UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-Q





(Mark One)


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


For the quarterly period ended:  November 30, 2009





[  ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT


For the transition period from to


Commission file number:000-52959





Sterling Oil & Gas Company


(Exact name of small business issuer as specified in its charter)




Nevada
20-8999059(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)




121 W. Merino St.


PO Box 500


Upton, WY 82730


(Address of principal executive offices)





(307) 468-9368


(Issuer’s telephone number)





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





Indicate by check mark 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                                   [X] 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
[X]





State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:15,925,000 shares of common stock, $.00001 par value and 0 shares of preferred stock, $.00001 par value as of January 8, 2010












STERLING OIL & GAS COMPANY





INDEX





PagePART 1.
FINANCIAL INFORMATIONITEM 1.
FINANCIAL STATEMENTSCondensed Balance Sheets as of  November 30, 2009 (Unaudited) and February 28, 2009
3Condensed Statements of Operations for the three months ended November 30, 2009 and 2008 and for the nine months ended November 30, 2009  and 2008 and for the cumulative period from May 1, 2007 (inception ) through November 30, 2009 (Unaudited)
4Condensed Statements of Cash Flows  for the nine months  ended  November 30, 2009 and 2008, and for the cumulative period from May 1, 2007 (inception) through November 30, 2009 (Unaudited)
5Condensed Statement of Shareholders’ Equity for the nine months ended November  30, 2009 and the cumulative period from May 1, 2007 (inception) to November 30, 2009 (Unaudited)
6Notes to Condensed Financial Statements
7ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14ITEM 4T.
CONTROLS AND PROCEDURES
18PART II.
OTHER INFORMATION
18ITEM 1.
Legal Proceedings
18ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18ITEM 3.
Default Upon Senior Securities
18ITEM 4.
Submission of Matters to a Vote of Security Holders
18ITEM 5.
Other Information
18ITEM 6.
EXHIBITS
18SIGNATURES
19





-2-




ITEM 1.
FINANCIAL STATEMENTS.


Sterling Oil & Gas Company(An Exploration Stage Company)Condensed Balance SheetsNovember 30,2009


February 28,Assets

(Unaudited)


2009Current assets:Cash and cash equivalents

$
160,500


$
66,321Total current assets


160,500



66,321Oil and Gas Properties-Unproved Properties, full cost method(less $256,424 and $483,855 impairment, respectively)


310,241



713,619Total Assets

$
470,741


$
779,940Liabilities and Shareholders’ EquityAccounts payable

$
401


$
2,585Shareholders’ equity:Preferred stock, $.00001 par value; 100,000,000 shares authorized,0 shares  issued and outstanding


--



--Common stock, $.00001 par value; 100,000,000 shares authorized,15,925,000 shares issued and outstanding at November 30, 2009and February 28, 2009.


159



159Additional paid-in capital


2,281,832



2,267,782Deficit accumulated during development stage


(1,811,651
)


(1,490,586
)Total shareholders’ equity


470,340



777,355Total Liabilities and Shareholders’ Equity

$
470,741


$
779,940







See accompanying notes to condensed financial statements.


-3-




Sterling Oil & Gas Company(An Exploration Stage Company)Condensed Statements of Operations(Unaudited)May 1, 2007For the Three Months


For the Nine months


(inception)ended


ended


ThroughNovember 30,


November 30,


November 30,2009


2008


2009


2008


2009Revenues

$
--


$
--


$
--


$
--


$
--Costs and expensesPersonnel costs


--



--



27,278



175,602



268,756Professional fees


22,324



27,754



59,892



135,942



288,774Impairment and abandonment ofunproved properties


--



--



228,482



--



1,228,337Other general and administrative


3,732



1,731



6,960



15,895



36,044Operating loss


(26,056
)


(29,485
)


(322,612
)


(327,439
)


(1,821,911
)Other income (expense)Interest income


1,011



108



1,547



2,773



10,260Net loss

$
(25,045
)

$
(29,377
)

$
(321,065
)

$
(324,666
)

$
(1,811,651
)Basic and diluted loss per share

$
(0.00
)

$
(0.00
)

$
(0.02
)

$
(0.02
)Weighted average common sharesoutstanding, basic and diluted


15,925,000



15,549,176



15,925,000



15,205,364






See accompanying notes to condensed financial statements.





-4-


Sterling Oil & Gas Company(An Exploration Stage Company)Condensed Statements of Cash Flows(Unaudited)From May 1,2007(inception )For the Nine months ended


throughNovember 30,


November 30,2009


2008


2009Cash Flows From Operating Activities:Net Loss

$
(321,065
)

$
(324,666
)

$
(1,811,651
)Adjustments to reconcile net loss to net cash used by operating activities:Contributed services


14,050



4,900



53,550Impairment and abandonment ofunproved properties


228,482



--



1,228,337Changes in operating assets and liabilities:Trading securities


--



282,799



--Accounts payable


(2,184
)


(14,797
)


401Net cash (used in)operating activities


(80,717
)


(51,764
)


(529,363Cash flows from investing activities:Unproved oil and gas properties-additions


(8,104
)


(35,803
)


(216,436
)Refund of purchase deposit


--



--



80,856Unproved oil and gas properties-sales


183,000



--



391,233Net cash provided by (used in)investing activities


174,896



(35,803
)


255,653Cash flows from financing activities:Proceeds from the sale of common stock


--



185,000



435,000Payments for offering costs


--



--



(790
)Net cash provided byfinancing activities


--



185,000



434,210Net Increase in cash andcash equivalents


94,179



97,433



160,500Cash and cash equivalents:Beginning of period


66,321



6,426



--End of period

$
160,500


$
103,859


$
160,500Noncash investing and financing transaction:Transfer of oil and gas propertiesfrom Big Cat

$
--


$
--


$
1,794,231








See accompanying notes to condensed financial statements.


-5-


Sterling Oil & Gas Company(An Exploration Stage Company)Condensed Statement of Shareholders’ Equity(Unaudited)Balance,at May 1, 2007( Inception)


--


$
--


$
--


$
--


$
--Stock issued for properties transferred from Big Cat at inception, 5/1/2007, $0.1794 per share


10,000,000



100



1,794,131



–



1,794,231Private placement June 2007, $0.05 per share


5,000,000



50



249,950



–



250,000Other-contributed services


–



–



30,800



–



30,800Other costs-issuance fees










(790
)






(790
)Net loss


–



–



–



(740,320
)


(740,320
)Balance, February 29, 2008


15,000,000



150



2,074,091



(740,320
)


1,333,921Public offering August 2008, $0.20 per share


325,000



3



64,997



–



65,000Public offering October 2008, $0.20 per share


600,000



6



119,994



--



120,000Other-contributed services


--



--



8,700



--



8,700Net loss


–



–



–



(750,266
)


(750,266
)Balance, February 28, 2009


15,925,000



159



2,267,782



(1,490,586
)


777,355Other-contributed services


--



--



14,050



--



14,050Net loss


--



--



--



(321,065
)


(321,065
)Balance, November 30, 2009


15,925,000


$
159


$
2,281,832


$
(1,811,651
)

$
470,340See accompanying notes to condensed financial statements


-6-


Sterling Oil & Gas Company


(An Exploration Stage Company)


Notes to Condensed Financial Statements





1.
Presentation, Organization and Nature of Operations:




Presentation





The accompanying condensed financial statements of Sterling Oil & Gas Company (the “Company”) at November 30, 2009 and 2008 have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements pursuant to instructions to Form 10-Q and Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended February 28, 2009. In management’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make
the Company’s financial statements not misleading have been included. The results of operations for the period ended November 30, 2009 and 2008 presented are not necessarily indicative of the results to be expected for the full year. The February 28, 2009 balance sheet has been derived from the Company’s audited financial statements included in the Company’s annual report on Form 10-K for the year ended February 28, 2009.





Description of Operations





Sterling Oil & Gas Company (“Sterling”) is an independent energy company engaged in the exploration and acquisition of natural gas and crude oil prospects in the western United States. On May 1, 2007, Big Cat Energy Corporation (“Big Cat”) formed Sterling as a wholly owned subsidiary and transferred its unproved
oil and gas properties, consisting of various mineral leases and related costs, to Sterling in return for 10 million shares of Sterling restricted common stock. On April 2, 2008, Big Cat spun off Sterling by distributing the 10 million shares it held pro rata to the Big Cat shareholders.





The Company is in the exploration stage in accordance with Codification Topic 915, Development Stage Entities. The Company has been in the exploration stage since inception and has yet to enter revenue-producing operations. Activities since its inception have primarily involved organization
and development of the Company.





2.
Liquidity:




Going Concern





As of November 30, 2009, the Company had working capital of $160,099 and shareholders’ equity of $470,340. Sterling has relied upon outside investor funds to maintain its operations and develop its business. Sterling’s plan for continuation anticipates continued funding from investors. This funding would be used for operations,
for working capital, as well as business expansion during the upcoming fiscal year. The Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company and there is substantial doubt about the ability of the Company to continue as a going concern.





Sterling’s ability to continue as a going concern is dependent upon raising capital through debt or equity financing and ultimately by producing revenue and achieving profitable operations. The Company can offer no assurance that it will be successful in its efforts to raise additional proceeds or achieve profitable operations. The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business, and no adjustments have been made as a result of this uncertainty.





-7-


3.
Significant Accounting Policies:




Use of Estimates





The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of any oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various assumptions it believes to be reasonable under the circumstances. Although actual results may differ from these estimates under different assumptions or conditions, the Company believes that its estimates are reasonable.





Cash and Cash Equivalents





Cash and cash equivalents include cash on hand, amounts held in banks and highly liquid investments purchased with an original maturity of three months or less.





Concentrations of Credit Risk





The Company’s cash equivalents are exposed to concentrations of credit risk as the Company may have cash in banks in excess of federally insured amounts.   The Company manages and controls this risk by investing these funds with major financial institutions.




Oil and Gas Properties





The Company follows the full cost method of accounting whereby all costs related to the acquisition and exploration of oil and gas properties are capitalized into a single cost center (“full cost pool”).  Such costs include lease acquisition costs, geological and geophysical expenses, overhead directly related to
exploration activities and costs of drilling both productive and non-productive wells.  Proceeds from property sales are generally credited to the full cost pool without gain or loss recognition unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs. A significant alteration would typically involve a sale of 25% or more of the proved reserves related to a single full cost pool. Generally, any such sale of unproved properties
will also be recognized on a cost recovery basis with no gain or loss.





As of November 30, 2009, the Company does not have any proven oil and gas reserves and all of its properties are unproved. The costs of unproved properties will be withheld from the depletion base until such time as they are either developed or abandoned.  Unproved properties are assessed at least annually by the Company for
impairment. Impairment is estimated by the Company by applying factors based on historical experience and other data such as primary lease terms of the properties, average holding periods of unproved properties, and geographic and geologic data of groupings of individually insignificant properties and projects. Therefore, any impairment of said unproved properties would result in an expense to the Company.




Depletion of exploration and development costs and depreciation of production equipment is computed using the units of production method based upon estimated proved oil and gas reserves.   Total well costs, if and when drilled, will be transferred to the depletable pool even when multiple targeted zones have not been fully evaluated.  For
depletion and depreciation purposes, relative volumes of oil and gas production and reserves are converted at the energy equivalent rate of six thousand cubic feet of natural gas to one barrel of crude oil.





-8-


Under the full cost method of accounting, capitalized oil and gas property costs, less accumulated depletion and net of deferred income taxes (full cost pool), may not exceed an amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and gas reserves less the future cash outflows associated
with the asset retirement obligations that have been accrued in the balance sheet plus the cost, or estimated fair value, if lower of unproved properties and the costs of any properties not being amortized.  Should the full cost pool exceed this ceiling, an impairment is recognized.  The present value of estimated future net revenues is computed by applying current oil and gas prices to estimated future production of proved oil and gas reserves as of period end, less estimated future expenditures
to be incurred in developing and producing the proved reserves assuming the continuation of existing economic conditions.





Asset Retirement Obligations





The Company will follow the provisions of Codification Topic 410 Asset Retirement and Environmental Obligations (ARO);at such time as it acquires or drills oil and gas wells.  The estimated fair value of the future costs associated with dismantlement, abandonment and restoration
of oil and gas properties will be recorded when incurred, generally upon acquisition or completion of a well.  The net estimated costs will be discounted to present values using a risk adjusted rate over the estimated economic life of the oil and gas properties.  Such costs will be capitalized as part of the related asset.  The asset will be depleted on the units-of-production method.  The associated liability will be classified in other long-term liabilities in the accompanying
balance sheets.  The liability will be periodically adjusted to reflect (1) new liabilities incurred, (2) liabilities settled during the period, (3) accretion expense, and (4) revisions to estimated future cash flow requirements.  The accretion expense will be recorded as a component of depreciation, depletion and amortization expense in the accompanying statements of operations.  As of November 30, 2009, the Company has no ARO obligation.





Income Taxes





Income taxes are accounted for by recognizing deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax basis of assets, liabilities and carryforwards. Deferred tax assets are recognized for the expected future
effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefit which, more likely than not, are not expected to be realized.





We adopted Codification Topic 740, Income Taxes as of March 1, 2008. This topic provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not"
recognition threshold at the effective date to be recognized upon the adoption of Codification Topic 740 and in subsequent periods. We have identified no significant uncertain tax positions as of February 28, 2009 or at November 30, 2009. The cumulative effect of adopting Codification Topic 740 has not resulted in a liability on the balance sheet. The total amount of unrecognized tax benefits as of the date of adoption was zero.





We recognize interest and penalties related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were accrued as of February 28, 2009 or at November 30, 2009.





Risks and Uncertainties





Historically, oil and gas prices have experienced significant fluctuations and have been particularly volatile in recent years.  Price fluctuations can result from variations in weather, levels of regional or national production and demand, availability of transportation capacity to other regions of the country and various other
factors.  Increases or decreases in prices received could have a significant impact on future results.





-9-





Fair Value of Financial Instruments





The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and accounts payable. The fair market value of these financial instruments approximates or is equal to the book value.





In the first quarter of fiscal year 2009, the Company adopted Codification Topic 820 Fair Market Measurement and Disclosures  including the application of the statement to non-recurring, non-financial assets and liabilities. The adoption of Codification Topic 820 did not
have a material impact on the Company’s fair value measurements. Codification Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Codification Topic 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:





Level 1- Quoted prices in active markets for identical assets or liabilities.


Level 2- Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.


Level 3- Unobservable inputs based on the Company’s assumptions,





Codification Topic 820 requires the use of observable market data if such data is available without undue cost and effect.




Net Loss Per Share





Basic net loss per share is computed using the weighted average number of common shares outstanding during the period.  Contingently issuable shares are included in the computation of basic net income (loss) per share when the related conditions are satisfied.  Diluted net income (loss) per share is computed using the
weighted average number of common shares and potentially dilutive securities outstanding during the period.  Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive.





As of November 30, 2009 the Company had 15,925,000 shares of common stock outstanding and warrants for the purchase of 3,425,000 shares. As of November 30, 2008 the Company had 15,325,000 shares of common stock outstanding and warrants for the purchase of 2,825,000 shares. The warrants were excluded from the calculation of diluted earnings
per share for both years, due to the fact that they were anti-dilutive.





Reclassifications





Certain amounts for the period May 1, 2007 (Inception) to November 30, 2009 have been reclassified to conform to the November 30, 2009 presentation. Such reclassifications had no effect on net loss.





Other Comprehensive Income





The Company does not have any material items of other comprehensive income for the nine months ended November 30, 2009 or 2008.  Therefore, total comprehensive income (loss) is the same as net income (loss) for these periods.





Recent Accounting Developments





In June 2009, the FASB approved the FASB Accounting Standards Codification (ASC), which after its effective date of July 1, 2009 is the single source of authoritative, nongovernmental U.S. Generally Accepted Accounting Principles (GAAP). The Codification reorganizes all previous U.S. GAAP pronouncements into roughly 90 accounting topics
and displays all topics using consistent structure. All existing standards that were used to create the Codification are now superseded, replacing the previous references to specific Statements of Financial Accounting Standards (SFAS) with numbers used in the Codification’s structural organization. The adoption of this guidance did not have a material impact on our financial statements. We have updated our disclosures accordingly.





-10-


Recent changes to SEC Regulation S-K and S-X pertaining to Modernization of Oil and Gas Reportinginclude changes to the price used to compute reserves, the definition of reserves, the use of technology and the optional disclosure of probable and possible reserves. The new regulations
are effective for years ending after December 15, 2009. As the Company currently has no reserves, we do not expect the adoption to have any significant effect on our financial statements.





4.
Oil and Gas Property Acquisitions and Dispositions:




During the nine months ended November 30, 2009, the Company completed a review of its oil and gas leaseholds and elected not to pay delay rentals on certain leases in the Powder River Basin of Montana and therefore abandoned the leases. The effect of abandonment of these leases was a reduction of 9,991net mineral acres leaving the Company
with 11,701 net mineral acres, which is considered a significant reduction in our oil and gas properties. As a result, the Company wrote off $152,321 against its impairment reserve and recorded an abandonment of unproved properties expense of $228,482 to reflect the reduction in acreage.





During the nine months ended November 30, 2008, the Company completed a review of its oil and gas leaseholds and elected not to pay delay rentals on leases in Rosebud and Custer counties of Montana and therefore abandoned the leases. The effect of abandonment of these leases was a reduction in our net mineral acreage of 54,614 to 22,511.
The Company wrote off $516,000 against its impairment reserve to reflect the reduction in acreage.





During the year ended February 28, 2009, the Company reviewed its oil and gas leaseholds and based on the sale of its interest in Cedar Resources and additional information, the Company recorded an impairment of $428,855 on its leasehold interests.





During the nine months ended November 30, 2009, the Company paid joint venture title work costs, and delay rentals of $8,104 compared to $35,803 for the nine months ended November 30, 2008.





5.
RELATED PARTY TRANSACTIONS:





During the three months ended November 30, 2009, certain officers of Big Cat Energy Corporation, an affiliated public company, performed part time management duties for the Company. The Company did not pay cash for these services; however, the Company recorded the services at a fair market value as consulting fees and additional paid-in
capital. Contributed services were $900 for the three months ended November 30, 2009 compared to $4,900 for contributed services for the same period in 2008.





The amount of contributed services for the nine  months ended November 30, 2009 were $14,050 compared to $4,900 for  contributed services during the same period in 2008.





In September 2009, the Company contracted with RGS Resources LLC to provide CFO services to the company on a monthly basis. RGS Resources LLC’s Manager is Richard G. Stifel, the Chief Financial Officer, Principal Financial Officer and Secretary for the Company.  The Company paid consulting fees of $15,625 to RGS Resources
LLC during the three months ended November 30, 2009.





6.
Shareholders’ Equity:




There were no cash-based equity transactions during the nine months ended November 30, 2009.





-11-


During the nine months ended November 30, 2008 the Company sold 925,000 units for $.20 per unit, each unit consisting of one free trading share of its common stock and one warrant to purchase one share of free trading common stock exercisable at $.50 per share.  The Company received proceeds of $185,000 from the sale of units.
The offering was made as part of the Form S-1 Post Effective Amendment 3 which became effective on July 14, 2008. Following the above sale, the Company’s outstanding common stock increased to 15,925,000 shares.





In accordance with Codification Topic 815, Derivatives and Hedging, and the terms of the warrants and the transaction documents, the warrants were determined to represent an equity transaction and therefore the fair value of the warrants are contained within the equity section and
not separately recorded apart from the common shares issued as part of the private placement.




7.
Income Taxes:




The federal net operating loss (NOL) carryforward of approximately $1,493,000 as of November 30, 2009 expires on various dates through 2029. Internal Revenue Code Section 382 places a limitation on the amount of taxable income which can be offset by NOL carryforwards incurred before a change in control.   “Change
in control” for these purposes generally means greater than a 50% change in ownership of the corporation.  After a change in control, a loss corporation cannot deduct NOL carryforwards existing at the time of the change in control in excess of the Section 382 limitations.  Due to these “change in ownership” provisions, utilization of NOL carryforwards may be subject to an annual limitation in future periods.  We have not performed a Section 382 analysis, however approximately
ninety percent of the present NOL was incurred during the fiscal years beginning March 1, 2007, and thereafter.




We have established a full valuation allowance against the deferred tax assets because, based on the weight of available evidence including our continued operating losses, it is more likely than not that all of the deferred tax assets will not be realized.  Because of the full valuation allowance, no income tax expense or benefit
is reflected on the statement of operations.





We adopted Codification Topic 740, Income Taxes as of March 1, 2008. This topic provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not"
recognition threshold at the effective date to be recognized upon the adoption of Codification Topic 740 and in subsequent periods. We have identified no significant uncertain tax positions as of February 28, 2009 or at November 30, 2009. The cumulative effect of adopting Codification Topic 740 has not resulted in a liability on the balance sheet. The total amount of unrecognized tax benefits as of the date of adoption was zero.





No interest and penalties related to uncertain tax positions were accrued as November 30, 2009.





8.
Commitments and Contingencies:




Environmental Issues– The Company is or may be engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental clean up of well sites or other environmental restoration procedures as
they relate to the drilling of oil and gas wells and the operation thereof.  If the Company acquires existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated.  Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company.  Management
believes its properties, all of which are currently unproved, are operated in conformity with local, state and federal regulations.  No claim has been made, nor is the Company aware of any uninsured liability which the Company may have, as it relates to any environmental clean up, restoration or the violation of any rules or regulations relating thereto.





-12-


9.
Subsequent Events:





The Company has evaluated subsequent events through January 4, 2010, the date which the financial statements are available to be issued.





















































-13-




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








Forward-Looking Statements





This Quarterly Report includes certain statements that may be deemed to be “forward-looking statements” that reflect our current views with respect to future events and financial performance. All statements include in this Quarterly Report, other than statements of historical
facts, address matters that we reasonably expect, believe or anticipate will or may occur in the future. Forward-looking statements may relate to, among other things:





§
our future financial position, including working capital and anticipated cash flow;





§
the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas;





§
market demand;





§
risks and uncertainties involving geology of oil and gas deposits;





§
the uncertainty of any reserve estimates and reserves life;





§
the uncertainty of estimates and projections relating to any production, costs and expenses;





§
potential delays or changes in plans with respect to exploration or development projects or capital expenditures;





§
fluctuations in oil and gas prices;





§
health, safety and environmental risks;





§
uncertainties as to the availability and cost of financing; and





·
the possibility that government policies or laws may change or governmental approvals may be delayed or withheld.





Other sections of this Quarterly Report may include reference to additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible
for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.





Our forward looking statements contained in this Quarterly Report are made as of the respective dates set forth in this Quarterly Report. Such forward-looking statements are based on the beliefs, expectations and opinions of management as of the date the statements are made. We do not intend to update these forward-looking statements,
except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.




-14-


Plan of Operations





For the fiscal years ending February 28, 2010 and 2011, the Company’s plan of operation is to evaluate new oil and gas projects that are available to the Company and evaluate utilization of the Company’s existing Montana leasehold interests.   The Company presently has 11,701 leasehold net mineral acres.  Our
ability to explore and develop our acreage or to acquire other acreage for development and to maintain existing acreage depends upon our ability to raise additional capital through equity fundraising and/or borrowing.  Depending upon available funds, we may conduct our own field tests or exploration on one or more of our properties in Montana to determine the appropriate structure for possible development.    There is limited historical financial information about our current operations
upon which to base an evaluation of our performance. We are in development stage operations and have not generated any revenues from current operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, the current lack of production, and possible cost overruns due to price and cost increases in services and operations. Further, we have no assurance that future
financing will be available to us on acceptable terms to enable us to develop the business of the Company. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders.





Results of Operations





Three Months Ended November 30, 2009 compared to the Three Months Ended November 30, 2008




We reported a net loss for the three months ended November 30, 2009 of $25,045 as compared to a net loss of $29,377 for the same period in 2008.




Our other general and administrative costs were $3,732 during the three month period ended November 30, 2009 as compared to $1,731 for the same period in 2008.




We had $22,324 of professional fees, of which $900 were non-cash, during the three month period ended November 30, 2009, compared to $27,754, $4,900 of which were non-cash, for the same period in 2008. The professional fees in 2009 were paid to consultants for CFO services and legal fees associated with SEC compliance. The professional
fees in 2008 were for consultants paid to locate future lease opportunities and for legal fees associated with Company stock offerings and required SEC compliance.




Nine Months Ended November 30, 2009 compared to the Nine Months Ended November 30, 2008




We reported a net loss for the nine months ended November 30, 2009 of $321,065 compared to net loss of $324,666 for the same period in 2008. The net loss for the nine months ended November 30, 2009 included a non-cash loss on abandonment of leaseholds of $228,482 and non-cash professional fees of $14,050.




We had personnel expense of $27,278 for the nine months ended November 30, 2009 compared to $175,602 for the nine months ended November 30, 2008. The payroll in 2009 was for one paid employee as compared to four paid employees in 2008.




Our other general and administrative costs were $6,960 for the nine months ended November 30, 2009, compared to $15,895 for the nine  month period ended November 30, 2008.




We had $59,892 of professional fees, of which $14,050 is non-cash, for the nine months ended November 30, 2009 compared to $135,942 of professional fess, $4,900 of which were non-cash, during the nine months ended November 30, 2008.   The professional fees are for consultants paid to locate future lease opportunities and
provide CFO services and legal fees for required SEC filings and fees associated with a Company stock offering.






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Liquidity and Capital Resources





As of November 30, 2009, we had working capital of $160,099, and it is uncertain whether this amount will be sufficient to fund operations. Therefore, we may seek additional sources of capital for the coming year.





For the nine months ended November 30, 2009 cash used in operating activities was $80,717. Cash used in operating activities was primarily our net loss offset by non-cash loss on leaseholds of $228,482. Cash used in operating activities for the nine months ended November 30, 2008, was $51,764.  Cash used in operations was primarily
a result of our net loss offset by $282,799 from the liquidation of trading securities.





Cash provided by investing activities was $174,896 for the nine months ended November 30, 2009, primarily from the sale of unproved properties. Cash used in investing activities was $35,803 for the nine months ended November 30, 2008, for the payment of delay rentals.





There were no financing activities for the nine months ended November 30, 2009.  Cash flow provided by financing activities was $185,000 for the nine months ended November 30, 2008, from a private placement of Company stock.





During the nine months ended November 30, 2008 the Company sold 925,000 units, each unit consisting of one free trading share of its common stock and one warrant to purchase one share of free trading common stock exercisable at $.50 per share.  The Company received proceeds of $185,000
from the sale of the units. The offering was made as part of the Form S-1 Post Effective Amendment 3 which became effective on July 14, 2008. Following the above sale, the Company’s outstanding common stock increased to 15,925,000 shares.





In accordance with Codification Topic 815, Derivatives and Hedging, and the terms of the warrants and the transaction documents, the warrants were determined to represent an equity transaction and therefore the fair value of the warrants are contained
within the equity section and not separately recorded apart from the common shares issued as part of the private placement.




Financial Instruments and Other Information




As of November 30, 2009 we had cash and cash equivalents, accounts payable and accrued liabilities, which are each carried at approximate fair value due to the short maturity date of those instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed
to significant interest, currency or credit risks arising from these financial instruments.




Critical Accounting Polices and Estimates





Use of Estimates in the Preparation of Financial Statements





The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of any oil and gas reserves, assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various assumptions it believes to be reasonable under the circumstances. Although actual results may differ from these estimates under different assumptions or conditions, the Company believes that its estimates are reasonable.




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Oil and Gas Properties





The Company follows the full cost method of accounting whereby all costs related to the acquisition and exploration of oil and gas properties are capitalized into a single cost center (“full cost pool”).  Such costs include lease acquisition
costs, geological and geophysical expenses, overhead directly related to exploration activities and costs of drilling both productive and non-productive wells.  Proceeds from property sales are generally credited to the full cost pool without gain or loss recognition unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs. A significant alteration would typically involve a sale of 25% or more of the proved reserves related
to a single full cost pool. Generally, any such sale of unproved properties will also be recognized on a cost recovery basis with no gain or loss.





As of November 30, 2009, the Company does not have any proven oil and gas reserves and all of its properties are unproved. The costs of unproved properties will be withheld from the depletion base until such time as they are either developed or abandoned.  Unproved
properties are assessed at least annually by the Company for impairment. Impairment is estimated by the Company by applying factors based on historical experience and other data such as primary lease terms of the properties, average holding periods of unproved properties, and geographic and geologic data of groupings of individually insignificant properties and projects. Therefore, any impairment of said unproved properties would result in an expense to the Company.




Depletion of exploration and development costs and depreciation of production equipment is computed using the units of production method based upon estimated proved oil and gas reserves.   Total well costs, if and when drilled, will be transferred
to the depletable pool even when multiple targeted zones have not been fully evaluated.  For depletion and depreciation purposes, relative volumes of oil and gas production and reserves are converted at the energy equivalent rate of six thousand cubic feet of natural gas to one barrel of crude oil.





Under the full cost method of accounting, capitalized oil and gas property costs, less accumulated depletion and net of deferred income taxes (full cost pool), may not exceed an amount equal to the present value, discounted at 10%, of estimated future net
revenues from proved oil and gas reserves less the future cash outflows associated with the asset retirement obligations that have been accrued in the balance sheet plus the cost, or estimated fair value, if lower of unproved properties and the costs of any properties not being amortized.  Should the full cost pool exceed this ceiling, an impairment is recognized.  The present value of estimated future net revenues is computed by applying current oil and gas prices to estimated future production
of proved oil and gas reserves as of period end, less estimated future expenditures to be incurred in developing and producing the proved reserves assuming the continuation of existing economic conditions.  However, subsequent commodity price increases may be utilized to reduce or eliminate any impairment.





Risks and Uncertainties





Historically, oil and gas prices have experienced significant fluctuations and have been particularly volatile in recent years.  Price fluctuations can result from variations in weather, levels of regional or national production and demand, availability
of transportation capacity to other regions of the country and various other factors.  Increases or decreases in prices received could have a significant impact on future results.





Recently Issued Accounting Pronouncements:





In June 2009, the FASB approved the FASB Accounting Standards Codification (ASC), which after its effective date of July 1, 2009 is the single source of authoritative, nongovernmental U.S. Generally Accepted Accounting Principles (GAAP). The Codification
reorganizes all previous U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using consistent structure. All existing standards that were used to create the Codification are now superseded, replacing the previous references to specific Statements of Financial Accounting Standards (SFAS) with numbers used in the Codification’s structural organization. The adoption of this guidance did not have a material impact on our financial statements. We have updated our disclosures accordingly.





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Recent changes to SEC Regulation S-K and S-X pertaining to Modernization of Oil and Gas Reportinginclude changes to the price used to compute reserves, the definition of reserves, the use of technology
and the optional disclosure of probable and possible reserves. The new regulations are effective for years ending after December 15, 2009. As the Company currently has no reserves, we do not expect the adoption to have any significant effect on our financial statements.




Off-Balance Sheet Arrangements





From time-to-time, we may enter into off-balance sheet arrangements and transactionsthat can give rise to off-balance sheet obligations. As of November 30, 2009 and November 30, 2008, there were no off –balance sheet arrangements.







ITEM 4T.
CONTROLS AND PROCEDURES





The Company’s Chief Executive Officer and the Principal Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of November 30, 2009. Based on this evaluation, the Chief Executive Officer and Principal
Financial Officer concluded that, as of November 30, 2009, the Company’s disclosure controls and procedures were effective.





There were no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended November 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting,











PART II.  OTHER INFORMATION





ITEM 1.
Legal ProceedingsNoneITEM 2.
Unregistered Sales of Equity Securities.NoneITEM 3.
Default Upon Senior SecuritiesNoneITEM 4.
Submission of Matters to a Vote of Security HoldersNoneITEM 5.
Other InformationNoneEXHIBITS.




Exhibits
Document Description31.1
Section 302 Certification of Principal Executive Officer.31.2
Section 302 Certification of Principal Financial Officer.32.1
Section 906 Certification of Chief Executive Officer.32.2
Section 906 Certification of Chief Financial Officer.








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SIGNATURES





In accordance with Section 13 or 15(d) of the Securities and Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 5th day of January, 2010.





Sterling Oil & Gas CompanyBY:
TIMOTHY BARRITTTimothy Barritt, President and Principal  Executive OfficerBY:
RICHARD G. STIFELRichard G. Stifel, Principal Accounting Officer and Principal Financial Officer




























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