UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q





(Mark One)



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



For the quarterly period ended February 28, 2013



OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to



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XUN ENERGY, INC.

(Exact name of registrant as specified in its charter)



|                                              |  |                          |  |                                     
|--------------------------------------------- |  | ------------------------ |  | ------------------------------------
|Nevada                                        |  | 000-53466                |  | 26-1616719                          
|State or Other Jurisdiction of Incorporation) |  | (Commission File Number) |  | (I.R.S. Employer Identification No.)



|                                                              
|--------------------------------------------------------------
|12518 NE Airport Way
Suite 148 No, 156, Portland, Oregon 97230
|(Address of Principal Executive Offices) (Zip Code)           



|                                                
|------------------------------------------------
|(775)-200-0505                                  
|(Issuers telephone number, including area code)



Indicate by a check mark whether the registrant (1) has filed al reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to the 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   | [   ] |  | Small Reporting  Company | [X] 



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act  Yes [ ]   No [ X ]



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13, or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o   No o



APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date: 363,553,415 shares of common stock are issued and outstanding as of April 19, 2013.



1



XUN ENERGY, INC.



INDEX





|         |                                                                                                                                                                              |  |      | 
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | 
|         | PART I.  FINANCIAL INFORMATION                                                                                                                                              |  | Page
|         |                                                                                                                                                                              |  |     
|Item 1.  | Financial Statements                                                                                                                                                         |  | 3   
|         |                                                                                                                                                                              |  |     
|         | Consolidated Balance Sheets at February 28, 2013 and May 31, 2012                                                                                                            |  | 3   
|         |                                                                                                                                                                              |  |     
|         | Consolidated Statement of Operations for the Three and Nine Months ended February 28, 2013 and February 29, 2012 and from Inception (December 20, 2007) to February 28, 2013 |  | 4   
|         |                                                                                                                                                                              |  |     
|         | Consolidated Statements of Stockholders Equity from Inception (December 20, 2007) to February 28, 2013                                                                       |  | 5   
|         |                                                                                                                                                                              |  |     
|         | Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 2013 and February 29, 2012 and Cumulative since Inception to February 28, 2013                  |  | 6   
|         |                                                                                                                                                                              |  |     
|         | Notes to Consolidated Financial Statements as of February 28, 2013                                                                                                           |  | 7   
|         |                                                                                                                                                                              |  |     
|Item 2.  | Managements Discussion and Analysis of Financial Condition and Results of Operation                                                                                         |  | 23  
|         |                                                                                                                                                                              |  |     
|Item 3.  | Quantitative and Qualitative Disclosure About Market Risk                                                                                                                    |  | 27  
|         |                                                                                                                                                                              |  |     
|Item 4.  | Controls and Procedures                                                                                                                                                      |  | 27  
|         | PART II.  OTHER INFORMATION                                                                                                                                                 |  |     
|         |                                                                                                                                                                              |  |     
|Item 1   | Legal Proceedings.                                                                                                                                                           |  | 27  
|         |                                                                                                                                                                              |  |     
|Item 1A. | Risk Factors                                                                                                                                                                 |  | 27  
|         |                                                                                                                                                                              |  |     
|Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                                                                 |  | 27  
|         |                                                                                                                                                                              |  |     
|Item 3.  | Defaults Upon Senior Securities.                                                                                                                                             |  | 28  
|         |                                                                                                                                                                              |  |     
|Item 4.  | Mine Safety Disclosures.                                                                                                                                                     |  | 28  
|         |                                                                                                                                                                              |  |     
|Item 5.  | Other Information                                                                                                                                                            |  | 28  
|         |                                                                                                                                                                              |  |     
|Item 6.  | Exhibits                                                                                                                                                                     |  | 29  





2







ITEM 1.      FINANCIAL STATEMENTS

|                                          
|------------------------------------------
|XUN ENERGY, INC. AND SUBSIDIARIES         
|(A DEVELOPMENT STAGE COMPANY)             
|CONSOLIDATED BALANCE SHEETS               
|As of FEBRUARY 28, 2013  and  MAY 31, 2012
|(Expressed in U.S. dollars)               



| |                                                                         |   |                   |   |              | 
| | ----------------------------------------------------------------------- | - | ----------------- | - | ------------ | 
| |                                                                         |   | February 28, 2013 |   | May 31, 2012 | 
| |                                                                         |   | (Unaudited)       |   | (Audited)    | 
| | ASSETS                                                                  |   |                   |   |              | 
| | Current Assets:                                                         |   |                   |   |              | 
| | Cash                                                                    | $ | 69                | $ | -            | 
| | Other Current Assets                                                    | $ | 953,218           | $ | 833,274      | 
| | Total Current Assets                                                    | $ | 953,287           | $ | 833,274      | 
| | Fixed Assets:                                                           |   |                   |   |              | 
| | Property, Plant and Equipment                                           |   | 942,250           |   | -            | 
| | Total Property, Plant and Equipment                                     | $ | 942,250           | $ | -            | 
| | Other Assets:                                                           |   |                   |   |              | 
| | Intangible Assets - Legal and Contractual                               |   |                   |   |              | 
| | Rights - Oil and Gas Leases                                             | $ | 536,250           | $ | -            | 
| | Trademarks                                                              | $ | 20                | $ | 20           | 
| | Incorporation Costs                                                     | $ | 170               | $ | 170          | 
| | Total Legal and Contractual                                             | $ | 536,440           | $ | 190          | 
| | Total Intangible Assets                                                 | $ | 536,440           | $ | 190          | 
| | Other Long Term Assets                                                  |   |                   |   |              | 
| | Bonds                                                                   | $ | -                 | $ | 500          | 
| | Total Other Long Terms Assets                                           | $ | -                 | $ | 500          | 
| | Total Other Assets                                                      | $ | 536,440           | $ | 690          | 
| | Total Assets                                                            | $ | 2,431,977         | $ | 833,964      | 
| |                                                                         |   |                   |   |              | 
| | LIABILITIES AND STOCKHOLDERS' EQUITY                                    |   |                   |   |              | 
| | Current  Liabilities:                                                   |   |                   |   |              | 
| | Accounts payable and accrued expenses                                   | $ | 1,676,145         | $ | 1,036,669    | 
| | Loans payable                                                           | $ | 426,747           | $ | 419,649      | 
| | Convertible Promissory Notes, net of discount                           | $ | 392,591           | $ | -            | 
| | Total Current Liabilities                                               | $ | 2,495,483         | $ | 1,456,318    | 
| | Long Term Liabilities:                                                  |   |                   |   |              | 
| | Notes - 3 Years and Less                                                | $ | 116,850           | $ | 116,374      | 
| | Notes - 3 Years and Less Related Party                                  | $ | 9,474             | $ | 9,436        | 
| | Total Long Term Liabilities                                             | $ | 126,324           | $ | 125,810      | 
| | Total Liabilities                                                       | $ | 2,621,807         | $ | 1,582,128    | 
| |                                                                         |   |                   |   |              | 
| | Stockholders' Equity (Deficit):                                         |   |                   |   |              | 
| | Preferred Stock, par value $0.0001, 50,000,000 shares authorized,       |   |                   |   |              | 
| | none issued and outstanding                                             | $ | -                 | $ | -            | 
| | Common Stock, par value $0.0001, 5,000,000,000 shares authorized,       |   |                   |   |              | 
| | 363,553,415 and 330,643,500 shares issued and outstanding, respectively | $ | 36,355            | $ | 33,064       | 
| | Paid in Capital                                                         | $ | 2,671,400         | $ | 919,881      | 
| | Accumulated Deficit                                                     | $ | (2,897,585)       | $ | (1,701,109)  | 
| | Total Stockholders' Equity (Deficit)                                    | $ | (189,830)         | $ | (748,164)    | 
| | Total Liabilities and Stockholders' Equity (Deficit)                    | $ | 2,431,977         | $ | 833,964      | 



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



3



|                                                                                                                                      |                                                                     | 
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | 
|XUN ENERGY, INC. AND SUBSIDIARIES                                                                                                    
|                                                                                                                                      | (A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
|FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND  FEBRUARY 29, 2012
AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007)
|(Unaudited)                                                                                                                          
|(Expressed in U.S. dollars)                                                                                                          



| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | ------------------------------- | - | -------------------------- | - | ------------------------- | - | -------------------------------------------------- | - | ---------------- | - | ----------- | 
| |                                 |   | For the three months ended |   | For the nine months ended |   | December 20, 2007 (Inception) To February 28, 2013 |  
| |                                 |   | February 28 2013           |   | February 29 2012          |   | February 28 2013                                   |   | February 29 2012 |   |            
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Revenue                         |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Revenue - Operations            | $ | -                          | $ | -                         | $ | -                                                  | $ | -                | $ | 4,637       | 
| | Total Revenue                   | $ | -                          | $ | -                         | $ | -                                                  | $ | -                | $ | 4,637       | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Cost of Goods Sold              | $ | -                          | $ | -                         | $ | -                                                  | $ | -                | $ | 1,653       | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Gross Profit                    | $ | -                          | $ | -                         | $ | -                                                  | $ | -                | $ | 2,984       | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Expenses                        |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | General and Administrative      | $ | 563,126                    | $ | 124,133                   | $ | 1,166,155                                          | $ | 320,232          | $ | 2,438,768   | 
| | Loss before income taxes        | $ | (563,126)                  | $ | (124,133)                 | $ | (1,166,155)                                        | $ | (320,232)        | $ | (2,435,784) | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Other income (expense)          | $ | (14,116)                   | $ | (171)                     | $ | (30,321)                                           | $ | (20,217)         | $ | (461,802)   | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Provision for Income Taxes      | $ | -                          | $ | -                         | $ | -                                                  | $ | -                | $ | -           | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Net (Loss)                      | $ | (577,242)                  | $ | (124,304)                 | $ | (1,196,477)                                        | $ | (340,450)        | $ | (2,897,586) | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Basic and Diluted               |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | (Loss) per Common Shares        |   | a                          |   | a                         |   | a                                                  |   | a                |   |             | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Weighted Average                |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | Number of Common Shares*1       |   | 363,533,551                |   | 312,557,743               |   | 349,784,346                                        |   | 312,557,743      |   |             | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| | a = Less than ($0.01) per share |   |                            |   |                           |   |                                                    |   |                  |   |             | 
| |                                 |   |                            |   |                           |   |                                                    |   |                  |   |             | 



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



4



|                                                                                                                            | 
|--------------------------------------------------------------------------------------------------------------------------- | 
|XUN ENERGY, INC. AND SUBSIDIARIES                                                                                          
|(A DEVELOPMENT STAGE COMPANY)                                                                                              
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 20, 2007) THROUGH FEBRUARY 28, 2013
|(Unaudited)                                                                                                                
|(Expressed in U.S. dollars)                                                                                                



| |                                                                                                                                              |  |               |   |          |                   |                            |              |             |   |             | 
| | -------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | - | -------- | ----------------- | -------------------------- | ------------ | ----------- | - | ----------- | 
| |                                                                                                                                              |  |               |   |          |                   | Additional Paid in Capital |              |             |   |             | 
| |                                                                                                                                              |  | Common Stock  |   |          | Retained Earnings |                            | Total Equity |            
| |                                                                                                                                              |  | Shares*1      |   | Amount   |                   |                            |              |            
| | Inception December 20, 2007                                                                                                                  |  | -             | $ | -        | $                 | -                          | $            | -           | $ | -           | 
| | Common stock issued  to Directors                                                                                                            |  | 400,000,000   | $ | 40,000   | $                 | (35,000)                   | $            | -           | $ | 5,000       | 
| | Private placement                                                                                                                            |  | 110,416,000   | $ | 11,042   | $                 | 44,166                     | $            | -           | $ | 55,208      | 
| | Net loss for the year                                                                                                                        |  |               | $ |          | $                 |                            | $            | (85)        | $ | (85)        | 
| | Balance, May 31, 2008                                                                                                                        |  | 510,416,000   | $ | 51,042   | $                 | 9,166                      | $            | (85)        | $ | 60,123      | 
| | Net loss for the year                                                                                                                        |  |               | $ |          | $                 |                            | $            | (50,170)    | $ | (50,170)    | 
| | Balance, May 31, 2009                                                                                                                        |  | 510,416,000   | $ | 51,042   | $                 | 9,166                      | $            | (50,255)    | $ | 9,953       | 
| | Net loss for the year                                                                                                                        |  |               | $ |          | $                 |                            | $            | (50,744)    | $ | (50,744)    | 
| | Balance, May 31, 2010                                                                                                                        |  | 510,416,000   | $ | 51,042   | $                 | 9,166                      | $            | (100,999)   | $ | (40,791)    | 
| | Common stock issued  to Directors                                                                                                            |  | 37,500        | $ | 4        | $                 | 3,296                      | $            | -           | $ | 3,300       | 
| | For purchase of Accounts Receivable                                                                                                          |  | 1,259,000     | $ | 126      | $                 | 62,824                     | $            | -           | $ | 62,950      | 
| | For cash November 30, 2010                                                                                                                   |  | 741,000       | $ | 74       | $                 | 36,976                     | $            | -           | $ | 37,050      | 
| | Common stock issued  to Directors                                                                                                            |  | 37,500        | $ | 4        | $                 | 5,946                      | $            | -           | $ | 5,950       | 
| | Common stock issued  to Consultant                                                                                                           |  | 10,000        | $ | 1        | $                 | 1,099                      | $            | -           | $ | 1,100       | 
| | Common stock retirement                                                                                                                      |  | (200,000,000) | $ | (20,000) | $                 | (105,000)                  | $            | -           | $ | (125,000)   | 
| | Net loss for the period                                                                                                                      |  |               | $ |          | $                 |                            | $            | (614,592)   | $ | (614,592)   | 
| | Balance, May 31, 2011                                                                                                                        |  | 312,501,000   | $ | 31,250   | $                 | 14,308                     | $            | (715,592)   | $ | (670,034)   | 
| | Common stock issued  to Directors                                                                                                            |  | 37,500        | $ | 4        | $                 | 4,956                      | $            | -           | $ | 4,960       | 
| | Common stock issued  to Directors                                                                                                            |  | 30,000        | $ | 3        | $                 | 805                        | $            | -           | $ | 808         | 
| | Common stock issued  to Directors                                                                                                            |  | 75,000        | $ | 8        | $                 | 1,612                      | $            | -           | $ | 1,619       | 
| | Common stock issued  to Consultant                                                                                                           |  | 18,000,000    | $ | 1,800    | $                 | 898,200                    | $            | -           | $ | 900,000     | 
| | Net loss for the period                                                                                                                      |  |               | $ |          | $                 |                            | $            | (985,517)   | $ | (985,517)   | 
| | Balance, May 31, 2012                                                                                                                        |  | 330,643,500   | $ | 33,064   | $                 | 919,881                    | $            | (1,701,109) | $ | (748,164)   | 
| | Common stock issued  to Directors                                                                                                            |  | 31,129        | $ | 3        | $                 | 2,103                      | $            | -           | $ | 2,106       | 
| | Common stock issued for Assets                                                                                                               |  | 11,700,000    | $ | 1,170    | $                 | 583,830                    | $            | -           | $ | 585,000     | 
| | Common Stock issued to Consultant                                                                                                            |  | 20,000,000    | $ | 2,000    | $                 | 998,000                    | $            | -           | $ | 1,000,000   | 
| | Common stock issued to Directors                                                                                                             |  | 45,000        | $ | 5        | $                 | 1,811                      | $            | -           | $ | 1,815       | 
| | Common stock issued to Lender                                                                                                                |  | 243,103       | $ | 24       | $                 | 6,053                      | $            | -           | $ | 6,077       | 
| | Common Stock issued to Consultant                                                                                                            |  | 16,200,000    | $ | 1,620    | $                 | 808,380                    | $            | -           | $ | 810,000     | 
| | Common Stock issued to reduce CPN                                                                                                            |  | 2,591,361     | $ | 259      | $                 | (2,601)                    | $            | -           | $ | (2,342)     | 
| | Common Stock Cancelled - Note 3                                                                                                              |  | (18,000,000)  | $ | (1,800)  | $                 | (898,200)                  | $            | -           | $ | (900,000)   | 
| | Common stock issued to Directors                                                                                                             |  | 45,000        | $ | 5        | $                 | 548                        | $            |             | $ | 552         | 
| | Common stock issued to Lender                                                                                                                |  | 54,322        | $ | 5        | $                 | 1,875                      | $            |             | $ | 1,880       | 
| | Discount on CPN's                                                                                                                            |  |               | $ |          | $                 | 249,720                    | $            |             | $ | 249,720     | 
| | Net loss for the period                                                                                                                      |  |               | $ |          | $                 |                            | $            | (1,196,477) | $ | (1,196,477) | 
| | Balance, February 28, 2013                                                                                                                   |  | 363,553,415   | $ | 36,355   | $                 | 2,671,399                  | $            | (2,897,585) | $ | (189,831)   | 
| |                                                                                                                                              |  |               |   |          |                   |                            |              |             |   |             | 
| | *1 - The number of issued and outstanding shares of common stock has been adjusted to reflect an 80:1 forward split effective August 3, 2010 | 



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



5



XUN ENERGY, INC. AND SUBSIDIARIES

|                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|(A DEVELOPMENT STAGE COMPANY)                                                                                      
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                              
|FOR THE NINE MONTHS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012
AND CUMULATIVE FROM INCEPTION (DECEMBER 20, 2007)
|(Unaudited)                                                                                                        

(Expressed in U.S. dollars)



| |                                                                            |   |                                              |   |                                             |   |                                                    | 
| | -------------------------------------------------------------------------- | - | -------------------------------------------- | - | ------------------------------------------- | - | -------------------------------------------------- | 
| |                                                                            |   | For the nine months ended February. 28, 2013 |   | For the nine months ended February 29, 2012 |   | December 20, 2007 (Inception) to February 28, 2013 | 
| |                                                                            |   |                                              |   |                                            
| | OPERATING ACTIVITIES                                                       |   |                                              |   |                                             |   |                                                    | 
| | Net (Loss)                                                                 | $ | (1,196,477)                                  | $ | (340,450)                                   | $ | (2,897,585)                                        | 
| | Adjustments to reconcile net loss to net cash used by operating activities |   |                                             
| | Share based compensation                                                   | $ | 4,473                                        | $ | 5,768                                       | $ | 22,210                                             | 
| | Share based Interest                                                       | $ | 7,958                                        | $ | -                                           | $ | 7,958                                              | 
| | Non-Cash amortization - Financial Services                                 | $ | 782,500                                      | $ | -                                           | $ | 857,500                                            | 
| | Non-Cash amortization - Debt Discount                                      | $ | 79,182                                       | $ | -                                           | $ | 79,182                                             | 
| | Gain on debt extinguishment                                                | $ | (2,342)                                      | $ | -                                           | $ | (2,342)                                            | 
| | Non-Cash inventory                                                         | $ | -                                            | $ | -                                           | $ | 283                                                | 
| | Corporate Overhead allocated to Intangible Assets                          | $ | (58,500)                                     | $ | -                                           | $ | (60,822)                                           | 
| | Depletion                                                                  | $ | -                                            | $ | -                                           | $ | 835                                                | 
| | Accrued Interest                                                           | $ | 24,934                                       | $ | 516                                         | $ | 25,744                                             | 
| | Changes in net assets and liabilities-                                     |   |                                              |   |                                             |   |                                                    | 
| | Property, Plant and Equipment impairment                                   | $ | -                                            | $ | -                                           | $ | 18,840                                             | 
| | Oil and Gas Leases forfeitures                                             | $ | -                                            | $ | 19,701                                      | $ | 5,583                                              | 
| | Oil and Gas Lease impairment                                               | $ | -                                            | $ | -                                           | $ | 399,743                                            | 
| | Bonds                                                                      | $ | 500                                          | $ | -                                           | $ | 500                                                | 
| | Other current assets                                                       | $ | 7,557                                        | $ | -                                           | $ | 7,557                                              | 
| | Accounts payable and accrued liabilities                                   | $ | 639,476                                      | $ | 308,150                                     | $ | 1,676,144                                          | 
| | Net Cash Used By Operating Activities                                      | $ | 289,260                                      | $ | (6,315)                                     | $ | 141,330                                            | 
| | INVESTING ACTIVITIES                                                       |   |                                              |   |                                             |   |                                                    | 
| | Purchase of Other Current Assets                                           | $ | -                                            | $ | -                                           | $ | (408,017)                                          | 
| | Purchase of Fixed Assets                                                   | $ | (835,000)                                    | $ | -                                           | $ | (852,637)                                          | 
| | Purchase of Intangible Assets                                              | $ | -                                            | $ | (430,170)                                   | $ | (5,773)                                            | 
| | Purchase of Long Term Assets                                               | $ | -                                            | $ | -                                           | $ | (500)                                              | 
| | Net Cash Used By Investing Activities                                      | $ | (835,000)                                    | $ | (430,170)                                   | $ | (1,266,927)                                        | 
| | FINANCING ACTIVITIES                                                       |   |                                              |   |                                             |   |                                                    | 
| | Proceeds from issuance of common stock                                     | $ | 10,000                                       | $ | -                                           | $ | 170,208                                            | 
| | Repayment of loans                                                         | $ | (20,500)                                     | $ | (25,000)                                    | $ | (137,142)                                          | 
| | Proceeds from loans                                                        | $ | 556,309                                      | $ | 436,595                                     | $ | 1,092,599                                          | 
| | Cash Provided by Financing Activities                                      | $ | 545,809                                      | $ | 411,595                                     | $ | 1,125,665                                          | 
| | Net Increase in Cash                                                       | $ | 69                                           | $ | (24,890)                                    | $ | 69                                                 | 
| | Cash, Beginning of Period                                                  | $ | -                                            | $ | 25,069                                      | $ | -                                                  | 
| | Cash, End of Period                                                        | $ | 69                                           | $ | 179                                         | $ | 69                                                 | 
| | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS:                        |   |                                              |  
| | Cash paid for income taxes                                                 | $ | -                                            | $ | -                                           | $ | -                                                  | 
| | Cash paid for interest                                                     | $ | -                                            | $ | -                                           | $ | 222                                                | 
| | NON-CASH FINANCING AND INVESTING ACTIVITIES:                               |   |                                              |  
| | Convertible Promissory Note - non-cash capitalization                      | $ | 10,000                                       | $ | -                                           | $ | 10,000                                             | 
| | Prepaid Expenses - non-cash capitalization                                 | $ | 910,000                                      | $ | -                                           | $ | 1,810,000                                          | 
| | Purchase of Intangible Assets - non-cash capitalization                    | $ | 585,000                                      | $ | -                                           | $ | 585,000                                            | 
| | Debt Discount - non cash capitalization                                    | $ | 247,119                                      | $ | -                                           | $ | 247,119                                            | 



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



6



XUN ENERGY, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 28, 2013



NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS



The Company is engaged primarily in the acquisition, work-over development, and production of oil and gas properties. Such activities are concentrated in North American onshore, primarily in the United States in the State of Pennsylvania. The Company plans to acquire producing or near producing oil and gas properties that will provide cash flow and an upside for future development. We will be scouting for additional properties in and around Texas, Oklahoma, Pennsylvania, Kansas and in Canada.



The Company was incorporated under the laws of the state of Nevada on December 20, 2007 as Real Value Estates, Inc. On July 20, 2010, the Company changed its name to Xun Energy, Inc. and on February 7, 2011, the Company established two subsidiaries in the State of Kentucky.  The Company acquired three oil and gas leases in the State of Kentucky on February 28, 2011 and began production of oil on one of its leases in March 2011.



On April 18, 2011, the Company filed a Form 8-K with the United States Securities and Exchange Commission (SEC) disclosing that the Company is no longer considered a shell and has completed a workover program on one of its wells. Subsequent to filing of the Form 8-K with the SEC, the Company has filed its required four quarterly filings to "cure" itself of  "shell status". The Company operations are extensively involved in oil and gas operations even though the Company has had limited revenue from the oil and gas operations.



On February 6, 2012, the Company established a subsidiary in the State of Florida.



On August 31, 2012, the Company acquired 30 oil and gas well locations in Venango County, Pennsylvania with an option to acquire an additional 15 oil and gas locations.



NOTE  2: SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES



BASIS OF ACCOUNTING



Our consolidated financial statements include the accounts of all of our wholly-owned subsidiaries and we have eliminated all significant intercompany balances and transactions in consolidation.



FISCAL YEAR



The Companys consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a May 31 fiscal year end.



PRINCIPLES OF CONSOLIDATION



The Consolidated Financial Statements include the accounts of Xun Energy, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements are presented in accordance with the accounting principles generally accepted in the United States.



UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS



The interim consolidated financial statements of Xun Energy, Inc. as of February 28, 2013, and for the nine months then ended, and cumulative from inception, are unaudited. However, in the opinion of management, the interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly Xun Energy, Inc.s consolidated financial position as of February 28, 2013, and the results of its consolidated operations and its cash flows for the nine months ended February 28, 2013, and February 29, 2012, and cumulative from inception. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2013. The accompanying consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States of America. Refer to the Companys audited financial statements as of May 31, 2012, filed with the SEC for additional information, including significant accounting policies.



INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)



The Company has adopted the International Financial Reporting Standards code of accounts. However, the Companys consolidated statements are completed using USA GAAP.



7



EARNINGS PER SHARE



Basic earnings per share amounts are computed by dividing the net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items in the Company.



CASH AND CASH EQUIVALENTS



The Company may, from time to time, invest cash in excess of our immediate operating requirements in short-term time deposits and money market instruments generally with original maturities at the date of purchase of three months or less. The Company considers all liquid investments with maturity of three months or less when purchased to be cash equivalents.



USE OF ESTIMATES -

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of 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. Actual amounts could differ from these estimates, and changes in these estimates are recorded when known. Significant items subject to such estimates and assumptions include, but are not limited to, the following:



|                                                                                                   
|---------------------------------------------------------------------------------------------------
|·
Estimates of proved reserves and related estimates of the present value of future net revenues;  
|·
Carrying value of oil and gas properties;                                                        
|·
Estimates of the fair value of reporting units and related assessment of goodwill for impairment;
|·
Income taxes;                                                                                    
|·
Asset retirement obligations;                                                                    
|·
Legal contingencies and environmental risks and exposures.                                       



PROPERTY AND EQUIPMENT



The Company follows the successful efforts (SE) cost method of accounting for its oil and gas properties. Accordingly, only those expenses associated with successfully locating new oil and natural gas reserves are capitalized. For unsuccessful (or "dry hole") results, the associated operating costs are immediately charged against revenues for that period.



All costs incidental to the acquisition, exploration, and development of oil and gas properties, including costs of undeveloped leasehold, and leasehold equipment, are capitalized.  Please refer to INTANGIBLE ASSETS - LEGAL AND CONTRACTUAL - RIGHTS in this NOTE for further detail.



Internal costs incurred that are directly identified with acquisition, exploration and development activities undertaken by the Company for its own account, and that are not related to production, general corporate overhead or similar activities, are also capitalized.



Interest costs incurred and attributable to unproved oil and gas properties under current evaluation and major development projects of oil and gas properties are also capitalized. All costs related to production activities, including workover costs incurred solely to maintain or increase levels of production from an existing completion interval, are charged to expense as incurred.



Indirect costs, such as General and Administrative costs, are allocated to capital costs at a rate of 10% of the direct costs associated with the acquisition, exploration, and development activities undertaken by the Company for its own account.



Capitalized costs are depleted by an equivalent unit-of-production cost method, converting gas to oil at the ratio of six thousand cubic feet of gas to one barrel of oil. Depletion is calculated using the capitalized costs, including estimated asset retirement costs, plus the estimated future expenditures (based on current costs) to be incurred in developing or working over an oil or gas well, proved reserves, net of estimated salvage values.



Depletion is charged for each barrel of oil equivalent until the oil or gas well is no longer deemed economical for production of oil or gas. An over recovery of depletion by the Company may result from oil and gas wells producing more oil and gas than the reserve reports estimated. The over-recovery will be charged to income on a quarterly basis after the Company reviews the over-recovery and deducts an allowance for remediation, well capping and abandonment and future maintenance or workover costs.



Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. The Company assesses its unproved properties for impairment quarterly. Significant unproved properties are assessed individually.



8



No gain or loss is recognized upon disposal of oil and gas properties unless such disposal significantly alters the relationship between capitalized costs and proved reserves.



Depreciation and amortization of other property and equipment, including corporate and other midstream assets and leasehold improvements, are provided using the straight-line method based on estimated useful lives ranging from three to 39 years. Interest costs incurred and attributable to major midstream and corporate construction projects are also capitalized.



The Company recognizes liabilities for retirement obligations associated with tangible long-lived assets, such as producing well sites, when there is a legal obligation associated with the retirement of such assets and the amount can be reasonably estimated. The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the associated property and equipment on the consolidated balance sheet. If the fair value of a recorded asset retirement obligation changes, a revision is recorded to both the asset retirement obligation and the asset retirement cost. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.



The detailed analysis of our Plant, Property and equipment are as follows:

|                                     |   |                   |   |             
|------------------------------------ | - | ----------------- | - | ------------
|                                     |   | As Of            
|Description                          |   | February 28, 2013 |   | May 31, 2012
|Plant - Oil Wells: Beginning of year | $ | -                 | $ | -           
|Work in Progress-Intangible          | $ | 694,035           | $ | -           
|Work in Progress-Tangible            | $ | 140,965           | $ |             
|Rights (leases)                      | $ | 107,250           | $ |             
|Subtotal                             | $ | 942,250           | $ | -           
|Depletion                            | $ |                   | $ |             
|Depreciation                         | $ | -                 | $ | -           
|Net Plant - Oil Wells: End of year   | $ | 942,250           | $ | -           



EXPLORATION



The Company does not explore for oil and gas deposits. The Company may drill a new well, which is categorized as an offset well to an existing well that is producing oil or gas. The Companys current business model does not include wild cat or exploratory drilling.



DEVELOPMENT - OFFSET DRILLING



The Company's development - offset drilling program consists of drilling new wells within a proven and producing property. Well locations are selected by geologists based on known and historical data from producing oil and gas wells within the property or adjoining properties. All costs of drilling a new offset well are capitalized and amortized (depletion) on a per-unit of barrel equivalent of production.



DEVELOPMENT - WORKOVER PROGRAM



The Companys development - workover program consists of re-entering or completing a workover on an oil or gas well that has a historical evidence of oil or gas production or that is currently producing oil and gas at a fractional output compared to when the oil and gas wells first came into production. Workover activities include one or more of a variety of remedial operations on a producing well or inactive well to try to increase production. All costs of a workover are capitalized and amortized (depletion) on a per-unit of barrel equivalent of production.



RESERVES



The Company does not have proven reserves of oil or gas on its current oil and gas leases.



INTANGIBLE ASSETS - LEGAL AND CONTRACTUAL - RIGHTS



The Company capitalizes the expenses incurred for acquiring oil and gas leases. The oil and gas leases are contracts between mineral owner, otherwise known as the lessor and the Company or working interest owner, otherwise known as the lessee in which the lessor grants the lessee the rights to explore, drill and produce oil, gas and other minerals for a specified primary term and thereafter as long as oil, gas, or other minerals are being produced in paying quantities. This lease gives the lessee a working interest. The oil and gas lease is granted in exchange for royalty payments to the lessor.



The capitalized costs include but are not limited to: the acquisition cost of the oil and gas leases, legal, travel, consultant studies,



9



reserve reports, financing charges including an overhead allocation on closing. Many of the oil and gas leases have production covenants, which if not complied with during the term of the lease, the Company may forfeit the oil and gas lease. On a yearly basis, the oil and gas leases are reviewed for expiry and or non performance by the Company of any of the covenants in the oil and gas leases.



The detailed analysis of our Oil and Gas Rights are as follows:



|                                      |   |                   |   |             
|------------------------------------- | - | ----------------- | - | ------------
|                                      |   | As Of            
|Description                           |   | February 28, 2013 |   | May 31, 2012
|Oil and Gas Leases: Beginning of year | $ | -                 | $ | 5,583       
|Acquisitions/Work in Progress         | $ | 643,500           | $ | 399,743     
|Subtotal                              | $ | 643,500           | $ | 405,326     
|Capitalized as Fixed Assets           |   | (107,250)         |   |             
|Forfeitures during the period         | $ | -                 | $ | (5,583)     
|Impairments during the period         | $ | -                 | $ | (399,743)   
|Oil and Gas Leases: End of year       | $ | 536,250           | $ | -           



REVENUE RECOGNITION



Oil and gas sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred, and collectability of the revenue is probable. Delivery occurs and title is transferred when production has been delivered to a pipeline, railcar, truck, or a tanker lifting has occurred. Cash received relating to future production is deferred and recognized when all revenue recognition criteria are met. Taxes assessed by governmental authorities on oil and gas sales are included in the Cost of Goods in the accompanying Consolidated Statements of Operations.



GENERAL AND ADMINISTRATIVE EXPENSES



General and administrative expenses are reported net of amounts reimbursed by working interest owners of the oil and gas properties operated by the Company.



ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS



The carrying value of the Companys financial instruments, consisting of accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of such 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 statements.



INCOME TAXES



Income taxes are provided in accordance with FASB ASC 740. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.



Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.



NOTE 3: OTHER CURRENT ASSETS



The Other Current Assets account consists of inventory and prepaid expenses. During the first nine months of the fiscal year, the Company entered into two financial advisory contracts to provide consulting services in connection with the Companys business affairs and assist the Company in raising capital. One consulting contract is with Vaquero Private Capital, Inc. (VPC) is for $810,000 for a 12 month period effective June 1, 2012. As consideration for the services to be provided by VPC, the Company paid VPC 16.2 Million shares of the Company on execution of the agreement. The Company charged $810,000 as a prepaid financial services expense and is amortizing the prepaid expense over 12 months. Refer to additional information on this agreement in Note 23: TERMINATION OF FINANCIAL SERVICES AGREEMENT.



The second consulting contract is with Prodigy Asset Management, Inc. (PAM) is for $1,000,000 for a 24 month period effective August 31, 2012. As one of the considerations for the services to be provided by PAM, the Company paid PAM 20 Million shares of the Company on execution of the agreement. The Company charged $1,000,000 as a prepaid financial services expense and is amortizing the prepaid expense over 24 months.



10



For the fiscal year ending May 31, 2012, the Company entered into a Investment Banking and Advisory (IBA) agreement with Charles Morgan Securities, Inc. (CMS). As one of the considerations for the services to be provided by CMS, the Company paid CMS 18 Million shares of the Company on execution of the agreement. The Company charged $900,000 as a prepaid financial services expense and is amortizing the prepaid expense over 24 months. On September 20, 2012, the Company and CMS mutually agreed to terminate the IBA agreement between the Company and CMS.  The Company and CMS agreed that the IBA agreement and all rights, obligations, interest, claims and causes of action pursuant thereto shall automatically be canceled, terminated, released and extinguished. As a condition of the Termination Agreement, the Company is obligated to pay $4,000 for legal fees incurred by CMS. The Company issued 18 million common stock (Shares) to CMS of which 7.5 million Shares were released to CMS. The shares are in trust and will be returned once the Company's has paid the $4,000 of legal fees incurred.



The detailed analysis of our Other Current Assets is as follows:

|                           |   |                   |   |             
|-------------------------- | - | ----------------- | - | ------------
|                           |   | As Of            
|Description                |   | February 28, 2013 |   | May 31, 2012
|Beginning Balance:         | $ | 833,274           | $ | -           
|Prepaid Legal              | $ | (7,556)           | $ | 8,274       
|Prepaid Financial Services | $ | 910,000           | $ | 900,000     
|Less: Amortization         |   | (782,500)         |   | (75,000)    
|Balance end of period:     | $ | 953,218           | $ | 833,274     



NOTE 4: OTHER ASSETS



The detailed analysis of our Other Assets is as follows:

|                            |   |                   |   |             
|--------------------------- | - | ----------------- | - | ------------
|                            |   | As Of            
|Description                 |   | February 28, 2013 |   | May 31, 2012
|Rights - Oil and Gas Leases | $ | 536,250           | $ | -           
|Trademarks                  | $ | 20                | $ | 20          
|Incorporation Costs         | $ | 170               | $ | 170         
|Bonds                       | $ | -                 | $ | 500         
|Total Other Assets:         | $ | 536,440           | $ | 690         



NOTE 5: ADVERTISING



The Companys policy regarding advertising is to expense advertising when incurred. The Company had not incurred any advertising expense as of February 28, 2013.



NOTE 6: GOING CONCERN



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has net losses for the period from inception (December 20, 2007) to February 28, 2013. This condition raises substantial doubt about the Companys ability to continue as a going concern. The Companys continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



Management is planning to raise additional funds through debt or equity offerings. There is no guarantee that the Company will be successful in these efforts. There is no guarantee that the Company will be successful generating profits from its oil and gas operations.



NOTE 7: RELATED PARTY TRANSACTIONS



The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.



On December 20, 2007, pursuant to the terms of a subscription agreement, we sold 80 million (post forward split) shares of our common stock to Ms. Marina Karpilovski, the Company's former President and a director, for cash payment to us of $1,000. We believe this issuance was deemed to be exempt under Regulation S of the Securities Act, as no advertising or general solicitation was employed in offering the securities, the offering and sale was made only to Ms. Karpilovski who is a non-U.S. citizen, and transfer was restricted by us in accordance with the requirements of the Securities Act.



11



On December 20, 2007 pursuant to the terms of a subscription agreement, we sold 320 million (post forward split) shares of our common stock to Mr. Michael Zazkis, the Company's former Secretary, Treasurer, and a director, for cash payment to us of $4,000. We believe this issuance was deemed to be exempt under Regulation S of the Securities Act, as no advertising or general solicitation was employed in offering the securities, the offering and sale was made only to Mr. Zazkis who is a non-U.S. citizen, and transfer was restricted by us in accordance with the requirements of the Securities Act.



On March 28, 2011, the Company entered into Redemption Agreement with Peter Matousek, the Companys president and director, which provides in part for the Company to redeem from Mr. Matousek 140 million shares of the Companys common stock at a price of $87,500 or $0.000625 per share. On May 31, 2011, Mr. Matousek assigned the Note Payable to Comtax Services, Inc.



The Company issued an aggregate of 142,500 shares for the period ending May 31, 2012 with an average price of $0.0518 per share to the Executive and Board pursuant to a Management and Financial Service Agreement with Mr. Peter Matousek and a Board Member Compensation Agreement with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Kevin M. Grapes, Mr. Jerry G. Mikolajczyk, and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail.



The Company authorized and approved 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on October 26, 2012.



Prior to June 1, 2011, our President, CEO and Director, Jerry G. Mikolajczyk, performed services for the Company on a consulting contract through a consulting agency, Comtax Services, Inc. (Comtax). From April 1, 2010 to February 28, 2011, Comtax charged a fixed monthly fee of $2,500, a minimum of 10 hours per month for Mr. Mikolajczyk, an aggregate of $27,500 for the 11 months for Mr. Mikolajczyks services to the Company. For the period March 1, 2011 to May 31, 2011, Comtax charged the Company an aggregate of $387,275 (1,106.5 hours) for the services of Mr. Mikolajczyk plus $9,656.50 in travel expenses Mr. Mikolajczyk incurred on behalf of the Company. On October 31, 2012, Comtax assigned the trade payables to Mr. Mikolajczyk d/b/a/ Lighthouse Investments, as unsecured Promissory Notes. The Promissory Notes, an aggregate of $398,248.50, are non-interest bearing. Mr. Mikolajczyk was an officer of Comtax until his resignation on May 31, 2011 and terminated his consulting contract with Comtax as of May 31, 2011 prior to accepting his executive and director positions with the Company.



NOTE 8:  INCOME TAXES



The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During each fiscal year from 2008 thru 2012, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset of approximately $1,014,155 (assuming a 35% effective tax rate) generated by the loss carry-forward has been fully reserved as of February 28, 2013.



The Company files income tax returns in the United States, the states of Kentucky and Florida.



The Company did not identify any material uncertain tax positions on tax returns filed, nor did the company recognize any interest or penalties for unrecognized tax benefits.



NOTE 9:  NET OPERATING LOSSES



As of February 28, 2013, the Company has a net consolidated operating loss carry-forward of approximately $2,897,586, which will expire 20 years from the date the loss was incurred.



NOTE 10: STOCKHOLDERS EQUITY



AUTHORIZED



The Company is authorized to issue 5,000,000,000 shares of $0.0001 par value common stock and 50,000,000 shares of preferred stock, par value $0.0001. All common stock shares have equal voting rights, are non-assessable, and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.



On July 20, 2010, the Company filed a Certificate of Amendment to the Companys certificate of incorporation with the Nevada Secretary of State, which increased the Companys authorization to issue 5,000,000,000 shares of $0.0001 par value common stock, refer to NOTE 18: CORPORATE ACTION.



12



On November 30, 2011 and January 12, 2013, the Board of Directors of the Company approved the allocation of 4,000,000 of the 50,000,000 authorized Preferred Shares of the Company as Series A Preferred Shares with the following rights:



|                                                                                                         
|---------------------------------------------------------------------------------------------------------
|·
Convertible to one hundred (100) common shares of the Company for each one (1) Series A Preferred Share
|·
Voting rights equal to one hundred (100) votes for each Series A Preferred Share                       



The consideration for one (1) Series A Preferred Share is set at $0.50.



ISSUED AND OUTSTANDING



On December 20, 2007, the Company issued 400,000,000 (post forward split) common shares to its Directors for cash of $5,000.



Since inception (December 20, 2007) to November 30, 2009, the Company accepted subscriptions for 110,416,000 (post forward split) common shares from 37 investors under a private placement which closed on March 31, 2008. The private placement was not subject to any minimum investment and was priced at $0.0005 per share (post forward split). The Company accepted the subscriptions on various dates throughout the year.



The Company issued 1,259,000 common shares on November 30, 2010 for $62,950 for Accounts Receivable assignment.



The Company issued 741,000 common shares on November 30, 2010 for $37,050 cash in a negotiated transaction with an investor to fund the ongoing operations of the Company.



The Company issued 10,000 common shares on February 28, 2011 for $1,100 pursuant to an Oil and Gas Field Operations Services agreement with the Company.



The Company redeemed on March 28, 2011, 140 million shares of the Companys common stock at a price of $87,500 or $0.000625 per share from Peter Matousek, the Companys president and director, at the time. Also on March 28, 2011, the Company redeemed 60 million shares of the Companys common stock from four shareholders. The purchase price for the 60 million totaled $37,500 or $0.000625 per share. With the redemption of the 200 million shares, the Company reduced its issued and outstanding shares to 312,501,000 shares of common stock as of March 28, 2011.



The Company authorized and approved an aggregate of 112,500 shares for the period ending May 31, 2011 with an average price of $0.1263 per share to the Executive and Board pursuant to a Management and Financial Service Agreement with Mr. Peter Matousek and a Board Member Compensation Agreement with Mr. Peter Matousek and Mr. Donald Lynch. During the fiscal year ending May 31, 2011, the Company issued 75,000 of the 112,500 shares to the Executive and Board with the remaining 37,500 shares issued on June 6, 2011.



The Company issued 18 Million shares on April 12, 2012 for $900,000 pursuant to a twenty-four month agreement with Charles Morgan Securities Inc. On September 20, 2012, the Company and CMS mutually agreed to terminate the IBA agreement between the Company and CMS and the 18 Million shares were cancelled.



The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Executive and Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Jerry G. Mikolajczyk, Mr. Kevin M. Grapes and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012.  The balance,  31,129 shares, were issued to the Board on June 25, 2012.



The Company issued 20 Million shares on August 31, 2012 for $1,000,000 pursuant to a twenty-four month agreement with Prodigy Asset Management, LLC.



The Company issued 11.7 Million shares on August 31, 2012 for $585,000 pursuant to a Purchase and Sales agreement with Vencedor Energy Partners for the acquisition of 30 oil and gas well locations in Venango County, Pennsylvania.



The Company issued 1,428,571 shares on October 22, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.



The Company issued 16.2 Million shares on October 26, 2012 for $810,000 pursuant to a twelve month Financial Consulting Services Agreement with Vaquero Private Capital, Inc. effective as of June 1, 2012.



The Company issued 243,103  shares on October 26, 2012 for $6,077 for interest and penalties to a 3rd party lender.



13



The Company authorized and approved 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on October 26, 2012.



The Company issued 1,162,790 shares on November 12, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.



The Company authorized and approved 45,000 shares for the period ended November 30, 2012 with an average price of $0.012167 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier, refer to NOTE 19: EXECUTIVE AND BOARD COMPENSATION for additional detail. The 45,000 shares were issued to the Board on December 18, 2012.



The Company issued 54,322  shares on December 18, 2012 for $1,880 for interest and penalties to a 3rd party lender.



NOTE 11: RECENT ACCOUNTING PRONOUNCEMENTS



There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's financial position, results of operations or cash flows.



NOTE 12: CHANGE OF CONTROL



On February 9, 2010 certain shareholders sold and transferred an aggregate of 400,000,000 (post forward split) shares of Common Stock representing approximately 78.37% of the issued and outstanding shares of the Company to certain buyers (Buyers), at $0.000625 per share, post forward split, for an aggregate purchase price of $250,000 (the Purchase Price). Such transaction is hereinafter referred to as the Takeover or the Transaction.



The table below represents the ownership and percentage of control by each of the new shareholders:



|                                                |                                                                                              |                                                                          |                        
|----------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -----------------------
|Name of
Beneficial Owner                        | Class of Voting Stock                                                                        | Number of Shares (Post Forward Split) of Voting Stock Beneficially Owned | Percentage of Class (1)
|Donald Lynch                                    | Common Stock                                                                                 | 80,000,000                                                               | 15.67%                 
|Peter Matousek                                  | Common Stock                                                                                 | 320,000,000                                                              | 62.69%                 
|All Officers & Directors As a Group (2 Persons) | Common Stock                                                                                 | 400,000,000                                                              | 78.37% (1)             
|                                                | (1)
Based on 510,416,000 (post forward split) shares of Common Stock issued and outstanding. |                                                                         



In connection with the Agreement, there was a change in the majority of the Companys Board of Directors. Upon the consummation of the Takeover, Marina Karpilovski President and Director, and Michael Zazkis, Secretary, Treasurer & Director resigned and Mr. Donald Lynch was appointed as Director and Executive Officer of the Company and Mr. Peter Matousek was appointed as Director and Executive Officer of the Company.



On May 31, 2011, Mr. Jerry G. Mikolajczyk, our President, CEO and Director, acquired 180,000,000 common shares of the company from Mr. Peter Matousek, former President, CEO and Director of the Company. The common share acquisition by Mr. Mikolajczyk gave him control of 57.6% of the issued and outstanding shares of the Company. Subsequent to May 31, 2011, Mr. Mikolajczyk has acquired additional shares directly and indirectly in the Company. As of Mr. Mikolajczyks last Form 4 filed with the SEC on December 21, 2012, Mr. Mikolajczyk is beneficial owner of 188,534,421  (51.87%) of the issued and outstanding shares of the Company.



NOTE 13: LOANS PAYABLE



The Company has loans in the amount of $394,248, non-interest bearing and unsecured, with our President, CEO and Director, Jerry G. Mikolajczyk d/b/a Lighthouse Investments.



CPN#1 -The Company issued an unsecured one year 10% Convertible Promissory Note (CPN#1) on October 19, 2012 due on October 19, 2013 for $50,000. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to % of the Market Price. Market Price is the average of the lowest three (3) Closing Prices for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice as reported on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Companys common stock is



14



listed or traded). The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. Default interest is 18% per annum should the Company default on the CPN#1. The Company may prepay CPN#1 equal to 150% of the unpaid principle and accrued and unpaid interest. As of February 28, 2013, the CPN#1 has a principle amount of $40,000 with accrued interest of $1483.56. The Creditor converted $10,000 of CPN#1 for 2,591,361 shares of common stock of the Company. On January 9, 2013, CPN#1was amended to have a floor price of $0.0001.



CPN#2 -The Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#2) on October 26, 2012 due on July 29, 2013 for $32,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 55% of the Market Price. "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#2.   The Company may prepay CPN#2 at any time for the period beginning on the date of the CPN#2 and ending on the date which is ninety (90) days following the date of the CPN#2, the CPN#2 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#2 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#2 and ending on the date which is one hundred twenty (120) days following the date of CPN#2, the Company may prepay the CPN#2 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#2 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#2 and ending on one hundred eighty (180) days following the date of this CPN#2, the Company may prepay the CPN#2 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#2 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#2, the Company shall have no right of prepayment. As of February 28, 2013, the Company accrued interest of $890.42. On January 9, 2013, CPN#2 was amended to have a floor price of $0.00005.



CPN#3 -The Company issued an unsecured 9 month 8% Convertible Promissory Note (CPN#3) on December 6, 2012 due on September 10, 2013 for $37,500. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 55% of the Market Price. "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market as reported by a reliable reporting service designated by the note holder. The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. Default interest is 22% per annum should the Company default on the CPN#3. The Company may prepay CPN#3 at any time for the period beginning on the date of the CPN#3 and ending on the date which is ninety (90) days following the date of the CPN#3, the CPN#3 may be prepaid by the Company upon payment to the note holder of an amount equal to the outstanding principal amount of the CPN#3 multiplied by 125% together with accrued and unpaid interest thereon. At any time during the period beginning on the ninety (91) day from the date of the CPN#3 and ending on the date which is one hundred twenty (120) days following the date of CPN#3, the Company may prepay the CPN#3 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#3 multiplied by 135% together with accrued and unpaid interest thereon. At any time during the period beginning on the date which is one hundred twenty one (121) days from the date of the CPN#3 and ending on one hundred eighty (180) days following the date of this CPN#3, the Company may prepay the CPN#3 to the note holder upon payment of an amount equal to the outstanding principal amount of the CPN#3 multiplied by 145% together with accrued and unpaid interest thereon. After the expiration of one hundred eighty (180) days following the date of the CPN#3, the Company shall have no right of prepayment. As of February 28, 2013, the Company accrued interest of $989.59.  On January 9, 2013, CPN#3 was amended to have a floor price of $0.00005.



CPN#4  - The Company has loans in the amount of $231,160, non-interest bearing, with Comtax Services, Inc. The loans from Comtax Services, Inc. have been provided to the Company as working capital.  On January 12, 2013 the Company amended the Promissory Notes with Comtax Services, Inc. and issued an unsecured one year 10% Convertible Promissory Note (CPN#4) effective October 19, 2012 due on October 18, 2013 for $231,160. The principal and accrued interest is convertible up to 509,520 Series A Preferred Shares at a strike price of $0.50 per Series A Preferred Share with the following rights:



1.

Convertible to one hundred (100) common shares of the Company for each one (1) Series A Preferred Share; and

2.

Voting rights equal to one hundred (100) votes for each Series A Preferred Share.



CPN#5  - The Company has a loans in the amount of $62,000, non-interest bearing, with Comtax Services, Inc. The loans from Comtax Services, Inc. have been provided to the Company as working capital.  On January 12, 2013 the Company amended the Promissory Notes for $62,000 with Comtax Services, Inc. and issued an unsecured one year 10% Convertible Promissory Note (CPN#5) effective December 1, 2012 due on November 30, 2013  for $62,000. The principal and accrued interest is convertible up to 136,400 Series A Preferred Shares at a strike price of $0.50 per Series A Preferred Share with the following rights:



1.

Convertible to one hundred (100) common shares of the Company for each one (1) Series A Preferred Share; and

2.

Voting rights equal to one hundred (100) votes for each Series A Preferred Share.



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CPN#6 - On February 14, 2012, the Company issued a Promissory Note for $100,000 and is carrying a contingent liability of $30,000, with Altmann Revocable Living Trust, Rlt. (ALRT), totaling $130,000 which became due December 31, 2012 with interest calculated at 8% per annum. The Company amended the $100,000 Promissory Note plus accrued interest of $7,036 to an unsecured one year 8% Convertible Promissory Note (CPN#6) effective January 1, 2013 due on January 1, 2014 for $100,000 with accrued interest of $7,036. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at the Conversion Price which shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price is 80% of the Market Price. "Market Price" means the average of the Closing Prices (as defined below) for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Company via facsimile (the "Conversion Date"). "Closing Price" means, for any security as of any date, the closing price on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Companys common stock is listed or traded). The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. The Company may prepay CPN#6 in advance in full or in part at any time and from time to time without premium or penalty. "Fixed Conversion Price" shall mean $0.0001. As of February 28, 2013, the Company accrued interest of $8,329.



CPN#7 - On June 25, 2012, the Company issued an unsecured Promissory Note for $25,000 to a 3rd party due on July 16, 2012 with a default penalty of $2,500, default interest at 20% per annum plus late fees. The Promissory Note was renegotiated with a due date of December 31, 2012. The Company paid the 3rd party $7,958.04 in interest, default fees and late fees for the period June 25, 2012 and December 31, 2012. The Company amended the $25,000 Promissory Note plus default penalty of  $2,500 to an unsecured one year 20% Convertible Promissory Note (CPN#7) effective January 1, 2013 due on August 1, 2013. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at the Conversion Price which shall be the greater of: (i) the Variable Conversion Price and (ii) the Fixed Conversion Price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price is 80% of the Market Price. "Market Price" means the average of the Closing Prices (as defined below) for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Company via facsimile (the "Conversion Date"). "Closing Price" means, for any security as of any date, the closing price on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Companys common stock is listed or traded). The note holder is limited to owning 4.99% of the Companys issued and outstanding shares. The Company may prepay CPN#6 in advance in full or in part at any time and from time to time without premium or penalty. "Fixed Conversion Price" shall mean $0.0001. As of February 28, 2013, the Company accrued interest of $889.



On February 14, 2012, the Company accrued a contingent liability of $30,000, for Altmann Revocable Living Trust, Rlt., accruing interest at 8%, is unsecured, and is contingent upon ALRT providing documentation supporting the claim of investment in the West Crockett Oil and Gas Project. As of February 28, 2013, the Company accrued interest of $2,499.



NOTE 14: LONG TERM LIABILITIES  NOTES  3 YEARS AND LESS



On March 28, 2011, the Company entered into Redemption Agreement with Peter Matousek, the Companys president and director, which provides in part for the Company to redeem from Mr. Matousek a total of 140 million shares of the Companys common stock at a price of $87,500 or $0.000625 per share. On May 31, 2011, Mr. Matousek assigned the Note Payable to Comtax Services, Inc.



Also on March 28, 2011, the Company entered into similar redemption agreements with four other shareholders, which in total provide for the redemption of 60 million shares of the Companys common stock. The purchase price for the 60 million totaled $37,500 or $0.000625 per share.



The terms of the stock redemption, agreement is a non-callable 3-year note. The principal will accrue interest at the rate of 0.55% (IRS Short Term AFR  April 2011) per annum, until March 31, 2014 (the Maturity Date). Principal plus all accrued interest will be due on the Maturity Date.



NOTE 15: LONG TERM LIABILITIES  NOTES  3 YEARS AND LESS  RELATED PARTY



Our President, CEO and Director, Mr. Jerry G. Mikolajczyk, acquired 100% interest in Womack Holdings, Inc. on July 15, 2011. Womack Holdings, Inc. holds a Note Payable by the Company. The Note Payable is in the amount of $9,375. The principal, $9,375, will accrue interest at the rate of 0.55% (IRS Short Term AFR  April 2011) per annum, until March 31, 2014 (the Maturity Date). Principal plus all accrued interest will be due on the Maturity Date.



NOTE 16: FAIR VALUE OF FINANCIAL INSTRUMENTS



Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework



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and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.



The Company has convertible promissory notes that must be measured under the new fair value standard. The Companys financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:



Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.



Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).



Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.



The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of February 28, 2013 and May 31, 2012:

|                                   |   |                   |   |             
|---------------------------------- | - | ----------------- | - | ------------
|                                   |   | As Of            
|Description                        |   | February 28, 2013 |   | May 31, 2012
|CPN#1                              | $ | 40,000            | $ | -           
|CPN#1 Discount                     | $ | 40,000            | $ | -           
|CPN#1 - 10% Interest Accrued       | $ | 1,484             | $ |             
|CPN#2                              | $ | 32,500            | $ | -           
|CPN#2 Discount                     | $ | 26,591            | $ | -           
|CPN#2 - 8% Interest Accrued        | $ | 890               | $ |             
|CPN#3                              | $ | 37,500            | $ |             
|CPN#3 Discount                     | $ | 30,682            | $ |             
|CPN#3 - 8% Interest Accrued        | $ | 990               | $ |             
|CPN#4                              | $ | 231,160           | $ |             
|CPN#4 Discount                     | $ | 106,334           | $ |             
|CPN#4 - 10% Interest Accrued       | $ | 8,360             | $ |             
|CPN#5                              | $ | 62,000            | $ |             
|CPN#5 Discount                     | $ | 2,480             | $ |             
|CPN#5 - 10% Interest Accrued       | $ | 1,529             | $ |             
|CPN#6                              | $ | 100,000           | $ |             
|CPN#6 Discount                     | $ | 26,759            | $ |             
|CPN#6 - 8% Interest Accrued        | $ | 8,329             | $ |             
|CPN#7                              | $ | 27,500            | $ |             
|CPN#7 Discount                     | $ | 6,875             | $ |             
|CPN#7 - 20% Interest Accrued       | $ | 889               | $ |             
|Total Convertible Promissory Notes | $ | 530,660           | $ | -           
|Less: Debt Discount                | $ | 239,720           | $ | -           
|Convertible Promissory Notes       | $ | 290,940           | $ | -           
|                                   |   |                   |   |             
|Total Accrued CPN Interest         | $ | 22,470            | $ | -           



In accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total debt discounts of $239,720, and $-0- for the variable conversion feature of the convertible debts incurred during the nine months ended February 28, 2013 and year ended May 31, 2012, respectively. The discount will be amortized to debt discount over the term of the debentures using the effective interest method. The Company recorded $79,182 and $-0- of debt discount expense pursuant to the amortization of the convertible promissory note discounts during the nine months ended February 28, 2013 and February 29, 2012, respectively. The Company recorded $22,470 and $-0- of interest expense for convertible promissory notes the during the nine months ended February 28, 2013 and February 29, 2012, respectively.



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Both CPN#1, CPN#2 and CPN#3 carry default provisions that place a maximum share amount on the note holders. The maximum share amount that can be owned as a result of the conversions to common stock by the note holders is 4.99% of the Companys issued and outstanding shares.



In accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued represented embedded derivative features, and these are included in Loan Payable on the balance sheet.



NOTE 17: CORPORATE ACTIONS



A Certificate of Amendment to the Certificate of Incorporation was authorized by the Companys Board of Directors on May 15, 2010 and approved by the written consent of the holders of a majority of the Companys shareholders owning a majority of the outstanding issued and outstanding voting shares. The Certificate of Amendment provided for the Company to:

·

Change its name from Real Value Estates, Inc. to Xun Energy, Inc.;

·

Increase the number of authorized shares of its common stock from 100 million shares $0.0001 par value to 5 billion shares of common stock, $0.0001 par value; and

·

An 80:1 forward split of the Companys issued and outstanding common stock.



On July 20, 2010, the Company filed a Certificate of Amendment to the Companys certificate of incorporation with the Nevada Secretary of State to effect the name change to Xun Energy, Inc. and to increase the authorized common stock to 5 billion shares of common stock, $0.0001 par value.



On August 3, 2010, the corporate action became effective whereby the 6,380,200 issued and authorized shares of common stock were forward split resulting in 510,416,000 issued and outstanding shares of common stock.



NOTE 18: COMMITMENTS



The Company entered in a Management and Financial Service Agreement with Mr. Wayne St. Cyr as the Executive Vice President, Marketing and Strategic Development on December 21, 2010 for a ten day period ending December 31, 2010 which was extended for a 12 month term to December 31, 2011, whereby the Executive Vice President, Marketing and Strategic Development is paid $10,000 per month. The Company has not renewed the contract with Mr. Ct. Cyr and has retained Mr. St. Cyr on a month to month basis. In addition to his duties as Executive Vice President, Marketing and Strategic Development, Mr. St. Cyr is the Corporate Secretary for the Company. Mr. St Cyr is paid $10,000 per month.



The Company entered into a Management and Financial Service Agreement for Mr. Jerry G. Mikolajczyk for a 12-month period commencing on June 1, 2011 and ending May 31, 2012. Mr. Mikolajczyk is hired through a service company, and will be paid $120,000 in cash payments for the services of Mr. Mikolajczyk. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Mikolajczyk. Mr. Mikolajczyk continues to work for the Company on a month-to-month basis and is paid $10,000 per month.



The Company entered into a Management and Financial Service Agreement with Mr. Peter Matousek for a 12-month period commencing June 1, 2011 and ending May 31, 2012 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Matousek. Mr. Matousek continues to work for the Company on a month-to-month basis and is paid $7,500 per month.



The Company entered into a Management and Financial Service Agreement with Dr. William D. Spier for a 7.25-month period commencing October 23 and ending May 31, 2013 whereby Dr. Spier will be paid $29,032 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000.



NOTE 19: EXECUTIVE AND BOARD COMPENSATION



The Company entered into Board Member Compensation Agreements with Mr. Kevin M. Grapes and Mr. Jerry G. Mikolajczyk as directors of the Company for a term of one (1) year ending August 31, 2012. Both Mr. Grapes and Mr. Mikolajczyk will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all



18



costs related to the engagement Director of the Company except 3rd party or travel expenses.  On May 21, 2012, Mr. Kevin M. Grapes resigned as a Board member.



On May 22, 2012, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2013.



On May 25, 2012, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2013.



Both Dr. Spier and Mr. Matousek will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses.



The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Board pursuant to a Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Kevin M. Grapes, Mr. Peter Matousek and Dr. William D. Spier. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012.  The balance,  31,129 shares, were issued to the Board on June 25, 2012.



The Company authorized and approved an aggregate of 45,000 shares for the period ended August 31, 2012 with an average price of $0.04033 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier. The 45,000 shares were issued to the Board on October 26, 2012.



On August 31, 2012, Jerry G. Mikolajczyk was re-appointed as a director by the Board of Directors of  the Company for another one-year term ending August 31, 2013.  In consideration for Mr. Mikolajczyks service as director, the Company will issue 5,000 shares per month of the Companys stock, which will be valued based on the average of the five trading day close price prior to each month end.  In addition, the Company will reimburse Mr. Mikolajczyk for the preapproved cost of airfare, travel expenses and disbursements made on behalf of the Company.



The Company authorized and approved an aggregate of 45,000 shares for the period ended November  30, 2012 with an average price of $0.01227 per share to the Board pursuant to Board Member Compensation Agreements with Mr. Jerry G. Mikolajczyk, Mr. Peter Matousek and Dr. William D. Spier.



The table below represents the shares issued or reserved to the Board with the 5-Day Average Share Closing Price:



|              |           |         |         |          |           |         |          
|------------- | --------- | ------- | ------- | -------- | --------- | ------- | ---------
|              |           |         |         | 5-Day    |           | Par     |          
|              | Shares    | Total   | Share   |          | Value     | Paid In
|Month         | Executive | Board   | Shares  | Average  | Cost      | $0.0001 | Capital  
|June          | -         | 15,000  | 15,000  | $0.03800 | $570.00   | $1.50   | $568.50  
|July          | -         | 15,000  | 15,000  | $0.04400 | $660.00   | $1.50   | $658.50  
|August        | -         | 15,000  | 15,000  | $0.03900 | $585.00   | $1.50   | $583.50  
|Quarter Total | -         | 45,000  | 45,000  | $0.04033 | $1,815.00 | $4.50   | $1,810.50
|September     | -         | 15,000  | 15,000  | $0.02320 | $348.00   | $1.50   | $346.50  
|October       | -         | 15,000  | 15,000  | $0.00770 | $115.50   | $1.50   | $114.00  
|November      | -         | 15,000  | 15,000  | $0.00590 | $88.50    | $1.50   | $87.00   
|Quarter Total | -         | 45,000  | 45,000  | $0.01227 | $552.00   | $4.50   | $547.50  
|December      | -         | 15,000  | 15,000  | $0.00774 | $116.10   | $1.50   | $114.60  
|January       | -         | 15,000  | 15,000  | $0.00982 | $147.30   | $1.50   | $145.80  
|February      | -         | 15,000  | 15,000  | $0.01522 | $228.30   | $1.50   | $226.80  
|Quarter Total | -         | 45,000  | 45,000  | $0.01093 | $491.70   | $4.50   | $487.20  
|Year Total    | -         | 135,000 | 135,000 | $0.02118 | $2,858.70 | $13.50  | $2,845.20



NOTE 20: COMMON SHARES PURCHASE LITIGATION



On May 10, 2011, the Company accepted an Offer to Purchase from Lea Kennedy d/b/a LuxemBarings (Purchaser) to purchase $10 million of the Companys common stock based on the average of 5 consecutive trading days close prior to date of closing. The Offer to Purchase was scheduled to close on or before June 24, 2011. The Purchaser failed to complete the transaction, after mutually agreed extensions of the closing date. The Company has retained legal counsel to take legal action against the Purchaser for failing to complete the purchase transaction and for damages to the Company as a result of the failure to complete the transaction. The Company



19



has recognized losses, at cost, in the financial statements for the period ended May 31, 2012 and legal costs for the nine months ending February 28, 2013.



NOTE 21: EXECUTIVE AND BOARD CHANGES



On May 31, 2011, Mr. Matousek, our President and CEO, advised that the roles and responsibilities are increasing for the Company and that Mr. Jerry G. Mikolajczyk, while as consultant to the Company, has been instrumental in developing and building the Company to its current status including funding and operations. Mr. Matousek advised that it is in the best interests for the Company and the Shareholders that Mr. Mikolajczyk have authority to continue developing the Company and have authority to make decisions at an Executive Level of the Company. Subsequently, Mr. Matousek resigned as President, CEO and CFO and the Company appointed Jerry G. Mikolajczyk as Interim President, CEO and CFO until a permanent President and CEO is recruited and a permanent CFO is recruited. The Company entered into a Management and Financial Service Agreement for Mr. Jerry G. Mikolajczyk for a 12-month period commencing on June 1, 2011 and ending May 31, 2012. Mr. Mikolajczyk is hired through a service company, and will be paid $120,000 in cash payments for the services of Mr. Mikolajczyk. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5,000,000. The Company has not renewed the contract with Mr. Mikolajczyk. Mr. Mikolajczyk continues to work for the Company on a month-to-month basis and is paid $10,000 per month.



The Company also appointed Mr. Peter Matousek as the Companys Vice-President of Investor Relations. The Company entered into a Management and Financial Service Agreement with Mr. Peter Matousek for a 12-month period commencing June 1, 2011 and ending May 31, 2012 whereby Mr. Matousek will be paid $90,000 in cash payments. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million. The Company has not renewed the contract with Mr. Matousek. Mr. Matousek continues to work for the Company on a month-to-month basis and is paid $7,500 per month.



On August 31, 2011, directors Peter Matousek, Donald Lynch and Jerry G. Mikolajczyk termed out. On September 1, 2011, the Company obtained the written consent of the stockholders holding a majority, 86.51%, of the outstanding voting rights of the Company (the "Consent"). The Consent approved the election of Kevin M. Grapes and Jerry G. Mikolajczyk as directors of the Company for a term of one (1) year ending August 31, 2012.



On May 21, 2012, Mr. Kevin M. Grapes resigned as a Board member.



On May 22, 2012, Company entered into a Board Member Compensation Agreement with Dr. William D. Spier as a director of the Company for a term of one (1) year ending May 31, 2013.



On May 25, 2012, Company entered into a Board Member Compensation Agreement with Mr. Peter Matousek as a director of the Company for a term of one (1) year ending May 31, 2013.



On August 31, 2012, Company entered into a Board Member Compensation Agreement with Mr. Jerry G. Mikolajczyk as a director of the Company for a term of one (1) year ending August 31, 2013.



Each Board member will receive 5,000 shares per month of the Companys common stock in consideration for them serving on the Companys Board of Directors. The common stock will be valued based on the average of the 5 trading day close price prior to each month end. This amount includes all costs related to the engagement Director of the Company except 3rd party or travel expenses. The terms and conditions will be renegotiated upon the successful consummation of a Business Combination through the acquisition of, or merger or consolidation with, a company that has substantial additional capital and or operating revenues; or the Company is able to finance operating expenses with additional debt or through equity financing of not less than $5 million.



NOTE 22:  VENANGO 30 WELL LOCATION



On August 31, 2012 the Company entered into an Oil and Gas Well Location Agreement with Vencedor Energy Partners (Assignor). The agreement allows the Company to drill 30 offset oil and gas wells on 3 producing oil and gas leases in Venango County, Pennsylvania.



The Company paid $585,000 in the form of 11,700,000 shares of common stock (Shares) of the Company for the rights.



20



The Company will have 100% working interest in the wells and Net Revenue Interest as follows:



|           |                                                                                                                                                                                  
|---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Lease Name | Net Revenue Interest Breakdown                                                                                                                                                   
|Rice       | Master Lease Lessor - 12.5% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 82.5% royalty interest;    
|           |                                                                                                                                                                                  
|Lalley     | Master Lease Lessor - 12.5% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 82.5% royalty interest; and
|           |                                                                                                                                                                                  
|Corse      | Master Lease Lessor - 15.0% Royalty, Master Lease Lessee 2.5% Override royalty interest, Assignor - 2.5% Override royalty interest; and the Company - 80.0% royalty interest.    



The Agreement allows the Company to have the exclusive right to explore, operate, produce all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced (Oil and Gas) from Oil and Gas deposits contained within and under the well location and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the well location and other lands for the production of Oil and Gas to the Company. A well location is defined as a circle having a radius of l50 feet with the well, to a depth as allowed in the Master Lease, at the center thereof.



The Company owns the rights and may select up to 30 well locations from the following:



|           |           |                                                                                                                                                                                                                                                                                            
|---------- | --------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Lease Name | Locations | Rights                                                                                                                                                                                                                                                                                     
|Rice       | Up to 10  | One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,200 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Rice Lease.  
|           |           |                                                                                                                                                                                                                                                                                            
|Lalley     | Up to 8   | One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,200 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Lalley Lease.
|           |           |                                                                                                                                                                                                                                                                                            
|Corse      | Up to 15  | One well per location, to a depth from the surface through the Speechley sands which depth is approximately 2,000 feet on the Premises alone for producing oil and gas by any means, and all rights necessary convenient and incident thereto, granted pursuant to the Master Corse Lease. 



If Company does not begin or provide proof of funds or funding for the first well on or before January 31, 2013, subject to our operator, Vencedor Energy Partners, obtaining the necessary permits to allow the Company to commence drilling and completions operations, and does not begin or provide proof of funds or funding for 3 more wells on or before March 31, 2013, then the Company will have forfeited its rights and the Agreement shall terminate and unwind and the Assignor agrees to return the Shares (11,700,000) to the Company.



On January 29, 2013, pursuant to a letter agreement between the Company and the Assignor, the Company acknowledged and agreed to the notice of the delay of the permits up to 4 weeks beyond January 31, 2013.



After completing 8 wells and if Company does not complete any of the remaining 22 well drilling provision set forth in the Agreement within the 2 years from the date of the execution of the Agreement, then the Company will forfeit its rights to the well locations not completed. The Company will retain its rights for the well locations completed and will retain an Override Royalty of Seven and one half per cent (7.5%) on the well locations forfeited.



The Company has 2 years from the date of execution of the Agreement to complete the drilling of the 30 well locations and has the option to acquire an additional 15 well locations for the same terms and conditions of the Agreement after the first 30 wells locations have been completed.



The Company will provide funding in groups of 4 to 6 wells to optimize economies of scale, with the exception of the first 4 wells which can be funded on an individual basis.



The Company agreed, the Participation and Operating Agreement (the "POA"), to have Assignor the designated Operator (the "Operator") of the Oil and Gas Well Locations which includes all the responsibilities as a designated operator in the State of Pennsylvania which includes the duties of managing and supervising the drilling and completions of the Oil and Gas Locations.



21



On December 18, 2012, pursuant to the POA, the Operator invoiced the Company $835,000 for the drilling and completion of five oil wells on the Rice lease. The Company has recorded the transaction capitalizing the drilling and completions as work in progress. The liability is included in the Company's Accounts Payable.



THE COMPANY WILL NEED TO RAISE FUNDS TO DRILL THE OIL AND GAS WELLS AND THERE IS NO GUARANTEE THAT THE COMPANY WILL BE SUCCESSFUL IN RAISING THE FUNDS NECESSARY TO COMPLETE 1 OR ANY OF THE 30 OFFSET OIL AND GAS WELLS.



NOTE 23: TERMINATION OF FINANCIAL CONSULTING SERVICES AGREEMENT



On December 18, 2012, the Company issued a Notice of Termination to Vaquero Private Capital, Inc. (VPC) for breach of contract by VPC, terminating the September 4, 2012 twelve month Financial Consulting Services Agreement (the Agreement) effective as of June 1, 2012, pursuant to which VPC would provide consulting services in connection with the Companys business affairs and assist the Company in raising capital.  In consideration of the services to be provided by VPC, the Company paid VPC a prepaid fee of $810,000 in the form of 16.2 million common shares of the Company. The Company has placed a Stop Order on the transference of 16.2 million shares pending resolution of the breach of contract by VPC.



NOTE 24: SUBSEQUENT EVENTS



On March 18, 2013, pursuant to a letter agreement, Amendment #3, between the Company and Vencedor Energy Partners, the Company has agreed to delete Section 4a (financing conditions) of the Oil and Gas Well Location Assignment dated August 31, 2012 between Xun Energy, Inc. and Vencedor Energy Partners.



On March 23, 2013 The United States District Court For The Southern District Of Illinois granted summary judgment on Xun Energys breach of contract claim against Lea Kennedy d/b/a/ LuxemBarings. The amount of damages remains an issue to be resolved in the case and the Company's "fraud in the inducement claim" alleged in its complaint remains pending.



22



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Managements Discussion and Analysis of Financial Condition and Results of Operations.



The following managements discussion and analysis (MD&A) is managements assessment of the historical financial and operating results of the Company during the period covered by the financial statements. This MD&A should be read in conjunction with the audited consolidated financial statements and the related notes and other information included elsewhere in this Quarterly Report on Form 10-Q.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION



This Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2013 contains forward-looking statements. Generally, the words believes, anticipates, may, will, should, expect, intend, estimate, continue, and similar expressions or the negative thereof or comparable terminology are intended to identify  forward-looking statements which include, but are not limited to, statements concerning the Companys expectations regarding its working capital requirements, financing requirements, business prospects, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected.



These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein.



Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.



OTHER PERTINENT INFORMATION



When used in this report, the terms "Xun Energy," the "Company," we," "our," and "us" refer to Xun Energy, Inc., a Nevada corporation and its wholly owned subsidiaries.



General



The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 30 oil and gas wells with an option to acquire an additional 15 oil and gas well locations for drilling and completion in Venango County, Pennsylvania.



The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States.



There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations.



There are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations that they will produce oil and gas.



There are no assurances that should oil and gas will be produced from one or more of the 30 oil and gas well locations, that the Company will be profitable.



We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada.



We were incorporated on December 20, 2007 in the State of Nevada. We are a development stage company, and to date have earned limited revenue.



23



Our focus is to generate cash flow.



Mission Statement



|                                                                                                                                                                                                                                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|·
To become a leader in providing energy, through acquisition and diversification.                                                                                                                                                                                  
|·
To acquire working interest positions and mineral rights leases for the purposes of oil and gas development and production using new technologies, advanced drilling and completion methods and invest in known, producing properties and surrounding areas.      
|·
To be aggressive in gaining interest positions in leases and existing producing properties that will produce desirable returns, utilize leading technologies, utilize methods to maximize exploration and production results while providing Return On Investment.



Strategy



We aspire to be an independent oil and gas company in North America and to provide our shareholders with returns over the long-term. To achieve this, we strive to optimize our capital investments to maximize growth in cash flows, earnings, production and establish reserves. We will do this by:



|                                                                                                                  
|------------------------------------------------------------------------------------------------------------------
|·
Generating cash flow,
·
Securing financing to acquire our planned acquisitions,
·
Exercising capital discipline,
|·
Ensuring financial strength, and                                                                                
|·
Investing in oil and gas properties with strong full-cycle margins.                                             



Introduction



We are an independent oil and natural gas development and production company. Our basic business model is to increase shareholder value by finding and developing oil and gas production through the development activities, which include drilling offset oil and gas wells and re-entering oil and gas wells, that have historical oil and gas production or are currently producing oil and gas, and selling the production from these, worked over wells at a profit. To be successful, we must, over time, need to complete our goal of raising sufficient funds to drill offset wells or complete development programs over the next year and then sell the resulting production at a price that is sufficient to cover our operating expenses, administrative costs and interest expense, plus offer us a return on our capital investment.



We have a limited operating history of oil and gas production, no proven reserves, no production over the last nine months or in the prior fiscal year, and we have negative cash flow. To date, we have had limited revenue and have not been able to generate sustainable positive earnings on a Company-wide basis. Our management cannot provide any assurances that the Company will ever operate profitably. As a result of our limited operating history, we are more susceptible to the numerous business, investment, and industry risks that have been described in Item 1A. Risk Factors of  our Annual Report on Form 10-K, filed with the SEC on September 13, 2012.



Our longer-term success depends on, among many other factors, the production of grade oil and gas properties and on the prevailing sales prices for oil and natural gas along with associated operating expenses. The volatile nature of the energy markets makes it difficult to estimate future prices of oil and natural gas; however, any prolonged period of depressed prices would have a material adverse effect on our results of operations and financial condition.



Our operations are focused on identifying and evaluating prospective oil and gas properties and funding projects that we believe have the potential to produce oil or gas in commercial quantities subject to the Company obtaining the necessary funding for the offset drilling or development programs.



During the past three fiscal years, we have been involved in searching for an acquisition that would provide us with revenue and positive cash flow. We are successful in acquiring oil and gas properties that allows the Company to drill and complete 30 oil and gas wells with an option to acquire an additional 15 oil and gas well locations for drilling and completions in Venango County, Pennsylvania.



Our inability to generate revenue during the nine month period ending February 28, 2013 is due primarily to our inability to raise sufficient funds necessary to produce oil or gas within the nine month timeframe and commence drilling operations. There are no assurances that the Company will be successful in raising sufficient funds to accomplish our goals and objectives during the next quarter of this fiscal year or the remainder of the fiscal year. Our operator, Vencedor Energy Partners, has obtained the permits to drill and complete the first five wells we plan to drill and have invoiced the Company for the drilling and completions of the five oil wells on the Rice Lease.  There are no assurances that we will successfully close on financing to pay for these five wells.



24



COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012 AND FROM INCEPTION (DECEMBER 20, 2007) TO FEBRUARY 28, 2013.



Revenues



We generated no revenues for the three month period ended February 28, 2013 and the three month period ended February 29, 2012. Our operations for the quarter have been financed by the sale of our common stock and debt. Operating expenses for the three month period ended February 28, 2013 and February 29, 2012 totalled $563,126 and $124,133. Our single largest expense to for the three month period ended February 28, 2013 has been financial consulting fees totalling $327,500 and no expenditures for financial consulting for the three month period ended February 29, 2012. General and Administrative expenses, including financial consulting fees, totalled $563,126 and $124,133 respectively. For the three month period ended February 28, 2013 and February 29, 2012 we had a net loss of ($577,242) and ($124,304).



We generated no revenues for the nine months ended February 28, 2013 and for the nine months ended February 29, 2012. Our operations to date have been financed by the sale of our common stock and debt. Operating expenses for the nine months ended February 28, 2013 and February 29, 2012 totalled $1,166,155 and $320,232. Our single largest expense to for the nine months ended February 28, 2013 has been financial consulting fees totalling $752,300 and no expenditures for financial consulting for the nine months ended February 29, 2012. General and Administrative expenses, including financial consulting fees, totalled $1,166,155 and $320,232 respectively. For the nine months ended February 28, 2013 and February 29, 2012 we had a net loss of ($1,196,477) and ($340,450).  Total losses since December 20, 2007 (Inception) were ($2,897,586).



Until we obtain additional funding to complete our oil and gas well drilling and completions program, we do not anticipate generating revenues, and any revenues that we generate may not be sufficient to cover our operating expenses, in which case we may have to cease operations and you may lose your entire investment.



Liquidity and Capital Resources



Assets and Liabilities



Our primary financial resource is our base of our unproven oil and gas locations in Venango County, Pennsylvania. Our ability to fund our capital expenditure program is dependent upon the availability of capital resource financing. In this fiscal year, we plan on spending approximately $7,500,000 in new capital investments for a 30 well oil and gas drilling program and exercise our option for an additional 15 oil and gas well drilling program on our ability to raise $7,500,000 in funding. Factors such as changes in operating margins due to changes in the price of oil and gas and the availability of capital resources could increase or decrease our ultimate level of expenditures during the remaining fiscal year.



The changes in our capital resources at February 28, 2013 compared with February 29, 2012 are:



|                        |   |                   |   |                     |                   |           |            
|----------------------- | - | ----------------- | - | ------------------- | ----------------- | --------- | -----------
|                        |   |                   |   | Increase (Decrease) | Percentage Change
|                        |   | February 28, 2013 |   | February 29, 2012   |                  
|                        |   |                   |   |                     |                   |           |            
|Cash                    | $ | 69                | $ | 179                 | $                 | (110)     | 61.30%     
|Current Assets          | $ | 953,287           | $ | 179                 | $                 | 953,108   | 532,462.78%
|Total Assets            | $ | 2,431,977         | $ | 435,974             | $                 | 1,996,003 | 457.83%    
|Current Liabilities     | $ | 2,495,483         | $ | 1,315,052           | $                 | 1,180,431 | 89.76%     
|Total Liabilities       | $ | 2,621,807         | $ | 1,440,689           | $                 | 1,181,118 | 81.98%     
|Working Capital Deficit | $ | 1,542,196         | $ | 1,314,873           | $                 | 227,323   | 17.29%     



Our working capital deficit increased by $227,323, from ($1,314,873) as of February 29, 2012 to ($1,542,196) as of February 28, 2013. This increase in the deficit is due to the amount of resources that is required to raise sufficient capital to start and complete the 30 well oil and gas drilling and completions program, corporate and field staff, to complete all the necessary SEC filings and the capital cost to drill and complete five oil wells on the Rice Lease.



Over the last nine months, we expended our resources on raising sufficient funds for a drilling and completions program for our 30 oil and gas well locations in Venango County, Pennsylvania. Our ability to grow is dependent upon favorably obtaining outside debt and capital and generating cash flows from operating activities necessary to fund our investment activities. There is no assurance that we will be able to achieve profitability. Since our future operations will continue to be dependent on successful development activities and our ability to seek and secure capital from external sources, should we be unable to achieve sustainable profitability this could cause any equity investment in the Company to become worthless.



25



Major sources of funds in the past for us have included debt or equity markets. We will have to rely on these capital markets to fund future operations and growth. Our business model is focused on the development of our oil and gas properties. Our ability to generate future revenues and operating cash flow will depend on successful completion of our planned drilling and completions programs and the acquisition of additional oil and gas producing properties, which may very likely require us to continue to raise equity or debt capital from outside sources.



The Company has ongoing capital commitments to develop certain leases pursuant to their underlying terms. Failure to meet such ongoing commitments may result in the loss of the lease itself. These ongoing capital commitments require us to seek capital from sources outside of the Company. The current uncertainty in the credit and capital markets, and the economic downturn, may restrict our ability to obtain needed capital.



Cash Flows



Changes in the net funds provided by or (used in) each of our operating, investing and financing activities are set forth in the table below:



Cash Flow Used in Operating activities:

|                                                    |   |                  |   |                     |                   |           |           |  |  |  |  |  | 
|--------------------------------------------------- | - | ---------------- | - | ------------------- | ----------------- | --------- | --------- |  |  |  |  |  | 
|                                                    |   |                  |   | Increase (Decrease) | Percentage Change
|                                                    |   | February 28
2013 |   | February 29
2012    |                  
|Net cash provided by (used in) operating activities | $ | 289,260          | $ | (6,315)             | $                 | 295,575   | 4,680.53%
|Net cash provided by (used in) investing activities | $ | (835,000)        | $ | (430,170)           | $                 | (404,830) | 94.11%   
|Net cash provided by (used by) financing activities | $ | 545,809          | $ | 411,595             | $                 | 134,214   | 32.61%   



Cash flow from operating activities is derived from changes in the balances of payables, or other non-oil property asset account balances. For the nine months ended February 28, 2013, we had a positive cash flow from operating activities of $289,260, in comparison to a negative cash flow of ($6,315) for the nine months ended February 29, 2012. This change of $295,575 was the result of an increase in our payables balance. Variations in cash flow from operating activities may affect our level of development (workover) expenditures. Our expenditures consist primarily of our General and Administrative (G&A) expenses, which consist of consulting and professional services, employee compensation, legal, accounting, travel and other G&A expenses, which we have incurred in order to obtain project financing for the Company.



Cash Flow Used in Investing activities



Cash flow used by investing activities was $835,000 for the nine months ended February 28, 2013. This is in comparison to $430,170 used for investing activities for the nine months ended February 29, 2012, an increase of $404,830. The investments are for the drilling and completion of five oil wells on the Rice Lease.



Cash Flow from Financing activities



Cash flow from financing activities is derived from long-term liability account balances or in equity, account balances excluding retained earnings. Cash flow provided by financing activities was $545,809 for the nine months ended February 28, 2013. This is in comparison to $411,595 used by financing activities for the nine months ended February 29, 2012. We anticipate it will be necessary to rely on additional funding from debt financing and from capital markets in the current fiscal year to complete the financing for the 30 well oil and gas drilling program and exercise our option for an additional 15 oil and gas well drilling program and to discharge our debts.



Our business is capital intensive. Our ability to grow is dependent upon favorably obtaining outside capital and generating cash flows from operating activities necessary to fund our investment activities. There is no assurance that we will be able to achieve profitability. Since our future operations will continue to be dependent on successful development activities and our ability to seek and secure capital from external sources, should we be unable to achieve profitability this could cause any equity investment in the Company to become worthless.



We have no ongoing revenues to satisfy our ongoing liabilities. Our auditors have issued a going concern opinion. Unless we secure equity, debt financing or Joint Venture partners, of which there can be no assurance, or identify a profitable acquisition candidate, we will not be able to continue any operations.



Plan of Operation For Remaining Fiscal Year



Our acquisition of the 30 well oil and gas locations in Pennsylvania will require approximately $5 Million of financing to complete the drilling and completions program and if we choose to exercise our option, we will need to finance another $2.5 Million to complete the additional 15 oil and gas well locations. Over the last nine months, we retained the services of two financial



26

consultants to assist the Company in its efforts to raise the necessary capital to meet our financial obligations for the 30 well drilling and completions program. On December 18, 2012 the Company terminated one of the two financial consultants as the financial consultant breached their agreement with the Company. The Company is in discussions with various financial and private equity firms to raise funds either through debt or equity financing. There are no assurances that the Company will be successful in raising sufficient funds to accomplish our goals and objectives for the remainder of this fiscal year. There are no assurances that if the Company is successful in raising equity financing, that there will not be shareholder dilution.



Our auditors have issued a going concern opinion. Unless we secure equity or debt financing, of which there can be no assurance, or our leasehold interests generate revenues sufficient to meet ongoing and accrued expenses, it is unlikely that we will be able to continue our operations in which case you will lose your investment.



Off-Balance Sheet Arrangements



We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Not applicable.



ITEM 4. CONTROLS AND PROCEDURES



Item 9A. Controls and Procedures.



Disclosure controls and procedures.



Under the supervision and with the participation of our management, including our principal executive and principal financial officer, we evaluated, as of February 28, 2013, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.



Internal Control over Financial Reporting



During the period covered by this Quarterly Report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 13d-15(d) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION



ITEM 1.   LEGAL PROCEEDINGS.





On May 10, 2011, the Company accepted an Offer to Purchase from Lea Kennedy d/b/a LuxemBarings (Purchaser) to purchase $10 million of the Companys common stock based on the average of five consecutive trading days close prior to date of closing (the "Offer to Purchase"). The Offer to Purchase was scheduled to close on or before June 24, 2011. The Purchaser failed to complete the transaction, after mutually agreed extensions of the closing date. The Company has retained legal counsel to take legal action against the Purchaser for failing to complete the purchase transaction and for damages to the Company as a result of the failure to complete the transaction. The Company has recognized losses, at cost, in the financial statements for the period ended February 28, 2013.



ITEM 1A.   RISK FACTORS



There have been no material changes in our risk factors from those disclosed in our Form 10-K filed September 13, 2012.



ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.



The Company authorized and approved an aggregate of 136,129 shares for the period ended May 31, 2012 with an average price of $0.0333 per share to the Executive and Board pursuant to Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Donald Lynch, Mr. Jerry G. Mikolajczyk,  Mr. Kevin M. Grapes and Dr. William D. Spier, refer to NOTE 19:



27

EXECUTIVE AND BOARD COMPENSATION for additional detail. The Company issued 105,000 of the 136,129 shares to the Board as of May 31, 2012. The balance of 31,129 shares was issued to the Board on June 25, 2012.



The Company issued 20 Million shares on August 31, 2012 for $1,000,000 pursuant to a twenty-four month agreement with Prodigy Asset Management, LLC.



The Company issued 11.7 Million shares on August 31, 2012 for $585,000 pursuant to a Purchase and Sales agreement with Vencedor Energy Partners for the acquisition of 30 oil and gas well locations in Venango County, Pennsylvania.



On September 20, 2012, the Company and Charles Morgan Securities Inc. ("CMS") mutually agreed to terminate the Investment Banking Agreement between the Company and CMS. The 18 Million shares issued on April 12, 2012 for $900,000 to CMS was memorialized and cancelled.



The Company issued 1,428,571 shares on October 22, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.



The Company issued 16.2 Million shares on October 26, 2012 for $810,000 pursuant to a twelve month Financial Consulting Services Agreement with Vaquero Private Capital, Inc. (VPC) effective as of June 1, 2012. On December 18, 2012, the Company issued a Notice of Termination to VPC for breach of contract by VPC, thus terminating the September 4, 2012 twelve months Financial Consulting Services Agreement. The Company has placed a Stop Order on the transference of 16.2 million shares pending resolution of the breach of contract with VPC.



The Company issued 243,103  shares on October 26, 2012 for $6,077 for interest and penalties to a 3rd party lender.



The Company issued 45,000 shares with an average price of 0.01227 per share on October 26, 2012 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk,  and Dr. William D. Spier.



The Company issued 1,162,790 shares on November 12, 2012 for $5,000 pursuant to a Convertible Promissory Note dated October 19, 2012.



The Company issued 45,000 shares for the period ended November 30, 2012 with an average price of $0.012167 per share on December 18, 2012 for Board Member Compensation Agreements with Mr. Peter Matousek, Mr. Jerry G. Mikolajczyk,  and Dr. William D. Spier.



The Company issued 54,322  shares on December 18, 2012 for $1,880 for interest and penalties to a 3rd party lender.



The issuance of the common stock was exempt from registration under Section 4(2) of the Securities Act.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.



None



ITEM 4.  MINE SAFETY DISCLOSURES.



Not Applicable



ITEM 5.  OTHER INFORMATION



None.



28





|                                        |                                                                                                                                                                     |       |         |             |                         
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | ------- | ----------- | ------------------------
|ITEM 6.   EXHIBITS                      | INCORPORATED BY REFERENCE                                                                                                                                          
|Exhibit Number                          | Exhibit Description                                                                                                                                                 | Form  | Exhibit | Filing Date | File/
Furnished Herewith
|Material Contracts                      |                                                                                                                                                                     |       |         |            
|10.1                                    | Amendment to Oil and Gas Well Location Assignment dated December 1, 2012 and effective as of December 3, 2012 between Xun Energy, Inc. and Vencedor Energy Partners | 8-K   | 10.1    | 12/01/12    |                         
|10.2                                    | Xun Energy, Inc. Power Point Presentation dated December 2012                                                                                                       | 8-K   | 99.1    | 12/21/12    |                         
|10.3                                    | Xun Energy, Inc. Power Point Presentation dated January 2013                                                                                                        | 8-K   | 99.1    | 01/25/13    |                         
|10.4                                    | Letter Agreement to Letter Amendment #1 to Oil and Gas Well Location Assignment dated August 31, 2012                                                               | 8-K   | 10.1    | 01/31/13    |                         
|10.5                                    | Letter Amendment #1 to Oil and Gas Well Location Assignment dated August 31, 2012                                                                                   | 8-K   | 10.2    | 01/31/13    |                         
|10.6                                    | Letter Amendment #3 to Letter Amendment #2 to Oil and Gas Well Location Assignment dated August 31, 2012                                                            | 8-K/A | 10.1    | 03/19/13    |                         
|10.7                                    | Letter Amendment #2 to Letter Amendment #1 to Oil and Gas Well Location Assignment dated August 31, 2012                                                            | 8-K/A | 10.2    | 03/19/13    |                         
|10.8                                    | Letter Amendment #1 to Oil and Gas Well Location Assignment dated August 31, 2012                                                                                   | 8-K/A | 10.3    | 03/19/13    |                         
|Rule 13a14(a)/15d-14(a) Certifications
|31.1                                    | Certificate of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002                                                                   |       |         |             | X                       
|31.2                                    | Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                    |       |         |             | X                       
|32.1                                    | Certificate of the Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                               |       |         |             | X                       
|32.2                                    | Certificate of the Chief Financial  Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                              |       |         |             | X                       



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|                      |                  |                                                                                       
|--------------------- | ---------------- | --------------------------------------------------------------------------------------
|                      | XUN ENERGY, INC.
|                      |                  |                                                                                       
|Date: April 19, 2013  | By:              | /s/ Jerry G. Mikolajczyk                                                              
|                      |                  | Jerry G. Mikolajczyk                                                                  
|                      |                  | Chief Executive Officer
(principal executive officer)                                 
|                      |                  |                                                                                       
|Date:  April 19, 2013 | By:              | /s/ Jerry G. Mikolajczyk                                                              
|                      |                  | Jerry G. Mikolajczyk                                                                  
|                      |                  | Chief Financial Officer
(principal financial officer and principal accounting officer)



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