**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

 

FORM 10-K

 

 

 

Commission file number 0-54343

 

**NEW WESTERN ENERGY CORPORATION**

(Exact name of small business issueras specified in its charter)

 

** **

**1140 Spectrum, Irvine, CA 92618**

(Address of principal executive offices)(Zip Code)

**(949) 435-0977**

(Issuer’s telephone number)

 

Indicate by check mark if the registrantis a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

 

Indicate by check mark if the registrantis not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

 

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

 

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

 

Indicate by check mark if disclosureof delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will notbe contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to this Form 10-K. [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes [ ] No [X]

 

The aggregate market value of the registrant’sapproximately 33,606,448 shares of common stock held by non-affiliates computed by reference to the closing sales price of suchcommon equity as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2014)was $4,704,903.

 

Number of shares outstanding of each of the registrant’s common stock as ofApril 14, 2015: Common Stock:75,642,086.

Indicate by check mark if the registrantis a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.  See Rule12b-2 of the Exchange Act for definition of “large accelerated filer, accelerated filer and smaller reporting company”(Check one):

 

 

Documents Incorporated By Reference:None

 

 

**TABLE OF CONTENTS**

 

 

 

 

**CAUTIONARY NOTE ABOUT FORWARD-LOOKINGSTATEMENTS**

 

The information contained in this Reportincludes some statements that are not purely historical and that are “forward-looking statements” within the meaningof Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-lookingstatements relate to, among other things, expectations of the business environment in which we operate, perceived opportunitiesin the market and statements regarding our mission and vision. In addition, any statements that refer to projections, forecastsor other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.You can generally identify forward-looking statements as statements containing the words “anticipates,” “believes,”“continue,” “could,” “estimates,” “expects,” “intends,” “may,”“might,” “plans,” “possible,” “potential,” “predicts,” “projects,”“seeks,” “should,” “will,” “would” and similar expressions, or the negatives ofsuch terms, but the absence of these words does not mean that a statement is not forward-looking.

 

Forward-looking statements involverisks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-lookingstatements. The forward-looking statements contained herein are based on various assumptions, many of which are based, in turn,upon further assumptions. Our expectations, beliefs and forward-looking statements are expressed in good faith on the basis ofmanagement’s views and assumptions as of the time the statements are made, but there can be no assurance that management’sexpectations, beliefs or projections will result or be achieved or accomplished.

 

In addition to other factors and mattersdiscussed elsewhere herein, the following are important factors that, in our view, could cause actual results to differ materiallyfrom those discussed in the forward-looking statements: technological advances, impact of competition, dependence on key personneland the need to attract new management, effectiveness of cost and marketing efforts, acceptances of products, ability to expandmarkets and the availability of capital or other funding on terms satisfactory to us. We disclaim any obligation to update forward-lookingstatements to reflect events or circumstances after the date hereof.

 

For a discussion of the risks, uncertainties, and assumptions that could affect ourfuture events, developments or results, you should carefully review the “Risk Factors” set forth under “Item 1.Description of Business” below. In light of these risks, uncertainties and assumptions, the future events, developmentsor results described by our forward-looking statements herein could turn to be materially different from those we discuss or imply.

PART 1

 

**Item 1.****Description of Business**

 

**Overview**

** **

As used herein and except as otherwisenoted, the term “Company”, “it(s)”, “our”, “us”, “we” and “NWEC”shall mean New Western Energy Corporation, a Nevada corporation, and its consolidated subsidiaries.

 

We are an oil and gas and mineral exploration and production company withcurrent projects located in Oklahoma, Kansas, and Montana. Our principal business is in the acquisition, exploration anddevelopment of, and production from oil, gas and mineral properties. We have a limited operating history with nominalrevenues.

 

We were incorporated in the State ofNevada on September 25, 2008. Our principal executive offices are located at 1140 Spectrum, Irvine, California 92618. Ourtelephone and fax numbers are (949) 435-0977 and (949) 861-3123, respectively.

 

On December 1, 2010, we formed an entitynamed New Western Texas Oil and Gas Corporation incorporated in the State of Nevada, as our wholly-owned subsidiary. New WesternTexas Oil and gas Corporation started its operations in January 2011. On May 3, 2013, New Western Texas Oil and Gas Corporationamended its Articles of Incorporation and changed its name to New Western Gas Corporation.

 

**Strategic Transactions**

** **

On January 22, 2015, we sold all ofour leases and operations in Oklahoma to a third party independent oil company for $100,000.

 

On July 31, 2014, the Company declinedto exercise its option to extend its Wellsboro Mineral Lease on property located in Tioga County, Pennsylvania.

 

On September 5, 2014, we entered intoagreements with Hillair Capital Partners, Ltd. (“Hillair”) and a non-affiliated third party (Purchaser”), whereinHillair assigned all of the monies owed to it by us, in the amount of $1,040,000 (the “Debt”), to the Purchaser andthen we sold two of our oil and gas leases in Wilson County, Kansas to the Purchaser in exchange for the cancellation of the Debt.The transaction resulted in the elimination of $924,000 of debt from our balance sheet and as a result, we recorded a loss of$128,168 in settlement of the Debt to Hillair as of December 31, 2014 on the sale of leases.

 

On December 23, 2014, we entered intoan agreement wherein we acquired the majority control in a newly formed subsidiary jointly owned with Forward Energy LLC of Montanaand named NWE Forward Energy LLC (“NEW/Forward”). NWE/Forward includes all rights, title and interest in and to ForwardEnergy LLC's current and future oil and gas wells, leases, and designated completion equipment license and perpetuity rights.The properties, wells and equipment are located in the Counties of Yellowstone, Golden Valley, Treasure, Musselshell and surroundingCounties of the Crooked Creek Field within South Central Montana. There are 2 re-completed discovery wells with the initial stabilizednatural production of 40 Bbl./day.

 

During 2014, we completed the drillingof three oil and gas wells on our B&W Ranch lease in Chautauqua County, Kansas, pursuant to our 2013 NWE Drilling Program1 Limited Partnership. None of the wells produced enough oil or gas to make them commercially viable.

 

**Subsequent Events**

 

On February 15, 2015, we divested our Texas leases and operations, pursuant to a settlementof a lawsuit, wherein for exchange of the Texas properties we received back 500,000 shares of our common stock originally issuedto the plaintiff.

On February 24, 2015, we entered intoa Securities Purchase Agreement (the "Agreement") with Fodere Titanium Limited , a U.K based company ("Fodere")that holds the exclusive worldwide rights to extraction technologies designed in conjunction with a prominent English universitythat allow for the zero waste recovery of high-grade titanium dioxide (TiO2), high-purity vanadium (V), high carbon steel andother high-value elements from either tailings stockpiles or direct mineral deposits. The Agreement sets forth the principal termsof the transaction regarding the sale to Fodere of 5,000,000 shares of common stock of NWE, plus a 49% interest in NWE's wholly-ownedsubsidiary, New Western Mineral Extraction, Inc. ("NWME"), a Nevada corporation, in exchange for (a) the grant by Fodereof an exclusive license to a patent for the extraction of minerals from tailings in the United States and (b) a 10% interest inthe worldwide revenues from the exploitation of the Fodere patent by Fodere, other than the United States.

 

**Our Current Business**

 

Our principal business strategy is to build our business through the acquisitionof producing oil and natural gas wells, interests and leases. We plan to ultimately engage in the acquisition and explorationof oil and gas properties and to exploit oil and gas reserves we discover that demonstrate economic feasibility. We planto explore new oil and natural gas wells and continue on recovery from stripper wells. A stripper well or “marginalwell” is an oil well that is nearing the end of its economical life.  Oil wells are generally classified asstripper wells when they produce ten barrels per day or less for any twelve month period. We plan to acquire workinginterests in oil and natural gas production companies in the United States that are located in oil and gas producingareas.  We believe that there are opportunities in these areas for the development of oil and gas reserves. Suchnew reserves might come from the development of existing but as yet undeveloped reserves as well as from future success inexploration. We seek to add proved reserves and increase production through the use of advanced technologies, includingdetailed reservoir engineering analysis, drilling development wells utilizing sophisticated techniques and selectivelyrecompleting existing wells. We also focus on reducing the operating costs associated with our properties. We believe thatthe properties we have acquired have significant potential and in certain cases have not been actively developed in thepast.

 

***Our Kansas Projects***

*** ***

**B&W Ranch, Chautauqua County,Kansas**

 

On December 20, 2011, we entered intoan Assignment of Oil and Gas Lease with an independent third party for an oil and gas property in Kansas, referred to as the B&WRanch (“B&W Ranch”), whereby the assignor(s) granted the rights to us to carry on geographical and other exploratorywork, including core drilling, and the drilling, mining and operating for producing, and saving all of the oil and gas, includingall associated hydrocarbons. The assignors agreed to transfer 90% of their rights, title, interest, and duties and obligationsin the Chautauqua Lease to us for a total consideration of $75,000. We have made the $75,000 payment in full and it is reflectedas our investment in oil and gas properties. We have not started any oil and gas exploration on B&W Ranch as of December 31,2014.

 

**Charles and Nancy Smith, ChautauquaCounty, Kansas**

** **

On May 11, 2012, we entered into an Assignment of Oil and Gas Lease with a third partyfor an oil and gas property in Kansas named as the Charles and Nancy Smith (“Smith Lease”), whereby the assignor(s)granted the rights to us to carry geographical and other exploratory work, including core drilling, and the drilling, mining andoperating for, producing, and saving all of the oil and gas, including all associated hydrocarbons. The assignors agreed to transfer90% of their rights, title, interest, and duties and obligations in the Smith Lease to us for a total consideration of $24,750.Our net revenue interest in Smith Lease was calculated at 73.125% subject to the reserved 6.25% Overriding Royalty Interest afterpaying of the mineral owners and other fees. We have paid the total consideration of $24,750 in full and it is reflected as ourinvestment in oil and gas properties. We have not started any oil and gas exploration on Smith Lease as of December 31, 2014.

****

**Lloyd and Patricia Fields, ChautauquaCounty, Kansas**

** **

On November 21, 2012, we entered intoan Assignment of Oil and Gas Lease with a third party for an oil and gas property in Kansas named as the Lloyd and Patricia Fields(“Fields Lease”), whereby the assignor(s) granted the rights to us to carry geographical and other exploratory work,including core drilling, and the drilling, mining and operating for, producing, and saving all of the oil and gas, including allassociated hydrocarbons on approximately 300 acres of land. The assignors agreed to transfer 100% of their rights, title, interest,and duties and obligations in the Fields Lease to us for a total consideration of $14,400. Our net revenue interest in FieldsLease was calculated at 81.25% subject to the reserved 18.75% Royalty Interest payable to the mineral owners. The lease shallremain in force for a term of three (3) years from assignment date and as long thereafter as oil, gas, casing-head gas; casing-headgasoline or any of the products covered by this lease are produced. We have paid the total consideration of $14,400 in full andit is reflected as our investment in oil and gas properties. We have not started any oil and gas exploration on Smith Lease asof December 31, 2014.

 

**Rinck Oil and Gas Lease,Chautauqua County, Kansas**

 

On March 7, 2013, we entered into anAssignment of Rinck Oil and Gas Lease with a third party for an oil and gas property in Kansas named as the “Rinck Lease”,whereby the assignor granted the rights to us to carry geographical and other exploratory work, including core drilling, and thedrilling, mining and operating for, producing, and saving all of the oil and gas, including all associated hydrocarbons. The RinckLease consists of 553.4 acres of land in Chautauqua County, Kansas. The assignor agreed to transfer 100% of the assignor’sright, title and working interest in the Rinck Lease to us for a total consideration of $24,750. Our net revenue interest in theRinck Lease was calculated at 81.25% subject to the royalty of 18.75% payable to the landowners. We have paid the total considerationof $24,750 in full and is reflected as our investment in oil and gas properties. We have not started any oil and gas explorationon the Rinck Lease as of December 31, 2014.

 

**Fredonia Gas Project - Farwell,Puckett and Farwell/Eagle Leases, Wilson County, Kansas**

** **

On June 1, 2013, we completed the acquisition of the "Fredonia GasProspect" consisting of three producing gas leases, the Farwell, Eagle and Puckett leases containing approximately 1,040contiguous acres and 9 producing gas wells all located in the heart of the Cherokee Basin in Wilson County, Kansas. Thethree-lease property is currently producing 7.5 Million MCF per month from 10 producing gas wells. Produced Water isdisposed of into a centrally located arbuckle disposal well with plenty of capacity for future expansion. The three-leaseproperty is located in the central portion of the Cherokee Basin Structural Province. This maturely explored basin is bestknown for its gas production from shallow Pennsylvanian aged Sandstone reservoirs. In the immediate prospect area, gas isproduced from several pay zones of Mississippian and Pennsylvanian age at depths ranging from 600 to 1,400 feet. Bothstratigraphic traps in sandstone reservoirs and structural traps in folded carbonate and clastic rocks are common producersin this area. The three-lease property covers approximately 1,040 acres located two miles east of the town of Fredonia,Kansas. The targeted gas formations for the property are located within the Fredonia and Neodesha Gas Fields. The topographyof the area consists mostly of wooded areas with a few grassland pastures, sloping downward from the Fredonia plateau toriver bottoms, with the Fall River to the east and the Verdigris River to the west. The prospect leases lie adjacent toKansas State Highway 400 and are easily accessible for gas drilling, production and pipeline operations. The total purchaseprice was $325,000 payable $205,000 in cash and $120,000 in two promissory notes to the third parties for conveying their oiland gas interests in these leases as of December 31, 2013. The Company has recorded $203,720 in revenues from sale of gas onthese leases as of December 31, 2014.

 

**Productive Wells and Acreage**

 

For year ended December 31, 2014, we have recorded $348,643 in oil and gas revenuesfrom our working interest in all oil and gas wells. All of our leases are net, after payment of production costs and landowners’royalty. The revenues came principally from our sale of oil from oil wells on our properties located in Rogers County, Oklahoma,and from sale of gas from gas wells located in Fredonia Prospect in Wilson County, Kansas.

**Industry Overview**

 

The market for oil and gas is dependentupon a number of factors beyond our control, which at times cannot be accurately predicted. These factors include the proximityof wells to, and the capacity of, natural gas pipelines, the extent of competitive domestic production and imports of oil andgas, the availability of other sources of energy, fluctuations in seasonal supply and demand, and governmental regulation.  Inaddition, there is always the possibility that new legislation may be enacted, which would impose price controls or additionalexcise taxes upon crude oil or natural gas, or both. Oversupplies of natural gas can be expected to recur from time to time andmay result in the gas producing wells being shut-in. Imports of natural gas may adversely affect the market for domestic naturalgas.

 

The market price for crude oilis significantly affected by policies adopted by the member nations of Organization of Petroleum Exporting Countries ("OPEC").Members of OPEC establish prices and production quotas among themselves for petroleum products from time to time with the intentof controlling the current global supply and consequently price levels. We are unable to predict the effect, if any, that OPECor other countries will have on the amount of, or the prices received for, crude oil and natural gas.

 

Gas prices, which were once effectivelydetermined by government regulations, are now largely influenced by competition.  Competitors in this market includeproducers, gas pipelines and their affiliated marketing companies, independent marketers, and providers of alternate energy supplies,such as residual fuel oil. Changes in government regulations relating to the production, transportation and marketing of naturalgas have also resulted in significant changes in the historical marketing patterns of the industry. Generally, these changes haveresulted in the abandonment by many pipelines of long-term contracts for the purchase of natural gas, the development by gas producersof their own marketing programs to take advantage of new regulations requiring pipelines to transport gas for regulated fees,and an increasing tendency to rely on short-term contracts priced at spot market prices.

** **

**Competition**

 

The oil and gas industry is highlycompetitive. Our competitors and potential competitors include major oil companies and independent producers of varying sizes,all of which are engaged in the acquisition of producing properties and the exploration and development of prospects. Most ofour competitors have greater financial, personnel and other resources than we have. Consequently, they have greater leverage touse in acquiring prospects, hiring personnel and marketing oil and gas. Accordingly, a high degree of competition in these areasis expected to continue.

 

**Governmental Regulations**

 

The production and sale of oil andgas is subject to regulation by state, federal, and local authorities. In most areas there are statutory provisions regulatingthe production of oil and natural gas under which administrative agencies may set allowable rates of production and promulgaterules in connection with the operation and production of such wells, ascertain and determine the reasonable market demand of oiland gas, and adjust allowable rates with respect thereto. 

 

Our operations are subject to extensive and continually changing regulation becauselegislation affecting the oil and natural gas industry is under constant review for amendment and expansion. Many departmentsand agencies, both federal and state, are authorized by statute to issue and have issued rules and regulations binding on theoil and natural gas industry and its individual participants. The failure to comply with such rules and regulations can resultin large penalties. The regulatory burden on this industry increases our cost of doing business and, therefore, affects our profitability.However, we do not believe that these regulations will have a significant negative impact on our operations with the acquiredassets.

The Comprehensive Environmental Response, Compensation, and Liability Act(“CERCLA”) contains provisions requiring the remediation of releases of hazardous substances into the environmentand imposes liability, without regard to fault or the legality of the original conduct, on certain classes of personsincluding owners and operators of contaminated sites where the release occurred and those companies who transport, disposeof, or arrange for disposal of hazardous substances released at the sites. Under CERCLA, such persons may be subject to jointand several liabilities for the costs of cleaning up the hazardous substances that have been released into the environment,for damages to natural resources and for the costs of certain health studies. Third parties may also file claims for personalinjury and property damage allegedly caused by the release of hazardous substances. Although we handle hazardous substancesin the ordinary course of business, we are not aware of any hazardous substance contamination for which we may be liable.

 

Management believes that weare in compliance in all material respects with the applicable environmental laws and regulations to which we are subject. Wedo not anticipate that compliance with existing environmental laws and regulations will have a material effect upon our capitalexpenditures, earnings or competitive position. To date, we have not been required to spend any material amount on compliancewith environmental regulations. However, changes in the environmental laws and regulations, or claims for damages to persons,property, natural resources or the environment, could result in substantial costs and liabilities, and thus there can be no assurancethat we will not incur significant environmental compliance costs in the future.

 

We rely on the operators of the wellsto conduct development and production activities designed to comply with all applicable environmental regulations and permits.While we believe operations of our properties conform to those conditions, they remain at risk for inadvertent noncompliance,conditions beyond our control and undetected conditions resulting from activities by prior owners or operators. Our operatorsin Kansas maintain liability insurance that meet or exceed the amounts required for oil and gas well operators by the Kansas CorporationCommission. We do not maintain our own insurance for protection against environmental liabilities.

 

As of December 31, 2014, we did nothave any estimated proved reserves. The table below sets forth the oil and gas production of the Company for the last three fiscalyears.

 

 

** Employees** 

 

As of December 31, 2014, we had 4 full time employees. We utilize various independentcontractors for marketing, geology research, legal and accounting services.

 

**Item 1A. Risk Factors**

 

***An investment in our securitiesinvolves a high degree of risk. You should carefully consider the risks described below and the other information in this report,including our consolidated financial statements and the notes to those statements, before you purchase any of our shares. Therisks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently knownto us, or that we currently deem immaterial, could negatively impact our business, results of operations or financial conditionin the future. If any of the following risks and uncertainties develops into actual events, our business, results of operationsor financial condition could be adversely affected. In those cases, the trading price of our securities could decline, and youmay lose all or part of your investment.***

  

RISKS RELATED TO OUR BUSINESS

 

**We have a history of losses whichmay continue and which may negatively impact our ability to achieve our business objectives.**

 

We have incurred cumulative net lossesof $8,525,719 for the period from September 25, 2008 (inception) to December 31, 2014. We cannot be assured that we can achieveor sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competitioninherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Wemay not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

 

**We will require additional capitalto fund our future activities. If we fail to obtain additional capital, we may not be able to implement fully our business plan.**

 

We are dependent on our ability toobtain financing to supplement our cash flow from operations. Historically, we have financed our business plan and operationsprimarily with issuances of common stock. We also require capital to fund our capital budget. Production of oil and gas will requiresignificant capital expenditures and successful drilling operations. We will be required to meet our needs from our internallygenerated cash flows, debt financings and equity financings.

 

If our revenues decrease as a resultof lower commodity prices, operating difficulties, declines in production or for any other reason, we may have limited abilityto obtain the capital necessary to sustain our operations at current levels. We may, from time to time, need to seek additionalfinancing. Even if additional capital is needed, we may not be able to obtain debt or equity financing on terms favorable to us,or at all. If cash generated by operations is not sufficient to meet our capital requirements, the failure to obtain additionalfinancing could result in a curtailment of our operations relating to exploration and development of our projects, which couldlead to a possible loss of properties and a decline in any oil and gas we may recover.

 

**Our independent registered publicaccounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our abilityto obtain future financing.**

 

In their report dated April 15, 2015, our independent registered public accountingfirm stated that our consolidated financial statements for the fiscal year ended December 31, 2014 were prepared assumingthat we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result ofrecurring losses and cash used in operations since September 25, 2008 (inception). We continue to experience net operatinglosses. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outsidesources, including obtaining additional funding from the sale of our securities. Our continued net operating losses increasethe difficulty in meeting such goals, and there can be no assurances that such methods will prove successful. In addition, wemost likely will need to raise monies for future development costs. Even though these development costs may be incurred overa three to five year period, we may be unable to raise the funds necessary to cover such costs.  We have raised$6,550,292 in capital since our inception in September 2008 through April 7, 2015. Therefore, there is no assurance thatfurther capital can be raised, which if not raised, will substantially change our plans to develop any of our oilproperties.

 

**Oil and gas prices are volatile,and a decline in gas or oil prices could significantly affect our business, financial condition or results of operations and ourability to meet our capital expenditure requirements and financial commitments.**  

 

Our revenues, profitability and cash flow depend substantially upon the prices and demandfor oil and gas. The markets for these commodities are volatile, and even relatively modest drops in prices can affect significantlyour financial results and impede our growth. Prices for oil and gas fluctuate widely in response to relatively minor changes inthe supply and demand for oil and gas, market uncertainty and a variety of additional factors beyond our control, such as:

 

Further, gas prices and oil pricesdo not necessarily fluctuate in direct relationship to each other.

 

The results of higher investment inthe exploration for and production of gas and other factors may cause the price of gas to drop. Lower oil and gas prices may notonly cause our revenues to decrease but also may reduce the amount of oil and gas that we can produce economically. Substantialdecreases in gas and oil prices would render uneconomic some or all of our drilling locations. This could have a material adverseeffect on our financial condition, results of operations and cash flow.

 

**Drilling and exploring for, andproducing, oil and gas are high risk activities with many uncertainties that could adversely affect our business, financial conditionor results of operations.**

 

Drilling and exploration are the mainmethods we use to replace our hydrocarbons. However, drilling and exploration operations may not result in any increases in hydrocarbonsfor various reasons. Exploration activities involve numerous risks, including the risk that no commercially productive gas oroil reservoirs will be discovered. In addition, the future cost and timing of drilling, completing and producing wells is oftenuncertain. Furthermore, drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including:

 

 

Our decisions to purchase, explore,develop and exploit prospects or properties depend in part on data obtained through geophysical and geological analyses, productiondata and engineering studies, the results of which are often uncertain. Even when used and properly interpreted, 3-D seismic dataand visualization techniques only assist geoscientists and geologists in identifying subsurface structures and hydrocarbon indicators.They do not allow the interpreter to know conclusively if hydrocarbons are present or producible economically. In addition, theuse of 3-D seismic and other advanced technologies require greater pre-drilling expenditures than traditional drilling strategies.

  

In addition, higher oil and gas pricesgenerally increase the demand for drilling rigs, equipment and crews and can lead to shortages of, and increasing costs for, suchdrilling equipment, services and personnel. Such shortages could restrict our ability to drill the wells and conduct the operationsthat we currently have planned. Any delay in the drilling of new wells or significant increase in drilling costs could adverselyaffect our ability to increase our production and reduce our revenues.

 

**Our actual production, revenuesand expenditures related to our oil and gas prospects are likely to differ from our internal estimates of hydrocarbons. We mayexperience production that is less than estimated and drilling costs that are greater than estimated. These differences may bematerial.**

 

For business purposes, we estimatethe amount of hydrocarbons available in our prospects. Petroleum engineering is a subjective process of estimating undergroundaccumulations of oil and gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and gas reservesand of future net cash flows necessarily depend upon a number of variable factors and assumptions, including:

 

 

Because all estimates of recoverableoil and gas are to some degree subjective, each of the following items may differ materially from those assumed in estimatingreserves:

 

 

Estimates of proved undeveloped reservesare even less reliable than estimates of proved developed reserves.

 

Furthermore, different engineers maymake different estimates of recoverable oil and gas and cash flows based on the same available data. Our actual production, revenuesand expenditures will likely be different from estimates and the differences may be material. Actual future net cash flows alsowill be affected by factors such as:

 

 

For the reasons above, and until morein depth reports are completed, we make no representations that we have any proved, probable or possible reserves of oil or gas.

 

**Competition in the oil andgas industry is intense, and many of our competitors have resources that are greater than ours.**

 

We operate in a highly competitive environment for acquiring prospects and productiveproperties, marketing oil and gas and securing equipment and trained personnel. Many of our competitors are major and large independentoil and gas companies that possess and employ financial, technical and personnel resources substantially greater than ours. Thosecompanies may be able to develop and acquire more prospects and productive properties than our financial or personnel resourcespermit. Our ability to acquire additional prospects and discover reserves in the future will depend on our ability to evaluateand select suitable properties and consummate transactions in a highly competitive environment. Also, there is substantial competitionfor capital available for investment in the oil and gas industry. Larger competitors may be better able to withstand sustainedperiods of unsuccessful drilling and absorb the burden of changes in laws and regulations more easily than we can, which wouldadversely affect our competitive position. We may not be able to compete successfully in the future in acquiring prospective reserves,developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.

**We depend on our management teamand other key personnel. Accordingly, the loss of any of these individuals could adversely affect our business, financial conditionand the results of operations and future growth.**

 

Our success largely depends on theskills, experience and efforts of our management team. The loss of the services of one or more members of our senior managementteam could have a negative effect on our business, financial condition, results of operations and future growth. We have enteredinto an employment agreement with Javan Khazali, our President and Chief Executive Officer. *See ITEM 11“Executive Compensation*”.If he or other key personnel resign or become unable to continue in their present roles and are not adequately replaced, our businessoperations could be materially adversely affected. Our ability to manage our growth, if any, will require us to attract, motivateand retain additional qualified personnel. Competition for these types of personnel is intense, and we may not be successful inattracting, assimilating and retaining the personnel required to grow and operate our business profitably.

** **

**We are subject to complex governmentallaws and regulations that may adversely affect the cost, manner or feasibility of doing business.**

 

Our operations and facilities are subjectto extensive federal, state and local laws and regulations relating to the exploration for, and the development, production andtransportation of, oil and gas, and operating safety, and protection of the environment, including those relating to air emissions,wastewater discharges, land use, storage and disposal of wastes and remediation of contaminated soil and groundwater. Future lawsor regulations, any adverse changes in the interpretation of existing laws and regulations or our failure to comply with existinglegal requirements may harm our business, results of operations and financial condition. We may be required to make large andunanticipated capital expenditures to comply with governmental laws and regulations, such as:

 

 

Under these laws and regulations, wecould be liable for:

 

 

Our operations could be significantlydelayed or curtailed, and our cost of operations could significantly increase as a result of environmental safety and other regulatoryrequirements or restrictions. We are unable to predict the ultimate cost of compliance with these requirements or their effecton our operations. We may be unable to obtain all necessary licenses, permits, approvals and certificates for proposed projects.Intricate and changing environmental and other regulatory requirements may require substantial expenditures to obtain and maintainpermits. If a project is unable to function as planned, for example, due to costly or changing requirements or local opposition,it may create expensive delays, extended periods of non-operation or significant loss of value in a project.

 

**Attempts to grow our business couldhave an adverse effect on our ability to manage our growth effectively.**

 

Because of our small size, we desireto grow rapidly in order to achieve certain economies of scale. Although there is no assurance that this rapid growth will occur,to the extent that it does occur, it will place a significant strain on our financial, technical, operational and administrativeresources. As we increase our services and enlarge the number of projects we are evaluating or in which we are participating,there will be additional demands on our financial, technical and administrative resources. The failure to continue to upgradeour technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties,including the recruitment and retention of geoscientists and engineers, could have a material adverse effect on our business,financial condition and results of operations.

 

**Operating hazards, natural disastersor other interruptions of our operations could result in potential liabilities, which may not be fully covered by insurance.**

 

The oil and gas business involves certainoperating hazards such as: 

 

The occurrence of one of the abovemay result in injury, loss of life, suspension of operations, environmental damage and remediation and/or governmental investigationsand penalties.

 

In addition, our operations in Oklahomaand Texas are especially susceptible to damage from natural disasters such as tornados and involve increased risks of personalinjury, property damage and marketing interruptions. Any of these operating hazards could cause serious injuries, fatalities orproperty damage, which could expose us to liabilities. The payment of any of these liabilities could reduce, or even eliminate,the funds available for exploration, development, exploitation and acquisition, or could result in a loss of our properties.

 

**The Financial Industry RegulatoryAuthority sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.**

 

In addition to the “penny stock”rules referred to below, the Financial Industry Regulatory Authority, which we refer to as FINRA, has adopted rules that requirethat in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investmentis suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealersmust make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectivesand other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculativelow priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealersto recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverseeffect on the market for shares of our common stock.

 

**RISKS RELATED TO THE OWNERSHIPOF OUR SECURITIES**

 

**We do not anticipate paying any dividends in the foreseeable future, which may reducethe return on your investment in our common stock.**

** **

****

On April 1, 2014, the Company offeredto sell pursuant to a private placement, under a Regulation S offering to non-US investors only, 1,500,000 Units to raise $7,500,000.The minimum investment in this offering is for 5,000 Units for $25,000. Each Unit consists of two (2) shares of Series A 7% ConvertiblePreferred Stock, par value $0.0001 per share and one (1) redeemable Class F Warrant of the Company to purchase ten (10) sharesof common stock. Each share of Series A Preferred Stock pays a 7% annual dividend for the first year ending March 31, 2015 andthereafter, a 10% dividend payable, at the option of the Company, in cash or in the Company’s common stock. Each Class FWarrant entitles the holder thereof to purchase, at any time until the expiration date of March 31, 2017, ten (10) shares of CommonStock at an exercise price of $0.30 per share, subject to adjustment. The Class F Warrants are redeemable by the Company, at aredemption price of $0.05 per Warrant, upon at least 30 days’ prior written notice, commencing six months after the dateof this private placement, if the average of the closing bid price of the Common Stock, as reported on the Over-The-Counter orother exchange, shall equal or exceed $1.00 per share (subject to adjustment) for ten (10) consecutive business days prior to thenotice of redemption. The Units are being offered on a “best effort basis” by the Company through its officers anddirectors and selected finders and broker/dealers.

 

The Company has sold 127,000 Units andraised $635,000 as of December 31, 2014. The Company has issued 254,000 Series A 7% convertible Preferred Shares, par value $0.0001per share, and warrants to purchase 2,540,000 shares of common shares at an exercise price of $0.30 per share as of December 31,2014.

 

On September 25, 2014, the Company offeredto sell pursuant to a private placement, under a Regulation S offering to non-US investors only, 400,000 Units to raise $2,000,000.The minimum investment in this offering is for 5,000 Units for $25,000. Each Unit consists of one (1) share of Series B 7% ConvertiblePreferred Stock, par value $0.0001 per share and one (1) redeemable Class G Warrant of the Company to purchase twenty-five (25)shares of common stock. Each share of Series B Preferred Stock pays a 7% annual dividend for the first year ending March September30, 2015 and thereafter, a 10% dividend payable, at the option of the Company, in cash or in the Company’s common stock.Each Class G Warrant entitles the holder thereof to purchase, at any time until the expiration date of September 30, 2017, twenty-five(25) shares of Common Stock at an exercise price of $0.20 per share, subject to adjustment. The Class G Warrants are redeemableby the Company, at a redemption price of $0.05 per Warrant, upon at least 30 days’ prior written notice, commencing six monthsafter the date of this private placement, if the average of the closing bid price of the Common Stock, as reported on the Over-The-Counteror other exchange, shall equal or exceed $1.00 per share (subject to adjustment) for ten (10) consecutive business days prior tothe notice of redemption. The Units are being offered on a “best effort basis” by the Company through its officersand directors and selected finders and broker/dealers.

 

The Company has sold 40,100 Units andraised $200,500 as of December 31, 2014. The Company has issued 40,100 Series B 7% convertible Preferred Shares, par value $0.0001per share, and warrants to purchase 1,002,500 shares of common shares at an exercise price of $0.20 per share as of December 31,2014. 

To date, the Company has not paid anycash dividends on its common stock and does not anticipate paying any such dividends in the foreseeable future. Payment of futuredividends will depend on earnings and the capital requirements of New Western, and New Western's debt facilities and other factorsconsidered appropriate by New Western's Executive Officers and Directors. We cannot guarantee that we will, at any time, generatesufficient profits or surplus cash that would be available for distribution as a dividend to the holders of our common stock.Our current plans are to use any profits that we may generate, if we generate any profits at all, to fund our operations. Therefore,any return on your investment would derive from an increase in the price of our stock, which may or may not occur.

** **

**We will need to raise additionalcapital and, in so doing, will further dilute the total number of shares issued and outstanding.**

 

We will need to raise additional capitalby issuing additional shares of common stock and will, thereby, increase the number of common shares outstanding. There can beno assurance that this additional capital will be available and, if the capital is available at all, that it will be availableon terms acceptable to us. The issuances of additional equity securities by New Western may result in a significant dilution inthe equity interests of its current security holders. Alternatively, we may have to borrow large sums, and assume debt obligationsthat require us to make substantial interest and capital payments. If we are able to raise additional capital, we cannot assurethat it will be on terms that enhance the value of our common shares. If we are unable to obtain financing in the amounts andon terms deemed acceptable, the business and future success will almost certainly be adversely affected.

 

**The regulation of “Penny”stocks by the SEC and FINRA may discourage the tradability of our common stock.**

 

We are a "penny stock" company.Our securities are subject to a Securities and Exchange Commission rule that imposes special sales practice requirements uponbroker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of therule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, orindividuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combinedwith a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitabilitydetermination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Effectively,this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasersin this offering to sell their securities in any market that might develop therefore because it imposes additional regulatoryburdens on penny stock transactions.

 

In addition, the Securities and ExchangeCommission has adopted a number of rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securitiesconstitute "penny stocks" within the meaning of the rules, the rules would apply to us and to our securities. The ruleswill further affect the ability of owners of shares to sell our securities in any market that might develop for them because itimposes additional regulatory burdens on penny stock transactions.

 

Shareholders should be aware that,according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraudand abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often relatedto the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleadingpress releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projectionsby inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and(v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desiredconsequent shareholder losses. Our management is aware of the abuses that have occurred historically in the penny stock market.

** **

****

**Rule 144 Sales In the Future MayHave a Depressive Effect on our Stock Price.**

 

All of the outstanding shares of commonstock that are held by our present officers, directors, and affiliate stockholders are "restricted securities" withinthe meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted Shares, these shares may be resold only pursuantto an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registrationunder the Act and as required under applicable state securities laws. Rule 144 provides in essence that an affiliate who has heldrestricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a numberof shares that does not exceed the greater of 1.0% of a company's outstanding common stock or the average weekly trading volumeduring the four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold bya non-affiliate after the owner has held the restricted securities for a period of six months. A sale under Rule 144 or underany other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders,may have a depressive effect upon the price of the common stock in any market that may develop.

 

**The market price of our common stockcould be subject to significant fluctuations and the market price could be subject to any of the following factors:**

 

** **

**Item 1B. Unresolved StaffComments.**

** **

None

 

**Item 2.**** Properties.**

 

We do not own any real property. Welease approximately 850 sq. ft. of office space in Irvine, California, at a monthly rent of $1,910.  The Company hasentered into a month-to-month lease at a monthly rent of $2,100 starting May 1, 2015. We believe that if necessary there is sufficientoffice space available at favorable leasing terms both to replace existing office space and to satisfy any additional needs wemay have as a result of future expansion.

 

**Item 3.****Legal Proceedings**.

** **

On November 12, 2013, a complaint was filed in the District Court of Taylor County,Texas, captioned Brent and Brook Hatchett (“Hatchetts”) v. New Western Energy Corporation, Case No. 25,863-B. Thecomplaint asserts breach of contract on the part of the Company relating to a Plan and Agreement of Reorganization (the “Contract”)wherein the Company acquired all of the issued and outstanding capital stock of Royal Texas Energy Co. from the Hatchetts. TheHatchetts were seeking the remaining consideration payable to them for the acquisition by New Western Energy Corporation of RTEin addition to general damages. Of the total 1,000,000 common shares to be paid as consideration to the owners of RTE, 400,000shares have been issued and 600,000 common shares have been issued but not distributed to Hatchetts by the Company (See Note 13).

 

On February 10, 2015, the Company enteredinto a Settlement Agreement and Mutual Release of Claims (the “Agreement”) with Brent and Brook Hatchett in full settlementof all legal actions and disputes between the parties, including the dismissal with prejudice of the pending lawsuit in Texas.In accordance with the settlement, on March 4, 2015, the Company cancelled 600,000 shares of previously issued but not distributedshares and returning it to authorized but unissued status, thus reducing the Company’s current number of shares outstandingby 600,000 shares. The Company has not issued and distributed to Hatchetts the remaining 100,000 shares of common stock as of thedate of this report.

 

We are not a party to any other legalproceedings.

 

**Item 4.****Mine Safety Disclosures.**

  

None.

 

**PART II**

 

**Item 5.****Market for Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.**

 

**Market Information**

 

The Company's common stock, par value,$0.0001 per share ("Common Stock") began trading on the Over the Counter Electronic Bulletin Board ("OTC:BB")under the symbol "NWTR” in July 2011. The following table sets forth, for the period indicated, the range of high andlow closing “Bid” prices reported by the OTC. Such quotations represent prices between dealers and may not includemarkups, markdowns, or commissions and may not necessarily represent actual transactions.

 

 

**Penny Stock Considerations**

 

The trading of our common stock isdeemed to be "penny stock" as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securitieswith a price of less than $5.00. Our shares thus are subject to rules that impose sales practice and disclosure requirements onbroker-dealers who engage in certain transactions involving a penny stock.

 

The penny stock rules require a broker-dealer,prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure documentthat provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide thecustomer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salespersonin connection with the transaction, and the monthly account statements showing the market value of each penny stock held in thecustomer’s account.  In addition, the penny stock rules generally require that prior to a transaction in a pennystock; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaserand receive the purchaser's written agreement to the transaction.

 

These disclosure requirements may havethe effect of reducing the level of trading activity in the secondary market for our securities which are subject to the pennystock rules.  Thus, investors may find it more difficult to sell their securities.

 

**Stockholders**

 

As of the date of this Report, we had 62 stockholders of record of our common stock.This figure does not include holders of shares registered in “street name” or persons, partnerships, associates, corporationsor other entities identified in security position listings maintained by depositories.

**Dividend Policy**

 

We have not declared any cash dividendson our common stock since our inception and do not anticipate paying any dividends in the foreseeable future. We plan to retainfuture earnings, if any, for use in our business. Any decisions as to future payments of dividends will depend on our earningsand financial position and such other facts, as the Board of Directors deems relevant.

** **

**Reports to Stockholders**

 

We are currently subject to the informationand reporting requirements of the Securities Exchange Act of 1934 and will continue to file periodic reports, and other informationwith the SEC. We intend to send annual reports to our stockholders containing audited financial statements.

 

**Transfer Agent**

 

Pacific Stock Transfer located at 4045South Spencer Street, Suite 403, Las Vegas, NV 891219 is the registrar and transfer agent for our common stock.

 

**Recent Sales of UnregisteredSecurities**  

 

Between November 1, 2014 and March31, 2015, we sold 97,500 Units, consisting of One Series B Convertible Preferred Stock and One class F Warrant, at $5.00 per Unitfor an aggregate amount of $487,500. The Unit were sold to eight accredited investors pursuant to a Regulation S private placement.All of the investors are non-residents of the U.S. and all investors purchased the Units outside of the U.S.

 

On December 15, 2014, we issued 200,000 shares of our common stock to a consultantfor services rendered. The common stock issued  was valued at $0.08 per share or $16,000 based upon the closing price of theeffective date of the issuance.

 

On December 23, 2014, we issued 1,000,000shares of our common stock (the “Shares”) in connection with a joint venture that we entered into with Forward EnergyLLC. The Shares were issued as an inducement to Forward to enter into the transaction and is being valued at $60,000 and shownon our financial statements as a cost of the transaction.

 

Pursuant to the September 25, 2014private placement offering to sell preferred stock Series B under a Regulation S offering to non-US investors only, the Companysold 57,400 units and received $287,000 since January 1, 2015 to the date of this report.

 

All of the issuances by us of our unregisteredsecurities were made in reliance upon Regulation D, Section 4(2) and/or Regulation S of the Securities Act of 1933, as amended(the “1933 Act”). The entities or individuals listed above that purchased the unregistered securities were knownto us and our management, through pre-existing business relationships.  They were provided access to all material information,all information necessary to verify such information, and our management in connection with the purchases.  The purchaserof the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledgingsuch intent to us. All certificates or agreements representing such securities that were issued contained restrictive legends,prohibiting further transfer of the certificates or agreements representing such securities, without such securities either beingfirst registered or otherwise exempt from registration in any further resale or disposition.

 

**Additional Information**

 

Copies of our annual reports on Form10−K, quarterly reports on Form 10−Q, current reports on Form 8−K, and any amendments to those reports, areavailable free of charge on the Internet at www.sec.gov. All statements made in any of our filings, including all forward-lookingstatements, are made as of the date of the document, in which the statement is included, and we do not assume or undertake anyobligation to update any of those statements or documents unless we are required to do so by law.

 

**Item 6.****Selected financialData.**

** **

Not required under Regulation S-K for“smaller reporting companies.”

  

**Item 7.****Management’sDiscussion and Analysis of Financial Condition and Results of Operation.**

** **

*This 10−K containsforward-looking statements. Our actual results could differ materially from those set forth as a result of general economicconditions and changes in the assumptions used in making such forward-looking statements. The following discussion andanalysis of our financial condition and results of operations should be read together with the audited consolidated financialstatements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis setforth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve asa basis for projections of future events. Refer also to “Risk Factors” and "Cautionary Note RegardingForward Looking Statements" in Item 1 above.  *

** **

**Results of Operations for the YearsEnded December 31, 2014 and December 31, 2013.**

 

Revenues 

Revenues for the years ended December31, 2014 and 2013 were $348,643 and $115,204, respectively. Revenues increased in 2014 by $233,439 or 203% primarily due to theacquisition of Fredonia Prospect consisting of Farwell and Puckett gas leases in Wilson County, Kansas in June 2013 and Volunteersand Landers oil leases in December 2013. Fredonia Prospect oil and gas sales accounted for $255,955 of the total revenues of 2014as compared to $78,631 in 2013, and Winchester lease in Rogers County, Oklahoma acquired in December 2013, contributed $34,509from sale of oil production in 2014 as compared to $23,363 in 2013.

 

Operating Expenses 

Operating expenses for the year ended December 31, 2014 were $3,359,226 as comparedto $1,786,970 for the same comparable period in 2013. Operating expenses increased by $1,572,256 or 88% in 2014 primarily dueto (i) increase in general and administrative expenses of $603,272 in 2014 as a result of (a) increase in compensation expenseof the president and directors fees of $162,500, (b) increase in investor relations, shareholder services and business consultingand advisory services of $344,526, (c) increase in travel expense of $83,897 due to performing due diligence on acquisitions ofleases in Oklahoma and Kansas, (d) increase in licensing and registration cost, legal, accounting and insurance of $105,593 forobtaining legal and title opinions of oil and gas leases in Oklahoma and Kansas, (e) increase in marketing and commission expense,business development and press releases totaling $205,391 for capital raising from third party investors and stockholder; andfor creating market awareness of our Company due to increase in operations; (ii) decrease of depreciation, depletion and amortizationexpense of $23,447 primarily due to decrease in amortization expense of mineral lease of $27,245 offset by a net increase of $3,848of depreciation and depletion expense as a result of placing additional oil and gas equipment of $47,395 in service since January1, 2014 as compared to prior year, (iii) impairment expense in 2014 consisted of impairment of $779,406 of oil and gas leases.In January 2013, management took a conservative position and determined to initiate straight line amortization of all oil andgas unproved properties acquired over the remaining lease term since management is uncertain as to recover the asset value butimmediate impairment is not indicated. Impairment expense in 2013 consisted of impairment of $36,744 of all oil and gas leasesand well equipment of RTE due to no activity of such oil and gas properties in Texas.

On February 28, 2013, we sold 100% of ourworking interest in 402 acres of oil and gas leases in the Swenson, McLellan and Reves leases located in Jones County, Texas toa third party and recorded a gain of $65,424. On June 11, 2013, we sold 100% of our working interest in Mrs. W. G. Trice, Triceand Methodist Home and Trice Methodist “400” Lease, located in Shackelford County, Texas and recorded a gain of $12,170.As a result, we recorded a gain of $77,594 for the year ended December 31, 2013.

 

Oil and gas production expenses for the yearended December 31, 2014 and 2013 were $538,774 and $366,600, respectively. Oil and gas production expenses increased by $172,174or 47% as compared to the same comparable period in 2013, primarily due to the Company expending $184,777 on exploration, drillingand production costs associated with Volunteer, Landers, Winchester II, Anna and Puckett oil leases, and Farwell, Puckett andMoab gas leases, and costs to maintain the remaining oil and gas properties. The Company did not own Moab gas leases in 2013 andacquired Winchester oil lease in December 2013 and acquired Farwell and Volunteer leases in June 2013.

 

Other Income (Expenses)

Other expenses consist of interest expense,loss on settlement of debt and change in the fair value of embedded conversion option and warrant liabilities. Interest expensefor the year ended December 31, 2014 and 2013 was $1,404,642 and $441,150, respectively. Interest expense increased by $963,492in 2014 as compared to 2013 as a result of (i) increase in interest expense of $157,574 on the promissory notes executed by usfor acquisition of oil and gas leases and our working capital needs, (ii) increase in interest expense of $808,656 related tothe amortization of the original issue discount on loans, and (iii) decrease in interest expense of $2,738 related to the amortizationof the debt discount due to embedded conversion option liabilities on convertible notes.

 

Loss on settlement of debt by sale of oilleases for the year ended December 31, 2014 and 2013 was $128,168 and $0, respectively. On September 4, 2014, we sold our ownershipinterest in Volunteer and Landers Leases to Legend Oil & Gas Ltd. in exchange for extinguishment of our convertible promissorynote debt, and recorded a loss of $128,168.

 

The convertible promissory notes issued by us on (i) June 5, 2013 for $75,000,(ii) September 26, 2013 for $50,000, (iii) November 6, 2013 for $1,232,000, and (iv) November 5, 2013 promissory note to astockholder for $1,500,000 with warrants attached, qualifies for derivative accounting treatment due to the variableconversion formula. As a result, we recorded a change in the fair value of the liabilities for the embedded conversion optionderivative instrument of $1,267,029 for the year ended December 31, 2014 as compared to $729,795 for the year ended December31, 2013.

 

Dividend payable to preferred stockholders for the year ended December 31, 2014 and 2013 was $27,498 and $0, respectively. The dividend was calculated at an annual rate of 7% on the contributions received from the preferred stock holders. The Company received in cash $835,500 from the sale of preferred shares for the year ended December 31, 2014.    

 

Our 51% owned subsidiary 2013 NWE Drilling Program 1 LP recorded a loss of $281,752 for the year ended December 31, 2013. We allocated $138,058 of the limited partnership’s loss to its noncontrolling member in our consolidated financial statements as of December 31, 2013. As a result, the noncontrolling interest of the limited partner was reduced to $511,942 at December 31, 2013.   Our 51% owned subsidiary 2013 NWE Drilling Program 1 LP recorded a loss of $248,047 and $138,058 for the years ended December 31, 2014 and 2013, respectively. We allocated the limited partnership’s losses to its noncontrolling member in our consolidated financial statements as of December 31, 2014 and 2013. As a result, the noncontrolling interest of the limited partner was reduced to $263,895 at December 31, 2014.  

 

As a result of the above explanations,net loss applicable to New Western Energy Corporation’s common stockholders for the year ended December 31, 2014 was $3,057,590as compared to $2,705,453 for the year ended December 31, 2013.

** **

**Liquidity and Capital Resources**

 

The accompanying financial statements for the years ended December 31, 2014and 2013 have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilitiesand commitments in the normal course of business. We have continuing net losses and negative cash flows fromoperating activities. In addition, we have deficiencies in working capital as of the balance sheet dates. These conditionsraise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do notinclude any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unableto continue as a going concern. These circumstances caused our independent registered public accounting firm to include anexplanatory paragraph in their report dated April 15, 2015, regarding their concerns about our ability to continue as a goingconcern. Our ability to continue as a going concern depends on our ability to develop mineral leases and sell oil and gasthat generates sufficient revenue and cash flows to meet our obligations and on our ability to obtain additional financing orsell assets as may be required to fund current operations. Management’s plans include generating income from ourcurrent oil leases and oil drilling operations to permit us to generate sufficient cash flows to continue as a going concern.There is no assurance these plans will be realized.

 

Net cash used in operating activitiesfor the year ended December 31, 2014 was $1,894,296 primarily due to the net loss for the year of $3,057,590, offset by depreciationof $39,368, impairment expenses of $817,548, amortization of debt discount of $1,042,967, stock compensation issued for servicesof $270,000, amortization of deferred debt issuance cost of $145,640, loss applicable to noncontrolling interest of $248,047,loss of $128,168 on settlement of convertible note payable, change in the fair value of embedded conversion option liability of$648,018, change in fair value of warrant liability of $621,212, decrease in accounts receivable of $17,976, decrease in inventoryof $1,249, increase in prepaid expenses and other current assets of $30,609, increase in accounts payable of $3,315, increasein accrued expenses of $117,070 and increase in accrued interest payable of $127,879.

 

Net cash flows used in investing activitiesfor the year ended December 31, 2014 was $163,563 due to the purchase of property and equipment of $1,168, purchase of oil andgas equipment of $47,395, cash advanced towards a promissory note receivable of $75,000, cash received towards the promissorynote receivable of $10,000, and cash paid for purchase and capitalized cost of oil and gas properties of $50,000.

 

Net cash flows provided by financingactivities for the year ended December 31, 2014 was $545,678 principally due to cash proceeds of $835,500 received from the saleof preferred stock pursuant to a private placement, cash received from promissory notes of $20,000, cash repayments of $308,000for notes payable, and cash repayments of related party advances of $1,822.

 

As a result of the above activities, we experienced a net decrease in cash andcash equivalents of $1,512,181 for the year ended December 31, 2014. Cash and cash equivalents at December 31, 2014 amountedto $11,000.

 

To date, we have financed our operations primarily through private placements of the sale of our securities inprivate offering transactions that were exempt from the registration requirements of the Securities Act and throughborrowings. During the years ended December 31, 2014 and 2013, we raised $835,500 and $158,000, respectively, from the saleof equity securities and $0 from third party lenders. We have also borrowed from our President and Chief Executive Officerfrom time to time for our working capital requirements. As of December 31, 2014 and 2013, we received cash advances of $0 and$44,922, respectively, and repaid $1,822 and $85,500, respectively. Our working capital and other capital requirements forthe next twelve months will vary based upon a number of factors, including the period required to bring our proposed drillingprograms to commercial viability, the level of sales of oil and gas, acquisition costs for new oil and gas leases, and theamounts we invest in strategic relationships. However, because several factors related to the growth of our operations remainoutside of our control, there can be no assurance we will achieve commercial viability on our anticipated timeline. 

We believe that existing funds, fundsgenerated from our operations, plus those we raise from borrowings and sales of our securities will be sufficient to support ouroperations for the next twelve months. However, it is possible we will not be able to maintain our core services through suchperiod or that we will not raise sufficient additional funds from asset sales and borrowings to cover operational expenses. Underthose circumstances, we will need to obtain additional funding to support our operations. Because we have no contractual commitmentswith respect to any of these initiatives, there can be no assurance that additional funds for operations will be available oncommercially reasonable terms or in the necessary amounts. Our inability to obtain any needed additional financing would havea material adverse effect on us, including possibly requiring us to significantly curtail our operations.

** **

**Effects of Inflation**

 

We do not believe that inflation hashad a material impact on our business.

 

**Critical Accounting Estimates andPolicies**

 

The preparation of financial statementsin conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptionsthat affect the amounts reported in the consolidated financial statements and judgments related to the application of certainaccounting policies. While we base our estimates on historical experience, current information and other factors deemed relevant,actual results could differ from those estimates. We consider accounting estimates to be critical to our reported financial resultsif (i) the accounting estimate requires us to make assumptions about matters that are uncertain and (ii) different estimates thatwe reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that arereasonably likely to occur from period to period, would have material impact on our consolidated financial statements.

 

We consider our policies for oil andgas properties, mineral properties, long lived assets, asset retirement obligations, environmental matters, valuation of embeddedconversion option liabilities, valuation of derivatives and revenue recognition to be critical, due to the continuously evolvingstandards and industry practices related to revenue recognition, wherein any changes could materially impact the way we reportrevenues. Accounting policies related to: fair value of financial instruments, stock-based compensation, and income taxes arealso considered to be critical as these policies involve considerable subjective judgment and estimation by management. Criticalaccounting policies and our procedures related to these policies are described below. 

 

**Oil and Gas Properties**

The Company uses the successful efforts method of accounting for oil and gas producingactivities. Costs to acquire interest in oil and gas properties, to drill and equip exploratory wells that find proved reserves,to drill and equip development wells and related asset retirement costs are capitalized. Costs to drill exploratory wells, includingequipment and facilities are capitalized as part of “Uncompleted Wells, Equipment and Facilities” pending determinationof whether the well has found proved reserves. Costs to drill exploratory wells that find proved reserves are reclassified toproved oil and gas properties while costs that do not find proved reserves, geological and geophysical costs, and costs of carryingand retaining undeveloped properties are expensed.

 

Unproved oil and gas properties that are individually significant are periodicallyassessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Managementmay also determine to initiate straight line amortization of a property over the remaining useful life of the lease if managementis uncertain as to its ability to recover the asset value but immediate impairment is not indicated. Capitalized costs of producingoil and gas properties (proved or unproved), after considering estimated residual salvage values, are depleted by the unit-of-productionmethod. Support equipment and other property and equipment are depreciated over their estimated useful lives.

 

On the sale or retirement of a complete unit of a proved property, the cost and relatedaccumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or lossis recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation,depletion, and amortization with a resulting gain or loss recognized in income. 

On the sale of an entire interest inan unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amountof any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold,the amount received is treated as a reduction of the cost of the interest retained.

 

**Mineral Properties**

Costs of acquiring mining propertiesare capitalized upon acquisition in accordance with ASC 930 “*Extractive Industries – Mining* ” if theproperty is determined to have commercially minable deposits. Mine exploration costs are expensed as incurred. Mine developmentscosts are expensed as incurred and are capitalized once proven and probable reserves exist. Costs incurred to maintain currentproduction or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operationsupon abandonment.

 

Depletion of producing mineral propertiesis recorded using the unit-of-production method.

 

**Goodwill**

Goodwill represents the excess of the Company’s purchase price over the fairvalues of the respective identifiable assets acquired and liabilities assumed in business combinations.  Goodwill is notamortized. For the 2012 acquisition, goodwill is not recognized for tax purposes. Goodwill is subject to impairment tests onan annual basis or more frequently if facts and circumstances warrant such a review.  Goodwill is evaluated usingspecific methods required in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”). Management initially performs a qualitative assessment of goodwill to determine if it is more likelythan not that the fair value of a reporting unit is less than its carrying value including goodwill.  If the qualitativeassessment indicates impairment then the Company conducts a discounted cash flows analysis to determine the fair value of areporting unit and comparison of the carrying value of goodwill to its implied fair value. The analysis involves significantmanagement judgment to evaluate the capacity of an acquired business to perform within projections.  In the event factsand circumstances indicate the carrying value of goodwill is impaired, the goodwill carrying value will be reduced to itsimplied fair value through a charge to operating expenses.

 

**Long-lived Assets**

In accordance with ASC 360, “*Property,Plant, and Equipment”*, we test long-lived assets or asset groups for recoverability when events or changes in circumstancesindicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limitedto: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors;accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset;current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated withthe use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly beforethe end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset compared to the estimatedfuture undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisalin certain instances. An impairment loss equal to the excess of the carrying value over the assets fair market value is recognizedwhen the carrying amount exceed the undiscounted cash flows.

 

**Asset Retirement Obligations**

We follows the provisions of ASC 410,“*Asset Retirement and Environmental Obligations”*, which establishes standards for the initial measurement andsubsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arisingfrom the acquisition, construction or development and for normal operations of such assets. We did not have any asset retirementobligation at December 31, 2014 and 2013.

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**Environmental Matters**

Our operations are subject to evolvingfederal, state and local environmental laws and regulations related to the discharge of materials into the environment. Our processis not expected to produce harmful levels of emissions or waste by-products. However, these laws and regulations would requireus to remove or mitigate the environmental effects of the disposal or release of substances at our site should they occur. Compliancewith such laws and regulations can be costly. Additionally, governmental authorities may enforce the laws and regulations witha variety of civil and criminal enforcement measures, including monetary penalties and remediation requirements. We are not awareof any area of non-compliance with federal, state or local environmental laws and regulations as of the date of this report.

 

**Derivative Instruments**

ASC Topic 815, “*Derivativesand Hedging* (“ASC Topic 815”)”, establishes accounting and reporting standards for derivative instrumentsand for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gainsor losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensiveincome (loss) depending upon the purpose of the derivatives and whether they qualify and have been designated for hedge accountingtreatment. The Company does not have any derivative instruments for which it has applied hedge accounting treatment.

 

**Revenue Recognition**

The Company sells crude oil, gas andminerals under short-term agreements at prevailing market prices. Revenue, which is the Company's net revenue interest in theleased property, is recognized at the point of sale, when the crude oil, gas and minerals are extracted from our storage unitsby the customer. This is at the point where the customer has taken title and has assumed the risks and rewards of ownership, thesales price is fixed or determinable and collectability is reasonably assured.

 

For sale of gas, the Company recordsrevenue based on an estimate of the volumes delivered at the agreed-upon price and then adjusts revenue in subsequent periodsbased upon the data received from the purchaser that reflects actual volumes received. Generally, proceeds from gas productionare received from one to three months after the actual delivery has occurred. Thus, it is usually necessary to estimate gas revenuebased on prior months’ production volumes and current lease operating data, such as meter readings, in order to preparefinancial statements on a timely basis.

 

**Stock-based Compensation**

In accordance with ASC 718, “*Compensation– Stock Compensation”*, the Company accounts for share-based payments to employees using the fair value method.All transactions in which goods or services are received for the issuance of equity instruments are accounted for based on thefair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.The Company generally uses the Black-Scholes option pricing method to compute the fair value of options or warrants granted forgoods or services.

 

Share based payments to non-employeesare accounted for under the measurement and recognition criteria of ASC 505-50 “ *Equity Based Payments to Non-Employees*”.

 

**Recent Accounting Pronouncements**

 

See Note 2 of our Consolidated FinancialStatements included in this report for discussion of recent accounting pronouncements.

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**Item 7A.****Quantitative andQualitative Disclosures about Market Risk.**

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Not required under Regulation S-K for“smaller reporting companies.”

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**Item 8.****Financial Statementsand Supplementary Data.**

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Our audited consolidated financial statements are set forth in this Annual Report beginningon page F-1.

 

 

**NEW WESTERN ENERGY CORPORATIONAND SUBSIDIARIES**

 

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