas Operations Of The Company



Oil,
Gas And Natural Gas Liquid Prices Are Volatile.



We
anticipate that our future financial results will be highly dependent on the general supply and demand for oil, gas and natural
gas liquids (“NGLs”), which will impact the prices we ultimately realize on our future sales of these commodities.
A significant downward movement of the prices for these commodities could have a material adverse effect on our future revenues,
operating cash flows and profitability. Such a downward price movement could also have a material adverse effect on our future
estimated proved reserves, the carrying value of our future oil and gas properties, the level of planned drilling activities and
future growth. Historically, market prices have been volatile and are likely to continue to be volatile in the future due to numerous
factors beyond our control. These factors include, but are not limited to:

16









| | • | consumer demand for oil, gas and NGLs;                                               
| | - | -------------------------------------------------------------------------------------
| |   |                                                                                      
| | • | conservation efforts;                                                                
| |   |                                                                                      
| | • | OPEC production levels;                                                              
| |   |                                                                                      
| | • | weather;                                                                             
| |   |                                                                                      
| | • | regional pricing differentials;                                                      
| |   |                                                                                      
| | • | differing quality of oil produced (i.e., sweet crude versus heavy
    or sour crude);
| |   |                                                                                      
| | • | differing quality and NGL content of gas produced;                                   
| |   |                                                                                      
| | • | the level of imports and exports of oil, gas and NGLs;                               
| |   |                                                                                      
| | • | the price and availability of alternative fuels;                                     
| |   |                                                                                      
| | • | the overall economic environment; and                                                
| |   |                                                                                      
| | • | Governmental regulations and taxes.                                                  



Estimates
Of Oil, Gas And NGL Reserves Are Uncertain.



The
process of estimating oil, gas and NGL reserves is complex and requires significant judgment in the evaluation of available geological,
engineering and economic data for each reservoir, particularly for new discoveries. Because of the high degree of judgment involved,
different reserve engineers may develop different estimates of reserve quantities and related revenue based on the same data.
In addition, the reserve estimates for a given reservoir may change substantially over time as a result of several factors including
additional development activity, the viability of production under varying economic conditions and variations in production levels
and associated costs. Consequently, material revisions to our future reserve estimates may occur as a result of changes in any
of these factors. Such revisions to reserves could have a material adverse effect on our future estimates of future net revenue,
as well as our financial condition and profitability.



Discoveries
Or Acquisitions Of Additional Reserves Will Be Needed To Avoid A Material Decline In Future Reserves And Production.



The
production rates from oil and gas properties generally decline as reserves are depleted, while related per unit production costs
generally increase, due to decreasing reservoir pressures and other factors. Therefore, we anticipate our future estimated proved
reserves and future oil, gas and NGL production will decline materially as future reserves are produced unless we conduct successful
exploration and development activities or, unless we identify additional producing zones in existing wells, secondary or tertiary
recovery techniques, or acquire additional properties containing proved reserves. Consequently, our future oil, gas and NGL production
and related per unit production costs will be highly dependent upon our level of success in finding or acquiring additional reserves.



Future
Exploration And Drilling Results Are Uncertain And Involve Substantial Costs.



Substantial
costs are often required to locate and acquire properties and drill exploratory wells. Such activities are subject to numerous
risks, including the risk that we will not encounter commercially productive oil or gas reservoirs. The costs of drilling and
completing wells are often uncertain. In addition, oil and gas properties can become damaged or drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors including, but not limited to:

17









| | • | unexpected drilling conditions;                                                  
| | - | ---------------------------------------------------------------------------------
| |   |                                                                                  
| | • | pressure or irregularities in reservoir formations;                              
| |   |                                                                                  
| | • | equipment failures or accidents;                                                 
| |   |                                                                                  
| | • | fires, explosions, blowouts and surface cratering;                               
| |   |                                                                                  
| | • | adverse weather conditions;                                                      
| |   |                                                                                  
| | • | lack of access to pipelines or other transportation methods;                     
| |   |                                                                                  
| | • | environmental hazards or liabilities; and                                        
| |   |                                                                                  
| | • | Shortages or delays in the availability of services or delivery
    of equipment.



A
significant occurrence of one of these factors could result in a partial or total loss of our future investment in a particular
property. In addition, drilling activities may not be successful in establishing proved reserves. Such a failure could have an
adverse effect on our future results of operations and financial condition. While both exploratory and developmental drilling
activities involve these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities
of hydrocarbons.



Industry
Competition For Leases, Materials, People And Capital Can Be Significant.



Strong
competition exists in all sectors of the oil and gas industry. We plan to compete with major integrated and other independent
oil and gas companies for the acquisition of oil and gas leases and properties. We also plan to compete for the equipment and
personnel required to explore, develop and operate properties. Competition is also prevalent in the marketing of oil, gas and
NGLs. Typically, during times of high or rising commodity prices, drilling and operating costs will also increase. Higher prices
will also generally increase the costs of properties available for acquisition. Our competitors have financial and other resources
substantially larger than ours. They also may have established strategic long-term positions and relationships in areas in which
we may seek new entry. As a consequence, we may be at a competitive disadvantage in bidding for properties. In addition, many
of our larger competitors may have a competitive advantage when responding to factors that affect demand for oil and gas production,
such as changing worldwide price and production levels, the cost and availability of alternative fuels, and the application of
government regulations.



Public
Policy, Which Includes Laws, Rules and Regulations, Can Change.



Our
planned operations are subject to federal laws, rules and regulations in the United States. In addition, we will also be subject
to the laws and regulations of various states and local governments. Pursuant to public policy changes, numerous government departments
and agencies have issued extensive rules and regulations binding on the oil and gas industry and its individual members, some
of which carry substantial penalties for failure to comply. Changes in such public policies could affect our planned operations.
Political developments can restrict production levels, enact price controls, change environmental protection requirements, and
increase taxes, royalties and other amounts payable to governments or governmental agencies. Existing laws and regulations can
also require us to incur substantial costs to maintain regulatory compliance. Our future projected operating and other compliance
costs could increase if existing laws and regulations are revised or reinterpreted or if new laws and regulations become applicable
to our operations. Although we are unable to predict changes to existing laws and regulations, such changes could significantly
impact our future profitability, financial condition and liquidity, particularly changes related to hydraulic fracturing, income
taxes and climate change as discussed below.



Hydraulic
Fracturing— The U.S. Congress is currently considering legislation to amend the federal Safe Drinking Water
Act to require the disclosure of chemicals used by the oil and natural-gas industry in the hydraulic-fracturing process. Currently,
regulation of hydraulic fracturing is primarily conducted at the state level through permitting and other compliance requirements.
This legislation, if adopted, could establish an additional level of regulation and permitting at the federal level.



18







Income
Taxes— The U.S. President’s recent budget proposals include provisions that would, if enacted, make significant
changes to United States tax laws. The most significant change would eliminate the immediate deduction for intangible drilling
and development costs.



Climate
Change— Policy makers in the United States are increasingly focusing on whether the emissions of greenhouse gases,
such as carbon dioxide and methane, are contributing to harmful climatic changes. Policy makers at both the United States federal
and state level have introduced legislation and proposed new regulations that are designed to quantify and limit the emission
of greenhouse gases through inventories and limitations on greenhouse gas emissions. Legislative initiatives to date have focused
on the development of cap-and-trade programs. These programs generally would cap overall greenhouse gas emissions on an economy-wide
basis and require major sources of greenhouse gas emissions or major fuel producers to acquire and surrender emission allowances.
Cap-and-trade programs would be relevant to our planned operations because the equipment we plan to use to explore for, develop,
produce and process oil and natural gas emits greenhouse gases. Additionally, the combustion of carbon-based fuels, such as the
oil, gas and NGLs we plan to sell, emits carbon dioxide and other greenhouse gases.



We
Will Incur Certain Costs To Comply With Government Regulations, Particularly Regulations Relating To Environmental Protection
And Safety, And Could Incur Even Greater Costs In The Future.



Our
exploration, production and marketing operations are regulated extensively at the federal, state and local levels and are subject
to interruption or termination by governmental and regulatory authorities based on environmental or other considerations. Moreover,
we have incurred and will continue to incur costs in our efforts to comply with the requirements of environmental, safety and
other regulations. Further, the regulatory environment in the oil and gas industry could change in ways that we cannot predict
and that might substantially increase our costs of compliance and, in turn, materially and adversely affect our business, results
of operations and financial condition.



Specifically,
as an owner or lessee and operator of crude oil and natural gas properties, we are subject to various federal, state, and local
regulations relating to the discharge of materials into, and the protection of, the environment. These regulations may, among
other things, impose liability on us for the cost of pollution cleanup resulting from operations, subject us to liability for
pollution damages and require suspension or cessation of operations in affected areas. Moreover, we are subject to the United
States (U.S.) Environmental Protection Agency's (U.S. EPA) rule requiring annual reporting of greenhouse gas (GHG) emissions.
Changes in, or additions to, these regulations could lead to increased operating and compliance costs and, in turn, materially
and adversely affect our business, results of operations and financial condition.



We
are aware of the increasing focus of local, state, national and international regulatory bodies on GHG emissions and climate change
issues. In addition to the U.S. EPA's rule requiring annual reporting of GHG emissions, we are also aware of legislation proposed
by U.S. lawmakers to reduce GHG emissions.



Additionally,
there have been various proposals to regulate hydraulic fracturing at the federal level. Currently, the regulation of hydraulic
fracturing is primarily conducted at the state level through permitting and other compliance requirements. Any new federal regulations
that may be imposed on hydraulic fracturing could result in additional permitting and disclosure requirements (such as the reporting
and public disclosure of the chemical additives used in the fracturing process) and in additional operating restrictions. In addition
to the possible federal regulation of hydraulic fracturing, some states and local governments have considered imposing various
conditions and restrictions on drilling and completion operations, including requirements regarding casing and cementing of wells,
testing of nearby water wells, restrictions on the access to and usage of water and restrictions on the type of chemical additives
that may be used in hydraulic fracturing operations. Such federal and state permitting and disclosure requirements and operating
restrictions and conditions could lead to operational delays and increased operating and compliance costs and, moreover, could
delay or effectively prevent the development of crude oil and natural gas from formations which would not be economically viable
without the use of hydraulic fracturing.



We
will continue to monitor and assess any new policies, legislation, regulations and treaties in the areas where we operate to determine
the impact on our operations and take appropriate actions, where necessary. We are unable to predict the timing, scope and effect
of any currently proposed or future laws, regulations or treaties, but the direct and indirect costs of such laws, regulations
and treaties (if enacted) could materially and adversely affect our business, results of operations and financial condition.

19









Environmental
Matters And Costs Can Be Significant.



As
an owner, lessee or operator of oil and gas properties, we will be subject to various federal, state, provincial, tribal and local
laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may,
among other things, impose liability on us for the cost of pollution clean-up resulting from our operations in affected areas.
Any future environmental costs of fulfilling our commitments to the environment are uncertain and will be governed by several
factors, including future changes to regulatory requirements. There is no assurance that changes in or additions to public policy
regarding the protection of the environment will not have a significant impact on our planned operations and profitability.



Insurance
Does Not Cover All Risks.



Exploration,
development, production and processing of oil, gas and NGLs can be hazardous and involve unforeseen occurrence including, but
not limited to blowouts, cratering, fires and loss of well control. These occurrences can result in damage to or destruction of
wells or production facilities, injury to persons, loss of life, or damage to property or the environment. We plan to maintain
insurance against certain losses or liabilities in accordance with customary industry practices and in amounts that management
believes to be prudent. However, insurance against all operational risks will not be available to us.



Because
Of The Inherent Dangers Involved In Oil And Gas Exploration, There Is A Risk That We May Incur Liability Or Damages As We Conduct
Our Business Operations, Which Could Force Us To Expend A Substantial Amount Of Money In Connection With Litigation And/or A Settlement.



The
oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse,
explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury
or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental
damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, we may be
liable for environmental damages caused by previous owners of property purchased and/or leased by us. As a result, substantial
liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds
available for the purchase of properties and/or property interests, exploration, development or acquisitions or result in the
loss of properties and/or force us to expend substantial monies in connection with litigation or settlements. As such, there can
be no assurance that any insurance obtained by us in the future will be adequate to cover any losses or liabilities. We cannot
predict the availability of insurance or the availability of insurance at premium levels that justify our purchase. The occurrence
of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition
and operations. We may elect to self-insure if management believes that the cost of insurance, although available, is excessive
relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence
of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations,
which could lead to any investment in us becoming worthless.



Risks
Relating To Our Securities



We
Have Not And Do Not Anticipate Paying Any Cash Dividends On Our Common Stock And Because Of This Our Securities Could Face Devaluation
In The Market.



We
have paid no cash dividends on our common stock to date and it is not anticipated that any cash dividends will be paid to holders
of our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs
of our business operations, it is anticipated that any earnings will be retained to finance our business operations and future
expansion.



The
Market For Our Common Stock Will Be Subject To Fluctuations.



Our
common stock is quoted on the Over-The-Counter Bulletin Board (the “OTCBB”) under the symbol “PEII”. We
anticipate the market for our common stock on the OTCBB to be subject to fluctuations in response to several factors, including,
but not limited to:

20









|(1) | actual or anticipated variations in our results
    of operations;
|--- | ------------------------------------------------------------------
|    |                                                                   
|(2) | our ability to generate revenues;                                 



|(3) | conditions and trends in the market for oil
    and natural gas; and
|--- | --------------------------------------------------------------------
|    |                                                                     
|(4) | future acquisitions we may make.                                    



Furthermore,
our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations,
as well as general economic, political and market conditions, such as recessions, interest rates, or government regulations may
adversely affect the market price and liquidity of our common stock.



If
We Are Late In Filing Our Quarterly Or Annual Reports With The Securities And Exchange Commission Or A Market Maker Fails To Quote
Our Common Stock On The Over-The-Counter Bulletin Board For A Period Of More Than Four Days, We May Be De-Listed From The Over-The-Counter
Bulletin Board.



Pursuant
to Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing of periodic reports with the
Securities and Exchange Commission (“SEC”), any OTCBB issuer which fails to file a periodic report (Form 10-Q
or 10-K) by the due date of such report (not withstanding any extension granted to the issuer by the filing of a Form 12b-25),
three times during any 24 month period is automatically de-listed from the OTCBB. Such removed issuer would not be re-eligible
to be listed on the OTCBB for a period of one year, during which time any subsequent late filing would reset the one-year period
of de-listing. Additionally, if a market maker fails to quote our common stock on the OTCBB for a period of more than four consecutive
days, we will be automatically delisted from the OTCBB. If we are late in our filings three times in any 24 month period and are
de-listed from the OTCBB or are automatically delisted for failure of a market maker to quote our stock, our securities may become
worthless and we may be forced to curtail or abandon our business plan.



Investors
May Face Significant Restrictions On The Resale Of Our Common Stock Due To Federal Regulations Of Penny Stocks.



Our
common stock will be subject to the requirements of Rule 15g-9, promulgated under the Securities Exchange Act of 1934, as amended,
as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities
to persons other than established customers and accredited investors must satisfy special sales practice requirements, including
a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's
consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional
disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny
stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share.
The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny
stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and
the ability of purchasers to sell their securities in the secondary market.



State
Securities Laws May Limit Secondary Trading, Which May Restrict The States In Which And Conditions Under Which You Can Sell Shares.



Secondary
trading in our common stock may not be possible in any state until the common stock is qualified for sale under the applicable
securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals,
is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the
secondary trading of, the common stock in any particular state, the common stock could not be offered or sold to, or purchased
by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common
stock, the liquidity for the common stock could be significantly impacted.





21





Because
We Are Not Subject To Compliance With Rules Requiring The Adoption Of Certain Corporate Governance Measures, Our Stockholders
Have Limited Protections Against Interested Director Transactions, Conflicts Of Interest And Similar Matters.



The
Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges
and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate
governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply
to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with
many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated
with such compliance any sooner than legally required, we have not yet adopted these measures.



We
do not currently have an independent audit or compensation committee. As a result, our Directors have the ability to, among other
things; determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether
such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections
against interested director transactions, conflicts of interest, if any, and similar matters and any potential investors may be
reluctant to provide us with funds necessary to expand our operations.



We
intend to comply with all corporate governance measures relating to Director independence as and when required. However, we may
find it very difficult or be unable to attract and retain qualified officers, Directors and members of board committees required
to provide for our effective management as a result of the Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act
of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of Directors
and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or
deter qualified individuals from accepting these roles.



Nevada
Law And Our Articles Of Incorporation Authorize Us To Issue Shares Of Stock, Which Shares May Cause Substantial Dilution To Our
Existing Shareholders.





We
have authorized capital stock consisting of 1,000,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares
of preferred stock, $0.001 par value per share. As of December 31, 2012, we had11,976,942 shares
of common stock outstanding, 1,000 shares of Series A Preferred Stock issued and outstanding, and 5,910,000 shares of Series B
Convertible Preferred stock issued and outstanding (at March 31, 2013, we had 1,787,012 shares of Series B Convertible Preferred
Stock issued and outstanding). As a result, our Board of Directors has the ability to issue a large number of additional shares
of common stock without shareholder approval, which if issued could cause substantial dilution to our then shareholders. Additionally,
shares of preferred stock may be issued by our Board of Directors without shareholder approval with voting powers, and such preferences
and relative, participating, optional or other special rights and powers as determined by our Board of Directors, which may be
greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our Board
of Directors which cause the holders to have super majority voting power over our shares (similar to the Shares A Preferred Stock
previously issued by the Board of Directors), provide the holders of the preferred stock the right to convert the shares of preferred
stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock shareholders and/or
have other rights and preferences greater than those of our common stock shareholders. Investors should keep in mind that the Board
of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution
to our existing shareholders. Additionally, the dilutive effect of any preferred stock, which we may issue may be exacerbated given
the fact that such preferred stock may have super majority voting rights (similar to the Series A Preferred Stock already issued
and outstanding) and/or other rights or preferences which could provide the preferred shareholders with voting control over us
subsequent to this filing and/or give those holders the power to prevent or cause a change in control. As a result, the issuance
of shares of common stock and/or Preferred Stock may cause the value of our securities to decrease and/or become worthless.





ITEM
1B. UNRESOLVED STAFF COMMENTS



As a “smaller
reporting company,” as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide the information
called for by this Item.



ITEM
2. PROPERTIES



We
currently lease office space under a five (5) year lease encompassing approximate 3000 feet of space. Our offices are at 17950
Preston Road, Suite 960, Dallas, Texas 75252.

22









In
September 2011, we obtained rights to the Wagoner County Leases, encompassing a total of 360 acres, as described above, and in
February 2012, we obtained rights to the Knox County Leases, as described above



In
addition the Company obtained rights to a 75% equity stake in a 132 mile natural gas pipeline in connection with the closing of
various agreements as described herein.



ITEM
3. LEGAL PROCEEDINGS



From
time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business.
Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these
matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are
based on current information and legal advice and may be adjusted from time to time according to developments.





On
November 21, 2012, ASL Energy Corp. (“ASL Energy”) filed a Complaint against the Company and Floyd Smith, our Chief
Executive Officer, in the District Court of Dallas County, Texas to enforce certain terms of the Management Service Agreement
(the “MSA”) entered into by and between ASL Energy, LLC and Petron Energy Special Corp. dated August 8, 2011. ASL
Energy alleges that the Company owes ASL Energy a total of $28,697. Although the parties are currently engaged in settlement negotiations
regarding this matter, the Company plans to aggressively defend against any claims made by ASL Energy against the Company and
will not fail to assert the Company’s legal and equitable rights in any court of law. A judgment has yet to be entered on
the matter.



On
November 27, 2012, ASL Energy Corp. (“ASL Energy”) filed a Complaint against the Company in the District Court of
Dallas County, Texas to enforce certain terms of the Convertible Note Issuance Agreement (the “Note”) entered into
by and between ASL Energy and the Company dated August 9, 2012. ASL Energy alleges that the Company owes ASL Energy a total of
$65,000. Although the parties are currently engaged in settlement negotiations regarding this matter, the Company plans to aggressively
defend against any claims made by ASL Energy against the Company and will not fail to assert the Company’s legal and equitable
rights in any court of law. A judgment has yet to be entered on the matter.



Other
than the foregoing, we know of no material, existing or pending legal proceedings against our Company, nor are we involved as
a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates,
or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.



ITEM
4. MINE SAFETY DISCLOSURES



Not
applicable.



PART
II



ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



In
October 2009, we obtained quotation for our common stock on the Over-The-Counter Bulletin Board (“ OTCBB”)
under the symbol RCNC.OB; however, our common stock was subsequently delisted from the OTCBB due to our failure to timely file
our Quarterly Report on Form 10-Q for the period ended February 28, 2011 on May 23, 2011. Our common stock was re-quoted on the
OTCBB effective on August 9, 2011. On October 17, 2011, in connection with the effectiveness of the 100:1 forward stock-split
affected pursuant to the Amendment described above, the Company’s trading symbol on the Over-The-Counter Bulletin Board
changed to RCNCD.OB, and on November 29, 2011, the Company’s symbol on the Over-The-Counter Bulletin Board changed to PEII.OB.

23









On
December 27, 2012, the Company effectuated a reverse split (the “Reverse Split”) of its issued common shares whereby
every ten (10) pre-split shares of common stock were exchanged for one (1) post-split share of the Company's common stock.  As
a result, the total issued shares of common stock of the Company decreased from One Hundred Twenty Million Two Hundred Thirty
Thousand Six Hundred and Eighty Eight (120,230,688) shares prior to the Reverse Split to Twelve Million Twenty Three Thousand
and Sixty Nine (12,023,069) shares following the Reverse Split.  FINRA confirmed approval of the Reverse Split on December
20, 2012 and the Reverse Split became effective on December 27, 2012.



The
Company's common stock is considered a "penny stock" as defined in the Commission's rules promulgated under the Exchange
Act. The Commission's rules regarding penny stocks impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors (generally persons with net worth in excess of
$1,000,000 (excluding their principal residence) or an annual income exceeding $200,000 or $300,000 jointly with their spouse).
For transactions covered by the rules, the broker-dealer must make a special suitability determination for the purchaser and receive
the purchaser's written agreement to the transaction prior to the sale. Thus the Rules affect the ability of broker-dealers to
sell the Company's shares should they wish to do so because of the adverse effect that the Rules have upon liquidity of penny
stocks. Unless the transaction is exempt under the Rules, under the Securities Enforcement Remedies and Penny Stock Reform Act
of 1990, broker-dealers effecting customer transactions in penny stocks are required to provide their customers with (i) a risk
disclosure document; (ii) disclosure of current bid and ask quotations if any; (iii) disclosure of the compensation of the broker-dealer
and its sales personnel in the transaction; and (iv) monthly account statements showing the market value of each penny stock held
in the customer's account. As a result of the penny stock rules, the market liquidity for the Company's securities may be severely
adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of
the securities to resell them.



DESCRIPTION
OF CAPITAL STOCK



We
have authorized capital stock consisting of 1,000,000,000 shares of common stock, $0.001 par value per share (“Common
Stock”) and 10,000,000 shares of preferred stock, $0.001 par value per share (“Preferred Stock”).



Common
Stock



The
holders of outstanding shares of Common Stock are entitled to receive dividends out of assets or funds legally available for the
payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of shareholders. There is no cumulative voting of
the election of directors then standing for election. The Common Stock is not entitled to pre-emptive rights and is not subject
to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution
to stockholders are distributable ratably among the holders of the Common Stock after payment of liquidation preferences, if any,
on any outstanding payment of other claims of creditors. Each outstanding share of Common Stock is, and all shares of Common Stock
to be outstanding upon completion of this Offering will upon payment therefore be, duly and validly issued, fully paid and non-assessable.



Preferred
Stock



Shares
of Preferred Stock may be issued from time to time in one or more series, each of which shall have such distinctive designation
or title as shall be determined by our Board of Directors (“Board of Directors”) prior to the issuance of
any shares thereof. Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences
and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as
shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be
adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares
of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the voting power of all the then outstanding shares of our capital stock entitled to vote
generally in the election of the directors, voting together as a single class, without a separate vote of the holders of the Preferred
Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.



24







Series
“A” Preferred Stock



The
designation of 1,000 shares of the Company’s Series A Preferred Stock was approved by the Company’s Board of Directors
on September 7, 2011 and a Certificate of Designations reflecting such Series A Preferred Stock was filed with the Secretary of
State of Nevada on September 8, 2011. The Series A Preferred Stock provides the holder thereof, Floyd L. Smith, the right, voting
separately as a class, to vote in aggregate 51% of our outstanding voting shares on any and all shareholder matters (the “
Super Majority Voting Rights”).



Additionally,
the Company shall not adopt any amendments to the Company's Bylaws, Articles of Incorporation, as amended, make any changes to
the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred
Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock. However, the Company
may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock, make technical,
corrective, administrative or similar changes to such Certificate of Designations that do not, individually or in the aggregate,
adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.



The
Series A Preferred Stock also includes a provision which provides that in the event that Mr. Smith dies or becomes disabled within
eighteen months of the issuance date of the Series A Preferred Stock to Mr. Smith, that ASL Energy Corp. and or its assigns shall
have the right, with 61 days prior written notice to the Company to assume the ownership of and/or the rights associated with
such shares of Series A Preferred Stock (the “Assignment Rights”). Other than the Super Majority Voting
Rights, the Series A Preferred Stock does not have any other dividend, liquidation, conversion, or redemption rights, whatsoever.



The
1,000 shares of Series A Preferred stock were issued to Mr. Smith in connection with the entry into the Executive Employment Agreement
described above.



The
Series A Preferred Stock and the rights associated therewith, could act to prevent or delay a change in control.



Series
“B” Preferred Stock



The Certificate of Designations designating 6,000,000 shares of the Company’s Series B Preferred Stock
was filed with the Secretary of State of Nevada on February 17, 2012. 5,910,000 shares of the Company’s Series B Preferred
Stock were issued pursuant to the Plan of Reorganization and Asset Purchase Agreement, described above. In 2013, 4,189,542 shares
of the Series B Convertible stock converted into an aggregate of 19,255,145 shares of the common stock of the Company. At May 14,
2013, we had 1,720,458 shares of Series B Convertible Preferred Stock issued and outstanding which had not converted because of
the 9.99% ownership limitation set forth in the Certificate of Designation (the “Ownership Limitation”). The Series
B Preferred Stock votes one-for-one with the common stock shares of the Company.



Equity
Compensation Plans



The
Company does not have any equity compensation plans in place, whether approved by the shareholders or not.



Warrants,
Options and Convertible Securities



Floyd
L. Smith, the Company’s Chief Executive Officer, President and Director, owns Stock Options to purchase 12,000,000 shares
of the Company’s common stock at an exercise price of $0.0039 per share, which have a term of five years, expiring on August
31, 2016, which were issued to in connection with his entry into an Executive Employment Agreement with the Company (described
above).



The
shareholders receiving the Series B Preferred Stock pursuant to the Plan of Reorganization and Asset Purchase Agreement received
warrants to purchase an aggregate of 10,000,000 shares of the Company’s common stock with an exercise price of $0.08 per
share.

25











Under
the terms of a convertible note, an investor has the option, at any time before the note is paid, to convert the unpaid principal
and accrued interest to common stock of the Company at a conversion price of $0.14 per share. This investor was also granted a
common stock warrant at the time the note was issued for 100,000 (post-split) shares. The exercise price is $0.14 per share and
the warrant expires on August 9, 2015.



Dividends



We
have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any dividends in the foreseeable
future. We intend to devote any earnings to fund the operations and the development of our business.



RECENT
SALES OF UNREGISTERED SECURITIES



During
the year ended December 31, 2012, the Company sold an aggregate of 717,175 (post-split) shares of the Company’s restricted
common stock to 43 “accredited investors” in private transactions for aggregate consideration of $838,326.

Effective
February 09, 2012, the Company, pursuant to Section 368(a)(1)(c) of the United States Internal Revenue Code, adopted a plan of
reorganization whereby they would be transferred all of the assets of OEI and its Affiliate Companies, as described in the agreement,
to the Company in exchange for 5,910,000 shares of the Company’s Series B Convertible Preferred stock. We
claimed an exemption from registration afforded by Section 4(2) and Rule 506 of the Securities Act of 1933, as amended since the
foregoing issuances and grant did not involve a public offering, the recipients took the securities for investment and not resale
and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances or grant
and we paid no underwriting discounts or commissions.



ITEM
6. SELECTED FINANCIAL DATA



Not
required pursuant to Item 301 of Regulation S-K.



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



The
following summarizes the factors affecting the operating results and financial condition of Petron Energy II, Inc. This discussion
should be read together with the financial statements of Petron Energy II, Inc. and the notes to financial statements included
elsewhere in this annual report. In addition to historical financial information, the following discussion and analysis contain
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events
may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those
discussed under “Risk Factors” and elsewhere in this report. We encourage you to review our “Cautionary Note
Regarding Forward-Looking Statements and Industry Data” at the front of this current report, and our “Risk Factors”
set forth above.



Plan
of Operations:



As
described above in connection with the closing of the Petron Asset Purchase Agreement and the acquisition of the Assets, the Company
changed its business focus to oil and gas exploration and production and related operations and ceased undertaking any restaurant
related operations as were contemplated by its previous business plan.



The
Company acquired certain oil and gas properties owned by ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated
parties, pursuant to the One Energy Asset Acquisition Agreement and the Plan of Reorganization and Asset Purchase Agreement. We
have also previously acquired rights to the Wagoner County Leases.



We
anticipate that our operations will be supported by funds raised through the sale of debt or equity in the Company in private
placement offerings through revenues generated from our oil and gas operations. We plan to raise approximately $10million in private placements over the next twelve months; provided that we have not entered
into any agreements regarding such funding (other than as described above in connection with the prior private placements) and
such funding may not be available on favorable terms, if at all. We anticipate the need for a minimum of $2.5 million in
additional funding to continue our operations for the next twelve months. Assuming we are successful in raising a minimum of $10million subsequent to the date of this filing through the sale of debt or equity
securities through private placements, we will use the proceeds to settle the Company’s amounts payable and to finalize
the reworking of approximately 75-90 wells we acquired through the Asset Purchase Agreement, drill approximately 5–10 new
wells in Oklahoma and acquire additional acreage. In the event that we are unsuccessful raising additional funds subsequent to
the date hereof, we will move forward with our business plan and plan of operations in a scaled down form until such time that
we can raise additional funds.

26









All
existing wells which we acquired through the Petron Asset Purchase Agreement will need to be reworked to reestablish production.
Although there are several targets available within these existing wells, oil pay zones will be our primary focus considering
the higher price point in the oil market currently. The second priority will be gas pay zones, primarily because of very soft
price points in the gas market.



Our
long-term plan is to grow the Company at a rate of 5% per year via three approaches, 1) lease acquisition and development, 2)
industry level participation through current industry partners, and 3) acquisitions of small operators in Texas and Oklahoma.



RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2012



Revenues



Revenue
for the year ended December 31, 2012 was$326,343 compared
to$199,387 for the year ended December 31, 2011. This was an increase of$126,956.

Net loss for the year ended December 31, 2012 was $8,326,063
compared to $3,127,742 for the year ended December
31, 2011.  This is an increase of$5,198,321 of net loss from the year prior.

General
and Administrative costs for the year ended December 31, 2012 were $1,736,427compared to $2,938,568for the year ended December 31, 2011.



Expenses



During the year ended December 31, 2012, total expenses were $8,652,406which
included cost of revenue of $538,616,depletion,
depreciation and amortization expense of $186,014,
impairment charge of $6,046,000,general
and administrative expenses of $1,736,427and
interest expense of $145,349.



LIQUIDITY
AND CAPITAL RESOURCES



As
of December 31, 2012, the current liabilities were $1,280,006and the Company’s current
assets were $35,421.Cash for the period ended December 31, 2012 was $17,089, compared to $106,850
on December 31, 2011, which represents a decrease of $89,761.  Effective April 16, 2013, we entered into a Credit Agreement
with TCA Global Master Fund, LP (“TCA”). Under the terms of a credit agreement the Company has pledged all of its
oil and gas assets as collateral. The Company makes requests for drawdowns periodically and the lender, in its sole discretion,
will approve the requests. The funds are to be used for enhancing the oil and gas producing assets of the Company. The first draw,
under terms of an 11% note payable due October 17, 2013 was received April 17, 2013 for $450,000. Other than stated herein, the
Company does not have any current commitments for capital expenditures or any other commitments that would result in a change
in cash flow or cash requirements for the next twelve months.



We
anticipate that our operations will be supported by funds raised through the private placement offering described herein, through
the sale of debt or equity in the Company in private placement offerings, and through the credit facility agreement with TCA.
We hope to raise approximately $10 million in
private placements over the next twelve months; provided that we have not entered into any agreements regarding such funding (other
than as described above in connection with the prior private placements) and such funding may not be available on favorable terms,
if at all. We anticipate the need for a minimum of $2.5 million in additional funding
to continue our operations for the next twelve months. Assuming we are successful in raising a minimum of $10 million subsequent
to the date of this filing through the sale of debt or equity securities through private placements, we will use the proceeds
to finalize the reworking of approximately 75-90 wells we acquired through the Asset Purchase Agreement, drill approximately 5–10
new wells in Oklahoma and acquire additional acreage. In the event that we are unsuccessful raising additional funds subsequent
to the date hereof, we will move forward with our business plan and plan of operations in a scaled down form until such time that
we can raise additional funds.

27









Off-Balance
Sheet Arrangements



We
have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to stockholders.



Contractual
Obligations



We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
the information under this item.



Future
Financings



We
will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of
additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional
sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.



As
stated above, effective April 16, 2013, we entered into a Credit Agreement with TCA Global Master Fund, LP (“TCA”).
Under the terms of a credit agreement the Company has pledged all of its oil and gas assets as collateral. The Company makes requests
for drawdowns periodically and the lender, in its sole discretion, will approve the requests. The funds are to be used for enhancing
the oil and gas producing assets of the Company. The first draw, under terms of an 11% note payable due October 17, 2013 was received
April 17, 2013 for $450,000. Other than stated herein, the Company does not have any current commitments for capital expenditures
or any other commitments that would result in a change in cash flow or cash requirements for the next twelve months.



Critical
Accounting Policies



Our
financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.



We
regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of
these policies is included in note 2 of the notes to our financial statements. In general, management's estimates are based on
historical experience, information from third party professionals, and various other assumptions that are believed to be reasonable
under the facts and circumstances. Actual results could differ from those estimates made by management.



Recently
Issued Accounting Pronouncements



The
FASB established the FASB Accounting Standards Codification(“Codification”) as the source of authoritative
U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities
in the preparation of financial statements issued for interim and annual periods ending after September 15, 2009. The codification
has changed the manner in which U.S. GAAP guidance is referenced, but did not have an impact on the consolidated financial position,
results of operations or cash flows of the Company



In
January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2010-06, “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.”
This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set
forth in Accounting Standards Codification (“ASC”) 820. ASU 2010-06 amends ASC 820 to now require: (1) a reporting
entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers; and (2) in the reconciliation for fair value measurements using significant unobservable
inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition,
ASU 2010-06 clarifies the requirements of existing disclosures. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward
of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. Early application is permitted. The Company will comply with the additional
disclosures required by this guidance upon its adoption in January 2010.



Also
in January 2010, the FASB issued Accounting Standards Update No. 2010-03, “Extractive Activities—Oil and Gas—Oil
and Gas Reserve Estimation and Disclosures.” This ASU amends the “Extractive Industries—Oil and Gas” Topic
of the Codification to align the oil and gas reserve estimation and disclosure requirements in this Topic with the SEC’s
Release No. 33-8995, “Modernization of Oil and Gas Reporting Requirements (Final Rule),” discussed below. The amendments
are effective for annual reporting periods ending on or after December 31, 2009, and the adoption of these provisions on December
31, 2009 did not have a material impact on our consolidated financial statements.



Oil
and gas properties



The
Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated
with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized
interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct
internal costs are capitalized to the full cost pool. When the Company obtains proven oil and gas reserves, capitalized costs,
including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on
the units-of-production method using estimates of proved reserves.

28









Investments
in unproved properties are not depleted pending determination of the existence of proved reserves. Unproved properties are assessed
periodically to ascertain whether impairment has occurred. Unproved properties whose costs are individually significant are assessed
individually by considering the primary lease terms of the properties, the holding period of the properties, and geographic and
geologic data obtained relating to the properties. Where it is not practicable to assess individually the amount of impairment
of properties for which costs are not individually significant, such properties are grouped for purposes of assessing impairment.
The amount of impairment assessed is added to the costs to be amortized, or is reported as a period expense, as appropriate.



Pursuant
to full cost accounting rules, the Company must perform a ceiling test periodically on its proved oil and gas assets. The ceiling
test provides that capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not
exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using current
prices, excluding the future cash outflows associated with settling asset retirement obligations that have been accrued on the
balance sheet, at a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of
cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects
related to differences in the book and tax basis of oil and gas properties. Should the net capitalized costs for a cost center
exceed the sum of the components noted above, an impairment charge would be recognized to the extent of the excess capitalized
costs.



Sales
of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless
such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which
case the gain or loss is recognized in the statement of operations.



Exploration
activities conducted jointly with others are reflected at the Company’s proportionate interest in such activities.



Cost
related to site restoration programs are accrued over the life of the project.



Pipeline
and Equipment



Depreciation
is based on the estimated useful lives of the assets and is computed using the straight line method. Pipeline, trucks and equipment
are recorded at cost. Depreciation is provided using the following useful lives:



|Pipeline             | 15 years  
|-------------------- | ----------
|Trucks and equipment | 5—15 years



Stock-based
compensation



The
Company accounts for stock options in accordance with FASB ASC 505, “Equity,” and FASB ASC 718, “Compensation—stock
Compensation. “Accordingly, stock compensation expense has been recognized in the statement of operations based on the grant
date fair value of the options for the year ended December 31, 2012.



Under
ASC 718 and 505, the fair value of options is estimated at the date of grant using a Black-Scholes-Merton (“Black-Scholes”)
option-pricing model, which requires the input of highly subjective assumptions including the expected stock price volatility.
Volatility is determined using historical stock prices over a period consistent with the expected term of the option. The Company
utilizes the guidelines of Staff Accounting bulletin No. 107 (SAB 107) of the Securities and Exchange Commission relative to “plain
vanilla” options in determining the expected term of options grants. SAB 107 permits the expected term of “plain vanilla”
options to be calculated as the average of the option’s vesting term and contractual period.

29









The
Company has used this method in determining the expected term of all options. At such time as the Company has options with graded
vesting, the Company will recognize compensation cost for awards with graded vesting on a straight-line basis over the requisite
service period for the entire award. The amount of compensation expense recognized at any date is at least equal to the portion
of the grant date value of the award that is vested at that date.



Revenue
Recognition



Oil
and gas revenues are recognized when oil and gas is produced and sold.



Earnings
(loss) per share



Basic
earnings (loss) per share are computed using the weighted average number of shares outstanding during the period. The treasury
stock method is used to determine the diluted effect of stock options and warrants. Diluted loss per share is equal to the basic
loss per share for the years ended December 31, 2012 and 2011 because common stock equivalents consisting of stock purchase warrants
of 12,000,000 outstanding at December 31, 2011 and stock options outstanding at December 31, 2012, were anti-dilutive.



Income
taxes



The
Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized
in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities
and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect in the year in which the differences are expected to reverse.



Long-Lived
Assets Impairment



Long-term
assets of the Company are reviewed for impairment when circumstances indicate the carrying value may not be recoverable in accordance
with the guidance established in Statement of Financial Accounting Standards No. 144 (SFAS 144) (ASC 360), Accounting for the
impairment or Disposal of Long-Lived Assets. For assets that are to be held and used, an impairment loss is recognized when
the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment
exists, an adjustment is made to write the asset down to its fair value. Fair values are determined based on discounted cash flows
or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated
net realizable value.



Asset
Retirement Obligations



The
Company accounts for asset retirement obligations in accordance with the provisions of SFAS 143 (ASC 410) “Accounting
for Asset Retirement Obligations”. SFAS 143 (ASC 410) requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and/or normal use of the assets. The Asset Retirement Obligation
as of December 31, 2012 is $40,278, which is the most current asset retirement available at the time of this Annual Report on
Form 10-K.



Concentration
of Credit Risk



The
Company has financial instruments that are exposed to concentrations of credit risk and consist primarily of cash and trade accounts
receivable. The Company routinely maintains cash and temporary cash investments at certain financial institutions in amounts substantially
in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Management believes that these financial
institutions are of high quality and the risk of loss is minimal.

30









Financial
Instruments



The
carrying amount of financial instruments including cash, accounts receivable, accounts payable and accrued liabilities approximate
fair value, unless otherwise stated as of the date of this current report.



Fair
value estimates of financial instruments are made at the period end based on relevant information about financial markets and
specific financial instruments. Because these estimates are subjective in nature, involving uncertainties and matters of significant
judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.



Contingencies



Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which
will only be resolved when one or more future events occur or fail to occur. Company management and legal counsel assess such
contingent liabilities which inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company, or unasserted claims that may result in such proceedings, the Company’s legal counsel
evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of
relief sought or expected to be sought therein.



If
management determines that it is probable that a material loss has been incurred and the amount of the liability can be estimated,
the estimated liability is accrued in the Company’s financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.



Additional
disclosure concerning subpart 1200 of Regulation S-K can be found inthe
Company’s financial statements and notes thereto are hereby incorporated by this reference to the Company’s most recent
Quarterly Report for the period ended September 30, 2012, as filed on Form 10-Q with the SEC on January 7, 2013, and in this Annual
Report for the year ended December 31, 2012.



|ITEM 7A. | QUANTITIATIVE
    AND QUALITATIVE DICLOSURES ABOUT MARKET RISK.
|-------- | ---------------------------------------------------------------



We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
the information under this item.

31









|ITEM 8. | FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA.
|------- | ------------------------------------------------







PETRON
ENERGY II, INC.

Financial
Statements

For
the Years Ended December 31, 2012 and 2011



| | Index
    to Financial Statements                                                                             | Page
| | ------------------------------------------------------------------------------------------------------------- | ----
| | Report of Independent Registered Public Accounting Firm                                                       | F-2 
| | Consolidated Balance Sheets for the Years ended December 31, 2012
    and 2011.                               | F-3 
| | Consolidated Statements of Operations for the Years ended December
    31, 2012 and 2011.                     | F-4 
| | Consolidated Statements of Stockholders' Equity (Deficit) for the
    Years ended December 31, 2012 and 2011. | F-5 
| | Consolidated Statements of Cash Flows for the Years ended December
    31, 2012 and 2011.                     | F-6 
| | Notes to Financial Statements.                                                                                | F-7 



















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the Board of Directors and Stockholders of

Petron Energy II, Inc.

Dallas, TX 75252



We have audited the accompanying consolidated
balance sheets of Petron Energy II, Inc. (a Nevada corporation) and subsidiaries as of December 31, 2012 and 2011, and the related
consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Petron Energy II, Inc. and subsidiaries as of December
31, 2012 and 2011 and the results of their operations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.



The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the
Company’s significant operating losses since inception raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





/s/KWCO, PC

KWCO, PC

Odessa, TX 79762

May 16, 2013









F
- 2

---











|PETRON ENERGY II, INC.                     | 
|------------------------------------------ | 
|(Formerly
    Petron Energy Special Corp.) | 
|CONSOLIDATED
    BALANCE SHEETS            | 



|                                                                                                                                    |  | December
    31,
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|                                                                                                                                    |  | 2012            
|ASSETS                                                                                                                              |  |                 
|Current
    Assets                                                                                                                  |  |                 
|Cash                                                                                                                                |  | $               
|Accounts
    Receivable--Oil & gas sales                                                                                            |  |                 
|Total
    Current Assets                                                                                                            |  |                 
|Pipeline,
    net of accumulated depreciation of $245,156 and $179,289, respectively                                                |  |                 
|Producing Oil &
    Gas Properties, net of accumulated depletion of $731,795 and $628,795, respectively                             |  |                 
|Other Depreciable
    Equipment, net of accumulated depreciation of $45,361 and $31,339, respectively                               |  |                 
|Other  Assets                                                                                                                       |  |                 
|TOTAL
    ASSETS                                                                                                                    |  | $               
|LIABILITIES
    AND STOCKHOLDERS' EQUITY                                                                                            |  |                 
|Current
    Liabilities                                                                                                             |  |                 
|Accounts Payable--Trade                                                                                                             |  | $               
|Accounts
    Payable--Related Party                                                                                                 |  |                 
|Accrued
    Liabilities                                                                                                             |  |                 
|Notes Payable--short-term                                                                                                           |  |                 
|Total
    Current Liabilities                                                                                                       |  |                 
|Notes Payable--long-term                                                                                                            |  |                 
|Asset
    Retirement Obligation                                                                                                     |  |                 
|Common
    Stock Issuance Liability                                                                                                 |  |                 
|TOTAL
    LIABILITIES                                                                                                               |  |                 
|STOCKHOLDERS'
    EQUITY                                                                                                            |  |                 
|Preferred
    Stock, 10,000,000 shares authorized, 5,911,000 designated as follows:                                                 |  |                 
|Preferred
    Stock Series B, $0.001 par value, 5,910,000 issued and outstanding                                                    |  |                 
|Preferred
    Stock Series A, $0.001 par value, 1,000 issued and outstanding                                                        |  |                 
|Common Stock, $0.001
    par value, 1,000,000,000 shares authorized, 11,845,740 and 11,072,751 issued and outstanding, respectively |  |                 
|Additional
    Paid-In Capital                                                                                                      |  |                 
|Accumulated
    Deficit                                                                                                             |  |                 
|Total
    Stockholders' Equity                                                                                                      |  |                 
|TOTAL
    LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                      |  | $               
|                                                                                                                                    |  |                 
|                                                                                                                                    |  |                 
|The
    accompanying notes are an integral part to these consolidated financial statements.                                        
|                                                                                                                                   
|F-3                                                                                                                                





|PETRON
    ENERGY II, INC.                                                                  | 
|------------------------------------------------------------------------------------------- | 
|(Formerly
    Petron Energy Special Corp.)                                                  | 
|CONSOLIDATED
    STATEMENTS OF OPERATIONS                                                   | 
|                                                                                            | 
|                                                                                            | 
|Revenues                                                                                    | 
|Oil & Gas Sales                                                                             | 
|Pipeline Revenue                                                                            | 
|Total Revenue                                                                               | 
|Costs and Expenses                                                                          | 
|Cost of Revenue                                                                             | 
|Depletion, Depreciation and Amortization                                                    | 
|Impairment Charge                                                                           | 
|General and Administrative                                                                  | 
|Interest Expense                                                                            | 
|Total Expenses                                                                              | 
|Loss from Operations Before Income
    Taxes                                                | 
|Income Taxes                                                                                | 
|Net Loss                                                                                    | 
|Preferred Stock Dividends                                                                   | 
|Net Loss Available to Common Stockholders                                                   | 
|Loss per share--basic and diluted                                                           | 
|Weighted average number of shares--basic
    and diluted                                    | 
|                                                                                            | 
|                                                                                            | 
|The accompanying notes are
    an integral part to these consolidated financial statements. | 
|                                                                                            | 
|F-4                                                                                         | 









|                                                                                            | PETRON
    ENERGY II, INC.                                    |                  |               |                
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------------- | ------------- | ---------------
|                                                                                            | (Formerly
    Petron Energy Special Corp.)                    |                  |               |                
|                                                                                            | CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) |                  |               |                
|                                                                                            | Years
    Ended December 31, 2011 and 2010                    |                  |               |                
|                                                                                            |                                                               |                  |               |                
|                                                                                            | Preferred
    Stock                                           | Common
    Stock | Additional    |                
|                                                                                            | Number                                                        |                  | Number        |                
|                                                                                            | of
    Shares                                                 | Amount           | of
    Shares | Amount         
|Balance
    December 31, 2010                                                               | -                                                             | -                | 8,308,207     | 8,308          
|Preferred
    Stock Issued for Services                                                     | 1,000                                                         | 1                |               |                
|Common
    Stock Sales                                                                      |                                                               |                  | 2,517,361     | 2,518          
|Common
    Stock Issued for Services                                                        |                                                               |                  | 247,183       | 247            
|Issuance
    of Common Stock Option for Services                                            |                                                               |                  |               |                
|Costs
    of Reverse Merger                                                                 |                                                               |                  |               |                
|Net
    Loss                                                                                |                                                               |                  |               |                
|Dividends                                                                                   |                                                               |                  |               |                
|Balance
    December 31, 2011                                                               | 1,000                                                         | $            1   | 11,072,751    | $        11,073
|Preferred
    Stock Issued for Acquisition                                                  | 5,910,000                                                     | 5,910            |               |                
|Common
    Stock Issued for Services                                                        |                                                               |                  | 147,016       | 147            
|Common
    Stock Sales                                                                      |                                                               |                  | 717,175       | 717            
|Common Stock Issued for
    Converttible Note Penalty Interest                              |                                                               |                  | 40,000        | 40             
|Net
    Loss                                                                                |                                                               |                  |               |                
|Balance
    December 31, 2012                                                               | 5,911,000                                                     | $     5,911      | 11,845,740    | $       11,846 
|                                                                                            |                                                               |                  |               |                
|                                                                                            |                                                               |                  |               |                
|The
    accompanying notes are an integral part to these consolidated financial statements.
|                                                                                            |                                                               |                  |               |                
|F-5                                                                                        
|                                                                                            |                                                               |                  |               |                



|MEDISWIPE,
    INC                                                             
|-------------------------------------------------------------------------------
|CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS                            
|THE
    THREE MONTHS ENDED MARCH 31, 2013 AND 2012                             
|(Unaudited)                                                                    
|                                                                               
|                                                                               
|OPERATING ACTIVITIES                                                           
|Net loss                                                                       
|Adjustments to reconcile net loss to net cash used
    in operating activities:
|Depletion and depreciation                                                     
|Impairment charge                                                              
|Issuance of stock options for services                                         
|Common stock and warrants issued for penalty                                   
|Interest related to convertible debt                                           
|Preferred stock issued for services                                            
|Common stock issued for services                                               
|Change
    in other asset and liabilities:                                     
|Decrease (Increase) in oil & gas receivables                                   
|(Increase) in other assets                                                     
|(Decrease) Increase in accounts payable                                        
|Increase (Decrease) in accrued liabilities                                     
|Increase (Decrease) in related party payable                                   
|Cash used in operating activities                                              
|INVESTING ACTIVITIES                                                           
|Investment in oil & gas properties                                             
|Purchase of other equipment                                                    
|Cash used in investing activities                                              
|FINANCING ACTIVITIES                                                           
|Purchase/Retirement of Common Stock, reverse merger                            
|Proceeds from sales of common stock                                            
|Proceeds from notes payable                                                    
|Dividends paid                                                                 
|Cash  from financing activities                                                
|                                                                               
|Increase in cash                                                               
|Cash at beginning of year                                                      
|Cash at end of year                                                            
|Supplemental disclosure of cash flow information:                              
|Cash paid for interest                                                         
|Cash paid for income taxes                                                     
|Non-cash Investing and Financing
    activities:                               
|Oil & gas properties                                                           
|Other depreciable
                    equipment                                
|Accrued Liabilities                                                            
|Additional Paid-in Capital                                                     
|Stock Issuance Liability                                                       
|Preferred Stock                                                                
|Accounts Payable                                                               
|                                                                               



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



F-5















PETRON
ENERGY II, INC.

(Formerly
Petron Energy Special Corp)

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

December
31, 2012 and 2011



1.
INCORPORATION AND NATURE OF OPERATIONS

Petron Energy II, Inc. (“Petron Energy”
or the “Company”) is engaged primarily in the acquisition, development, production, exploration for and the sale of
oil, gas and gas liquids in the United States. The Company was incorporated in August 2008 under the laws of the State of Nevada.
As of December 31, 2012 the Company is operating in the states of Texas and Oklahoma. In addition, the Company operates two gas
gathering systems located in Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline consists of approximately 132
miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company sells its oil and gas products
primarily to a domestic pipeline and to another oil company.



2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis
of presentation

The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:

|Subsidiary Name Organization       | 
|---------------------------------- | 
|Petron Energy Special Corp.        | 
|Petron Energy II Pipeline, Inc,   
|Petron Energy II Well Service, Inc | 





The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles
of the United States. All intercompany transactions and account balances have been eliminated in consolidation.



Going concern uncertainty





These financial statements have been prepared
in accordance with accounting principles generally accepted in the United States applicable to a going concern, which contemplates
the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has
incurred a net loss of $8,326,063 for the year ended December 31, 2012 (2011 - $3,127,742) and at December 31, 2012 had an accumulated
deficit of $19,821,223 (2011 - $11,495,160). While the Company has recognized significant revenues from operations, the revenues
generated are not sufficient to sustain operations. The Company does not have sufficient funds to acquire new business assets or
maintain its existing operations at this time. Management’s plan is to raise equity and/or debt financing as required but
there is no certainty that such financing will be available or that it will be available at acceptable terms. The outcome of these
matters cannot be predicted at this time.



These financial statements do not include any
adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification
of liabilities that might result from the outcome of this uncertainty.

43











Accounting estimates



The preparation of financial statements in
conformity with generally accepted accounting principles of the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.



Cash and cash equivalents



Cash equivalents comprise certain highly liquid
instruments with a maturity of three months or less when purchased. As of December 31, 2012 there were no cash equivalents.



Oil and gas properties



The Company utilizes the full cost method to
account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development
of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties,
geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full
cost pool. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop
the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates
of proved reserves.



Investments in unproved properties are not
depleted pending determination of the existence of proved reserves. Unproved properties are assessed periodically to ascertain
whether impairment has occurred. Unproved properties whose costs are individually significant are assessed individually by considering
the primary lease terms of the properties, the holding period of the properties, and geographic and geologic data obtained relating
to the properties. Where it is not practicable to assess individually the amount of impairment of properties for which costs are
not individually significant, such properties are grouped for purposes of assessing impairment. The amount of impairment assessed
is added to the costs to be amortized, or is reported as a period expense, as appropriate.



Pursuant to full cost accounting rules, the
Company must perform a ceiling test periodically on its proved oil and gas assets. The ceiling test provides that capitalized costs
less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value
of future net revenue from estimated production of proved oil and gas reserves using current prices, excluding the future cash
outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, at a discount factor
of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved
properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax
basis of oil and gas properties. Should the net capitalized costs for a cost center exceed the sum of the components noted above,
an impairment charge would be recognized to the extent of the excess capitalized costs. In 2012 the Company recognized an impairment
charge of $5,910,000 in accordance with the ceiling test.



Sales of proved and unproved properties are
accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized
in the statement of operations.



Exploration activities conducted jointly with
others are reflected at the Company’s proportionate interest in such activities.

Cost related to site restoration programs are
accrued over the life of the project.



Pipeline and equipment



Depreciation is based on the estimated useful
lives of the assets and is computed using the straight line method. Pipeline, trucks and equipment are recorded at cost. Depreciation
is provided using the following useful lives:



|Pipeline             | 15 years  
|-------------------- | ----------
|Trucks and equipment | 5—15 years



44







Stock-based compensation



The Company accounts for stock options in accordance
with FASB ASC 505, “Equity,” and FASB ASC 718, “Compensation—Stock Compensation.” Accordingly, stock
compensation expense has been recognized in the statement of operations based on the grant date fair value of the options for the
year ended December 31, 2012.



Under ASC 718 and 505, the fair value of options
is estimated at the date of grant using a Black-Scholes-Merton (“Black-Scholes”) option-pricing model, which requires
the input of highly subjective assumptions including the expected stock price volatility. Volatility is determined using historical
stock prices over a period consistent with the expected term of the option. The Company utilizes the guidelines of Staff Accounting
bulletin No. 107 (SAB 107) of the Securities and Exchange Commission relative to “plain vanilla” options in determining
the expected term of options grants. SAB 107 permits the expected term of “plain vanilla” options to be calculated
as the average of the option’s vesting term and contractual period.



The Company has used this method in determining
the expected term of all options. At such time as the Company has options with graded vesting, the Company will recognize compensation
cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award. The amount
of compensation expense recognized at any date is at least equal to the portion of the grant date value of the award that is vested
at that date.



Advertising costs



The Company expenses advertising costs as these
are incurred. Marketing expenses totaled $0 and $46,320 in 2012 and 2011, respectively.



Revenue recognition



Oil and gas revenues are recognized when oil
and gas is produced and sold.



Earnings (loss) per share



Basic earnings (loss) per share is computed
using the weighted average number of shares outstanding during the period. The treasury stock method is used to determine the diluted
effect of stock options and warrants. Diluted loss per share is equal to the basic loss per share for the years ended December
31, 2012 and 2011 because common stock equivalents would have been anti-dilutive.



Income taxes



The Company recognizes deferred tax liabilities
and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements
or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary
differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the year
in which the differences are expected to reverse.

45









Long-lived assets impairment



Long-term assets of the Company are reviewed
for impairment when circumstances indicate the carrying value may not be recoverable in accordance with the guidance established
in Statement of Financial Accounting Standards No. 144 (SFAS 144) (ASC 360), Accounting for the impairment or Disposal of Long-Lived
Assets. For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted cash flows
associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to
write the asset down to its fair value. Fair values are determined based on discounted cash flows or internal and external appraisals,
as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.



Asset retirement obligations



The Company accounts for asset retirement obligations
in accordance with the provisions of SFAS 143 (ASC 410) “Accounting for Asset Retirement Obligations”. SFAS
143 (ASC 410) requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. The Asset Retirement Obligation as of December 31, 2012 is $40,278 which includes
an increase of $14,788 for the year ended December 31, 2012.



Concentration of credit risk



The Company has financial instruments that
are exposed to concentrations of credit risk and consist primarily of cash and trade accounts receivable. The Company routinely
maintains cash and temporary cash investments at certain financial institutions in amounts substantially in excess of Federal Deposit
Insurance Corporation (“FDIC”) insurance limits. Management believes that these financial institutions are of high
quality and the risk of loss is minimal. At December 31, 2012 the Company had no cash balances in excess of FDIC limits.



Financial instruments



The carrying amount of financial instruments
including cash, accounts receivable, accounts payable and accrued liabilities approximate fair value, unless otherwise stated as
of December 31, 2012 and 2011.



Fair value estimates of financial instruments
are made at the period end based on relevant information about financial markets and specific financial instruments. Because these
estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with
precision. Changes in assumptions can significantly affect estimated fair value.



Contingencies



Certain conditions may exist as of the date
the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more
future events occur or fail to occur. Company management and legal counsel assess such contingent liabilities which inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company,
or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any
legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought
therein.



If management determines that it is probable
that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability is accrued in
the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable
but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss if determinable and material, is disclosed.

46







Commitments

During the year ended December 31, 2011,
the Company entered into the following agreements:

- A Management Services Agreement with ASL Energy Corp. (“ASL
Energy”), which has a five year term, provides for ASL Energy to provide management and consulting services to the Company;
provides for the right for ASL Energy and the Company to enter into Joint Venture Agreements regarding the purchase of oil and
gas interests having a total value of $5,910,000; provides for ASL Energy to be paid $8,000 per month during the term of the agreement
and the right to receive the Series A Preferred stock issued to Mr. Smith,
- An Asset Acquisition Agreement with ONE Energy Capital Corp.,
ONV Energy International Corp. and their affiliated parties, pursuant to which the Company agreed to acquire the assets of ONE
Energy Capital Corp., ONE Energy International Corp. and their affiliated parties, upon the mutual agreement of final closing agreements,
in aggregate consideration for shares of convertible preferred stock, which convert into shares of the Company having a total value
of $5,910,000, based on the trading price of the Company’s common stock on the date converted; votes one-for-one with the
common shares; provides that no shares can be converted by the holders thereof if such conversion would result in the acquisition
by such holder of more than 9.99% of the Company’s outstanding stock; and provides for such converted shares to be subject
to a lock-up agreement.

Management fee expense was $56,973 for
the year ended December 31, 2012.

The Company amended its operating lease
for its administrative office in Dallas, Texas on May 10, 2011. The lease will expire on April 30, 2014. The following sets forth
the future minimum lease payments by year:





|Year  | Amount      
|----- | ------------
|2013  | $ 39,904    
|2014  | 13,416      
|Total | $
    53,320



Total rental expense was approximately
$40,012 and $37,919 for years ended December 31, 2012 and 2011, respectively.

Recent Accounting Pronouncements

The Company has implemented all new
accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any
other new accounting pronouncements that have been issued that might have a material impact on its financial position or results
of operations.



3. REVERSE MERGER TRANSACTION



On August 9, 2011, Petron Energy II, Inc.
(“PEII”), a privately owned company, entered into a stock purchase agreement with three (3) shareholders of Restaurant
Concepts of America, Inc. (“RCA”), a publicly traded company. The agreement called for PEII to purchase 10,000,000
shares of RCA’s common stock for $232,750 ($0.02375 per share) from the three shareholders. The shares purchased represented
ninety-eight point nine percent (98.9%) of the total outstanding common shares of RCA at August 9, 2011. Immediately after the
purchase, PEII cancelled nine million four hundred thousand (9,400,000) shares of RCA’s common stock resulting in the following
stock ownership, which was subsequently effected by a one hundred to one forward stock split:



|                                    | Pre-Split | Post-Split
|----------------------------------- | --------- | ----------
|Petron Energy II, Inc.              | 600,000   | 60,000,000
|Other Shareholders                  | 110,003   | 11,000,300
|Total RCA Common Shares Outstanding | 710,003   | 71,000,300



47







Subsequent
to the issuance of the 60,000,000 stock certificate to PEII, management determined that 78,511,478 shares of RCA’s common
stock should have been issued based on an exchange rate of two shares of common stock for each share of PEII’s preferred
stock outstanding and one share of common stock for each share of PEII’s common stock outstanding. The 60,000,000 share
certificate was cancelled. The exchange of shares was effected as follows:

|Type
    of Shares                                                                                                           | Outstanding
        Shares
        PEII
        (Private
        Company) | RCA’s
                                                                                               Shares
        Issued
        
        (Public
        Company)
|---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Preferred Shares                                                                                                             | 13,629,261                                                                | 27,258,522                                                                                                                                                          
|Common Shares                                                                                                                | 51,
    252,956                                                           | 51,252,956                                                                                                                                                          
|                                                                                                                             | 64,882,217                                                                | 78,511,478                                                                                                                                                          
|Other Shareholders                                                                                                           |                                                                           | 11,000,300                                                                                                                                                          
|Total
                                                          Common Shares Outstanding
        After
        the Exchange |                                                                           | 89,511,778                                                                                                                                                          



After
PEII gained control of RCA, PEII’s name was changed to “Petron Energy Special Corporation” and RCA’s name
was changed to “Petron Energy II, Inc.” The two entities will be statutorily merged, with the surviving entity assuming
the name Petron Energy II, Inc., on January 3, 2012.

Subsequent
to August 9, 2011, PEII sold 21,215,733 shares of common stock at $0.06 per share, resulting in a total of 110,727,511 outstanding
common shares at December 31, 2011.

As
of the date PEII gained control of RCA, RCA’s balance sheet was as follows (unaudited):

|Restaurant Concepts of America, Inc.
|------------------------------------
|Balance Sheet                       
|(unaudited)                         
|August 9, 2011                      
|                                    



|Assets                                                                                                 |  | —
|------------------------------------------------------------------------------------------------------ |  | -
|Current Liabilities                                                                                    |  |  
|Accrued Liabilities                                                                                    |  | $
|Shareholders Payable                                                                                   |  |  
|                                                                                                       |  |  
|Stockholders’ Deficit                                                                                  |  |  
|Common Stock, $0.001 par value, 1,000,000,000 shares authorized,
    71,000,300 issued and outstanding |  |  
|Paid-in Capital                                                                                        |  |  
|Retained Deficit at August 31, 2010                                                                    |  |  
|Operating Loss from August 31, 2010
    to merger date                                                 |  |  
|Total Retained Deficit                                                                                 |  |  
|Total Stockholders’ Deficit                                                                            |  |  
|Total Liabilities and Stockholders’
    Deficit                                                        |  | $

Included
in the Statement of Stockholders’ Equity (Deficit) for the year ended December 31, 2011, is a reduction in paid-in capital
related to the reverse merger as follows:

48







|Description                          |  |   | Amount    | 
|------------------------------------ |  | - | --------- | 
|Purchase of Common Stock             |  | $ | (232,750) | 
|Restaurant Concepts of America, Inc. |  |   |           | 
|Accumulated Stockholders’ Deficit    |  |   | (114,074) | 
|Related Party Debt Forgiveness       |  |   | 164,413   | 
|                                     |  | $ | (182,411) | 



The
following summarizes, on a pro forma basis, the effect on PEII’s common and preferred stock and additional paid-in capital
as of December 31, 2009 giving effect to RCA’s outstanding shares and the conversion of preferred stock to common stock:



Petron
Energy Special Corp.

Pro
Forma Statement of Stockholders’ Equity (Deficit)

As
of December 31, 2009



|                                                | Preferred
    Stock | Common
    Stock | Additional
        Paid-in
        Capital | Accumulated
        Deficit | Total     
|----------------------------------------------- | ------------------- | ---------------- | ------------------------------------------ | --------------------------- | ----------
|                                                | Number              | Amount           | Number                                     | Amount                     
|                                                |                     |                  |                                            |                             |           
|Balance
    as reported on December 31, 2009    | 10,137,737          | $   101,377      | 41,557,284                                 | $ 415,573                   | $5,679,928
|Conversion
    of Preferred Stock to Common     | (10,137,737)        | (101,377)        | 20,267,474                                 | 202,675                     | (101,298) 
|Restaurant
    Concepts of America, Inc. shares | -                   | -                | 11,000,300                                 | 11,000                      | (11,000)  
|Change
    in par value from $0.01 to $0.001    | -                   | -                | -                                          | (556,423)                   | 556,423   
|                                                | (10,137,737)        | (101,377)        | 31,267,774                                 | (342,748)                   | 444,125   
|Balance
    as restated on December 31, 2009    | -                   | $   
    -       | 72,825,058                                 | $ 
    72,825               | $6,124,053



The
accumulated (deficit) reflected above and in the accompanying statement of stockholders’ equity (deficit) for the two year
period ended December 31, 2011 represent the historical earnings and losses of Petron Energy Special Corp. from its inception
in 2007 to December 31, 2011.

4.
PRODUCING OIL AND GAS PROPERTIES

The
following summarizes the investment in producing oil & gas properties as of December 31, 2012 and 2011:

|                         |  |   | 2012      |   |  |   | 2011      |  
|------------------------ |  | - | --------- | - |  | - | --------- | -
|Leasehold Cost           |  | $ | 753,373   |   |  | $ | 753,373   |  
|Development Cost         |  |   | 537,453   |   |  |   | 442,792   |  
|Tangible Equipment       |  |   | 865,698   |   |  |   | 865,698   |  
|                         |  |   | 2,156,524 |   |  |   | 2,061,863 |  
|Accumulated Depreciation |  |   | (731,795  | ) |  |   | (628,795  | )
|Net Investment           |  | $ | 1,424,729 |   |  | $ | 1,443,068 |  



Depletion
expense for the year ended December 31, 2012 and 2011 was $103,000 and $37,100, respectively.

5.
PIPELINE AND OTHER DEPRECIABLE EQUIPMENT

The following summarizes
the investment in pipeline and other depreciable equipment as of December 31, 2012 and 2011:

|                         |  |   | 2012      |  |  |   | 2011      | 
|------------------------ |  | - | --------- |  |  | - | --------- | 
|Pipeline                 |  | $ | 988,000   |  |  | $ | 988,000   | 
|Accumulated Depreciation |  |   | (245,156) |  |  |   | (179,289) | 
|Net Pipeline             |  | $ | 742,844   |  |  | $ | 808,711   | 
|Equipment and Other      |  |   | 117,276   |  |  |   | 211,603   | 
|Accumulated Depreciation |  |   | (45,361)  |  |  |   | (31,339)  | 
|Net Equipment and Other  |  | $ | 71,915    |  |  | $ | 180,264   | 





49





Depreciation
expenses for the years ended December 31, 2012 and 2011 was $83,014 and $79,588, respectively.

6.
RELATED PARTY TRANSACTIONS

Petron Energy, Inc. is a company controlled
by the Company’s majority shareholder. In 2012 and 2011, the Company paid Petron Energy, Inc. $61,163 and $312,510, respectively.
These amounts have been reflected in the accompanying consolidated financial statement as charges from a related party and are
included in general and administrative expenses for the respective years.



Effective
August 31, 2011, the Company entered into an Executive Employment Agreement with Floyd L. Smith.  Pursuant to the employment
agreement, Mr. Smith agreed to serve as President and Chief Executive Officer of the Company for a term of five years, renewable
thereafter for additional one year periods if not terminated by either party. The employment agreement provides for Mr. Smith to
receive a salary of $200,000 per year; reimbursement for reasonable business expenses; the ability to earn a yearly bonus in the
sole discretion of the Board of Directors of the Company; co-investment rights, providing Mr. Smith the right to participate in
the amount of up to 20% of any acquisition, transaction or funding undertaken by the Company during the term of the employment
agreement; stock options to purchase 12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per
share, with cashless exercise rights and a five year term, which vested immediately upon the parties’ entry into the employment
agreement; and 1,000 shares of Series A Preferred Stock which give Mr. Smith Super Majority Voting Rights.



The employment
agreement includes a non-competition provision, prohibiting Mr. Smith from competing against the Company in Texas, Louisiana, Oklahoma
or New Mexico for a term of 12 months following the termination of the employment agreement.



The employment
agreement can be terminated by the Company for cause (as defined in the agreement), without cause, or by Mr. Smith for good reason
(as defined in the agreement) or without good reason. If the employment agreement is terminated due to Mr. Smith’s death,
disability, with cause by the Company or without good reason by Mr. Smith, he is due the consideration earned by him up until the
date of termination of the agreement. If the employment agreement is terminated by the Company without cause or by Mr. Smith for
good reason, Mr. Smith is due the consideration earned by him up until the date of termination, plus the lesser of six months of
salary due to Mr. Smith under the employment agreement and the remaining amount of consideration due pursuant to the terms of the
employment agreement in a lump sum.



Mr. Smith
also agreed to assign the Company rights to any intellectual property and inventions which he creates or conceives during the term
of the employment agreement relating to the Company’s business pursuant to the employment agreement.



7. NOTES
PAYABLE



The
Company did not have any outstanding notes payable as of December 31, 2011. The following summarizes the outstanding notes payable
as of December 31, 2012:





|Convertible unsecured note from a financial institution, interest at 5%, matures April 30, 2013.  First date of conversion eligibility is January 22, 2013 with an applicable discount rate of 42% from the average trading price for the lowest three trading prices for the common stock during the ten trading days previous to the conversion date. |  | $ | 63,000   |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|Convertible unsecured note from a financial institution, interest at 5%, matures April 9, 2013.  First date of conversion eligibility is March 13, 2013 with an applicable discount rate of 42% from the average trading price for the lowest three trading prices for the common stock during the ten trading days previous to the conversion date.    |  |   | 42,500   |  
|Unsecured notes from various investors,non - interest bearing, maturing from October to November 2014, issued for a 2% overriding interest.                                                                                                                                                                                                             |  |   | 250,000  |  
|Unsecured convertible note from an investor, interest at 10% maturing February 9, 2013.  Penalty interest on amounts unpaid as of the maturity date is 15%                                                                                                                                                                                              |  |   | 65,000   |  
|                                                                                                                                                                                                                                                                                                                                                        |  |   | 420,500  |  
|Short-term portion                                                                                                                                                                                                                                                                                                                                      |  |   | (170,500 | )
|Long-term notes payable                                                                                                                                                                                                                                                                                                                                 |  | $ | 250,000  |  





8. INCOME TAXES





The Company uses the liability method in accounting
for income taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

50









The potential benefit of net operating loss
carry forwards has not been recognized in the accompanying consolidated financial statements since the Company cannot be assured
that it is more likely than not that such benefit will be utilized in future years.



The Company is subject to United States federal
and state income taxes at an approximate rate of 34%. The reconciliation of the provision for income taxes at the United States
federal statutory rate compared to the Company’s income tax expense as reported for the years ended December 31, 2012 and
2011 is as follows:





|                               |  | 2012 |            | 2011
|------------------------------ |  | ---- | ---------- | ----
|Net Loss                       |  | $    | 8,326,063  |     
|Income Tax Rate                |  |      | 34         | %   
|Income Tax Recovery            |  |      | 2,830,861  |     
|Permanent Difference           |  |      | (103,664   | )   
|Valuation Allowance Change     |  |      | (2,727,197 | )   
|Deferred Income Tax (Recovery) |  | $    | —          |     





Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes.



Future income taxes arise from temporary differences
in the recognition of income and expenses for financial reporting and tax purposes. The significant components of future income
tax assets and liabilities at December 31, 2012 and 2011 are as follows:





|                                 |  | 2012 |            | 2011
|-------------------------------- |  | ---- | ---------- | ----
|Net Operating Loss Carryforwards |  | $    | 2,711,283  |     
|Impairments                      |  |      | 2,055,640  |     
|Depletion and Depreciation       |  |      | (223,500   | )   
|Net Deferred Tax Assets          |  |      | 4,543,423  |     
|Valuation Allowance              |  |      | (4,543,423 | )   
|Deferred Tax Asset               |  | $    | —          |     





The Company has recognized a valuation allowance
for the deferred tax assets for which it is more likely than not that the realization will not occur. The valuation allowance is
reviewed periodically. When circumstance change and this causes a change in management's judgment about the realizeability of deferred
tax assets, the impact of the change on the valuation allowance is generally reflected in current income.



The net operating loss carryforwards for income
tax purposes are approximately $8,100,000 and will begin to expire in 2025. Neither the Company nor any of its subsidiaries have
ever been the subject of an examination by the Internal Revenue Service.

51









Pursuant to Section 382 of the Internal Revenue
Code, use of the Company’s net operating loss carryforwards may be limited if the Company experiences a cumulative change
in ownership of greater than 50% in a moving three year period. Ownership changes could impact the Company’s ability to utilize
net operating losses and credit carryforwards remaining at the ownership change date. The limitation would be determined by the
fair market value of common stock outstanding prior to the ownership change, multiplied by the applicable federal rate.





9. STOCKHOLDERS’ EQUITY



Preferred Stock



The articles of incorporation of the Company
authorize the issuance of 10,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors is authorized, from time
to time, to divide the preferred shares into “Series” and to fix and determine separately for each Series any or all
of the relative rights and preferences.



In connection with an employment agreement,
the Company issued 1,000 shares of Series A Preferred Stock in August 2011. The Series A Preferred Stock has voting rights on all
shareholder matters equal to fifty-one percent (51%) of the total vote. There are no other liquidation, conversion or redemption
rights.



On February 17, 2012, the Board of Directors
designated “Series B Convertible Preferred Stock” with the number of shares initially constituting such series being
up to 6,000,000 shares, issuing 5,910,000 for the acquisition of oil & gas properties,



The Board of Directors does not formally
approve the declaration of the preferred stock dividends; therefore, as checks for payment of preferred dividends are approved
by the CEO of the Company, dividend expense is recognized. For the years ended December 31, 2012 and 2011, the preferred stock
dividend expense was $0 and $875, respectively.

Common Stock



The Company is authorized to issue up to 1,000,000,000
shares of $0.001 par value common stock.



In connection with the employment agreement
with Floyd L. Smith, the Company issued: (1) stock options to purchase 12,000,000 shares of the Company’s common stock at
an exercise price of $0.0039 per share, with cashless exercise rights and a five year term, which vest immediately, and (2) 1,000
shares of Series A Preferred Stock which provide him Super Majority Voting Rights. The stock options and Series A preferred stock
were valued at $377,458 and $4,791, respectively, using a Black-Scholes Option Pricing model. In connection with the valuation
of the stock options, the Company used the following assumptions: dividend yield 0%, risk free rate 0.96%, volatility 44.44% and
an expected term of 5 years.



On August 25, 2011, the Company’s Board
of Directors approved a one hundred-to-one (100:1) forward stock split of the issued and outstanding shares of common stock for
stockholders of record on August 25, 2011. The effect of this stock split has been applied retroactively in the accompanying financial
statements.



In December 2012 the Company’s Board
of Directors authorized a ten to one reverse stock split for all outstanding common shares. During 2012, there were 717,175 post-split
common shares sold for $838,326 cash, with an additional 147,016 post-split common shares issued for services valued at $158,647.
The convertible note included additional consideration of 40,000 post-split common shares valued at $52,000 and 100,000 post-split
common stock warrants valued at $84,000.



Warrants



The following summarizes the stock purchase warrant transactions for the year ended December 31, 2012 and
2011:





|                                         |  |           |          | Weighted
|---------------------------------------- |  | --------- | -------- | --------
|                                         |  |           |          | Average 
|                                         |  | Number of |          | Exercise
|                                         |  | Warrants  |          | Price   
|Outstanding, December 31, 2010           |  |           | 518,042  |         
|Warrants Issued                          |  |           | 0        |         
|Warrants Exercised                       |  |           | 0        |         
|Warrants Forfeited, Expired or Cancelled |  |           | (518,042 | )       
|Outstanding, December 31, 2011           |  |           | 0        |         
|Warrants Issued with Convertible Debt    |  |           | 100,000  |         
|Outstanding, December 31, 2012           |  |           | 100,000  |         



52









10. FAIR VALUE ESTIMATES



In February 2007 the FASB issued ASC 820 “Fair
Value Measurements and Disclosures”. The objective of ASC 820 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value measurements. ASC 820 defines fair value establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 applies
under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.



The Company measures its options at fair value
in accordance with ASC 820. 820 specifies a valuation hierarchy based on whether the inputs to those valuations techniques are
observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs
reflect the Company’s own assumptions. These two types of inputs have created the following fair value hierarchy:



Level 1—Quoted prices
for identical instruments in active markets;

Level 2—Quoted prices for similar
instruments in active markets, quoted process for identical or similar instruments in markets that are not active, and model-derived
valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3—Valuations derived
from valuations techniques in which one or more significant inputs or significant value drivers are unobservable.





This hierarchy requires the Company to minimize
the use of unobservable inputs and to use observable market data, if available, when estimating fair value.



In connection with the valuation of the stock
options, the Company used the following assumptions: dividend yield 0%, risk free rate 0.38%, volatility 154.82% and an expected
term of 1.5 years.







11. SUBSEQUENT EVENTS





The Company’s management has evaluated
subsequent events through May 16, 2013, the date the consolidated financial statements were issued. In the opinion of the Company’s
management, there have been no significant subsequent events since December 31, 2012 other than securing a $5,000,000 revolving
line of credit described below:



Under the terms of a credit agreement the Company
has pledged all of its oil and gas assets as collateral. The Company makes requests for drawdowns periodically and the lender,
in its sole discretion, will approve the requests. The funds are to be used for enhancing the oil and gas producing assets of the
Company. The first draw, under terms of an 11% note payable due October 17, 2013, was received April 17, 2013 for $450,000.



In 2013,
4,189,542 shares of the Company’s Series B Convertible preferred stock converted into an aggregate of 19,255,145 shares of
the common stock of the Company. Under the Plan of Reorganization and Asset Purchase Agreement and the Certificate of Designation,
these shares of Series B Convertible preferred stock convert into common shares of the Company having a total value of $5,910,000,
based on the average trading price of the Company’s common stock on the five days prior to the date of conversion, which
was on January 7, 2013 (the “Conversion Date”). However, the Series B cannot be converted by the holders thereof if
such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s outstanding stock (the
“Ownership Limitation”). At May 16, 2013, we had 1,720,458 shares of Series B Convertible Preferred Stock issued and
outstanding, which had not converted because of the Ownership Limitation.







12. SUPPLEMENTAL INFORMATION ON OIL &
GAS (Unaudited)





|                                                                                                                  | 2012                 | 2011              
|----------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------
|Capitalized Costs Relating to Oil and
    Gas Producing Activities at December 31, 2012 and 2011                  |                      |                   
|Unproved Oil and Gas Properties                                                                                   | $202,886             | $202,886          
|Proved Oil and Gas Properties                                                                                     | 1,953,638            | 1,858,977         
|                                                                                                                  | 2,156,524            | 2,061,863         
|Less Accumulated Depletion                                                                                        | (731,795)            | (628,795)         
|Net Capitalized Costs Relating to Oil and Gas Producing Activities                                                | $1,424,729           | $1,433,068        
|Costs incurred in Oil and Gas Producing
    Activities for the year ended December 31, 2012 and 2011              |                      |                   
|Property acquisition cost:                                                                                        |                      |                   
|Proved                                                                                                            | $       5,910,000    | $                -
|Unproved                                                                                                          | -                    | 54,100            
|Exploration and development costs                                                                                 | 203,662              | 555,440           
|Depletion rate per equivalent barrel of production                                                                | $              34.92 | $       23.26     
|Results for Operations for Oil and Gas
    Producing Activities for the year ended December 31, 2012 and 2011     |                      |                   
|Oil and Gas Sales                                                                                                 | $          293,798   | $      192,839    
|Less: Production Costs                                                                                            | 538,616              | 271,873           
|Depletion, Depreciation and Amortization                                                                          | 103,000              | 37,100            
|Impairment of oil and gas investment                                                                              | 6,046,,000           | -                 
|                                                                                                                  | (6,393,818)          | (116,134)         
|Income Tax Benefit                                                                                                | -                    | -                 
|Results of Operations for Oil and Gas Producing Activities (excluding
    corporate overhead and financing costs) | ($6,393,818)         | ($116,134)        





Reserve Information



53







The following estimates of proved and proved
developed reserve quantities and related standardized measure of discounted net cash flow are estimates only, and do not purport
to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates
are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties.
Accordingly, these estimates are expected to change as future information becomes available. All of the Company’s reserves
are located in the United States.



Proved reserves are estimated reserves of crude
oil (including condensates and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed
reserves are those expected to be recovered through existing wells, equipment, and operating methods.



The standardized measure of discounted future
net cash flows is computed by applying average prices of oil and gas based upon the prior 12 months to the estimated future production
of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing
the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates, with consideration of future
tax rates already legislated) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and
assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of
10% a year to reflect the estimated timing of the future cash flows.



The following table sets forth estimated proved
oil and gas reserves together with the changes therein for the years ended December 31, 2012 and 2011:





|                                                                                                                           | 2012        | 2011       
|-------------------------------------------------------------------------------------------------------------------------- | ----------- | -----------
|                                                                                                                           | Oil         | Gas        
|(bbls)                                                                                                                     | (mcf)       | (bbls)     
|Proved Developed and Undeveloped Reserves:                                                                                 |             |            
|Beginning of the year                                                                                                      | 59,191      | -          
|Revisions of previous estimate                                                                                             | (30,283)    | 106,650    
|Purchases                                                                                                                  | 8,959       | -          
|Production                                                                                                                 | (2,836)     | -          
|End of the year                                                                                                            | 35,031      | 106,650    
|Proved Developed Reserves:                                                                                                 |             |            
|Beginning of year                                                                                                          | 36,557      | -          
|End of year                                                                                                                | 24,901      | 106,650    
|                                                                                                                           |             |            
|                                                                                                                           | 2012        | 2011       
|Standardized measure of Discounted Future                                                                                  |             |            
|Net Cash Flows at December 31                                                                                              |             |            
|Future cash inflows                                                                                                        | $3,611,006  | $5,364,574 
|Future production costs                                                                                                    | (1,383,744) | (1,913,921)
|Future development costs                                                                                                   | (45,000)    | (175,000)  
|                                                                                                                           | 2,182,262   | 3,275,653  
|Future net cash flows 10% annual discount for
    estimated timing of cash flows                                           | (757,410)   | (1,525,034)
|Standardized measure of Discounted Future                                                                                  |             |            
|Net Cash Flows relating to Proved Oil and Gas
    Reserves                                                                 | $1,424,852  | $1,750,619 
|The following reconciles the change in the
    standardized measure of discounted future net cash     flow during the year |             |            
|Beginning of the year                                                                                                      | $1,750,619  | $2,929,194 
|Purchases of minerals in place                                                                                             | 231,772     | -          
|Sales of oil and gas produced, net of production
    costs                                                                 | 242,597     | 80,510     
|Net changes in prices and production costs                                                                                 | (496,481)   | 1,486,207  
|Development costs incurred during the year which
    were previously estimated                                             | 94,661      | 603,999    
|Net change in estimated future development
    Costs                                                                       | (35,339)    | (278,999)  
|Revisions of previous quantity estimates                                                                                   | (1,133,600) | (3,944,343)
|Change in discount                                                                                                         | 770,623     | 874,051    
|End of year                                                                                                                | $1,424,852  | $1,750,619 















[End
of Notes to Financial Statements]



F-7













ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES.



|Evaluation of disclosure controls
        and procedures.
        
        Our Chief Executive Officer
        and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined
        in the Securities Exchange Act of 1934, as amended (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of
        the period covered by this Annual Report on Form 10-K (the "Evaluation Date"), has concluded that as of the Evaluation
        Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are
        required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within
        the time periods specified in the Securities and Exchange Commission rules and forms, and 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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Management's Annual Report on Internal Control over
        Financing Report
        
        The management of the Company
        is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
        Rule 13a-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed under the
        supervision of the Company's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the
        reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance
        with accounting principles generally accepted in the United States of America (US GAAP) and includes those policies and procedures
        that:                                                                                                                                                                                                                                                                       



|- | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;                                                                                                                                                                               
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                              
|- | provide reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|  |                                                                                                                                                                                                                                                                                                                              
|- | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.                                                                                                                          



|- | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;                                                                                                                                                                               
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                              
|- | provide reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|  |                                                                                                                                                                                                                                                                                                                              
|- | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.                                                                                                                          





54





Management recognizes that
there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal
control can provide only reasonable assurance with respect of financial statement preparation and may not prevent or detect misstatements.
In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions
or due to deterioration in the degree of compliance with our established policies and procedures.



As of December 31, 2012,
management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments.”



Based on that evaluation,
management concluded that, during the period covered by this report, such internal controls and procedures were not effective to
detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed
in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that
taken together may be considered to be a material weakness.



A material weakness is
a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual
or interim financial statements will not be prevented or detected. In connection with the assessment described above, management
identified the following control deficiencies that represent material weaknesses at December 31, 2012:



(1) Inadequate segregation of duties consistent
with control objectives. The aforementioned material weakness was identified by our Chief Executive Officer and our Chief Financial
Officer in connection with the review of our financial statements.



55







Management believes that
the material weakness set forth in Item (1) above did not have an effect on the Company's financial reporting in
2012. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on
the Company's board of directors can adversely affect reporting in the future years, when our operations become more complex and
less transparent and require higher level of financial expertise from the overseeing body of the Company.



We are committed to improving
our financial organization. As part of this commitment, we will, as soon as funds are available to the Company (1) appoint one
or more outside directors to our board of directors who shall be appointed to the audit committee of the Company resulting in a
fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls
and procedures; (2) create a position to segregate duties consistent with control objectives and will increase our personnel resources;
and (3) hire independent third parties to provide expert advice.



We will continue to monitor
and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an
ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary
and as funds allow. This annual report does not include an attestation report of the Company's independent registered public accounting
firm regarding internal control over financial reporting. Management's report is not subject to attestation by the Company's independent
registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide
only management’s report in this annual report.



|Changes in internal control over financial reporting.
        
        There were no changes in our internal control
        over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially
        affect, our internal control over financial reporting.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 9B. OTHER INFORMATION.





In 2013,
4,182,542 shares of the Company’s Series B Convertible preferred stock converted into an aggregate of 19,255,145 shares of
the common stock of the Company. Under the Plan of Reorganization and Asset Purchase Agreement and the Certificate of Designation,
these shares of Series B Convertible preferred stock convert into common shares of the Company having a total value of $5,910,000,
based on the average trading price of the Company’s common stock on the five days prior to the date of conversion, which
was on January 7, 2013 (the “Conversion Date”). However, the Series B cannot be converted by the holders thereof if
such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s outstanding stock (the
“Ownership Limitation”). At May 14, 2013, we had 1,720,458 shares of Series B Convertible Preferred Stock issued and
outstanding, which had not converted because of the Ownership Limitation.



Under the terms of a credit
agreement with TCA Global Master Fund, LP, the Company has pledged all of its oil & gas assets as collateral. The Company makes
requests for drawdowns periodically and the lender, in its sole discretion, will approve the requests. The funds are to be used
for enhancing the producing assets of the Company. The first draw was received April 17, 2013 for $450,000 and is subject to an
11% note due October 17, 2013.





PART III



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The following
table sets forth the name, age and position of our Directors and executive officer. There are no other persons who can be classified
as a promoter or controlling person of us. Our executive officer and Directors are as follows:



|Name           | Age | Position                                                                                      
|-------------- | --- | ----------------------------------------------------------------------------------------------
|Floyd L. Smith | 50  | Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director
|David Knepper  | 59  | Director                                                                                      



56







Floyd
L. Smith



Mr.
Smith has served as the President of Petron Energy II, Inc. and its predecessor, Petron Special Energy Corp., an oil and gas exploration
company since October 1998. Since May 2004, Mr. Smith has served as President of Petron Properties, LLP, a real estate company.
From January 2004 to August 2008, Mr. Smith served as the President and owner of Murray Mortgage. From July 1992 to April 1998,
Mr. Smith served as a broker at Grand Energy, Inc., working in sales. From August 1984 to July 1992, Mr. Smith served as the
Manager of a Wal-Mart in Garland, Texas. Mr. Smith obtained his Bachelor’s Degree from Harding University, in Searcy, Arkansas
in Business Administration in 1984.



Qualifications:



Mr. Smith has deep knowledge
of the Company’s history, strategies, technologies and culture. Having led Petron Special as Chief Executive Officer and
as a Director since 2007, Mr. Smith has been the driving force behind the strategies and operations of Petron Special. His
leadership of diverse business units and functions before becoming Chief Executive Officer gives Mr. Smith profound insight
into the product development, marketing, finance, and operations aspects of the Company.



David Knepper



Mr.
Knepper has held multiple positions in the oil and gas industry over the course of the last 36 years. Mr. Knepper has served as
President of Dogwood Operating Company, Inc., since July 2011. From June 2009 to June 2011, Mr. Knepper served as a Manager and
as reorganization officer of MSB Energy. From May 2006 to May 2009, Mr. Knepper served as the Vice President of Engineering of
Striker Petroleum. From June 2002 to May 2006, Mr. Knepper served as a private consultant to various oil and gas clients. From
February 2000 to June 2002, Mr. Knepper served as a Manager – Special Projects, at Tribo Companies. From October 1993 to
February 2000, Mr. Knepper served as Executive Director of Probe Resources. From August 1991 to October 1993, Mr. Knepper served
as a Consultant to STZ Petroleum. From February 1990 to August 1991, Mr. Knepper served as Vice President of Acquisitions of DKM
Resources. From August 1984 to December 1989, Mr. Knepper served as Manager of Acquisitions of Transco Exploration. From September
1982 to July 1984, Mr. Knepper served as Vice President of Engineering of L&A Energy. From May 1979 to September 1982, Mr.
Knepper served as Acquisition Manager for Damson Oil. From May 1975 to May 1979, Mr. Knepper served as Production Engineer, Reservoir
Engineer and the chairman of multiple committees at Amoco Production.



Mr.
Knepper obtained his Bachelor’s Degree from Texas A&M University in 1975. Mr. Knepper is a member of the Society of Petroleum
Engineers, the Texas Society of Professional Engineers and the Student Engineers Council – Texas A&M University.



Qualifications:



Mr.
Knepper has had a long and successful career in the oil and gas industry. He has significant experience in the operations of public
and private companies. As evidenced by his broad network of resources developed over many years of involvement in the energy industry.
Mr. Knepper understands how to locate, evaluate and negotiate oil and gas properties. Mr. Knepper’s depth of experience and
expansive network as a board member makes him a significant asset to the Company.



Our
Directors and any additional Directors we may appoint in the future are elected annually and will hold office until our next annual
meeting of the shareholders and until their successors are elected and qualified. Officers will hold their positions at the pleasure
of the Board of Directors, absent any employment agreement. Our officers and Directors may receive compensation as determined by
us from time to time by vote of the Board of Directors. Such compensation might be in the form of stock options. Directors may
be reimbursed by the Company for expenses incurred in attending meetings of the Board of Directors. Vacancies in the Board are
filled by majority vote of the remaining Directors.

57









Family Relationships



There
are no family relationships among our Directors or executive officers.



Involvement in Certain
Legal Proceedings



Our
Directors, executive officers and control persons have not been involved in any of the following events during the past ten years:



|1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------



|3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Independence of Directors



We
are not required to have designated independent members of our Board of Directors, and do not anticipate having designated independent
Directors until such time as we are required to do so.



Committees
of the Board



Our
Company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does
our Company have a written nominating, compensation or audit committee charter. Our Directors believe that it is not necessary
to have such committees, at this time, because the functions of such committees can be adequately performed by the Board of Directors.



Our
Company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for
Directors. The Board of Directors believes that, given the stage of our development, a specific nominating policy would be premature
and of little assistance until our business operations develop to a more advanced level. Our Company does not currently have any
specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or
procedure for evaluating such nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders,
and make recommendations for election or appointment.



A
shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our President
and Director, at the address appearing on the first page of this filing.



Risk Oversight



Effective
risk oversight is an important priority of the Board of Directors. Because risks are considered in virtually every business decision,
the Board of Directors discusses risk throughout the year generally or in connection with specific proposed actions. The Board
of Directors’ approach to risk oversight includes understanding the critical risks in the Company’s business and strategy,
evaluating the Company’s risk management processes, allocating responsibilities for risk oversight among the full Board of
Directors, and fostering an appropriate culture of integrity and compliance with legal responsibilities.

58









CORPORATE GOVERNANCE



The
Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely
and understandable disclosure in reports and documents that the Company files with the Securities and Exchange Commission (the
“ SEC”) and in other public communications made by the Company; and strives to be compliant with applicable
governmental laws, rules and regulations. The Company has not formally adopted a written code of business conduct and ethics that
governs the Company’s employees, officers and Directors as the Company is not required to do so.



In
lieu of an Audit Committee, the Company’s Board of Directors is responsible for reviewing and making recommendations concerning
the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company's financial
statements and other services provided by the Company’s independent public accountants. The Board of Directors reviews the
Company's internal accounting controls, practices and policies.



ITEM 11. EXECUTIVE COMPENSATION.



Summary Executive Compensation Table:



|Name and principal position (a)                                             |  | Year ended December 31 (b) |      | Salary ($) (c) |  | Bonus ($) (d) |         | Stock Awards ($) (e) |  | Option Awards ($) (f) |   | Non-Equity Incentive Plan Compensation ($) (g) |  | Nonqualified Deferred Compensation Earnings ($) (h) |       | All Other Compensation ($) (i) |  | Total ($) (j)
|--------------------------------------------------------------------------- |  | -------------------------- | ---- | -------------- |  | ------------- | ------- | -------------------- |  | --------------------- | - | ---------------------------------------------- |  | --------------------------------------------------- | ----- | ------------------------------ |  | -------------
|Floyd L. Smith (1) CEO, CFO President, Secretary, Treasurer and Director    |  |                            | 2011 |                |  | $             | 181,331 |                      |  |                       | — |                                                |  | $                                                   | 4,791 | (2)                            |  | $            
|                                                                            |  |                            | 2012 |                |  | $             | 200,000 |                      |  |                       |   |                                                |  |                                                     |       |                                |  |              
|David Cho (1) Former CEO, CFO, President, Secretary, Treasurer and Director |  |                            | 2011 |                |  |               | —       |                      |  |                       | — |                                                |  |                                                     | —     |                                |  |              
|                                                                            |  |                            | 2010 |                |  |               | —       |                      |  |                       | — |                                                |  |                                                     | —     |                                |  |              



The table above does not
include prerequisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation.
There have been no changes in the Company’s compensation policy since the end of the Company’s last fiscal year, December
31, 2011.



(1) Mr. Cho resigned as Chief Executive Officer, Chief Financial Officer,
President, Secretary, Treasurer and Director of the Company on August 10, 2011. On that same day, Mr. Smith was appointed as the
Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director.



(2) Represents the value,
pursuant to Accounting Standards Codification Topic 718, of 1,000 shares of Series A Preferred Stock that the Company issued to
Mr. Smith.



(3) Represents
the value, pursuant to Accounting Standards Codification Topic 718, of Stock Options to purchase 12,000,000 shares of the Company’s
common stock at an exercise price of $0.0039 per share, which were granted to Mr. Smith pursuant to the terms of his Executive
Employment Agreement, which grant was effective August 31, 2011.

59









DIRECTOR COMPENSATION



The Company
does not pay any director compensation. The compensation of our executive Directors is included in the Company Summary Executive
Compensation Table, above.





|OUTSTANDING
    EQUITY AWARDS AT FISCAL YEAR-END
|------------------------------------------------
|OPTION AWARDS                                   
|Name                                            
|(a)                                             
|                                                
|                                                
|Floyd L. Smith                                  



Compensation Discussion
and Analysis



Director Compensation



Our Board
of Directors does not currently receive any consideration for their services as members of the Board of Directors. The Board of
Directors reserves the right in the future to award the members of the Board of Directors cash or stock based consideration for
their services to the Company, which awards, if granted shall be in the sole determination of the Board of Directors.



Executive Compensation
Philosophy



Our
Board of Directors determines the compensation given to our executive officers in their sole determination. Our Board of Directors
also reserves the right to pay our executives a salary, and/or issue them shares of common stock issued in consideration for services
rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s
performance. This package may also include long-term stock based compensation to certain executives which is intended to align
the performance of our executives with our long-term business strategies. Additionally, the Board of Directors reserves the right
to grant stock options in the future (similar to those options granted to Mr. Smith in August 2011), if the Board in its sole determination
believes such grants would be in the best interests of the Company.



60







Incentive Bonus



The
Board of Directors may grant incentive bonuses to our executive officers in its sole discretion, if the Board of Directors believes
such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and
the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives.



Long-term, Stock Based
Compensation



In
order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we
may award certain executives with long-term, stock-based compensation in the future, in the sole discretion of our Board of Directors,
which we do not currently have any immediate plans to award, other than the stock options previously granted to Mr. Smith, as described
above.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





The
following table sets forth, as of December 31, 2012, the number and percentage of outstanding shares of our common stock owned
by: (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
and (b) all current directors and executive officers, as a group, and includes the 1,000 shares of Series A Preferred Stock
and Super Majority Voting Rights associated with such Series A Preferred Stock which the Company agreed to issue to Mr. Smith pursuant
to the Employment Agreement.



As
of December 31, 2012, and including the securities described above, there were 12,773,112 shares of common stock issued and outstanding,
1,000 shares of Series A Preferred Stock issued and outstanding and 5,910,000 shares of Series B Preferred Stock issued and outstanding.



Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed
to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the
shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for
example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing
the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such
person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following
table does not necessarily reflect the person’s actual voting power at any particular date.



To
our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned
by them.



|Name and Address
        of
        Beneficial Owner
        (1)                                           | Common Stock Beneficially Owned | Percentage of Common Stock Beneficially Owned | Preferred Stock Voting Rights
        (Represented In Voting Shares)
        (2) | Total Voting Shares Beneficially Owned
        (3) | Total Voting Percentage
        (4)
|---------------------------------------------------------------------------------------------------------- | ------------------------------- | --------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------------------- | -----------------------------------
|                                                                                                           |                                 |                                               |                                                                                  |                                                    |                                    
|Floyd L. Smith (5)
        CEO, CFO, President, Secretary, Treasurer and Director                          | 4,043,055 (6)                   | 31.974%                                       | 19,445,688                                                                       | 23,488,743                                         | 61.6%                              
|                                                                                                           |                                 |                                               |                                                                                  |                                                    |                                    
|David Knepper
        Director                                                                             | -                               | -                                             | -                                                                                | -                                                  | 0.0%                               
|                                                                                                           |                                 |                                               |                                                                                  |                                                    |                                    
|All Officers and Directors as a Group
        (2 persons)                                                  | 4,043,055                       | 31.974%                                       | 19,445,688                                                                       | 23,488,743                                         | 61.6%                              
|                                                                                                           |                                 |                                               |                                                                                  |                                                    |                                    
|Daniel L. J. DeWeyer
        3702 DUTTON COURT GATEWAY APARTMENTS
        HARBOUR CITY TST
        KOWLOON | 1,000,000                       | 7.83%                                         | -                                                                                | 1,000,000                                          | 2.7%                               
|                                                                                                           |                                 |                                               |                                                                                  |                                                    |                                    
|All Non-Officers and Non-Directors as a Group (1 person)                                                   | 1,000,000                       | 7.83%                                         | -                                                                                | 1,000,000                                          | 2.7%                               





61





(1)  The address
for each officer and Director of the Company, unless otherwise stated, is the Company’s principal address, 17950 Preston
Road, Suite 960, Dallas, Texas 75252.



(2)  The
Series A Preferred Stock is not entitled to any dividends, liquidation preference, conversion rights, or redemption rights.  The
Series A Preferred Stock does however have the right, voting as a separate class, at any annual or special meeting of shareholders
to vote in aggregate 51% of our outstanding voting shares on any and all shareholder matters (the “Super Majority Voting
Rights”).



(3) Not
including any options, warrants or non-voting securities held by the named shareholders above.



(4) Based
on an aggregate of 38,128,800 outstanding voting shares, calculated based on 12,773,112 shares of common stock issued and outstanding,
5,910,000 voting shares attributable to the Series B Preferred Stock, and 19,445,688 voting shares attributable to the Series A
Preferred Stock.



(5) Floyd
L. Smith is deemed to beneficially own the securities held by Petron Special, as Mr. Smith is the President of and maintains voting
control over such entity.



(6) Includes Stock Options to purchase 12,000,000 shares of common stock at an exercise price of $0.0039 per
share.





ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



On
April 12, 2011, the Company entered into a $1,700 Promissory Note with Mr. Cho, to evidence amounts loaned to the Company by Mr.
Cho. The Promissory Note accrued interest at the rate of eight percent (8%) per annum and was due and payable on April 12, 2012.
The Promissory Note was repaid in August 2011, with proceeds received from the Stock Purchase Agreement (as described below).



On
August 9, 2011, we; David Cho, the Company’s then Chief Executive Officer and Director and then 54.4% owner of the Company’s
common stock (550,000,000 shares or 5,500,000 pre-forward split shares); Pete Wainscott, the Company’s then Director and
then 34.6% owner of the Company’s common stock (350,000,000 shares or 3,500,000 pre-forward split shares); and David M. Loev
the then 9.9% owner of the Company’s common stock (100,000,000 shares, or 1,000,000 pre-forward split shares)(collectively
the “ Selling Shareholders”) entered into a Stock Purchase Agreement with Petron Special, which is controlled
by Floyd L. Smith. Pursuant to the Stock Purchase Agreement, the Selling Shareholders sold an aggregate of 1,000,000,000 shares
(10,000,000 pre-forward split) shares of the Company’s restricted common stock to Petron Special in consideration for $232,750
(the “ Purchase Price”); provided that a required term and condition of the closing of the Stock Purchase Agreement
was that the Company had no liabilities at closing, and as such, a portion of the Purchase Price was used to satisfy the Company’s
outstanding liabilities, including the notes described above which were either repaid or forgiven in connection with such transaction.
As a result of the Stock Purchase Agreement, which closed on August 10, 2011, Petron Special, and as a result of his control of
Petron Special, Mr. Smith became the owner of 98.9% of the Company’s outstanding shares.

62









On
August 10, 2011, our then Directors, David Cho and Pete Wainscott, increased the number of Directors of the Company to three, and
appointed Floyd L. Smith as a Director of the Company, pursuant to the power provided to the Board of Directors by the Company’s
Bylaws to fill the vacancy left by the increase. Immediately following such appointment, David Cho, our President, Chief Executive
Officer, Chief Financial Officer, Secretary, and Director resigned as an officer and Director of the Company and Pete Wainscott,
our Director, resigned as a Director of the Company and Floyd L. Smith was appointed as the Chief Executive Officer, Chief Financial
Officer, President, Secretary and Treasurer of the Company. Additionally, as a result of the resignations of Mr. Cho and Mr. Wainscott
as Directors of the Company, Mr. Smith was the sole Director of the Company. On August 15, 2011, Floyd L. Smith, our then sole
Director, appointed David Knepper and Kenny Fox as Directors of the Company.



On
August 12, 2011, the Company entered into the Petron Asset Purchase Agreement with Petron Special, which is controlled by Floyd
L. Smith, who indirectly became the majority shareholder of and President and sole Director of the Company on August 10, 2011,
as described below. Pursuant to the Petron Asset Purchase Agreement, we agreed to purchase substantially all of Petron Special’s
assets (which consist of various oil and gas interests, leases and working interests collectively, the “ Assets”)
and none of the liabilities of Petron Special in consideration for 17,000,000 shares (170,000 pre-forward split shares) of the
Company’s restricted common stock (the “ Petron Shares”). All of Petron Special’s Assets, as defined
in the Petron Asset Purchase Agreement and accompanying amendments, was purchased by the Company in consideration for 3,000,000
restricted shares (30,000 pre-forward split shares) of common stock on August 31, 2011.



As
a result of the Stock Purchase Agreement described above, Petron Special, and as a result of his control of Petron Special, Floyd
L. Smith (who became our sole officer and Director on August 10, 2011, as described below) became the largest shareholder of the
Company and obtained majority voting control (98.9% of the Company’s outstanding shares) over the Company. Furthermore, in
connection with the Company’s entry into an Executive Employment Agreement with Mr. Smith (described above), Mr. Smith obtained
rights to shares of Preferred Stock, which allow him to vote 51% of our outstanding common stock on any and all shareholder matters
(including the appointment of Directors), thereby providing him continuing voting control over the Company, pursuant only to the
terms and conditions of the Preferred Stock. Additionally, as discussed above, the Petron Asset Purchase Agreement contemplates
the cancellation of 9,400,000 of the restricted shares of common stock purchased by Petron Special, as described above pursuant
to the Stock Purchase Agreement which cancellation has occurred.



In August 2011, the
Company received advances of $131,912 from Petron Special. The advances are unsecured and due upon demand and do not bear interest.



In August 2011, the Company
advanced $156,900 to Petron Well Services, Inc., an entity majority owned by Petron Special and to Petron Special (which funds
advanced to Petron Special were subsequently paid to ONE Energy in connection with the One Energy Asset Acquisition Agreement).The
advances are unsecured and due upon demand and do not bear interest.



Effective
August 31, 2011, the Company entered into an Executive Employment Agreement with Floyd L. Smith. Pursuant to the employment agreement,
Mr. Smith agreed to serve as President and Chief Executive Officer of the Company for a term of five years, renewable thereafter
for additional one year periods if not terminated by either party, and we agreed to provide Mr. Smith consideration of $200,000
per year; reimbursement for reasonable business expenses; the ability to earn a yearly bonus in the sole discretion of the Board
of Directors of the Company; co-investment rights, providing Mr. Smith the right to participate in the amount of up to 20% of any
acquisition, transaction or funding undertaken by the Company during the term of the employment agreement; stock options to purchase
12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per share, with cashless exercise rights
and a five year term, which vested immediately upon the parties’ entry into the employment agreement; and 1,000 shares of
Series A Preferred Stock which give Mr. Smith Super Majority Voting Rights (described in greater detail above).



On December
5, 2011, Kenny Fox resigned as a Director of the Company.

63









Review, Approval and Ratification
of Related Party Transactions



Given
our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or
ratification of transactions, such as those described above, with our executive officers, Directors and significant stockholders.
However, all of the transactions described above were approved and ratified by our Board of Directors. In connection with the approval
of the transactions described above, our Board of Directors, took into account several factors, including their fiduciary duties
to the Company; the relationships of the related parties described above to the Company; the material facts underlying each transaction;
the anticipated benefits to the Company and related costs associated with such benefits; whether comparable products or services
were available; and the terms the Company could receive from an unrelated third party.



We
intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional
Directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate
committee thereof. On a moving forward basis, our Board of Directors will continue to approve any related party transaction
based on the criteria set forth above.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.



AUDIT FEES



The aggregate fees billed
for the fiscal years ended December 31, 2012 and 2011, for professional services rendered by our independent principal accountants,
KWCO, PC, for the audit of and review our financial statements as included in our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q and Registration Statement on Form S-1, and the review of the financial statements included in our Registration Statement,
as well as services provided in connection with statutory and regulatory filings or engagements for those fiscal years were $116,812
and $88,677, respectively.



AUDIT RELATED FEES



None.



TAX FEES



None.



ALL OTHER FEES



The aggregate fees billed for the fiscal years
ended December 31, 2012 and 2011, for professional services rendered by our independent principal accountants, KWCO, PC, other
than for the audit of our annual financial statements as included in our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and Registration Statement on Form S-1, and the review of the financial statements included in our Registration Statement,
as well as services provided in connection with statutory and regulatory filings or engagements for those fiscal years were $0
and $0, respectively.



PART IV



ITEM 15. EXHIBITS



|Exhibit Number   | Description of Exhibit                                                                                                                   
|---------------- | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 3.1(1)   | Articles of Incorporation                                                                                                                
|Exhibit 3.2(2)   | Certificate of Amendment to Articles of Incorporation (100:1 Forward Split)                                                              
|Exhibit 3.3(2)   | Series A Preferred Stock Designation                                                                                                     
|Exhibit 3.4(1)   | Bylaws                                                                                                                                   
|Exhibit 3.5(3)   | Series B Preferred Stock Designation                                                                                                     
|Exhibit 3.6(3)   | Plan of Reorganization and Asset Purchase Agreement with One Energy                                                                      
|Exhibit 10.23(2) | Oil and Gas Lease – Wagoner, Oklahoma                                                                                                    
|Exhibit 10.24(2) | Independent Petroleum Engineer Report                                                                                                    
|Exhibit 31.1*    | Certificate of the Chief Executive Officer and the Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|Exhibit 32.1*    | Certificate of the Chief Executive Officer and the Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





64





* Attached hereto.



(1) Filed as exhibits to the Company’s Form S-1 Registration
Statement filed with the Commission on July 10, 2009, and incorporated herein by reference.



(2) Filed as an exhibit to the Company’s Report on Form 8-K,
filed with the Commission on October 18, 2011, and incorporated herein by reference.



(3) Filed as an exhibit to the Company’s Report on Form 8-K,
filed with the Commission on February 17, 2012, and incorporated herein by reference.











SIGNATURES



In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                    | PETRON ENERGY II, INC.                                                                                                                                                                                                        
|------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                                                                                                                               
|Dated: May 16, 2013 | By: /s/ Floyd L.
    Smith                                                                                                                                                                                                    
|                    | Floyd L. Smith                                                                                                                                                                                                                
|                    | Chief
        Executive Officer
        (Principal
        Executive Officer,
        Principal
        Accounting Officer and
        Principal
        Financial Officer),
        President,
        Treasurer and Director
|                    |                                                                                                                                                                                                                               







In
accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.





|                    | PETRON ENERGY II, INC.                                                                                                                                                                                                        
|------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                                                                                                                               
|Dated: May 16, 2013 | By: /s/ Floyd L.
    Smith                                                                                                                                                                                                    
|                    | Floyd L. Smith                                                                                                                                                                                                                
|                    | Chief
        Executive Officer
        (Principal
        Executive Officer,
        Principal
        Accounting Officer and
        Principal
        Financial Officer),
        President,
        Treasurer and Director



|                    | PETRON ENERGY II, INC.
|------------------- | ----------------------
|                    |                       
|Dated: May 16, 2013 | By: /s/ David Knepper 
|                    | David Knepper         
|                    | Director              



65