UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 FORM
10-Q
 
 (Mark
One)
 [√]QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the
quarterly period ended:  May 31, 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 [√]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                                   [√]
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 [√]
 
 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 July 15, 2009.













STERLING
OIL & GAS COMPANY





INDEX





PagePART
      1.
            FINANCIAL
      INFORMATIONITEM
      1.
            FINANCIAL
      STATEMENTSCondensed
      Balance Sheets as of  May 31, 2009 (Unaudited) and February 28,
      2009
            3Condensed
      Statements of Operations for the three months ended May 31, 2009 and 2008
              and
      from Inception (May 1, 2007) through May 31, 2009
    (Unaudited)
            4Condensed
      Statements of Cash Flows  for the three
      months  ended  May 31, 2009 and 2008
              and
      from Inception (May 1, 2007) through May 31, 2009
    (Unaudited)
            5Condensed
      Statement of Shareholders’ Equity for the three months ended May 31, 2009
      and
              the
      cumulative period from Inception (May 1, 2007) to May 31, 2009
      (Unaudited)
            6Notes
      to Unaudited Condensed Financial Statements
            7ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            13ITEM
      4T.
            CONTROLS
      AND PROCEDURES
            16PART
      II.
            OTHER
      INFORMATIONITEM
      1.
            LEGAL
      PROCEEDINGS
            16ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            16ITEM
      3.
            DEFAULT
      UPON SENIOR SECURITIES
            17ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            17ITEM
      5.
            OTHER
      INFORMATION
            17ITEM
      6.
            EXHIBITS
            17SIGNATURES
            18











2




ITEM
      1.
            FINANCIAL
      STATEMENTS.


Sterling
      Oil & Gas Company(An
      Exploration Stage Company)Condensed
      Balance SheetsMay
      31, 2009
                    
                    February
      28, 2009Assets
                    
                    (Unaudited)Current
      assets:Cash
      and cash equivalents
                    $
                    228,945
                    $
                    66,321Total
      current assets
                    
                    228,945
                    
                    66,321Oil
      and Gas Properties-Unevaluated Properties, full cost method (less $405,745
      and $483,855 impairment, respectively)
                    
                    531,571
                    
                    713,619Total
      Assets
                    $
                    760,516
                    $
                    779,940Liabilities
      and Shareholders’ EquityAccounts
      payable
                    $
                    12,042
                    $
                    2,585Commitment
      and Contingencies (Notes  2 and 8)Shareholders’
      equity:Preferred
      stock, $.00001 par value; 100,000,000 shares authorized, 0
      sharesissued
      and outstanding
                    
                    --
                    
                    --Common
      stock, $.00001 par value; 100,000,000 shares authorized,15,925,000
      shares issued and outstandingat
      May 31, 2009 and February 28, 2009, respectively.
                    
                    159
                    
                    159Additional
      paid-in capital
                    
                    2,279,832
                    
                    2,267,782Deficit
      accumulated during development stage
                    
                    (1,531,517)
                    
                    (1,490,586)Total
      shareholders’ equity
                    
                    748,474
                    
                    777,355Total
      Liabilities and Shareholders’ Equity
                    $
                    760,516
                    $
                    779,940











See accompanying
notes to condensed financial statements.





3




Sterling
      Oil & Gas Company(An
      Exploration Stage Company)Condensed
      Statements of Operations(Unaudited)From
      Inception(May
      1, 2007)throughFor
      the Three Months ended May 31,
                                
                                May
      31,2009
                                
                                2008
                                
                                2009Revenues
                                $
                                --
                                $
                                --
                                $
                                --Costs
      and expenses:Personnel
      costs
                                
                                7,552
                                
                                106,060
                                
                                249,030Professional
      fees
                                
                                32,627
                                
                                40,300
                                
                                261,510Impairment
      expense
                                
                                --
                                
                                --
                                
                                999,855Other
      general and administrative expenses
                                
                                866
                                
                                12,496
                                
                                29,950Operating
      Loss
                                
                                (41,045)
                                
                                (158,856)
                                
                                (1,540,345)Other
      Income (Expense)Interest
      income
                                
                                114
                                
                                2,100
                                
                                8,828Net
      Loss
                                $
                                (40,931)
                                $
                                (156,756)
                                $
                                (1,531,517)Basic
      and diluted loss per share
                                
                                (0.00)
                                
                                (0.01)Weighted
      average common shares outstanding
                                
                                15,925,000
                                
                                15,000,000














See accompanying
notes to condensedfinancial
statements.








4


Sterling
      Oil & Gas Company(An
      Exploration Stage Company)Condensed
      Statements of Cash Flows(Unaudited)FromInceptionFor
      the Three
                              
                              For
      the Three
                              
                              (May
      1, 2007)Months
      ended
                              
                              Months
      ended
                              
                              throughMay
      31,
                              
                              May
      31,
                              
                              May
      31,2009
                              
                              2008
                              
                              2009Cash
      Flows From Operating Activities:Net
      Loss
                              $
                              (40,931)
                              $
                              (156,756)
                              $
                              (1,531,517)Adjustments
      to reconcile net loss to net cash used by operating
      activities:Contributed
      services
                              
                              12,050
                              
                              --
                              
                              51,550Impairment
      expense
                              
                              --
                              
                              --
                              
                              999,855Changes
      in operating assets and liabilities:Trading
      securities
                              
                              --
                              
                              150,422
                              
                              --Accounts
      payable
                              
                              9,457
                              
                              8,518
                              
                              12,042Net
      cash(used in), provided byoperating
      activities
                              
                              (19,424)
                              
                              2,184
                              
                              (468,070)Cash
      flows from investing activities:Unevaluated
      oil and gas properties-purchases
                              
                              (952)
                              
                              (6,540)
                              
                              (209,284)Refund
      of purchase deposit
                              
                              --
                              
                              --
                              
                              80,856Undeveloped
      oil and gas properties-sales
                              
                              183,000
                              
                              --
                              
                              391,233Net
      cash (used in), provided byinvesting
      activities
                              
                              182,048
                              
                              (6,540)
                              
                              262,805Cash
      flows from financing activities:Proceeds
      from the sale of common stock
                              
                              --
                              
                              --
                              
                              435,000Payments
      for offering costs
                              
                              --
                              
                              --
                              
                              (790)Net
      cash provided byfinancing
      activities
                              
                              --
                              
                              --
                              
                              434,210Net
      Increase (Decrease) in cash andcash
      equivalents
                              
                              162,624
                              
                              (4,356)
                              
                              228,945Cash
      and cash equivalents:Beginning
      of period
                              
                              66,321
                              
                              6,426
                              
                              --End
      of period
                              $
                              228,945
                              $
                              2,070
                              $
                              228,945Noncash
      investing and financing transaction:Transfer
      of oil and gas properties from Big Cat
                              $
                              --
                              $
                              --
                              $
                              1,794,231








See accompanying
notes to condensed financial statements.





5





Sterling
      Oil & Gas Company(An
      Exploration Stage Company)Condensed
      Statement of Shareholder’s EquityDeficitIncurredCommon
      Stock
                
                Additional
                
                DuringPar
      value
                
                Paid-in
                
                ExplorationShares
                
                $.00001
                
                Capital
                
                Stage
                
                TotalBalance,at Inception
      (May 1, 2007)
                --
                $
                --
                $
                --
                $
                --
                $
                --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
                --
                
                --
                
                12,050
                
                --
                
                12,050Net
      loss
                --
                
                --
                
                --
                
                (40,931)
                
                (40,931)Balance, May 31, 2009
      (Unaudited)
                15,925,000
                $
                159
                $
                2,279,832
                $
                (1,531,517)
                $
                748,474








See accompanying
notes to condensed financial statements.























6




1.
            Presentation,
      Organization and Nature of Operations:




Presentation





The
accompanying unaudited financial statements of Sterling Oil & Gas
Company  (the “Company”) at May 31, 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 May 31, 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 unevaluated 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 Statement of Financial
Accounting Standards (‘SFAS”) No. 7. 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 May
31, 2009, the Company had working capital of $216,903 and shareholders’ equity
of $748,474. 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.
            Summary
      of 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 and short-term investments are exposed to
concentrations of credit risk.  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 unevaluated properties will
also be recognized on a cost recovery basis with no gain or loss.





As of May
31, 2009, the Company does not have any proven oil and gas reserves and all of
its properties are unevaluated. The costs of unevaluated properties will be
withheld from the depletion base until such time as they are either developed or
abandoned.  Unevaluated 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 unevaluated
properties would result in an expense to the Company.





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.





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.  However, subsequent commodity price increases may be
utilized to reduce or eliminate any impairment.





Asset
Retirement Obligations





The
Company will follow the provisions of SFAS No. 143, Accounting for Asset Retirement
(ARO) Obligationsat such time 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
on a field-by-field basis.  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 May 31, 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.





On March
1, 2008 we adopted Financial Accounting Standards Board (FASB) Interpretation
No.48, Accounting for Uncertainty in Income Taxes -- An Interpretation of FASB
Statement No. 109, or FIN 48. FIN 48 provides detailed guidance for the
financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in the financial statements in accordance with SFAS No.109.
Tax positions must meet a "more-likely-than-not" recognition threshold at the
effective date to be recognized upon the adoption of FIN 48 and in subsequent
periods. We have identified no significant uncertain tax positions as of May 31,
2009. The cumulative effect of adopting FIN 48 has resulted in no FIN 48
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 May 31, 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.





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 May
31, 2009 the Company had 15,925,000 shares of common stock outstanding and
warrants for the purchase of 3,425,000 shares. As of May 31, 2008 the Company
had 15,000,000 shares of common stock outstanding and warrants for the purchase
of 2,500,000 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 from Inception (May 1, 2007) to May 31, 2008 have been
reclassified to conform to the May 31, 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
three months ended May 31, 2009 or May 31, 2008.  Therefore, total
comprehensive income (loss) is the same as net income (loss) for these
periods.





Recently Issued Accounting
Pronouncements





The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and does not believe the future adoption of any such
pronouncements may be expected to cause a material impact on its financial
condition or the results of its operations.





In June
2009 the FASB issued SFAS 167, “Amendments to FASB Interpretation
No. 46(R)”,the Board’s objective in issuing this Statement is to improve
financial reporting by enterprises involved with variable interest entities. The
Board undertook this project to address (1) the effects on certain provisions of
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, as a result of the elimination of the qualifying
special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of
Financial Assets, and (2) constituent concerns about the application of
certain key provisions of Interpretation 46(R), including those in which the
accounting and disclosures under the Interpretation do not always provide timely
and useful information about an enterprise’s involvement in a variable interest
entity. We are currently assessing the potential impact, if any, on our
condensed financial statements.





In June
2009, the FASB issued SFAS 166, “Accounting for Transfers of
Financial Assets”, the Board’s objective in issuing this Statement is to
improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets.   The Board undertook
this project to address (1) practices that have developed since the issuance of
FASB Statement No. 140, Accounting for Transfers
and


10


Servicing of Financial Assets and
Extinguishments of Liabilities, that are not consistent with the original
intent and key requirements of that Statement and (2) concerns of financial
statement users that many of the financial assets (and related obligations) that
have been derecognized should continue to be reported in the financial
statements of transferors. We are currently assessing the potential impact, if
any, on our condensed financial statements.





In May
2009, the FASB issued SFAS 165, “ Subsequent Events” the
objective of this Statement is to establish general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular,
this Statement sets forth: 1. the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, 2. the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial
statements and 3. the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. In accordance with this
Statement, an entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009.We do not anticipate the
adoption of of SFAS 165 will have a significant impact on our financial
condition or results of operations.








4.
            Oil
      and Gas Property
Acquisitions:




During
the three months ended May 31, 2009 the Company paid delay rentals on its
Montana leases in the amount of $952. The Company also sold its interest in its
joint venture with Cedar Resources for $183,000.  The effect of this
sale reduced the Company’s leasehold net mineral acres from 22,511 to
21,047.





During
the three months ended May 31, 2008, the Company paid delay rentals and title
work expenses on our Wyoming joint venture in the amount of $6,540.








5.   RelatedPartyTransactions:





During
the three months ended May 31, 2009, certain officers of Big Cat Energy
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 $12,050 for the three months ended May 31, 2009 compared to no
contributed services for the same period in 2008.







6.
            Shareholders’
      Equity:




There
were no equity transactions during the period ended May 31, 2009 or May 31,
2008.







7.
            Income
      Taxes:




The federal net operating loss (NOL)
carryforward of approximately $1,009,000 as of May 31, 2009 begins to expire in
2028.  Internal Revenue Code Section 382 places a limitation on
the amount of taxable income which can be offset by NOL carryforwards after a
change in control (generally greater than 50% change in ownership) of a loss
corporation.  Generally, after a change in control, a loss corporation
cannot deduct NOL carryforwards in excess of the Section 382 limitation. 
Due to these “change in ownership” provisions, utilization of NOL carryforwards
may be subject to an annual limitation regarding their utilization against
taxable income in future periods.  We have not performed a Section 382
analysis.  However, if performed, Section 382 may be found to limit
potential future utilization of our NOL carryforwards.








11


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.





On March
1, 2008 we adopted FASB Interpretation No.48, Accounting for Uncertainty in
Income Taxes -- An Interpretation of FASB Statement No. 109, or FIN 48. FIN 48
provides detailed guidance for the financial statement recognition, measurement
and disclosure of uncertain tax positions recognized in the financial statements
in accordance with SFAS No.109. Tax positions must meet a "more-likely-than-not"
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. We have identified no significant uncertain
tax positions as of May 31, 2009. The cumulative effect of adopting FIN 48 has
resulted in no FIN 48 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 at May
31, 2009.








8.
            Commitments
      and Contingencies:




Environmental
Issues– The Company is 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 unevaluated, 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


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 included 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 discussion of 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.




Plan
of Operations





For the
fiscal year ending February 28, 2010, 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 21,047 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


13


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 product production, and possible cost overruns due to price and cost
increases in services and products. 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 May 31, 2009 compared to the Three Months Ended May 31,
2008.




We
reported a net loss for the three months ended May 31, 2009 of $40,931 compared
to net loss of $156,756 for the period three months ended May 31, 2008. We had
personnel expense of $7,552 for the three months ended May 31, 2009 compared to
$106,060 for the three months ended May 31, 2008.  Our other general
and administrative costs were $866 during the three month period ended May 31,
2009 compared to $12,496 for the same period in 2008. We had $32,627 of
professional fess, $12,050 of which were non-cash, during the three months ended
May 31, 2009, compared to $40,300 for the three months ended May 31, 2008.As of the date of this
report, we have yet to generate revenues from our current business
operations.




Liquidity
and Capital Resources




During
the three months ended May 31, 2009, the Company sold its interest in the Cedar
Resources joint venture and received proceeds of $183,000.   As
of May 31, 2009, we had working capital of $216,903, 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
three months ended May 31, 2009, we used net cash from operations of $19,424.
Cash used in operations was primarily a result of our net loss offset by non
cash contributed services, compared to cash provided by operations of $2,184 for
the three months ended May 31, 2008 which was primarily due to our net loss
offset by trading securities activity.





Cash
provided by investing activities was $182,048 for the three months ended May 31,
2009, primarily from the sale of the Company’s interest in Cedar Resources,
compared to cash used of $6,540 for the three months ended May 31, 2008,
primarily from payment of delay rentals.





There
were no net cash effects from financing activities for the three months ended
May 31, 2009 or 2008.





Financial
Instruments and Other Information





As of May 31, 2009 and February 28,
2009 we had cash, marketable securities, 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


14


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.





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 unevaluated properties will
also be recognized on a cost recovery basis with no gain or loss.





As of May
31, 2009, the Company does not have any proven oil and gas reserves and all of
its properties are unevaluated. The costs of unevaluated properties will be
withheld from the depletion base until such time as they are either developed or
abandoned.  Unevaluated 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 unevaluated
properties would result in an expense to the Company.





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.





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.














15


Recently
Issued Accounting Pronouncements:





In June
2009 the FASB issued SFAS 167, “Amendments to FASB Interpretation
No. 46(R)”,the Board’s objective in issuing this Statement is to improve
financial reporting by enterprises involved with variable interest entities. The
Board undertook this project to address (1) the effects on certain provisions of
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, as a result of the elimination of the qualifying
special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of
Financial Assets, and (2) constituent concerns about the application of
certain key provisions of Interpretation 46(R), including those in which the
accounting and disclosures under the Interpretation do not always provide timely
and useful information about an enterprise’s involvement in a variable interest
entity. We are currently assessing the potential impact, if any, on our
condensed financial statements.





In June
2009, the FASB issued SFAS 166, “Accounting for Transfers of
Financial Assets”, the Board’s objective in issuing this Statement is to
improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets.   The Board undertook
this project to address (1) practices that have developed since the issuance of
FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, that
are not consistent with the original intent and key requirements of that
Statement and (2) concerns of financial statement users that many of the
financial assets (and related obligations) that have been derecognized should
continue to be reported in the financial statements of transferors. We are
currently assessing the potential impact, if any, on our condensed financial
statements.





In May
2009, the FASB issued SFAS 165, “ Subsequent Events” the
objective of this Statement is to establish general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular,
this Statement sets forth: 1. the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, 2. the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial
statements and 3. the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. In accordance with this
Statement, an entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009.We do not anticipate the
adoption of of SFAS 165 will have a significant impact on our financial
condition or results of operations.




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 May 31, 2009 and February
28, 2009, there were no off–balance sheet arrangements.




ITEM
      4T.
            CONTROLS
      AND PROCEDURES.




Based
on an evaluation required by paragraph (b) of  §240.13a–15 of the
effectiveness of the registrant's disclosure controls and procedures (as defined
in §240.13a–15(e)), the Company’s principal executive officer and principal
financial officer concluded that, as of May 31, 2009, its disclosure controls
and procedures are effective.




There
were no changes in the Company’s internal control over financial reporting that
materially affected, or were reasonably likely to materially affect, the
Company’s internal control over financial reporting during the first fiscal
quarter ended May 31, 2009.








PART
II.  OTHER INFORMATION





ITEM
1.                      LEGAL PROCEEDINGS.None





ITEM
2.                      UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.None


16





ITEM
3.                      DEFAULTS UPON SENIOR
SECURITIES.None





ITEM
4.                      SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.None





ITEM
5.                
OTHER
INFORMATION.None





ITEM
6.                      EXHIBITS.





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.



















17


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 2nd day of
July, 2009.


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































18