10-Q

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 June 30, 2014
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File No. 0-54343

NEW WESTERN ENERGY CORPORATION

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

NEVADA (State or other jurisdiction of incorporation or organization) 7929 (Primary Standard Industrial Classification Code Number) 26-3640580 (I.R.S. Employer Identification No.)

1140 Spectrum, Irvine, CA 92618

(Address of principal executive offices)

(949) 435-0977

(Registrant’s telephone number, including area code)  

Indicate by check mark whether the registrant (1) has filed all 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 such filing requirements for the past 90 days.

Yes  [x]   No  [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  [x]   No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  [ ]	Accelerated filer                       [ ]
Non-accelerated filer    [ ]	Smaller reporting company     [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 

Yes  [ ]   No  [x]

The number of shares of Common Stock, $0.0001 par value, of the registrant outstanding at August 19, 2014 was 74,206,448.

TABLE OF CONTENTS

PART I.	3
Item 1. Financial Statements.	3
Condensed Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	3
Condensed Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2014 and 2013 (Unaudited)	5
Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2014 and  2013 (Unaudited)	6
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis or Plan of Operation	22
Item 3. Quantitative and Qualitative Disclosures About Market Risks.	26
Item 4. Controls and Procedures	26
PART II.	28
Item 1. Legal Proceedings.	28
Item 1A. Risk Factors.	28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	28
Item 3. Defaults Upon Senior Securities.	29
Item 4. Mine Safety Disclosures.	29
Item 5. Other Information.	29
Item 6. Exhibits.	29
SIGNATURES	30
EXHIBIT INDEX	31

Table of Contents 1

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “desire,” “goal,” “should,” “objective,” “seek,” “plan,” “strive” or “anticipate,” as well as variations of such words or similar expressions, or the negatives of these words. These forward-looking statements present our estimates and assumptions only as of the date of this Form 10-Q. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. We caution readers not to place undue reliance on any such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes will likely vary materially from those indicated.

Table of Contents 2

PART I.

Item 1.  Financial Statements.

New Western Energy Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

	June 30, 2014 (Unaudited)		December 31, 2013
ASSETS
Current assets
Cash and cash equivalents	$	438,576	$	1,523,181
Accounts receivable		71,260		43,365
Inventory		73,953		24,713
Prepaid expenses and other assets		94,358		75,417
Total current assets		678,147		1,666,676
Property and equipment, net		214,028		201,556
Oil and gas properties, net		1,487,638		1,459,233
Mineral properties, net		5,449		38,143
Deferred debt issuance cost, net		142,154		241,911
Note receivable, net		65,000		—
Other assets		1,930		1,930
Total Assets	$	2,594,346	$	3,609,449
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	79,916	$	67,984
Accrued expenses		124,505		70,491
Convertible notes payable, current portion, net of discount of $606,877 and $72,534 at June 30, 2014 and December 31, 2013		330,288		21,792
Embedded conversion option liability		677,306		809,716
Warrant liability		609,044		912,215
Payable to related party		—		1,922
Total current liabilities		1,821,059		1,884,120
Notes payable, long term portion, net of discount of $647,839 at June 30, 2014 and $782,310 at December 31, 2013, respectively		925,911		791,440
Convertible notes payable, net of discount of $0 at June 30, 2014 and $1,101,586at December 31, 2013, respectively		—		130,414
Total long term liabilities		925,911		921,854
Total Liabilities		2,746,970		2,805,974
Commitments and contingencies (Note 10)

Table of Contents 3

New Western Energy Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(Unaudited)

	June 30, 2014 (Unaudited)			December 31, 2013
Stockholders' Equity
New Western Energy Corporation and Subsidiaries Stockholders' Equity
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 127,000 and 0 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		13			—
Common stock, $0.0001 par value, 250,000,000 shares authorized, 73,806,448 and 72,185,866 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		7,381			7,219
Additional paid in capital		6,676,866			5,752,443
Accumulated deficit		(7,219,328	)		(5,468,129	)
Total New Western Energy Corporation and Subsidiaries Stockholders' Equity		(535,068	)		291,533
Noncontrolling interest in consolidated subsidiary		382,444			511,942
Total Stockholders' Equity		(152,624	)		803,475
Total Liabilities and Stockholders' Equity	$	2,594,346		$	3,609,449

The accompanying notes are an integral part of these unaudited condensed

consolidated financial statements.

Table of Contents 4

New Western Energy Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	For the three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
Revenues
Oil and gas sales	$	110,734		$	11,797		$	182,122		$	30,994
Operating expenses
Depreciation, depletion and amortization		29,722			26,766			57,881			48,266
General and administrative		401,915			287,891			1,081,811			453,882
(Gain) or loss on sale of oil leases		—			1,677			—			(77,594	)
Oil and gas production		89,944			313,416			367,431			329,844
Total expenses		521,581			629,750			1,507,123			754,398
Loss from operations		(410,847	)		(617,953	)		(1,325,001	)		(723,404	)
Other income (expenses)
Interest Expense		(667,130	)		(124,465	)		(1,379,757	)		(142,297	)
Change in fair value of embedded conversion option and warrant liability income (expense)		594,835			(66,510	)		826,439			(124,325	)
Total other income (expenses)		(72,295	)		(190,975	)		(553,318	)		(266,622	)
Loss from operations before income tax		(483,142	)		(808,928	)		(1,878,319	)		(990,026	)
Provision for income tax		—			—			—			(800	)
Net loss		(483,142	)		(808,928	)		(1,878,319	)		(990,826	)
Preferred stock dividend		(2,378	)		—			(2,378	)		—
Net loss applicable to common stock before allocation to noncontrolling interest		(485,520	)		(808,928	)		(1,880,697	)		(990,826	)
Net loss applicable to noncontrolling interest in consolidated subsidiary		(40,725	)		(95,102	)		(129,498	)		(96,347	)
Net loss applicable to New Western Energy Corporation common stock	$	(444,795	)	$	(713,826	)	$	(1,751,199	)	$	(894,479	)
Basic and diluted net loss per share applicable to New Western Energy Corporation's common stock	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.01	)
Weighted average number of shares outstanding - Basic and Diluted		73,429,964			68,824,547			73,051,948			68,631,798

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

Table of Contents 5

New Western Energy Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	For the six months ended June 30,
	2014			2013
Cash Flows from Operating Activities:
Reconciliation of net loss to net cash used in operating activities:
Net loss applicable to New Western Energy Corporation common stock	$	(1,751,199	)	$	(894,479	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and depletion		25,188			15,573
Amortization of debt discount		711,714			130,026
Amortization of mineral property		32,694			32,694
Amortization of deferred debt issuance cost		99,758			—
Loss applicable to noncontrolling interest		(129,498	)		(96,347	)
Gain on sale of oil and gas property and related equipment		—			(77,594	)
Change in fair value of embedded conversion option liability		(76,973	)		124,325
Change in fair value of warrant liability		(303,171	)		—
Changes in operating assets and liabilities:
Accounts receivable		(27,895	)		287
Inventory		(49,240	)		(29,938	)
Prepaid expenses and other current assets		104,059			96,167
Other assets		—			(480	)
Accounts payable		11,932			(22,994	)
Accrued expenses		54,014			11,925
Net cash used in operating activities		(1,298,618	)		(710,835	)
Cash Flows From Investing Activities:
Cash paid for purchase of property and equipment		(31,065	)		(152,868	)
Cash proceeds from sale of oil and gas property and related equipment		—			410,000
Cash advanced towards a note receivable		(75,000	)		—
Cash received towards a note receivable		10,000			—
Cash paid for expenses relating to sale of oil and gas property and related equipment		—			(99,680	)
Cash paid for purchase and capitalized cost of oil and gas properties, net		(35,000	)		(155,958	)
Net cash (used in) provided by investing activities		(131,065	)		1,494
Cash Flows From Financing Activities:
Cash received from sale of common stock and warrants		—			158,000
Cash received from sale of preferred stock		635,000			—
Cash paid for offering costs		—			(17,700	)
Cash received from noncontrolling interest		—			650,000
Cash received from convertible promissory notes		20,000			500,000
Cash repayments for notes payable		(308,000	)		(331,389	)
Proceeds from related party advances		—			6,000
Repayments of related party advances		(1,922	)		(48,500	)
Net cash provided by financing activities		345,078			916,411

Table of Contents 6

New Western Energy Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

		For the six months ended June 30,
		2014			2013
Net increase (decrease) in cash and cash equivalents		(1,084,605	)		207,070
Cash and cash equivalents, beginning of the period		1,523,181			5,092
Cash and cash equivalents, end of the period	$	438,576		$	212,162
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	—		$	—
Cash paid for interest	$	45,174		$	21,389
Supplemental disclosures of non-cash investing and financing activities:
Embedded conversion option liability	$	—		$	(185,430	)
Debt discount	$	—		$	22,222
Reclassification of derivative Liability to equity	$	—		$	213,068
Promissory notes issued for lease purchases	$	—		$	120,000
Settlement of debt by issuance of common shares	$	91,161		$	—
Common shares issued to consultant as prepaid for services	$	143,000		$	97,000
Common shares issued to director as prepaid for services	$	—		$	60,000

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

Table of Contents 7

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 1: NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN

New Western Energy Corporation (the “Company”) was incorporated in the State of Nevada on September 25, 2008. The Company’s principal business is the acquisition, exploration and development of, and production from oil, gas and mineral properties located in the United States.

On December 1, 2010, the Company formed an entity named New Western Texas Oil and Gas Corporation incorporated in the State of Nevada, as its wholly-owned subsidiary. New Western Texas Oil and Gas Corporation started its operations on January 2011. On May 3, 2013, New Western Texas Oil and Gas Corporation amended its Articles of Incorporation and changed its name to New Western Gas Corporation.

On January 2, 2012, the Company completed the acquisition of 100% of the issued and outstanding capital stock of Royal Texan Energy Co. (“RTE”) and RTE became our wholly-owned subsidiary and conducts business as a separate operating company.

On March 18, 2013, the Company formed an entity named 2013 NWE Drilling Program 1 LP (the “Limited Partnership”). The Company became the General Partner and owns 51% of the Limited Partnership. The Limited Partnership was specifically formed to drill three oil wells on the Company’s B&W Ranch lease in the Chautauqua County, Kansas (See Note 3).

On May 28, 2014, the Company formed New Western Operating LLC, a wholly-owned subsidiary that will take over all operational duties for its leases and oil and gas exploration, drilling and production in the state of Kansas.

Basis of presentation

The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments and business acquisition adjustments, necessary to present fairly the financial position at June 30, 2014, and the results of operations and cash flows for the six months ended June 30, 2014. The balance sheet as of December 31, 2013 is derived from the Company’s audited consolidated financial statements.

Certain information and footnote disclosures normally included in consolidated financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these consolidated financial statements are adequate to make the information presented therein not misleading. For further information, refer to the financial statements and the notes thereto contained in the Company’s 2013 Annual Report filed with the Securities and Exchange Commission on Form 10-K on April 14, 2014.

Going Concern

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations.

Table of Contents 8

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited) 

At June 30, 2014, the Company had working capital deficit of $1,142,911, incurred a net loss applicable to New Western Energy Corporation common stockholders of $1,751,199 during the six months ended June 30, 2014 and used cash in operating activities of $1,298,618. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries New Western Gas Corporation, Royal Texan Energy Co. and New Western Operating LLC, and the Company’s 51% majority owned subsidiary 2013 NWE Drilling Program 1 LP. All intercompany balances and transactions are eliminated in consolidation.  

Noncontrolling Interest

The Company accounts for its less than 100% interest in consolidated subsidiaries in accordance with Financial Accounting Standards Board - Accounting Standards Codification (“ASC”)   Topic 810, Consolidation , and accordingly, the Company presents noncontrolling interests as a component of equity on its unaudited condensed consolidated balance sheets and reports noncontrolling interest net income or loss under the heading “Net income (loss) applicable to noncontrolling interest in consolidated subsidiary” in the unaudited condensed consolidated statements of operations.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts, notes and other receivables, valuation of beneficial conversion features in convertible debt, valuation of derivatives, valuation of long-lived assets, goodwill and oil, gas and mineral properties, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Derivative Instruments

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

Table of Contents 9

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

Fair value of Financial Instruments and Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, notes payable, embedded conversion option liabilities, and amounts due to related parties. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Assets and liabilities measured at fair value on a recurring and non-recurring basis consist of the following at June 30, 2014:

			Fair Value Measurements at June 30, 2014
	Carrying Value at June 30, 2014 (Unaudited)		(Level 1) (Unaudited)		(Level 2) (Unaudited)		(Level 3) (Unaudited)
Mineral Properties	$	5,449	$	—	$	—	$	5,449
Warrant Liabilities	$	609,044	$	—	$	—	$	609,044
Embedded Conversion Option Liability	$	677,306	$	—	$	—	$	677,306

Table of Contents 10

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

The following is a summary of activity of Level 3 assets and liabilities for the period ended June 30, 2014:

Mineral Properties
Balance - December 31, 2013	$	38,143
Additions		—
Change in fair value		(32,694	)
Balance – June 30, 2014	$	5,449
Warrant Liabilities
Balance - December 31, 2013	$	912,215
Additions		—
Change in fair value		(303,171	)
Balance – June 30, 2014	$	609,044
Embedded Conversion Option Liability
Balance - December 31, 2013	$	809,716
Additions		—
Change in fair value		(187,847	)
Reclassification to equity		55,437
Balance – June 30, 2014	$	677,306

Changes in fair value of the embedded conversion liability are included in other income (expense) in the accompanying unaudited consolidated statements of operations.

Revenue Recognition

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

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

Net Earnings (Loss) Per Share

The Company computes net earnings (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted net earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2014, there were Class D, E and F Warrants outstanding for 15,548,420 common shares that if exercised, may dilute future earnings per share, 3,000,000 stock options outstanding awarded to employees and consultants, and there were convertible debt convertible into 4,926,888 common shares that may dilute future earnings per share.

Table of Contents 11

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

Recent Accounting Pronouncements

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

NOTE 3: NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARY

On March 18, 2013, the Company formed a new entity 2013 NWE Drilling Program 1 LP (the “Limited Partnership”). The Limited Partnership was specifically formed to drill three oil wells on the Company’s B&W Ranch lease in the Chautauqua County, Kansas. The Company became the General Partner and owns 51% of the Limited Partnership. The Limited Partnership closed upon receiving a cash contribution of $650,000 from one non-affiliate shareholder of the Company as the Limited Partner, and the Company’s contribution as the General Partner was $6,500 in cash and giving the rights and commitment to the Limited Partnership to drill three oil wells on the Company’s B&W Ranch lease. Pursuant to the terms of the partnership agreement, the Limited Partner will be entitled to receive 70% of the net income and cash available for distributions until such time an amount equal to the Limited Partner’s initial investment plus a 50% return on such initial investment is received by the Limited Partner. Thereafter, net income and cash available for distributions shall be allocated 20% to the Limited Partner and 80% to the General Partner. The Limited Partnership will enter into turnkey drilling agreement with the managing General Partner, to drill and complete the partnership wells. The turnkey price includes all ordinary costs of drilling, testing and completing the wells. When the wells begin producing, the General Partner, as operator of the wells will be reimbursed at actual cost for all direct expenses incurred on behalf of the Limited Partnership, and will receive a fixed fee of $250 per well per month for supervising, operating and maintaining the wells during production operations. The Limited Partnership recorded a loss of $40,725 and $129,498 for the three months and six months ended June 30, 2014 as compared to $$95,102 and $96,347 for the same comparable periods in 2013. The Company allocated the Limited Partnership’s loss to its noncontrolling members in its consolidated financial statements as of June 30, 2014 and 2013, respectively

The following provides a summary of activity in the noncontrolling interest in consolidated subsidiary account for the six months ended June 30, 2014:

Balance at December 31, 2013	$	511,942
Contribution by noncontrolling interest member		—
Net loss applicable to noncontrolling interest		(129,498	)
Balance at June 30, 2014	$	382,444

Table of Contents 12

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 4: OIL AND GAS PROPERTIES

The Company's aggregate capitalized costs related to oil properties consist of the following:

Name of the Property	Type		June 30, 2014 (Unaudited)			December 31, 2013
Rogers County, OK - Glass Lease		Oil	$	221,000		$	221,000
Rogers County, OK - Phillips Lease		Oil		130,000			130,000
Rogers County, OK (9) Leases		Oil		378,600			378,600
Chautauqua County, KS - B&W Ranch Lease		Oil		75,000			75,000
Chautauqua County, KS - Charles & Nancy Smith Lease		Oil		24,750			24,750
Chautauqua County, KS - Lloyd & Patricia Fields Lease		Oil		14,400			14,400
Chautauqua County, KS - Rinck Lease		Oil		24,750			24,750
Wilson County, KS – Farwell, Puckett & Farwell/Eagle Lease		Oil		251,208			251,208
Wilson County, KS – Volunteer & Landers Lease		Oil		470,000			470,000
Nowata County, OK (4) Leases		Oil		35,000			—
Shackelford County, TX - Terry Heirs		Oil		9,722			9,722
				—			—
				1,634,430			1,599,430
Accumulated depletion				(13,292	)		(6,697	)
Impairment allowance				(133,500	)		(133,500	)
			$	1,487,638		$	1,459,233
Impairment allowance is allocated as follows:
Glass Lease			$	123,778		$	123,778
Terry Heirs Lease			$	9,722		$	9,722

There were no exploration well costs capitalized for more than one year following the completion of drilling.

The following oil and gas leases were acquired and sold during the six months ended June 30, 2014.

Acquisition of Moab Oil and Gas Project, Nowata County, Oklahoma

On February 28, 2014, the Company entered into a Lease Purchase Agreement (“Agreement”) with Moab Oil and Gas, LLC and a third party, to purchase leasehold interest in four oil and gas leases named as Taylor Lease, Roberts Lease, Roebuck Lease and Walker Lease, consisting of 217 acres located in Nowata County, Oklahoma. The Company has paid the total purchase consideration of $35,000 as of March 31, 2014. The Company has started gas exploration on this lease and sold 1,484 mcf of gas for $4,323 as of June 30, 2014. 

Table of Contents 13

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 5: MINERAL PROPERTIES

The Company’s aggregate capitalized costs related to mineral properties consist of the following:

Unproved Mineral Property
Name of Property	Type		June 30, 2014 (Unaudited)			December 31,  2013
Wellsboro Lease		Gravel	$	103,530		$	103,530
				103,530			103,530
Less: Accumulated depletion				—			—
				103,530			103,530
Less: Amortization				(98,081	)		(65,387	)
			$	5,449		$	38,143

The lease term of Wellsboro Lease expired on July 31, 2014. Since there was no production of minerals during the six months ended June 30, 2014 and 2013, no depletion expense relating to mineral properties has been recorded for the three months and six months ended as of June 30, 2014 and 2013. The Company has taken a conservative position to amortize the lease acquisition cost over the remaining term of the lease. The Company recorded amortization expense of $16,347 and $32,694 for the three months and six months ended June 30, 2014 and 2013, which is included in depreciation, depletion and amortization expenses in the consolidated financial statements. The Company has not started any gravel exploration on the Wellsboro Lease as of June 30, 2014.

NOTE 6: NOTE RECEIVABLE

On April 1, 2014, the Company made a short-term advance of $75,000 to Legend Oil & Gas Ltd. (“Legend”), an entity with whom the Company had entered into a merger agreement on January 23, 2014. The advance is non-interest bearing, unsecured and is to be returned to the Company by Legend by February 28, 2015 or within 60 days, if the merger between the Company and Legend is terminated, whichever first occurs. On April 30, 2014, the Company terminated the merger agreement with Legend. The Company has received $10,000 in cash from Legend as of June 30, 2014. The Company expects to receive the remaining balance from Legend by September 15, 2014.

Table of Contents 14

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 7: NOTES PAYABLE

Notes payable consist of:

	June 30,			December 31,
	2014			2013
	(Unaudited)
Note payable to a third party, unsecured, bearing interest at 5% per annum, due on September 30, 2015, is subordinated in right of payment to the prior payment in full of all bank rediscount line of credit or loan		73,750			73,750
Stockholder note payable, secured, bearing interest at 10% per annum, due on October 31, 2015, is subordinated in right of payment to the prior payment in full of all future bank rediscount lines of credit or loans		1,500,000			1,500,000
		1,573,750			1,573,750
Notes payable - Current Portion		—			—
Notes payable – Long-term Portion		1,573,750			1,573,750
Less: Unamortized discount		(647,839	)		(782,310	)
	$	925,911		$	791,440

The Company recorded interest expense on these notes of $38,419 and $76,828 for the three months and six months ended June 30, 2014, and $13,922 and $18,471 for the three months and six months ended June 30, 2013, respectively.  

NOTE 8: CONVERTIBLE NOTES PAYABLE

Convertible notes payable consist of:

	June 30,			December 31,
	2014			2013
	(Unaudited)
Note payable to a third party, bearing one-time interest of 12%, one year term, due on June 5, 2014 (Convertible Note 2)	$	—		$	38,771
Note payable to a third party, bearing one-time interest of 12%, one year term, due on September 26, 2014 (Convertible Note 3)		13,165			55,555
Note payable to a third party, bearing interest of 8% per annum, due February 1, 2015 (Convertible Note 4)		924,000			1,232,000
Convertible notes payable		937,165			1,326,326
Less: unamortized debt discount		(606,877	)		(1,174,120	)
Convertible notes payable, net		330,288			152,206
Less: current portion		(330,288	)		(21,792	)
Convertible notes payable, non-current	$	—		$	130,414

Table of Contents 15

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

Convertible Note 2

On June 5, 2013, the Company received $75,000 (the “Draw”) from a third party against a $500,000 Convertible Promissory Note (the “Note 2”) executed on June 4, 2013. The total consideration receivable against the Note 2 was $450,000, with the Note 2 bearing $50,000 original issue discount (OID) resulting in a principal amount due on this draw of $83,333. A one-time interest charge of 12% shall be applied to the principal sum. Any interest payable is in addition to the OID, and that OID (or prorated OID, if applicable) remains payable regardless of time and manner of payment by the Company. The maturity date is one year from the effective date of each payment and is the date upon which the principal sum of this promissory note, as well as any unpaid interest and other fees, shall be due and payable. The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of fully paid and non-assessable shares of common stock of the Company as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. The Conversion Price is the lessor of $0.22 or 67.5% of the lowest trade price in the 25 trading days previous to the conversion.

In connection with the issuance of the Note 2, the Company recorded a loan discount related to the OID in the amount of $8,333 which will be amortized to interest expense over the term of the Draw. In accordance with ASC 815, the Company recognized a debt discount related to the bifurcated embedded conversion option derivative liability in the amount of $75,000 which will be amortized to interest expense over the term of the Draw and an initial change in fair value of $42,591 for a total initial embedded conversion option liability of $117,591. For the year ended December 31, 2013, the Company has recognized interest expense of $4,691 related to the amortization of the OID and $43,773 related to the amortization of the embedded conversion option liability discount as it related to this Note 2. Furthermore, on December 5, 2013 and December 19, 2013, the Company converted $22,425 and $22,137 of the debt by issuance of 200,000 shares and 250,000 shares, respectively, of its common stock valued at $0.112125 per share and $0.08855 per share (See Note 11). On January 16, 2014 and February 11, 2014, the Company converted $24,948 and $23,823 of the debt by issuance of 240,000 shares and 220,582 shares, respectively, of its common stock valued at $0.10395 per share and $0.10800 per share (See Note 11). The Note 2 was converted in full $83,333 of the principal sum due and $19,802 of embedded conversion option liability was reclassified to equity. For the three months ended March 31, 2014, the Company has recognized interest expense of $13,643 related to the amortization of the OID and $31,168 related to the amortization of the embedded conversion option liability discount as it related to this Note 2.

Convertible Note 3

On September 26, 2013, the Company received $50,000 (the “Draw”) from a third party against a $500,000 Convertible Promissory Note (the “Note 3”) executed on September 25, 2013. The total consideration receivable against the Note 3 was $450,000, with the Note 3 bearing $50,000 original issue discount (OID) resulting in a principal amount due from this draw of $55,556. A one-time interest charge of 12% shall be applied to the principal sum. Any interest payable is in addition to the OID, and that OID (or prorated OID, if applicable) remains payable regardless of time and manner of payment by the Company. The maturity date is one year from the effective date of each payment and is the date upon which the principal sum of this promissory note, as well as any unpaid interest and other fees, shall be due and payable. The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of fully paid and non-assessable shares of common stock of the Company as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. The Conversion Price is the lessor of $0.22 or 67.5% of the lowest trade price in the 25 trading days previous to the conversion.

Table of Contents 16

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

In connection with the issuance of the Note 3, the Company recorded a loan discount related to the OID in the amount of $5,555 which will be amortized to interest expense over the term of the Draw. In accordance with ASC 815, the Company recognized a debt discount related to the bifurcated embedded conversion option derivative liability in the amount of $50,000 which will be amortized to interest expense over the term of the Draw and an initial change in fair value of $17,511 for a total initial embedded conversion option liability of $67,511. For the year ended December 31, 2013, the Company has recognized interest expense of $1,461 related to the amortization of the OID and $13,151 related to the amortization of the embedded conversion option liability discount as it related to this Note 3. On March 27, 2014, the Company converted $22,950 of the debt by issuance of 200,000 shares of its common stock valued at $0.1215 per share. On April 14, 2014, the Company converted $19,440 of the debt by issuance of 160,000 shares of its common stock valued at $0.1215 per share (See Note 12).

Based on the conversion amounts an aggregate $37,763 was reclassified from the embedded conversion option liability to additional paid in capital. For the three months and six months ended June 30, 2014, the Company has recognized interest expense of $1,218 and $2,577 related to the amortization of the OID and $10,959 and $23,365 related to the amortization of the embedded conversion option liability discount as it related to this Note 3. The note balance at June 30, 2014 was $13,165.

Convertible Note 4

On November 6, 2013, the Company entered into a Definitive Agreement (the "Securities Agreement") for a private offering with an Investor for the sale of the Company’s securities (debt and warrants) for $1,232,000. The offering closed on November 15, 2013 (“funding date”).

Debt issue costs paid to or on behalf of the lender were $84,386. This amount plus an original issue discount (OID) of $132,000 and warrant discount discussed below of $1,219,332 were allocated by charging $1,232,000 to debt discount and $203,718 to change in fair value of warrant liability, and recorded in other expense in the accompanying statements of operations.

The Company engaged a placement agent with respect to the Offering. The Company paid the placement agent upon receipt of the gross proceeds at the Closing, a commission of $95,000 plus 250,000 shares of the Company’s restricted common stock valued at $77,500 based on the fair value of common stock on the date of Agreement. The Company also paid $35,000 in other issue costs to third parties. The total $207,500 is recorded as a deferred debt issue costs as an asset. All discounts and debt issue costs are being amortized to interest expense over the debt term of 1.22 years.

The Company closed the offering on November 15, 2013 and received net cash proceeds of $936,233.

The securities were sold pursuant to the Securities Purchase Agreement entered into by and among the Company and the Investor (the “Agreement”) and consists of (i) 8% original issue discount senior secured convertible promissory debentures in the issuance amount of $1,232,000 (the “Debentures”) and (ii) three year warrants to purchase 6,383,420 shares of the Company’s common stock, which are exercisable at $0.2316 per share. The net proceeds from the offering will be used by the Company for drilling and rework of oil and gas wells and general working capital. The Agreement contained certain customary representations, warranties and covenants.

Table of Contents 17

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

The Debentures are convertible into shares of Common Stock at any time prior to maturity at $0.193 per share (the “Conversion Price”), subject to certain conversion limitations set forth in the Debentures and certain price protection described below. The Company shall pay interest on the aggregate unconverted and then outstanding principal amount of the Debenture at the rate of 8% per annum, payable quarterly on February 1, May 1, August 1 and November 1, beginning on May 1, 2014. Interest is payable in cash or at the Company’s option in shares of Common Stock, provided certain conditions are met, based on a share value equal to the lesser of (a) 90% of the average of the volume weighted average price (the “VWAP”) for the 20 consecutive trading days prior to the applicable interest payment date and (b) 100% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date less $0.01. On each of May 1, 2014, August 1, 2014, November 1, 2014, and February 1, 2015, the Company is obligated to redeem an amount equal to $308,000 (plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the Debentures) (collectively, the “Periodic Redemption Amount”). The Company made the Periodic Redemption Amount of $308,000 on May 1, 2014 in the accordance with the redemption of debenture but failed to make a payment of $308,000 due on August 1, 2014. On August 11, 2014, the Company received a default notice from the debt holder requesting for the default amount due plus all accrued but unpaid interest. The Company is currently in negotiations with the debt holder to extend payment terms of the note.

In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the Debentures, the Company may elect to pay the Periodic Redemption Amount in shares based on a conversion price equal to the lesser of (a) $0.193 per share, subject to adjustments upon certain events, and (b) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable redemption date. Upon any Event of Default (as defined in the Debenture), the outstanding principal amount of the Debenture, plus liquidated damages and interest, shall become, at the Investors’ election, immediately due and payable in cash.  Commencing five days after the occurrence of any Event of Default, the interest rate on the Debentures shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. At any time after the 6 month anniversary of the Closing Date, the Company may prepay any portion of the outstanding principal amount of any Debentures, plus liquidated damages, interest, a premium of 20% and other amounts owing in respect thereof through the applicable date of optional redemption, subject to notice to the Investor. The Debentures contain customary affirmative and negative covenants of the Company. The Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.

The Warrants are exercisable for a period of three years and are subject to “weighted average” and other customary anti-dilution protections including full ratchet protection.

As collateral security for all of the Company’s obligations under the Securities Agreement and related documents executed in connection with the Offering, the Company and its subsidiaries (the “Subsidiaries”), granted the Investor a first priority security interest in all of the Company’s and Subsidiaries assets pursuant to the terms of the Security Agreement. To further secure the Company's obligations, the Subsidiaries also executed a Guarantee, dated as of November 6, 2013 (the “Guaranty”), pursuant to which the Subsidiaries have agreed to guaranty the Company’s obligations owed to the Investor.

Due to the “full ratchet” price protection in warrant, the warrant is accounted for as a derivative liability in the balance sheet at fair value. The warrant liability was valued at the funding date at its fair value of $1,219,332 using the Black-Scholes option pricing model with the following assumptions; stock price $0.22, expected term of 3 years, expected volatility of 175% and discount rate of 0.58%. The warrant value was allocated $1,015,614 to debt discount and $203,718 to change in fair value of warrant liability, an other expense in the accompanying statements of operations.

Due to the “full ratchet” price protection in the convertible Debenture, the embedded conversion feature was bifurcated and accounted for as a derivative liability in the balance sheet at fair value. The initial valuation and recording of this derivative liability was $972,532 using the Black-Scholes option pricing model with the following assumptions; stock price $0.22, expected term of 1.22 years, expected volatility of 176% and discount rate of 0.75%, and charged to change in fair value of embedded conversion option liability, an other expense. The note balance was $924,000 at June 30, 2014.

For the three months and six months ended June 30, 2014, the Company has recognized and recorded interest expense of $22,077 and $47,739 related to Note 2, Note 3 and Note 4, respectively, and $531,442 and $1,105,550 related to the amortization of other discounts of Note 2, Note 3 and Note 4, respectively.

Table of Contents 18

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 9: RELATED PARTY TRANSACTIONS AND BALANCES

Payable to Related party

At June 30, 2014 and December 31, 2013, advances, net of repayments, made to the Company by the Chief Executive

Officer (“Officer”) for its working capital requirements amounted to $0 and $1,922, respectively. Amounts due to the Officer are unsecured, non-interest bearing and due on demand without specific repayment terms.

On June 1, 2013, the Company entered into a business consulting and marketing agreement with its non-executive director for a twelve month period at the rate of $2,500 per month. On May 1, 2014, the agreement was extended for a twelve month period at the rate of $5,000 per month. The Company recorded an expense of $12,500 and $20,000 as consulting fees for the three months and six months ended June 30, 2014.

The Company engages an entity owned by a director of the Company to be the operator on its oil and gas lease properties in Wilson County, Kansas. The Company has paid the operator $24,786 and $243,573 for lease operating expenses and administration for these oil and gas leases for the three months and six months ended June 30, 2014.

The Company paid $25,000 and $40,000 to a director for consulting and business advisory services for the three months and six months ended June 30, 2014. No payments were made during the three months and six months ended June 30, 2013.

NOTE 10: COMMITMENTS AND CONTINGENCIES

Legal Costs and Contingencies

On November 12, 2013, a complaint was filed in the District Court of Taylor County, Texas, captioned Brent and Brook Hatchett v. New Western Energy Corporation, Case No. 25,863-B. The complaint asserts breach of contract on the part of the Company relating to a Plan and Agreement of Reorganization (the “Contract”) wherein the Company acquired all of the issued and outstanding capital stock of Royal Texan Energy Co. from the Hatchetts. The Hatchetts are seeking the remaining consideration of 600,000 common shares of New Western Energy Corporation payable to them for the acquisition by New Western Energy Corporation of Royal Texan Energy Co. in addition to general damages.

On January 22, 2014, the Company filed an answer denying any wrongdoing and a counterclaim against the Hatchetts, alleging fraudulent inducement and misrepresentations by the Hatchetts in addition to breach of contract and fiduciary duty. The Company is seeking among other things, damages from the Hatchetts, including exemplary damages and court costs and reasonable and necessary attorney’s fees.

The Company and the Hatchetts’ are currently in settlement negotiations.

In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received.

NOTE 11: STOCKHOLDERS' EQUITY

The Company’s authorized common shares and preferred shares at June 30, 2014 were 250,000,000 and 5,000,000 shares respectively, both with a par value of $0.0001 per share.

Table of Contents 19

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

Common Stock

On February 1, 2014, the Company entered into a non-exclusive agreement with a third party consultant to develop, coordinate, manage and execute a comprehensive corporate finance and investor relations campaign for the Company for a six month period. The Company issued 300,000 shares of its common stock valued at $57,000 for such services. The common shares issued are valued at the closing price of stock on the effective date of the consulting agreement and the value is recorded as a prepaid expense to be amortized over the service period.

On January 13, 2014 and February 10, 2014, the Company converted $24,948 and $23,823 of its convertible debt (Convertible Note 2 - See Note 8) by issuance of 240,000 shares and 220,582 shares of its common stock valued at $0.10395 per share and $0.10800 per share, respectively (See Note 8). On March 26, 2014 and April 14, 2014, the Company converted $22,950 and $19,440 of its convertible debt (Convertible Note 3 – See Note 8) by issuance of 200,000 shares and 160,000 shares of its common stock valued at $0.11475 per share and $0.1215 per share (See Note 8).

On May 1, 2014, the Company entered into a business consulting agreement for a six month period with a third party to consult with the officers and employees concerning matters relating to the management and marketing of the Company. The Company issued 300,000 shares of its common stock valued at $54,000 for such services. The common shares issued are valued at the closing price of stock on the effective date of the consulting agreement and the value is recorded as a prepaid expense to be amortized over the service period.

On June 1, 2014, the Company entered into a business consulting agreement for a three month period with a third party to consult with the officers and employees concerning matters relating to the management and marketing of the Company. The Company issued 200,000 shares of its common stock valued at $32,000 for such services. The common shares issued are valued at the closing price of stock on the effective date of the consulting agreement and the value is recorded as a prepaid expense to be amortized over the service period.

Preferred stock

On April 1, 2014, the Company offered to sell pursuant to a private placement, under a Regulation S offering to non-US investors only, 1,500,000 Units to raise $7,500,000. The minimum investment in this offering is for 5,000 Units for $25,000. Each Unit consists of two (2) shares of Series A 7% Convertible Preferred Stock, par value $0.0001 per share and one (1) redeemable Class F Warrant of the Company to purchase ten (10) shares of common stock. Each share of Series A Preferred Stock pays a 7% annual dividend for the first year ending March 31, 2015 and thereafter, a 10% dividend payable, at the option the Company, in cash or in the Company’s common stock. Each Class F Warrant entitles the holder thereof to purchase, at any time until the expiration date of March 31, 2017, ten (10) shares of Common Stock at an exercise price of $0.30 per share, subject to adjustment. The Class F Warrants are redeemable by the Company, at a redemption price of $0.05 per Warrant, upon at least 30 days’ prior written notice, commencing six months after the date of this private placement, if the average of the closing bid price of the Common Stock, as reported on the Over-The-Counter or other exchange, shall equal or exceed $1.00 per share (subject to adjustment) for ten 910) consecutive business days prior to the notice of redemption. The Units are being offered on a “best effort basis” by the Company through its officers and directors and selected finders and broker/dealers.

As a result of all stocks, options and warrant issuances as of June 30, 2014, the Company had 73,806,448 shares of common stock issued and outstanding, 127,000 of preferred stock issued and outstanding, 3,000,000 stock options for conversion into common stock, 395,000 Class D Warrants, 7,500,000 Class E Warrants, and 7,653,420 Class F Warrants for conversion into common stock.

Table of Contents 20

New Western Energy Corporation and Subsidiaries

Condensed Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 12: DERIVATIVE FINANCIAL INSTRUMENTS

Under the provisions of ASC 815-40, convertible instruments issued by the Company qualify for derivative treatment due to the variable conversion formula (Note 8). The embedded conversion features of the convertible note is bifurcated and recorded as a liability which is revalued at fair value each reporting date. If the fair value of the embedded conversion feature exceeds the face value of the related debt, net of other discounts, the excess is recorded as a change in fair value on the issuance date. Embedded conversion features are valued at their fair value, rather than by the intrinsic value method.

The Company calculated the estimated fair values of the liabilities for embedded conversion feature at June 30, 2014 with the Black-Scholes option pricing model using the closing price of the Company’s common stock at each respective date and the ranges for volatility, expected term and risk free interest indicated in the table below. As a result, the Company recorded a change in the fair value of the liabilities for embedded conversion option derivative instruments for the three months and six months ended June 30, 2014 of $350,537 and $523,268 which was included in other expense (See Note 2 Fair Value Measurements).

Embedded Conversion Options

	Black-Scholes Model Assumptions
	For the Six Months Ended June 30, 2014
Volatility		117.66 - 159.82
Expected term		0.24 - 0.84 years
Risk free interest rate		0.13%

NOTE 13: CONCENTRATIONS

Concentration of Operators

As of June 30, 2014, the Company uses two operators for the leased properties for which the Company has current activities. The Company also has one mineral lease with another lessor. There has been no activity on the mineral lease other than initial lease acquisition costs relating to the mineral lease as of June 30, 2014.

Concentration of Customer

The Company sells its oil product to one customer and gas product to a separate customer.

Concentration of Credit Risk

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2014. The Company’s bank balances exceeded FDIC insured amounts as of June 30, 2014.

NOTE 14: SUBSEQUENT EVENTS

On July 1, 2014, the Company entered into a consulting agreement with a third party for the twelve month period to provide business advisory services to the management of the Company. The Company issued 400,000 shares of its common stock valued at $56,000 for such services. The common shares are valued at the closing price of stock on the effective date of the consulting agreement.

On August 11, 2014, the Company received a notice of default on Convertible Note 4 (see Note 8). The Company is currently in negotiations to extend the payment terms of this note.

Table of Contents 21

Item 2. Management’s Discussion and Analysis or Plan of Operation  

This 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.

Overview

We are an oil and gas and mineral exploration and production company with current projects located in Kansas, Oklahoma and Texas. Our principal business is in the acquisition, exploration and development of, and production from oil, gas and mineral properties. We have a limited operating history with nominal revenues. On December 1, 2010, we formed an entity named New Western Texas Oil and Gas Corporation (“New Western Texas”) incorporated in the State of Nevada, as our wholly-owned subsidiary. New Western Texas started its operations in January 2011. On May 3, 2013, we changed the name of New Western Texas to New Western Gas Corporation (“New Western Gas”). On January 2, 2012, we acquired 100% of the issued and outstanding capital stock of Royal Texan Energy Co. (“RTE”), a Texas corporation. RTE’s principal business operations are acquisitions, exploration and development of, and production from oil and gas properties located in Texas. We acquired RTE primarily due to its lease ownership interests in oil and gas properties and the Company’s requirement to have an operator for exploration and production of oil and gas in Texas. On March 18, 2013, we formed 2013 NWE Drilling Program 1 LP, a California Limited Partnership (the “Limited Partnership”). We became the General Partner and own 51% of the Limited Partnership. A shareholder of the Company became the limited partner holding 49% of the Limited Partnership. The Limited Partnership was specifically formed to drill three oil wells on the Company’s B&W Ranch lease in the Chautauqua County, Kansas. On May 28, 2014, we formed New Western Operating LLC, our wholly-owned subsidiary, to handle all operational duties for managing our leases and oil and gas exploration, drilling and production in the state of Kansas.

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

Our Current Business

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

Table of Contents 22

From time to time management has been engaged in preliminary discussions with potential investors and merger candidates in this industry. However, no letter of intent or other document has been prepared in connection with these preliminary discussions. There are currently no agreements or arrangements with respect to any merger or similar transaction.

Results of Operations

Our consolidated results of operations for the three months and six months ended June 30, 2014 and 2013 included the operation of the Company, our wholly-owned subsidiaries New Western Gas Corporation, Royal Texan Energy Co. and New Western Operating, LLC, and our 51% majority owned subsidiary 2013 NWE Drilling Program 1 LP.

We reported a net loss applicable to the Company’s common stockholders of $444,795 and $1,751,199 for the three months and six months ended June 30, 2014 compared to a net loss of $713,826 and $894,479 for the same comparable periods in 2013. The decrease in loss for the three months ended June 30, 2014 as compared to 2013 was primarily due to the Company expending $246,583 for drilling operations on its wells on its B&W Ranch lease in Kansas in 2013 to test oil and gas bearing structures through the Mississippi Dolomite formation, whereas no such expenses were incurred in the three months ended June 30, 2014. The increase in loss for the six months ended June 30, 2014 as compared to 2013 was principally attributable to an increase in (i) general and administrative expenses relating to payroll costs, legal, professional and consulting fees, (ii) change in the fair value of embedded conversion option liability of convertible promissory note, (iii) oil and gas production costs, (iv) amortization, depreciation and depletion costs incurred by the Company, and (v) higher interest costs due to additional loans and amortization of debt discounts.

Revenues

Revenues for the three months and six months ended June 30, 2014 were $110,734 and $182,122 compared to $11,797 and $30,994 for the same comparable periods in 2013. Revenues for the three months ended June 30, 2014 consisted of oil sales of $66,515 from Volunteer, Lander and Puckett leases in Kansas, Winchester II and Anna lease in Oklahoma, and $44,952 in gas sales from Farwell and Puckett leases in Kansas, and Moab leases in Oklahoma, and $700 from disposal of salt water. Revenues for the three months ended June 30, 2013 consisted of gas sales from Farwell and Puckett leases acquired on June 1, 2013. Revenues increased by $98,937 and $151,128 for the three months and six months ended June 30, 2014 as compared to the comparable prior year period primarily due to the increased output of oil extraction from the Volunteer, Lander and Winchester II Lease and by production and sale of gas from Farwell and Puckett leases.

Operating Expenses

General and administrative expenses (G&A) for the three months and six months ended June 30, 2014 were $401,915 and $1,081,811 compared to $287,891 and $453,882 for the same comparable periods in 2013. G&A expenses increased by $114,024 and $627,929 for the three months and six months ended June 30, 2014 primarily due to the increase in consulting fees, increase in investor relations and marketing expenses, legal and professional costs incurred associated with the failed merger with Legend Oil and Gas Corporation, increase in compensation expense of officer, increase in legal and professional fees and increase in travel and other administrative expenses incurred to manage and expand operations.

Oil and gas production expenses for the three months and six months ended June 30, 2014 were $89,944 and $367,431 compared to $313,416 and $329,844 for the same comparable periods in 2013. Oil and gas production expenses decreased by $223,472 for the three months ended June 30, 2014 as compared to the same comparable period in 2013, primarily due to the Company expending $245,583 on exploration, drilling and production costs associated with Magnus #1 and Anna #1 wells on its B&W Ranch lease in Kansas. Oil and gas production expenses increased by $37,587 for the six months ended June 30, 2014 as compared to the same comparable period in 2013 due to the Company expending funds in operating Volunteer, Landers, Winchester II, Anna and Puckett oil leases, and Farwell, Puckett and Moab gas leases and costs to maintain the remaining oil and gas properties. The Company did not own Farwell and Volunteer leases in 2013.

Table of Contents 23

Depreciation, depletion and amortization expense for the three months and six months ended June 30, 2014 were $29,722 and $57,881 as compared to $26,766 and $48,266 for the same comparable periods in 2013. Depreciation expense increased as a result of placing additional oil and gas equipment of $31,065 in service since January 1, 2014 which resulted in increase in depreciation for the three months and six months ended June 30, 2014 by $2,956 as compared to prior year comparable period. Depletion expense remained relatively the same for the comparable periods. We recorded the same amortization expense of $16,347 and $32,694 for the three months and six months ended June 30, 2014 and 2013 because we took a conservation position in January 2013 to amortize the lease acquisition costs of unproved mineral properties over the remaining term of the lease.

Gain on sale of oil leases for the three months and six months ended June 30, 2014 was $0 and $0 as compared to a loss of $1,677 for the three months ended June 30, 2013 and a gain of $77,594 for the six months ended June 30, 2013. On February 28, 2013, we sold 100% of our working interest in 402 acres of oil and gas leases in the Swenson, McLellan and Reves leases located in Jones County, Texas to a third party and recorded a gain of $79,271 as a result of the sale of these leases.

Interest expense for the three months and six months ended June 30, 2014 was $667,130 and $1,379,757 as compared to $124,465 and $142,297 for the same comparable periods in 2013. Interest expense increased by $542,665 and $1,237,460 for the three months and six months in 2014 as compared to the same comparable periods in 2013 as a result of (i) interest expense of $60,497 and $124,567 for the three months and six months ended June 30, 2014 on three promissory notes executed by us for our working capital needs and acquisitions, (ii) interest expense of $94,661 and $201,925 for the three months and six months ended June 30, 2014 related to the amortization of the original issue discount, (iii) interest expense of $236,409 and $505,084 for the three months and six months ended June 30, 2014 related to the amortization of the debt discount due to embedded conversion option liabilities on convertible notes, (iv) interest expense of $50,112 and $99,758 for the three months and six months ended June 30, 2014 related to the amortization of debt issue costs, and (v) interest expense of $225,450 and $448,423 relating to the amortization of debt discount on warrants and lender fees on a convertible note. We borrowed $125,000 on February 15, 2013 and $75,000 on June 5, 2013 pursuant to executing convertible notes.

Dividend payable to preferred stockholders for the three months and six months ended June 30, 2014 was $2,378 as compared to $0 for the same comparable periods in 2013. The dividend was calculated at an annual rate of 7% on the contributions received from the preferred stock holders. The Company received in cash $635,000 from the sale of preferred shares for the three months and six months ended June 30, 2014.

The convertible promissory notes issued by us on June 5, 2013 for $75,000, on September 26, 2013 for $50,000, on November 6, 2013 for $1,232,000, and on November 5, 2013 promissory note to a stockholder for $1,500,000 with warrants attached qualifies for derivative accounting treatment due to the variable conversion formula. As a result, we recorded a change in the fair value of the liabilities for the embedded conversion option derivative instrument of $594,835 and $826,439 for the three months and six months ended June 30, 2014 as compared to $66,510 and $124,325, which was included in other expenses as of June 30, 2014.

Our 51% owned subsidiary 2013 NWE Drilling Program 1 LP recorded a loss of $83,113 and $264,282 for the three months and six months ended June 30, 2014. We allocated $40,725 and $129,498 of the limited partnership’s loss for the three months and six months ended June 30, 2014 to its noncontrolling member in our consolidated financial statements as of June 30, 2014. As a result, the noncontrolling interest of the limited partner was reduced to $382,444 at June 30, 2014.

Liquidity and Capital Resources

Cash and cash equivalents were $438,576 at June 30, 2014 compared to $1,523,181 at December 31, 2013. As shown in the accompanying consolidated financial statements, a loss of $1,751,199 was applicable to New Western Energy Corporation common stockholders for the six months ended June 30, 2014 compared to a loss of $894,479 for the same comparable period in 2013. At June 30, 2014, our working capital deficit was $1,142,911. Net cash used in operating activities for the six months ended June 30, 2014 was $1,298,618. These factors and our ability to meet our debt obligations from current operations, and the need to raise additional capital to accomplish our objectives, raises doubt about our ability to continue as a going concern.

Table of Contents 24

We expect our expenses will continue to increase during the foreseeable future as a result of increased operational expenses and the development of additional oil and gas wells. We anticipate generating only minimal revenues over the next twelve months. Consequently, we are dependent on the proceeds from future debt or equity investments to sustain our operations and implement our business plan. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse affect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of capital or that our estimates of our capital requirements will prove to be accurate.

We presently do not have any significant credit available, bank financing or other external sources of liquidity. Due to our historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.

We have been successful in the past in raising capital, however, no assurance can be given that these sources of financing will continue to be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of our planned service development and marketing efforts, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:

. Curtail our operations significantly

. Sell our oil, gas and mineral leases

. Seek arrangements with strategic partners or other parties that may require us to relinquish significant rights to oil, gas and mineral leases or markets, or

. Explore other strategic alternatives including a merger or sale of our Company.

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2014 was $1,298,618 which resulted primarily from our net loss of $1,751,199, depreciation, depletion and amortization of $25,188, amortization of debt discount of $711,714, amortization of mineral property of $32,694, amortization of deferred debt issuance cost of $99,758, loss applicable to non-controlling interest of $129,498, change in fair value of embedded conversion option liability of $76,973, change in fair value of warrant liability of $303,171, increase in accounts receivable of $27,895, increase in inventory of $49,240, decrease in prepaid expenses and other current assets of $104,059, increase in accounts payable of $11,932, and increase in accrued expenses of $54,014.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2014 was $131,065 primarily due to the cash paid for purchase of property and equipment of $31,064, cash advanced towards a note receivable of $75,000, cash received from note receivable of $10,000, and net cash paid for acquisition of oil and gas properties of $35,000.

Table of Contents 25

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2014 was $345,078 primarily due to cash received from sale of preferred stock of $635,000, cash received from convertible promissory note of $20,000, cash repayment of convertible promissory note payable of $308,000, and cash repayment of related party advance of $1,922.

As a result of the above activities, we experienced a net decrease in cash of $1,084,605 for the six months ended June 30, 2014. Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from investors or from sale of our common shares.

Off-balance Sheet Arrangements

Since our inception through June 30, 2014, we have not engaged in any off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation S-B.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

Not Applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls are also designed with an objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer, in order to allow timely consideration regarding required disclosures.

The evaluation of our disclosure controls by our principal executive officer included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. Our management, including our Chief Executive Officer, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   

Table of Contents 26

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, our Principle Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2014 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents 27

PART II.

Item 1. Legal Proceedings.

On November 12, 2013, a complaint was filed in the District Court of Taylor County, Texas, captioned Brent and Brook Hatchett v. New Western Energy Corporation, Case No. 25,863-B. The complaint asserts breach of contract on the part of the Company relating to a Plan and Agreement of Reorganization (the “Contract”) wherein the Company acquired all of the issued and outstanding capital stock of Royal Texan Energy Co. from the Hatchetts. The Hatchetts are seeking the remaining consideration of 600,000 common shares of New Western Energy Corporation payable to them for the acquisition by New Western Energy Corporation of Royal Texan Energy Co. in addition to general damages.

On January 22, 2014, the Company filed an answer denying any wrongdoing and a counterclaim against the Hatchetts, alleging fraudulent inducement and misrepresentations by the Hatchetts in addition to breach of contract and fiduciary duty. The Company is seeking among other things, damages from the Hatchetts, including exemplary damages and court costs and reasonable and necessary attorney’s fees.

The Company and the Hatchetts’ are currently in settlement negotiations.

We are not a party to any other legal proceedings.

Item 1A. Risk Factors.

Not Applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Between April 14, 2014 and June 26, 2014, the Company sold 127,000 Units to three accredited investors for gross proceeds of $635,000. Each Unit consists of two shares of Series A 7% Convertible Preferred Stock (“Preferred Stock”) and one warrant to purchase ten (10) shares of the Company’s common stock at an exercise price of $0.30 per share. Each share of Preferred Stock is convertible into ten (10) shares of the Company’s common stock.

On April 14, 2014, the Company issued 160,000 shares of its common stock valued at $19,440, as partial payment of a debt owed to a non- affiliated lender.

On June 4, 2014, the Company issued 200,000 shares and 300,000 shares to two consultants, respectively, for services rendered to the Company. The services were valued at $32,000 and $54,000 respectively.

We relied upon Regulation S, Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended, for the issuances of the securities listed above. Each prospective investor was given a private placement memorandum, the Company’s Form 10-K, Form 10-Q and Form 8-k’s previously filed with the SEC. These materials and filings included all material aspects of an investment in us, including the business, management, offering details, risk factors, consolidated financial statements and use of proceeds. It is the belief of management that each of the individuals who invested has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the investment and therefore did not need the protections offered by registering their shares under Securities and Act of 1933, as amended. Each investor completed a Stock Purchase Agreement, a Consulting Agreement and/or Subscription Agreement whereby the investors certified that they were purchasing the shares for their own accounts, with investment intent. These offerings were not accompanied by general advertisement or general solicitation and the share certificates were issued with a Rule 144 restrictive legend.

Table of Contents 28

Item 3. Defaults Upon Senior Securities.

On August 11, 2014, the Company received a notice of default from Hillair Capital Investments L.P. (“Hillair”) in regard to an 8% Original Issue Senior Secured Convertible Note. The Company is currently in negotiations with Hillair to extend the payment terms of this note.

Item 4. Mine Safety Disclosures.

None

Item 5. Other Information.

None

Item 6. Exhibits.

(a) Exhibits.

Exhibit	Item
31.1	Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Table of Contents 29

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NEW WESTERN ENERGY CORPORATION
Date: August 19, 2014	/s/ Javan Khazali
	Javan Khazali, President (Principal Executive Officer)
Date: August 19, 2014	/s/ Haris Baha
	Haris Baha, Chief Financial Officer (Principal Financial and Accounting Officer)

Table of Contents 30

EXHIBIT INDEX

Exhibit	Item
31.1	Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Table of Contents 30

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Javan Khazali, certify that:

1. I have reviewed this report on Form 10-Q of New Western Energy Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Javan Khazali          

Javan Khazali

President (Principal Executive Officer)

August 19, 2014

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Haris Baha, certify that:

1. I have reviewed this report on Form 10-Q of New Western Energy Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Haris Baha  

Haris Baha

Chief Financial Officer

August 19, 2014

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the report of New Western Energy Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Javan Khazali

Javan Khazali

President (Principal Executive Officer)

August 19, 2014

/s/ Haris Baha        

Haris Baha

Chief Financial Officer

August 19, 2014

XML

7. NOTES PAYABLE - Notes Payable (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Notes Payable, Gross	$ 1,573,750	$ 1,573,750
Notes payable - Current Portion
Notes payable - Long term Portion	1,573,750	1,573,750
Less: Unamortized discount	(647,839)	(782,310)
Notes Payable, Net	925,911	791,440
Note Payable, Unsecured, 5% Interest [Member]
Notes Payable, Gross	73,750	73,750
Note Payable, Stockholder [Member]
Notes Payable, Gross	$ 1,500,000	$ 1,500,000

XML

14 - Subsequent Events (Details Narrative) (USD $)	1 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2014	May 31, 2014	Mar. 31, 2014	Jun. 30, 2014
Shares Issued, Services	200,000	300,000	300,000	300,000
Shares Issued, Services, Value	$ 32,000	$ 54,000	$ 57,000	$ 57,000
Subsequent Event [Member]
Shares Issued, Services				400,000
Shares Issued, Services, Value				$ 56,000

XML

12. DERIVATIVE FINANCIAL INSTRUMENTS - Derivative Financial Instruments (Details)	3 Months Ended	6 Months Ended
	Mar. 31, 2014	Jun. 30, 2014 Minimum [Member]	Jun. 30, 2014 Maximum [Member]
Volatility	15982.00%	11766.00%	15982.00%
Expected term	6 months	3 months	10 months
Risk free interest rate	0.13%	13.00%

XML

3. NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARY (Details Narrative) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Mar. 18, 2013 Limited Partnership [Member]
Ownership						51.00%
Cash Funding received					$ 650,000
Contribution to partnership					6,500
Loss on partnership	40,725	95,102	129,498	96,347
Fixed fee revenue per month					$ 250

XML

7. NOTES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2014

Payables and Accruals [Abstract]

Notes Payable

	June 30,			December 31,
	2014			2013
	(Unaudited)
Note payable to a third party, unsecured, bearing interest at 5% per annum, due on September 30, 2015, is subordinated in right of payment to the prior payment in full of all bank rediscount line of credit or loan		73,750			73,750
Stockholder note payable, secured, bearing interest at 10% per annum, due on October 31, 2015, is subordinated in right of payment to the prior payment in full of all future bank rediscount lines of credit or loans		1,500,000			1,500,000
		1,573,750			1,573,750
Notes payable - Current Portion		—			—
Notes payable – Long-term Portion		1,573,750			1,573,750
Less: Unamortized discount		(647,839	)		(782,310	)
	$	925,911		$	791,440

XML

8. CONVERTIBLE NOTES PAYABLE (Details Narrative) (USD $)	1 Months Ended		3 Months Ended			6 Months Ended					1 Months Ended		0 Months Ended		1 Months Ended	3 Months Ended	11 Months Ended	12 Months Ended			1 Months Ended		3 Months Ended		6 Months Ended	12 Months Ended			3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2014	May 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Aug. 12, 2014	Aug. 02, 2014	Dec. 31, 2013	Feb. 28, 2014 Convertible Note 2 [Member]	Feb. 11, 2014 Convertible Note 2 [Member]	Jan. 16, 2014 Convertible Note 2 [Member]	Dec. 19, 2013 Convertible Note 2 [Member]	Jan. 31, 2014 Convertible Note 2 [Member]	Mar. 31, 2014 Convertible Note 2 [Member]	Dec. 05, 2013 Convertible Note 2 [Member]	Dec. 31, 2013 Convertible Note 2 [Member]	Feb. 10, 2014 Convertible Note 2 [Member]	Jan. 13, 2014 Convertible Note 2 [Member]	Apr. 30, 2014 Convertible Note 3 [Member]	Mar. 31, 2014 Convertible Note 3 [Member]	Jun. 30, 2014 Convertible Note 3 [Member]	Mar. 31, 2014 Convertible Note 3 [Member]	Jun. 30, 2014 Convertible Note 3 [Member]	Dec. 31, 2013 Convertible Note 3 [Member]	Apr. 14, 2014 Convertible Note 3 [Member]	Mar. 26, 2014 Convertible Note 3 [Member]	Jun. 30, 2014 Convertible Note 4 [Member]	Jun. 30, 2014 Convertible Note 4 [Member]	Dec. 31, 2013 Convertible Note 4 [Member]	May 02, 2014 Convertible Note 4 [Member]
Amount Received Against Convertible Promissory Note																		$ 75,000								$ 50,000
Convertible Promissory Note																		500,000					13,165		13,165	500,000			924,000	924,000	1,232,000
Consideration Receivable Against Note																		450,000								450,000
Original Issue Discount	647,839		647,839			647,839				782,310								50,000								50,000					132,000
Principal Amount Due From Draw																		83,333								55,556
Interest Rate																		12.00%								12.00%
Loan Discount	(647,839)		(647,839)			(647,839)				(782,310)								8,333								5,555					1,232,000
Debt Discount Related to the Bifurcated Embedded Conersion Option Derivative Liability			(594,835)	(231,604)	66,510	(826,439)	124,325											75,000								50,000					1,015,614
Embedded Conversion Feature Liability							(185,430)											117,591								67,511
Interest Expense			(667,130)		(124,465)	(1,379,757)	(142,297)									13,643		4,691					1,218		2,577	1,461			22,077	47,739
Amortization of Embedded Conversion Option Liability						711,714	130,026									31,168		43,773					10,959		23,365	13,151			531,442	1,105,550
Initial Change in Fair Value																		42,591								17,511					203,718
Converted Debt											23,823	23,823	24,948	22,137	24,948	83,333	22,425	45,841			19,440	22,950	19,440	22,950		22,950
Converted Debt, Shares Issued											220,582	220,582	240,000	250,000	240,000	19,802	200,000				160,000	200,000	160,000	200,000
Price Per Share Converted												$ 0.10800	$ 0.10395	$ 0.08855			$ 0.112125		$ 0.010800	$ 0.10395			$ 0.11475		$ 0.11475		$ 0.1215	$ 0.11475			$ 0.2316
Convertible Debt																		38,771					55,555		55,555
Debt Issuance Costs																															84,386
Warrant Discount																															1,219,332
Private Placement Commission																															95,000
Private Placement Commission, Shares	200,000	300,000		300,000		300,000																									250,000
Common stock issued to vendors for services, amount	32,000	54,000		57,000		57,000																									77,500
Other Issue Costs																															35,000
Deferred Debt Issue Costs																															207,500
Debt Term																															1 year 2 months
Net Cash Proceeds																															936,233
Redemption Obligation																															308,000
Risk-free interest rate:				0.13%																											0.58%
Expected term:				6 months																											3 years
Expected volatility:				15982.00%																											175.00%
Warrant Liability																															1,219,332
Warrant, Price Per Share	$ 0.05		$ 0.05			$ 0.05																									$ 0.22
Reclassification, Embedded Conversion Feature to Additional Paid in Capital				181,211			213,068																	37,763
Discount Rate																															0.58%
Periodic Redemption Amount																																308,000
Default amount requested to be paid								$ 921,839	$ 308,000

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5. MINERAL PROPERTIES (Details Narrative) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Extractive Industries [Abstract]
Amortization Expense	$ 16,347	$ 32,694

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12. DERIVATIVE FINANCIAL INSTRUMENTS (Details Narrative) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Investments, All Other Investments [Abstract]
Change in the Fair Value of Liabilities for Embedded Conversion Option Derivative Instruments	$ 350,537	$ 523,268

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4. OIL AND GAS PROPERTIES

6 Months Ended

Jun. 30, 2014

Extractive Industries [Abstract]

4. OIL AND GAS PROPERTIES

NOTE 4: OIL AND GAS PROPERTIES

The Company's aggregate capitalized costs related to oil properties consist of the following:

Name of the Property	Type		June 30, 2014 (Unaudited)			December 31, 2013
Rogers County, OK - Glass Lease		Oil	$	221,000		$	221,000
Rogers County, OK - Phillips Lease		Oil		130,000			130,000
Rogers County, OK (9) Leases		Oil		378,600			378,600
Chautauqua County, KS - B&W Ranch Lease		Oil		75,000			75,000
Chautauqua County, KS - Charles & Nancy Smith Lease		Oil		24,750			24,750
Chautauqua County, KS - Lloyd & Patricia Fields Lease		Oil		14,400			14,400
Chautauqua County, KS - Rinck Lease		Oil		24,750			24,750
Wilson County, KS – Farwell, Puckett & Farwell/Eagle Lease		Oil		251,208			251,208
Wilson County, KS – Volunteer & Landers Lease		Oil		470,000			470,000
Nowata County, OK (4) Leases		Oil		35,000			—
Shackelford County, TX - Terry Heirs		Oil		9,722			9,722
				—			—
				1,634,430			1,599,430
Accumulated depletion				(13,292	)		(6,697	)
Impairment allowance				(133,500	)		(133,500	)
			$	1,487,638		$	1,459,233
Impairment allowance is allocated as follows:
Glass Lease			$	123,778		$	123,778
Terry Heirs Lease			$	9,722		$	9,722

There were no exploration well costs capitalized for more than one year following the completion of drilling.

The following oil and gas leases were acquired and sold during the six months ended June 30, 2014.

Acquisition of Moab Oil and Gas Project, Nowata County, Oklahoma

On February 28, 2014, the Company entered into a Lease Purchase Agreement (“Agreement”) with Moab Oil and Gas, LLC and a third party, to purchase leasehold interest in four oil and gas leases named as Taylor Lease, Roberts Lease, Roebuck Lease and Walker Lease, consisting of 217 acres located in Nowata County, Oklahoma. The Company has paid the total purchase consideration of $35,000 as of March 31, 2014. The Company has started gas exploration on this lease and sold 1,484 mcf of gas for $4,323 as of June 30, 2014. 

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9. RELATED PARTY TRANSACTIONS AND BALANCES (Details Narrative) (USD $)	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2013
Related Party Transactions [Abstract]
Advances to the Company, Working Capital		$ 0	$ 1,922
Professional Fees	12,500	20,000
Compensation Rate		5,000	2,500
Lease Operating Expenses	24,786	243,573
Consulting & Business Services	$ 25,000	$ 40,000

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Instruments and Fair Value Measurements (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Mineral Properties	$ 5,449
Warrant Liabilities	609,044
Embedded Conversion Option Liability	677,306	809,716
Level 1
Mineral Properties
Warrant Liabilities
Embedded Conversion Option Liability
Level 2
Mineral Properties
Warrant Liabilities
Embedded Conversion Option Liability
Level 3
Mineral Properties	5,449
Warrant Liabilities	609,044
Embedded Conversion Option Liability	$ 677,306

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1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jan. 02, 2012 RTE [Member]	Mar. 18, 2013 Limited Partnership [Member]
Ownership					100.00%	51.00%
Working Capital Deficit			$ 1,142,911
Net Loss Applicable to New Western Energy Corporation common stockholders	444,795	713,826	1,751,199	894,479
Cash Used in Operating Activities			$ 1,298,618

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10 - Commitments and contingencies (Details Narrative) (USD $)	Nov. 12, 2013
Commitments And Contingencies Details Narrative
Consideration of shares payable	$ 600,000

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Instruments and Fair Value Measurements - Level 3 (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Mineral Properties [Member]
Beginning Balance	$ 38,143
Additions
Change in fair value	(32,694)
Ending Balance	5,449
Warrant Liabilities [Member]
Beginning Balance	912,215
Additions
Change in fair value	(303,171)
Ending Balance	609,044
Embedded Conversion Option Liability [Member]
Beginning Balance	809,716
Additions
Change in fair value	(187,847)
Reclassification to equity	55,437
Ending Balance	$ 677,306

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)	6 Months Ended
	Jun. 30, 2014
Accounting Policies [Abstract]
Warrants Outstanding	15,548,420
Convertible Debt, Shares Outstanding	4,926,888
Options Outstanding	3,000,000

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3. NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARY

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

3. NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARY

NOTE 3: NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARY

On March 18, 2013, the Company formed a new entity 2013 NWE Drilling Program 1 LP (the “Limited Partnership”). The Limited Partnership was specifically formed to drill three oil wells on the Company’s B&W Ranch lease in the Chautauqua County, Kansas. The Company became the General Partner and owns 51% of the Limited Partnership. The Limited Partnership closed upon receiving a cash contribution of $650,000 from one non-affiliate shareholder of the Company as the Limited Partner, and the Company’s contribution as the General Partner was $6,500 in cash and giving the rights and commitment to the Limited Partnership to drill three oil wells on the Company’s B&W Ranch lease. Pursuant to the terms of the partnership agreement, the Limited Partner will be entitled to receive 70% of the net income and cash available for distributions until such time an amount equal to the Limited Partner’s initial investment plus a 50% return on such initial investment is received by the Limited Partner. Thereafter, net income and cash available for distributions shall be allocated 20% to the Limited Partner and 80% to the General Partner. The Limited Partnership will enter into turnkey drilling agreement with the managing General Partner, to drill and complete the partnership wells. The turnkey price includes all ordinary costs of drilling, testing and completing the wells. When the wells begin producing, the General Partner, as operator of the wells will be reimbursed at actual cost for all direct expenses incurred on behalf of the Limited Partnership, and will receive a fixed fee of $250 per well per month for supervising, operating and maintaining the wells during production operations. The Limited Partnership recorded a loss of $40,725 and $129,498 for the three months and six months ended June 30, 2014 as compared to $$95,102 and $96,347 for the same comparable periods in 2013. The Company allocated the Limited Partnership’s loss to its noncontrolling members in its consolidated financial statements as of June 30, 2014 and 2013, respectively

The following provides a summary of activity in the noncontrolling interest in consolidated subsidiary account for the six months ended June 30, 2014:

Balance at December 31, 2013	$	511,942
Contribution by noncontrolling interest member		—
Net loss applicable to noncontrolling interest		(129,498	)
Balance at June 30, 2014	$	382,444

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3. NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARY - Noncontrolling Interest in Consolidated Subsidiary (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Equity [Abstract]
Balance at December 31, 2013			$ 511,942
Contribution by noncontrolling interest member					650,000
Net loss applicable to noncontrolling interest	(40,725)	(95,102)	(129,498)	(96,347)
Balance at June 30, 2014	$ 382,444		$ 382,444		$ 511,942

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7. NOTES PAYABLE (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Payables and Accruals [Abstract]
Notes Payable, Interest Expense	$ 38,419	$ 13,922	$ 76,828	$ 18,471

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Balance Sheets (Unaudited) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current assets
Cash and cash equivalents	$ 438,576	$ 1,523,181
Accounts receivable	71,260	43,365
Inventory	73,953	24,713
Prepaid expenses and other assets	94,358	75,417
Total current assets	678,147	1,666,676
Property and equipment, net	214,028	201,556
Oil and gas properties, net	1,487,638	1,459,233
Mineral properties, net	5,449	38,143
Deferred debt issuance cost, net	142,154	241,911
Note receivable, net	65,000
Other assets	1,930	1,930
Total Assets	2,594,346	3,609,449
Current liabilities
Accounts payable	79,916	67,984
Accrued expenses	124,505	70,491
Convertible notes payable, current portion, net of discount of $606,877 and $72,534 at June 30, 2014 and December 31, 2013	330,288	21,792
Embedded conversion option liability	677,306	809,716
Warrant liability	609,044	912,215
Payable to related party		1,922
Total current liabilities	1,821,059	1,884,120
Notes payable, long term portion, net of discount of $647,839 at June 30, 2014 and $782,310 at December 31, 2013, respectively	925,911	791,440
Convertible notes payable, net of discount of $0 at June 30, 2014 and $1,101,586 at December 31, 2013, respectively		130,414
Total long term liabilities	925,911	921,854
Total Liabilities	2,746,970	2,805,974
New Western Energy Corporation and Subsidiaries Stockholders' Equity
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 127,000 and 0 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	13
Common stock, $0.0001 par value, 250,000,000 shares authorized, 73,806,448 and 72,185,866 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	7,381	7,219
Additional paid in capital	6,676,866	5,752,443
Accumulated deficit	(7,219,328)	(5,468,129)
Total New Western Energy Corporation and Subsidiaries Stockholders' Equity	(535,068)	291,533
Noncontrolling interest in consolidated subsidiary	382,444	511,942
Total Stockholders' Equity	(152,624)	803,475
Total Liabilities and Stockholders' Equity	$ 2,594,346	$ 3,609,449

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11. STOCKHOLDERS EQUITY (Details Narrative) (USD $)

1 Months Ended

3 Months Ended

6 Months Ended

1 Months Ended

0 Months Ended

1 Months Ended

3 Months Ended

11 Months Ended

12 Months Ended

1 Months Ended

3 Months Ended

12 Months Ended

Jun. 30, 2014

May 31, 2014

Mar. 31, 2014

Jun. 30, 2014

Dec. 31, 2013

Jun. 30, 2014

Class D Warrants [Member]

Jun. 30, 2014

Class E Warrants [Member]

Jun. 30, 2014

Class F Warrants [Member]

Feb. 28, 2014

Convertible Note 2 [Member]

Feb. 11, 2014

Convertible Note 2 [Member]

Jan. 16, 2014

Convertible Note 2 [Member]

Dec. 19, 2013

Convertible Note 2 [Member]

Jan. 31, 2014

Convertible Note 2 [Member]

Mar. 31, 2014

Convertible Note 2 [Member]

Dec. 05, 2013

Convertible Note 2 [Member]

Dec. 31, 2013

Convertible Note 2 [Member]

Feb. 10, 2014

Convertible Note 2 [Member]

Jan. 13, 2014

Convertible Note 2 [Member]

Apr. 30, 2014

Convertible Note 3 [Member]

Mar. 31, 2014

Convertible Note 3 [Member]

Jun. 30, 2014

Convertible Note 3 [Member]

Mar. 31, 2014

Convertible Note 3 [Member]

Dec. 31, 2013

Convertible Note 3 [Member]

Apr. 14, 2014

Convertible Note 3 [Member]

Mar. 26, 2014

Convertible Note 3 [Member]

Preferred Stock Par Value

$ 0.0001

$ 0.0001

$ 0.0001

Preferred Stock Shares Authorized

5,000,000

5,000,000

5,000,000

Preferred Stock Shares Issued

127,000

127,000

0

Preferred Stock Shares Outstanding

127,000

127,000

0

Common Stock Par Value

$ 0.0001

$ 0.0001

$ 0.0001

Common Stock Shares Authorized

250,000,000

250,000,000

250,000,000

Common Stock Shares Issued

73,806,448

73,806,448

72,185,866

Common Stock Shares Outstanding

73,806,448

73,806,448

72,185,866

Stock Issued for Services, Shares

200,000

300,000

300,000

300,000

Stock Issued for Services, Value

$ 32,000

$ 54,000

$ 57,000

$ 57,000

Converted Debt

23,823

23,823

24,948

22,137

24,948

83,333

22,425

45,841

19,440

22,950

19,440

22,950

22,950

Converted Debt, Shares Issued

220,582

220,582

240,000

250,000

240,000

19,802

200,000

160,000

200,000

160,000

200,000

Price Per Share Converted

$ 0.10800

$ 0.10395

$ 0.08855

$ 0.112125

$ 0.010800

$ 0.10395

$ 0.11475

$ 0.1215

$ 0.11475

Units Offered in Private Placement

1,500,000

1,500,000

Goal of Private placement

7,500,000

7,500,000

Minimum Investment, Units

5,000

5,000

Minimum Investment, Value

$ 25,000

$ 25,000

Private Placement, Unit Description

Each Unit consists of two (2) shares of Series A 7% Convertible Preferred Stock, par value $0.0001 per share and one (1) redeemable Class F Warrant of the Company to purchase ten (10) shares of common stock. Each share of Series A Preferred Stock pays a 7% annual dividend for the first year ending March 31, 2015 and thereafter, a 10% dividend payable, at the option the Company, in cash or in the Company’s common stock.

Exercise Price

$ 0.30

Redemption Price

$ 0.05

$ 0.05

Stock Options Outstanding, Shares

3,000,000

3,000,000

395,000

7,500,000

7,653,420

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1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN

NOTE 1: NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN

New Western Energy Corporation (the “Company”) was incorporated in the State of Nevada on September 25, 2008. The Company’s principal business is the acquisition, exploration and development of, and production from oil, gas and mineral properties located in the United States.

On December 1, 2010, the Company formed an entity named New Western Texas Oil and Gas Corporation incorporated in the State of Nevada, as its wholly-owned subsidiary. New Western Texas Oil and Gas Corporation started its operations on January 2011. On May 3, 2013, New Western Texas Oil and Gas Corporation amended its Articles of Incorporation and changed its name to New Western Gas Corporation.

On January 2, 2012, the Company completed the acquisition of 100% of the issued and outstanding capital stock of Royal Texan Energy Co. (“RTE”) and RTE became our wholly-owned subsidiary and conducts business as a separate operating company.

On March 18, 2013, the Company formed an entity named 2013 NWE Drilling Program 1 LP (the “Limited Partnership”). The Company became the General Partner and owns 51% of the Limited Partnership. The Limited Partnership was specifically formed to drill three oil wells on the Company’s B&W Ranch lease in the Chautauqua County, Kansas (See Note 3).

On May 28, 2014, the Company formed New Western Operating LLC, a wholly-owned subsidiary that will take over all operational duties for its leases and oil and gas exploration, drilling and production in the state of Kansas.

Basis of presentation

The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments and business acquisition adjustments, necessary to present fairly the financial position at June 30, 2014, and the results of operations and cash flows for the six months ended June 30, 2014. The balance sheet as of December 31, 2013 is derived from the Company’s audited consolidated financial statements.

Certain information and footnote disclosures normally included in consolidated financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these consolidated financial statements are adequate to make the information presented therein not misleading. For further information, refer to the financial statements and the notes thereto contained in the Company’s 2013 Annual Report filed with the Securities and Exchange Commission on Form 10-K on April 14, 2014.

Going Concern

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations.

At June 30, 2014, the Company had working capital deficit of $1,142,911, incurred a net loss applicable to New Western Energy Corporation common stockholders of $1,751,199 during the six months ended June 30, 2014 and used cash in operating activities of $1,298,618. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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4. OIL AND GAS PROPERTIES (Details Narrative) (Moab Oil & Gas Project [Member], USD $)	6 Months Ended
	Jun. 30, 2014 Mcfe
Moab Oil & Gas Project [Member]
Consideration Paid	$ 35,000
Gas Sold	1,484
Consideration Received on Sale of Gas	$ 3,423

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3. NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARY (Tables)

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Noncontrolling Interest in Consolidated Subsidiary

Balance at December 31, 2013	$	511,942
Contribution by noncontrolling interest member		—
Net loss applicable to noncontrolling interest		(129,498	)
Balance at June 30, 2014	$	382,444

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5. MINERAL PROPERTIES - Mineral Properties (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Mineral Properties, Gross	$ 5,449
Less: Accumulated depletion	(13,292)	(6,697)
Wellsboro Lease [Member]
Mineral Properties, Gross	103,530	103,530
Mineral Property, Type	Gravel
Mineral Properties [Member]
Mineral Properties, Gross	103,530	103,530
Less: Accumulated depletion
Less: Amortization	(98,081)	(65,387)
Mineral Properties, Net	$ 5,449	$ 38,143

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5. MINERAL PROPERTIES (Tables)

6 Months Ended

Jun. 30, 2014

Extractive Industries [Abstract]

Mineral Properties

Unproved Mineral Property
Name of Property	Type		June 30, 2014 (Unaudited)			December 31,  2013
Wellsboro Lease		Gravel	$	103,530		$	103,530
				103,530			103,530
Less: Accumulated depletion				—			—
				103,530			103,530
Less: Amortization				(98,081	)		(65,387	)
			$	5,449		$	38,143

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries New Western Gas Corporation, Royal Texan Energy Co. and New Western Operating LLC, and the Company’s 51% majority owned subsidiary 2013 NWE Drilling Program 1 LP. All intercompany balances and transactions are eliminated in consolidation.  

Noncontrolling Interest

The Company accounts for its less than 100% interest in consolidated subsidiaries in accordance with Financial Accounting Standards Board - Accounting Standards Codification (“ASC”)   Topic 810, Consolidation , and accordingly, the Company presents noncontrolling interests as a component of equity on its unaudited condensed consolidated balance sheets and reports noncontrolling interest net income or loss under the heading “Net income (loss) applicable to noncontrolling interest in consolidated subsidiary” in the unaudited condensed consolidated statements of operations.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts, notes and other receivables, valuation of beneficial conversion features in convertible debt, valuation of derivatives, valuation of long-lived assets, goodwill and oil, gas and mineral properties, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Derivative Instruments

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

Fair value of Financial Instruments and Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, notes payable, embedded conversion option liabilities, and amounts due to related parties. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Assets and liabilities measured at fair value on a recurring and non-recurring basis consist of the following at June 30, 2014:

			Fair Value Measurements at June 30, 2014
	Carrying Value at June 30, 2014 (Unaudited)		(Level 1) (Unaudited)		(Level 2) (Unaudited)		(Level 3) (Unaudited)
Mineral Properties	$	5,449	$	—	$	—	$	5,449
Warrant Liabilities	$	609,044	$	—	$	—	$	609,044
Embedded Conversion Option Liability	$	677,306	$	—	$	—	$	677,306

The following is a summary of activity of Level 3 assets and liabilities for the period ended June 30, 2014:

Mineral Properties
Balance - December 31, 2013	$	38,143
Additions		—
Change in fair value		(32,694	)
Balance – June 30, 2014	$	5,449
Warrant Liabilities
Balance - December 31, 2013	$	912,215
Additions		—
Change in fair value		(303,171	)
Balance – June 30, 2014	$	609,044
Embedded Conversion Option Liability
Balance - December 31, 2013	$	809,716
Additions		—
Change in fair value		(187,847	)
Reclassification to equity		55,437
Balance – June 30, 2014	$	677,306

Changes in fair value of the embedded conversion liability are included in other income (expense) in the accompanying unaudited consolidated statements of operations.

Revenue Recognition

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

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

Net Earnings (Loss) Per Share

The Company computes net earnings (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted net earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2014, there were Class D, E and F Warrants outstanding for 15,548,420 common shares that if exercised, may dilute future earnings per share, 3,000,000 stock options outstanding awarded to employees and consultants, and there were convertible debt convertible into 4,926,888 common shares that may dilute future earnings per share.

Recent Accounting Pronouncements

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

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Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Convertible Note, Current Portion, discount	$ 606,877	$ 72,534
Convertible Note, Long Term Portion, Discount	0	1,101,586
Note Payable, Long Term Portion, Discount	$ 647,839	$ 782,310
Preferred Stock Par Value	$ 0.0001	$ 0.0001
Preferred Stock Shares Authorized	5,000,000	5,000,000
Preferred Stock Shares Issued	127,000	0
Preferred Stock Shares Outstanding	127,000	0
Common Stock Par Value	$ 0.0001	$ 0.0001
Common Stock Shares Authorized	250,000,000	250,000,000
Common Stock Shares Issued	73,806,448	72,185,866
Common Stock Shares Outstanding	73,806,448	72,185,866

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12. DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2014

Investments, All Other Investments [Abstract]

12. DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 12: DERIVATIVE FINANCIAL INSTRUMENTS

Under the provisions of ASC 815-40, convertible instruments issued by the Company qualify for derivative treatment due to the variable conversion formula (Note 8). The embedded conversion features of the convertible note is bifurcated and recorded as a liability which is revalued at fair value each reporting date. If the fair value of the embedded conversion feature exceeds the face value of the related debt, net of other discounts, the excess is recorded as a change in fair value on the issuance date. Embedded conversion features are valued at their fair value, rather than by the intrinsic value method.

The Company calculated the estimated fair values of the liabilities for embedded conversion feature at June 30, 2014 with the Black-Scholes option pricing model using the closing price of the Company’s common stock at each respective date and the ranges for volatility, expected term and risk free interest indicated in the table below. As a result, the Company recorded a change in the fair value of the liabilities for embedded conversion option derivative instruments for the three months and six months ended June 30, 2014 of $350,537 and $523,268 which was included in other expense (See Note 2 Fair Value Measurements).

Embedded Conversion Options
	Black-Scholes Model Assumptions
	During Three Months Ended June 30, 2014
Volatility		117.66-159.82
Expected term		0.24 - 0.84 years
Risk free interest rate		0.13%

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 19, 2014
Document And Entity Information
Entity Registrant Name	New Western Energy Corp
Entity Central Index Key	0001479488
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		74,206,448
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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13. CONCENTRATIONS

6 Months Ended

Jun. 30, 2014

Risks and Uncertainties [Abstract]

13. CONCENTRATIONS

NOTE 13: CONCENTRATIONS

Concentration of Operators

As of June 30, 2014, the Company uses two operators for the leased properties for which the Company has current activities. The Company also has one mineral lease with another lessor. There has been no activity on the mineral lease other than initial lease acquisition costs relating to the mineral lease as of June 30, 2014.

Concentration of Customer

The Company sells its oil product to one customer and gas product to a separate customer.

Concentration of Credit Risk

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2014. The Company’s bank balances exceeded FDIC insured amounts as of June 30, 2014.

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Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues
Oil and gas sales	$ 110,734	$ 11,797	$ 182,122	$ 30,994
Operating expenses
Depreciation, depletion and amortization	29,722	26,766	57,881	48,266
General and administrative	401,915	287,891	1,081,811	453,882
(Gain) or loss on sale of oil leases		1,677		(77,594)
Oil and gas production	89,944	313,416	367,431	329,844
Total expenses	521,581	629,750	1,507,123	754,398
Loss from operations	(410,847)	(617,953)	(1,325,001)	(723,404)
Other income (expenses)
Interest expense	(667,130)	(124,465)	(1,379,757)	(142,297)
Change in fair value of embedded conversion option and warrant liability income (expense)	594,835	(66,510)	826,439	(124,325)
Total other income (expenses)	(72,295)	(190,975)	(553,318)	(266,622)
Loss from operations before income tax	(483,142)	(808,928)	(1,878,319)	(990,026)
Provision for income tax				(800)
Net loss	(483,142)	(808,928)	(1,878,319)	(990,826)
Preferred stock dividend	(2,378)		(2,378)
Net loss applicable to common stock before allocation to noncontrolling interest	(485,520)	(808,928)	(1,880,697)	(990,826)
Net loss applicable to noncontrolling interest in consolidated subsidiary	(40,725)	(95,102)	(129,498)	(96,347)
Net loss applicable to New Western Energy Corporation common stock	$ (444,795)	$ (713,826)	$ (1,751,199)	$ (894,479)
Basic and diluted net loss per share applicable to New Western Energy Corporation's common stock	$ (0.01)	$ (0.01)	$ (0.03)	$ (0.01)
Weighted average number of shares outstanding - Basic and Diluted	73,429,964	68,824,547	73,051,948	68,631,798

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7. NOTES PAYABLE

6 Months Ended

Jun. 30, 2014

Payables and Accruals [Abstract]

7. NOTES PAYABLE

NOTE 7: NOTES PAYABLE

Notes payable consist of:

	June 30,			December 31,
	2014			2013
	(Unaudited)
Note payable to a third party, unsecured, bearing interest at 5% per annum, due on September 30, 2015, is subordinated in right of payment to the prior payment in full of all bank rediscount line of credit or loan		73,750			73,750
Stockholder note payable, secured, bearing interest at 10% per annum, due on October 31, 2015, is subordinated in right of payment to the prior payment in full of all future bank rediscount lines of credit or loans		1,500,000			1,500,000
		1,573,750			1,573,750
Notes payable - Current Portion		—			—
Notes payable – Long-term Portion		1,573,750			1,573,750
Less: Unamortized discount		(647,839	)		(782,310	)
	$	925,911		$	791,440

The Company recorded interest expense on these notes of $38,419 and $76,828 for the three months and six months ended June 30, 2014, and $13,922 and $18,471 for the three months and six months ended June 30, 2013, respectively.  

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6. NOTE RECEIVABLE

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

6. NOTE RECEIVABLE

NOTE 6: NOTE RECEIVABLE

On April 1, 2014, the Company made a short-term advance of $75,000 to Legend Oil & Gas Ltd. (“Legend”), an entity with whom the Company had entered into a merger agreement on January 23, 2014. The advance is non-interest bearing, unsecured and is to be returned to the Company by Legend by February 28, 2015 or within 60 days, if the merger between the Company and Legend is terminated, whichever first occurs. On April 30, 2014, the Company terminated the merger agreement with Legend. The Company has received $10,000 in cash from Legend as of June 30, 2014. The Company expects to receive the remaining balance from Legend by September 15, 2014.

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4. OIL AND GAS PROPERTIES (Tables)

6 Months Ended

Jun. 30, 2014

Extractive Industries [Abstract]

Oil and Gas Properties

Name of the Property	Type		June 30, 2014 (Unaudited)			December 31, 2013
Rogers County, OK - Glass Lease		Oil	$	221,000		$	221,000
Rogers County, OK - Phillips Lease		Oil		130,000			130,000
Rogers County, OK (9) Leases		Oil		378,600			378,600
Chautauqua County, KS - B&W Ranch Lease		Oil		75,000			75,000
Chautauqua County, KS - Charles & Nancy Smith Lease		Oil		24,750			24,750
Chautauqua County, KS - Lloyd & Patricia Fields Lease		Oil		14,400			14,400
Chautauqua County, KS - Rinck Lease		Oil		24,750			24,750
Wilson County, KS – Farwell, Puckett & Farwell/Eagle Lease		Oil		251,208			251,208
Wilson County, KS – Volunteer & Landers Lease		Oil		470,000			470,000
Nowata County, OK (4) Leases		Oil		35,000			—
Shackelford County, TX - Terry Heirs		Oil		9,722			9,722
				—			—
				1,634,430			1,599,430
Accumulated depletion				(13,292	)		(6,697	)
Impairment allowance				(133,500	)		(133,500	)
			$	1,487,638		$	1,459,233
Impairment allowance is allocated as follows:
Glass Lease			$	123,778		$	123,778
Terry Heirs Lease			$	9,722		$	9,722

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14. SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

14. SUBSEQUENT EVENTS

NOTE 14: SUBSEQUENT EVENTS

On July 1, 2014, the Company entered into a consulting agreement with a third party for the twelve month period to provide business advisory services to the management of the Company. The Company issued 400,000 shares of its common stock valued at $56,000 for such services. The common shares are valued at the closing price of stock on the effective date of the consulting agreement.

On August 11, 2014, the Company received a notice of default on Convertible Note 4 (see Note 8). The Company is currently in negotiations to extend the payment terms of this note.

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10. COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2014

Commitments and contingencies (Note 10)

10. COMMITMENTS AND CONTINGENCIES

NOTE 10: COMMITMENTS AND CONTINGENCIES

Legal Costs and Contingencies

On November 12, 2013, a complaint was filed in the District Court of Taylor County, Texas, captioned Brent and Brook Hatchett v. New Western Energy Corporation, Case No. 25,863-B. The complaint asserts breach of contract on the part of the Company relating to a Plan and Agreement of Reorganization (the “Contract”) wherein the Company acquired all of the issued and outstanding capital stock of Royal Texan Energy Co. from the Hatchetts. The Hatchetts are seeking the remaining consideration of 600,000 common shares of New Western Energy Corporation payable to them for the acquisition by New Western Energy Corporation of Royal Texan Energy Co. in addition to general damages.

On January 22, 2014, the Company filed an answer denying any wrongdoing and a counterclaim against the Hatchetts, alleging fraudulent inducement and misrepresentations by the Hatchetts in addition to breach of contract and fiduciary duty. The Company is seeking among other things, damages from the Hatchetts, including exemplary damages and court costs and reasonable and necessary attorney’s fees.

The Company and the Hatchetts’ are currently in settlement negotiations.

In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received.

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8. CONVERTIBLE NOTES PAYABLE

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

8. CONVERTIBLE NOTES PAYABLE

NOTE 8: CONVERTIBLE NOTES PAYABLE

Convertible notes payable consist of:

	June 30,			December 31,
	2014			2013
	(Unaudited)
Note payable to a third party, bearing one-time interest of 12%, one year term, due on June 5, 2014 (Convertible Note 2)	$	—		$	38,771
Note payable to a third party, bearing one-time interest of 12%, one year term, due on September 26, 2014 (Convertible Note 3)		13,165			55,555
Note payable to a third party, bearing interest of 8% per annum, due February 1, 2015 (Convertible Note 4)		924,000			1,232,000
Convertible notes payable		937,165			1,326,326
Less: unamortized debt discount		(606,877	)		(1,174,120	)
Convertible notes payable, net		330,288			152,206
Less: current portion		(330,288	)		(21,792	)
Convertible notes payable, non-current	$	—		$	130,414

Convertible Note 2

On June 5, 2013, the Company received $75,000 (the “Draw”) from a third party against a $500,000 Convertible Promissory Note (the “Note 2”) executed on June 4, 2013. The total consideration receivable against the Note 2 was $450,000, with the Note 2 bearing $50,000 original issue discount (OID) resulting in a principal amount due on this draw of $83,333. A one-time interest charge of 12% shall be applied to the principal sum. Any interest payable is in addition to the OID, and that OID (or prorated OID, if applicable) remains payable regardless of time and manner of payment by the Company. The maturity date is one year from the effective date of each payment and is the date upon which the principal sum of this promissory note, as well as any unpaid interest and other fees, shall be due and payable. The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of fully paid and non-assessable shares of common stock of the Company as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. The Conversion Price is the lessor of $0.22 or 67.5% of the lowest trade price in the 25 trading days previous to the conversion.

In connection with the issuance of the Note 2, the Company recorded a loan discount related to the OID in the amount of $8,333 which will be amortized to interest expense over the term of the Draw. In accordance with ASC 815, the Company recognized a debt discount related to the bifurcated embedded conversion option derivative liability in the amount of $75,000 which will be amortized to interest expense over the term of the Draw and an initial change in fair value of $42,591 for a total initial embedded conversion option liability of $117,591. For the year ended December 31, 2013, the Company has recognized interest expense of $4,691 related to the amortization of the OID and $43,773 related to the amortization of the embedded conversion option liability discount as it related to this Note 2. Furthermore, on December 5, 2013 and December 19, 2013, the Company converted $22,425 and $22,137 of the debt by issuance of 200,000 shares and 250,000 shares, respectively, of its common stock valued at $0.112125 per share and $0.08855 per share (See Note 11). On January 16, 2014 and February 11, 2014, the Company converted $24,948 and $23,823 of the debt by issuance of 240,000 shares and 220,582 shares, respectively, of its common stock valued at $0.10395 per share and $0.10800 per share (See Note 11). The Note 2 was converted in full $83,333 of the principal sum due and $19,802 of embedded conversion option liability was reclassified to equity. For the three months ended March 31, 2014, the Company has recognized interest expense of $13,643 related to the amortization of the OID and $31,168 related to the amortization of the embedded conversion option liability discount as it related to this Note 2.

Convertible Note 3

On September 26, 2013, the Company received $50,000 (the “Draw”) from a third party against a $500,000 Convertible Promissory Note (the “Note 3”) executed on September 25, 2013. The total consideration receivable against the Note 3 was $450,000, with the Note 3 bearing $50,000 original issue discount (OID) resulting in a principal amount due from this draw of $55,556. A one-time interest charge of 12% shall be applied to the principal sum. Any interest payable is in addition to the OID, and that OID (or prorated OID, if applicable) remains payable regardless of time and manner of payment by the Company. The maturity date is one year from the effective date of each payment and is the date upon which the principal sum of this promissory note, as well as any unpaid interest and other fees, shall be due and payable. The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of fully paid and non-assessable shares of common stock of the Company as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the Conversion Price. The Conversion Price is the lessor of $0.22 or 67.5% of the lowest trade price in the 25 trading days previous to the conversion.

In connection with the issuance of the Note 3, the Company recorded a loan discount related to the OID in the amount of $5,555 which will be amortized to interest expense over the term of the Draw. In accordance with ASC 815, the Company recognized a debt discount related to the bifurcated embedded conversion option derivative liability in the amount of $50,000 which will be amortized to interest expense over the term of the Draw and an initial change in fair value of $17,511 for a total initial embedded conversion option liability of $67,511. For the year ended December 31, 2013, the Company has recognized interest expense of $1,461 related to the amortization of the OID and $13,151 related to the amortization of the embedded conversion option liability discount as it related to this Note 3. On March 27, 2014, the Company converted $22,950 of the debt by issuance of 200,000 shares of its common stock valued at $0.1215 per share. On April 14, 2014, the Company converted $19,440 of the debt by issuance of 160,000 shares of its common stock valued at $0.1215 per share (See Note 12).

Based on the conversion amounts an aggregate $37,763 was reclassified from the embedded conversion option liability to additional paid in capital. For the three months and six months ended June 30, 2014, the Company has recognized interest expense of $1,218 and $2,577 related to the amortization of the OID and $10,959 and $23,365 related to the amortization of the embedded conversion option liability discount as it related to this Note 3. The note balance at June 30, 2014 was $13,165.

Convertible Note 4

On November 6, 2013, the Company entered into a Definitive Agreement (the "Securities Agreement") for a private offering with an Investor for the sale of the Company’s securities (debt and warrants) for $1,232,000. The offering closed on November 15, 2013 (“funding date”).

Debt issue costs paid to or on behalf of the lender were $84,386. This amount plus an original issue discount (OID) of $132,000 and warrant discount discussed below of $1,219,332 were allocated by charging $1,232,000 to debt discount and $203,718 to change in fair value of warrant liability, and recorded in other expense in the accompanying statements of operations.

The Company engaged a placement agent with respect to the Offering. The Company paid the placement agent upon receipt of the gross proceeds at the Closing, a commission of $95,000 plus 250,000 shares of the Company’s restricted common stock valued at $77,500 based on the fair value of common stock on the date of Agreement. The Company also paid $35,000 in other issue costs to third parties. The total $207,500 is recorded as a deferred debt issue costs as an asset. All discounts and debt issue costs are being amortized to interest expense over the debt term of 1.22 years.

The Company closed the offering on November 15, 2013 and received net cash proceeds of $936,233.

The securities were sold pursuant to the Securities Purchase Agreement entered into by and among the Company and the Investor (the “Agreement”) and consists of (i) 8% original issue discount senior secured convertible promissory debentures in the issuance amount of $1,232,000 (the “Debentures”) and (ii) three year warrants to purchase 6,383,420 shares of the Company’s common stock, which are exercisable at $0.2316 per share. The net proceeds from the offering will be used by the Company for drilling and rework of oil and gas wells and general working capital. The Agreement contained certain customary representations, warranties and covenants.

The Debentures are convertible into shares of Common Stock at any time prior to maturity at $0.193 per share (the “Conversion Price”), subject to certain conversion limitations set forth in the Debentures and certain price protection described below. The Company shall pay interest on the aggregate unconverted and then outstanding principal amount of the Debenture at the rate of 8% per annum, payable quarterly on February 1, May 1, August 1 and November 1, beginning on May 1, 2014. Interest is payable in cash or at the Company’s option in shares of Common Stock, provided certain conditions are met, based on a share value equal to the lesser of (a) 90% of the average of the volume weighted average price (the “VWAP”) for the 20 consecutive trading days prior to the applicable interest payment date and (b) 100% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date less $0.01. On each of May 1, 2014, August 1, 2014, November 1, 2014, and February 1, 2015, the Company is obligated to redeem an amount equal to $308,000 (plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the Debentures) (collectively, the “Periodic Redemption Amount”). The company made the Periodic Redemption Amount of $308,000 on May 1, 2014 in the accordance with the redemption of debenture but failed to make a payment of $308,000 due on August 1, 2014. On August 11, 2014, the company received a default notice from the debt holder requesting for the default amount of $921,839 due plus all accrued but unpaid interest. The company is currently in negotiations with the debt holders to extend payment terms of the note.

In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the Debentures, the Company may elect to pay the Periodic Redemption Amount in shares based on a conversion price equal to the lesser of (a) $0.193 per share, subject to adjustments upon certain events, and (b) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable redemption date. Upon any Event of Default (as defined in the Debenture), the outstanding principal amount of the Debenture, plus liquidated damages and interest, shall become, at the Investors’ election, immediately due and payable in cash.  Commencing five days after the occurrence of any Event of Default, the interest rate on the Debentures shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. At any time after the 6 month anniversary of the Closing Date, the Company may prepay any portion of the outstanding principal amount of any Debentures, plus liquidated damages, interest, a premium of 20% and other amounts owing in respect thereof through the applicable date of optional redemption, subject to notice to the Investor. The Debentures contain customary affirmative and negative covenants of the Company. The Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.

The Warrants are exercisable for a period of three years and are subject to “weighted average” and other customary anti-dilution protections including full ratchet protection.

As collateral security for all of the Company’s obligations under the Securities Agreement and related documents executed in connection with the Offering, the Company and its subsidiaries (the “Subsidiaries”), granted the Investor a first priority security interest in all of the Company’s and Subsidiaries assets pursuant to the terms of the Security Agreement. To further secure the Company's obligations, the Subsidiaries also executed a Guarantee, dated as of November 6, 2013 (the “Guaranty”), pursuant to which the Subsidiaries have agreed to guaranty the Company’s obligations owed to the Investor.

Due to the “full ratchet” price protection in warrant, the warrant is accounted for as a derivative liability in the balance sheet at fair value. The warrant liability was valued at the funding date at its fair value of $1,219,332 using the Black-Scholes option pricing model with the following assumptions; stock price $0.22, expected term of 3 years, expected volatility of 175% and discount rate of 0.58%. The warrant value was allocated $1,015,614 to debt discount and $203,718 to change in fair value of warrant liability, an other expense in the accompanying statements of operations.

Due to the “full ratchet” price protection in the convertible Debenture, the embedded conversion feature was bifurcated and accounted for as a derivative liability in the balance sheet at fair value. The initial valuation and recording of this derivative liability was $972,532 using the Black-Scholes option pricing model with the following assumptions; stock price $0.22, expected term of 1.22 years, expected volatility of 176% and discount rate of 0.75%, and charged to change in fair value of embedded conversion option liability, an other expense. The note balance was $924,000 at June 30, 2014.

For the three months and six months ended June 30, 2014, the Company has recognized and recorded interest expense of $22,077 and $47,739 related to Note 2, Note 3 and Note 4, respectively, and $531,442 and $1,105,550 related to the amortization of other discounts of Note 2, Note 3 and Note 4, respectively.

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9. RELATED PARTY TRANSACTIONS AND BALANCES

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

9. RELATED PARTY TRANSACTIONS AND BALANCES

NOTE 9: RELATED PARTY TRANSACTIONS AND BALANCES

Payable to Related party

At June 30, 2014 and December 31, 2013, advances, net of repayments, made to the Company by the Chief Executive

Officer (“Officer”) for its working capital requirements amounted to $0 and $1,922, respectively. Amounts due to the Officer are unsecured, non-interest bearing and due on demand without specific repayment terms.

On June 1, 2013, the Company entered into a business consulting and marketing agreement with its non-executive director for a twelve month period at the rate of $2,500 per month. On May 1, 2014, the agreement was extended for a twelve month period at the rate of $5,000 per month. The Company recorded an expense of $12,500 and $20,000 as consulting fees for the three months and six months ended June 30, 2014.

The Company engages an entity owned by a director of the Company to be the operator on its oil and gas lease properties in Wilson County, Kansas. The Company has paid the operator $24,786 and $243,573 for lease operating expenses and administration for these oil and gas leases for the three months and six months ended June 30, 2014.

The Company paid $25,000 and $40,000 to a director for consulting and business advisory services for the three months and six months ended June 30, 2014. No payments were made during the three months and six months ended June 30, 2013.

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11. STOCKHOLDERS EQUITY

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

11. STOCKHOLDERS EQUITY

NOTE 11: STOCKHOLDERS' EQUITY

The Company’s authorized common shares and preferred shares at June 30, 2014 were 250,000,000 and 5,000,000 shares respectively, both with a par value of $0.0001 per share.

Common Stock

On February 1, 2014, the Company entered into a non-exclusive agreement with a third party consultant to develop, coordinate, manage and execute a comprehensive corporate finance and investor relations campaign for the Company for a six month period. The Company issued 300,000 shares of its common stock valued at $57,000 for such services. The common shares issued are valued at the closing price of stock on the effective date of the consulting agreement and the value is recorded as a prepaid expense to be amortized over the service period.

On January 13, 2014 and February 10, 2014, the Company converted $24,948 and $23,823 of its convertible debt (Convertible Note 2 - See Note 8) by issuance of 240,000 shares and 220,582 shares of its common stock valued at $0.10395 per share and $0.10800 per share, respectively (See Note 8). On March 26, 2014 and April 14, 2014, the Company converted $22,950 and $19,440 of its convertible debt (Convertible Note 3 – See Note 8) by issuance of 200,000 shares and 160,000 shares of its common stock valued at $0.11475 per share and $0.1215 per share (See Note 8).

On May 1, 2014, the Company entered into a business consulting agreement for a six month period with a third party to consult with the officers and employees concerning matters relating to the management and marketing of the Company. The Company issued 300,000 shares of its common stock valued at $54,000 for such services. The common shares issued are valued at the closing price of stock on the effective date of the consulting agreement and the value is recorded as a prepaid expense to be amortized over the service period.

On June 1, 2014, the Company entered into a business consulting agreement for a three month period with a third party to consult with the officers and employees concerning matters relating to the management and marketing of the Company. The Company issued 200,000 shares of its common stock valued at $32,000 for such services. The common shares issued are valued at the closing price of stock on the effective date of the consulting agreement and the value is recorded as a prepaid expense to be amortized over the service period.

Preferred stock

On April 1, 2014, the Company offered to sell pursuant to a private placement, under a Regulation S offering to non-US investors only, 1,500,000 Units to raise $7,500,000. The minimum investment in this offering is for 5,000 Units for $25,000. Each Unit consists of two (2) shares of Series A 7% Convertible Preferred Stock, par value $0.0001 per share and one (1) redeemable Class F Warrant of the Company to purchase ten (10) shares of common stock. Each share of Series A Preferred Stock pays a 7% annual dividend for the first year ending March 31, 2015 and thereafter, a 10% dividend payable, at the option the Company, in cash or in the Company’s common stock. Each Class F Warrant entitles the holder thereof to purchase, at any time until the expiration date of March 31, 2017, ten (10) shares of Common Stock at an exercise price of $0.30 per share, subject to adjustment. The Class F Warrants are redeemable by the Company, at a redemption price of $0.05 per Warrant, upon at least 30 days’ prior written notice, commencing six months after the date of this private placement, if the average of the closing bid price of the Common Stock, as reported on the Over-The-Counter or other exchange, shall equal or exceed $1.00 per share (subject to adjustment) for ten 910) consecutive business days prior to the notice of redemption. The Units are being offered on a “best effort basis” by the Company through its officers and directors and selected finders and broker/dealers.

As a result of all stocks, options and warrant issuances as of June 30, 2014, the Company had 73,806,448 shares of common stock issued and outstanding, 127,000 of preferred stock issued and outstanding, 3,000,000 stock options for conversion into common stock, 395,000 Class D Warrants, 7,500,000 Class E Warrants, and 7,653,420 Class F Warrants for conversion into common stock.

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4. OIL AND GAS PROPERTIES - Oil and Gas Properties (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Unproved Properties	$ 1,634,430	$ 1,599,430
Accumulated depletion	(13,292)	(6,697)
Impairment allowance	(133,500)	(133,500)
Unproved Properties, Net	1,487,638	1,459,233
Rogers County, Glass Lease [Member]
Type	Oil
Unproved Properties	221,000	221,000
Impairment allowance	123,778	123,778
Rogers County, Phillips Lease [Member]
Type	Oil
Unproved Properties	130,000	130,000
Rogers County, Nine Leases [Member]
Type	Oil
Unproved Properties	378,600	378,600
Chautauqua County, B&W Ranch Lease [Member]
Type	Oil
Unproved Properties	75,000	75,000
Chautauqua County, Charles & Nancy Smith Lease [Member]
Type	Oil
Unproved Properties	24,750	24,750
Chautauqua County, Lloyd & Patricia Fields Lease [Member]
Type	Oil
Unproved Properties	14,400	14,400
Chautauqua County, Rinck Lease [Member]
Type	Oil
Unproved Properties	24,750	24,750
Wilson County, Farwell, Puckett & Farwell-Eagle Lease [Member]
Type	Oil
Unproved Properties	251,208	251,208
Wilson County, Volunteer & Landers Lease
Type	Oil
Unproved Properties	470,000	470,000
Nowata County, Four Leases [Member]
Type	Oil
Unproved Properties	35,000
Shackelford County, Terry Heirs [Member]
Type	Oil
Unproved Properties	9,722	9,722
Impairment allowance	$ 9,722	$ 9,722

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Fair Value of Financial Instruments and Fair Value Measurements

			Fair Value Measurements at June 30, 2014
	Carrying Value at June 30, 2014 (Unaudited)		(Level 1) (Unaudited)		(Level 2) (Unaudited)		(Level 3) (Unaudited)
Mineral Properties	$	5,449	$	—	$	—	$	5,449
Warrant Liabilities	$	609,044	$	—	$	—	$	609,044
Embedded Conversion Option Liability	$	677,306	$	—	$	—	$	677,306

Fair Value of Financial Instruments and Fair Value Measurements - Level 3

Mineral Properties
Balance - December 31, 2013	$	38,143
Additions		—
Change in fair value		(32,694	)
Balance – June 30, 2014	$	5,449
Warrant Liabilities
Balance - December 31, 2013	$	912,215
Additions		—
Change in fair value		(303,171	)
Balance – June 30, 2014	$	609,044
Embedded Conversion Option Liability
Balance - December 31, 2013	$	809,716
Additions		—
Change in fair value		(187,847	)
Reclassification to equity		55,437
Balance – June 30, 2014	$	677,306

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8. CONVERTIBLE NOTES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Convertible Notes Payable

	June 30,			December 31,
	2014			2013
	(Unaudited)
Note payable to a third party, bearing one-time interest of 12%, one year term, due on June 5, 2014 (Convertible Note 2)	$	—		$	38,771
Note payable to a third party, bearing one-time interest of 12%, one year term, due on September 26, 2014 (Convertible Note 3)		13,165			55,555
Note payable to a third party, bearing interest of 8% per annum, due February 1, 2015 (Convertible Note 4)		924,000			1,232,000
Convertible notes payable		937,165			1,326,326
Less: unamortized debt discount		(606,877	)		(1,174,120	)
Convertible notes payable, net		330,288			152,206
Less: current portion		(330,288	)		(21,792	)
Convertible notes payable, non-current	$	—		$	130,414

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8. CONVERTIBLE NOTES PAYABLE - Convertible Notes Payable (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Convertible notes payable	$ 937,165	$ 1,326,326
Less: debt discount	(606,877)	(1,174,120)
Convertible notes payable, net	330,288	152,206
Less: current portion	(330,288)	(21,792)
Convertible notes payable, non-current		130,414
Convertible Note 2 [Member]
Convertible notes payable		38,771
Convertible Note 3 [Member]
Convertible notes payable	13,165	55,555
Convertible Note 4 [Member]
Convertible notes payable	$ 924,000	$ 1,232,000

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Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Reconciliation of net loss to net cash used in operating activities:
Net loss applicable to New Western Energy Corporation common stock	$ (1,751,199)	$ (894,479)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and depletion	25,188	15,573
Amortization of debt discount	711,714	130,026
Amortization of mineral property	32,694	32,694
Amortization of deferred debt issuance cost	99,758
Loss applicable to noncontrolling interest	(129,498)	(96,347)
Gain on sale of oil and gas property and related equipment		(77,594)
Change in fair value of embedded conversion option liability	(76,973)	124,325
Change in fair value of warrant liability	(303,171)
Changes in operating assets and liabilities:
Accounts receivable	(27,895)	287
Inventory	(49,240)	(29,938)
Prepaid expenses and other current assets	104,059	96,167
Other assets		(480)
Accounts payable	11,932	(22,994)
Accrued expenses	54,014	11,925
Net cash used in operating activities	(1,298,618)	(710,835)
Cash Flows From Investing Activities:
Cash paid for purchase of property and equipment	(31,065)	(152,868)
Cash proceeds from sale of oil and gas property and related equipment		410,000
Cash advanced towards a note receivable	(75,000)
Cash received towards a note receivable	10,000
Cash paid for expenses relating to sale of oil and gas property and related equipment		(99,680)
Cash paid for purchase and capitalized cost of oil and gas properties, net	(35,000)	(155,958)
Net cash (used in) provided by investing activities	(131,065)	1,494
Cash Flows From Financing Activities:
Cash received from sale of common stock and warrants		158,000
Cash received from sale of preferred stock	635,000
Cash paid for offering costs		(17,700)
Cash received from noncontrolling interest		650,000
Cash received from convertible promissory notes	20,000	500,000
Cash repayments for notes payable	(308,000)	(331,389)
Proceeds from related party advances		6,000
Repayments of related party advances	(1,922)	(48,500)
Net cash provided by financing activities	345,078	916,411
Net increase (decrease) in cash and cash equivalents	(1,084,605)	207,070
Cash and cash equivalents, beginning of the period	1,523,181	5,092
Cash and cash equivalents, end of the period	438,576	212,162
Cash paid for income taxes
Cash paid for interest	45,174	21,389
Supplemental disclosures of non-cash investing and financing activities:
Embedded conversion option liability		(185,430)
Debt discount		22,222
Reclassification of derivative Liability to equity		213,068
Promissory notes issued for lease purchases		120,000
Settlement of debt by issuance of common shares	91,161
Common shares issued to consultant as prepaid for services	143,000	97,000
Common shares issued to director as prepaid for services		$ 60,000

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5. MINERAL PROPERTIES

6 Months Ended

Jun. 30, 2014

Extractive Industries [Abstract]

5. MINERAL PROPERTIES

NOTE 5: MINERAL PROPERTIES

The Company’s aggregate capitalized costs related to mineral properties consist of the following:

Unproved Mineral Property
Name of Property	Type		June 30, 2014 (Unaudited)			December 31,  2013
Wellsboro Lease		Gravel	$	103,530		$	103,530
				103,530			103,530
Less: Accumulated depletion				—			—
				103,530			103,530
Less: Amortization				(98,081	)		(65,387	)
			$	5,449		$	38,143

The lease term of Wellsboro Lease expired on July 31, 2014. Since there was no production of minerals during the six months ended June 30, 2014 and 2013, no depletion expense relating to mineral properties has been recorded for the three months and six months ended as of June 30, 2014 and 2013. The Company has taken a conservative position to amortize the lease acquisition cost over the remaining term of the lease. The Company recorded amortization expense of $16,347 and $32,694 for the three months and six months ended June 30, 2014 and 2013, which is included in depreciation, depletion and amortization expenses in the consolidated financial statements. The Company has not started any gravel exploration on the Wellsboro Lease as of June 30, 2014.

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12. DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Investments, All Other Investments [Abstract]

Derivative Financial Instruments

Embedded Conversion Options
	Black-Scholes Model Assumptions
	For the Six Months Ended June 30, 2014
Volatility		117.66 - 159.82
Expected term		0.24 – 0.84 years
Risk free interest rate		0.13%

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6. NOTE RECEIVABLE (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Receivables [Abstract]
Cash advanced towards a note receivable	$ (75,000)
Cash received towards a note receivable	$ 10,000

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries New Western Gas Corporation, Royal Texan Energy Co. and New Western Operating LLC, and the Company’s 51% majority owned subsidiary 2013 NWE Drilling Program 1 LP. All intercompany balances and transactions are eliminated in consolidation.  

Noncontrolling Interest

Noncontrolling Interest

The Company accounts for its less than 100% interest in consolidated subsidiaries in accordance with Financial Accounting Standards Board - Accounting Standards Codification (“ASC”)   Topic 810, Consolidation , and accordingly, the Company presents noncontrolling interests as a component of equity on its unaudited condensed consolidated balance sheets and reports noncontrolling interest net income or loss under the heading “Net (income) loss applicable to noncontrolling interest in consolidated subsidiary” in the unaudited condensed consolidated statements of operations.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of marketable securities, valuation of accounts, notes and other receivables, valuation and purchase price allocation of assets acquired and liabilities assumed in business combinations, valuation of beneficial conversion features in convertible debt, valuation of derivatives, valuation of long-lived assets, goodwill and oil, gas and mineral properties, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Derivative Instruments

Derivative Instruments

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

Fair Value of Financial Instruments and Fair Value Measurements

Fair value of Financial Instruments and Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, notes payable, embedded conversion option liabilities, and amounts due to related parties. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Assets and liabilities measured at fair value on a recurring and non-recurring basis consist of the following at June 30, 2014:

			Fair Value Measurements at June 30, 2014
	Carrying Value at June 30, 2014 (Unaudited)		(Level 1) (Unaudited)		(Level 2) (Unaudited)		(Level 3) (Unaudited)
Mineral Properties	$	5,449	$	—	$	—	$	5,449
Warrant Liabilities	$	609,044	$	—	$	—	$	609,044
Embedded Conversion Option Liability	$	677,306	$	—	$	—	$	677,306

The following is a summary of activity of Level 3 assets and liabilities for the period ended June 30, 2014:

Mineral Properties
Balance - December 31, 2013	$	38,143
Additions		—
Change in fair value		(32,694	)
Balance – June 30, 2014	$	5,449
Warrant Liabilities
Balance - December 31, 2013	$	912,215
Additions		—
Change in fair value		(303,171	)
Balance – June 30, 2014	$	609,044
Embedded Conversion Option Liability
Balance - December 31, 2013	$	809,716
Additions		—
Change in fair value		(187,847	)
Reclassification to equity		55,437
Balance – June 30, 2014	$	677,306

Changes in fair value of the embedded conversion liability are included in other income (expense) in the accompanying unaudited consolidated statements of operations.

Revenue Recognition

Revenue Recognition

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

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

Net Earnings (Loss) Per Share

Net Earnings (Loss) Per Share

The Company computes net earnings (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted net earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2014, there were Class D, E and F Warrants outstanding for 15,548,420 common shares that if exercised, may dilute future earnings per share, 3,000,000 stock options outstanding awarded to employees and consultants, and there were convertible debt convertible into 4,926,888 common shares that may dilute future earnings per share.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

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