UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

S	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:

 For the quarterly period ended March 31, 2013

 

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

For the transition period from __________ to __________

 

Commission File Number: 000-51465

 

United American Petroleum Corp.

(Exact name of registrant as specified in its charter)

 

Nevada		20-1904354
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

9600 Great Hills Trail, Suite 150W, Austin, TX 78759

(Address of principal executive offices) (Zip Code)

 

(512) 852-7888

(Registrant’s Telephone Number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	£		Accelerated filer	£
Non-accelerated filer	£	(Do not check if a smaller reporting company)	Smaller reporting company	S

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes   S No

 

As of May 14, 2013, there were 50,339,543 shares of the issuer’s $.001 par value common stock issued and outstanding.

 

 

TABLE OF CONTENTS

 

PART I
FINANCIAL INFORMATION
			Page
Item 1.	Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		15
Item 4.	Controls and Procedures		15
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings		16
Item 1A.	Risk Factors		16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3.	Defaults Upon Senior Securities		16
Item 4.	Mine Safety Disclosures		16
Item 5.	Other Information		16
Item 6.	Exhibits		17

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

UNITED AMERICAN PETROLEUM CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

 

		MARCH 31,				DECEMBER 31,
		2013				2012
ASSETS
CURRENT ASSET
Cash		$	760,630			$	572,784
Accounts receivable			155,703				133,258
Related party receivables			25,321				13,196
Total current assets			941,654				719,238
Oil and gas properties (full cost method):
Evaluated, net of accumulated depletion of $155,484 and $137,120 as of March 31, 2013 and December 31, 2012, respectively			1,035,958				1,054,322
Unevaluated			261,975				261,975
TOTAL ASSETS		$	2,239,587			$	2,035,535
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities		$	437,077			$	407,284
Convertible note payable, net of discount of $46,110 and $0 as of March 31, 2013 and December 31, 2012, respectively			112,390				—
Embedded derivative liability			223,302				—
Other payable			602,994				451,939
Total current liabilities			1,375,763				859,223
Asset retirement obligation			70,316				69,316
TOTAL LIABILITIES			1,446,079				928,539
STOCKHOLDERS’ DEFICIT
Preferred Stock, Series B, $0.001 par value, 1,000 shares authorized, 1,000 shares issued and 1,000 share outstanding and no shares issued and outstanding, respectively			1				1
Common stock, $0.001 par value, 100,000,000 shares authorized, 50,339,542 shares issued and 50,339,542 shares outstanding, respectively			50,340				50,339
Additional paid-in capital			8,115,477				8,313,299
Accumulated deficit			(7,372,310	)			(7,256,643	)
Total stockholders’ deficit			793,508				(1,106,996	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	2,239,587			$	2,035,535

 

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

 

 

UNITED AMERICAN PETROLEUM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

		FOR THREE MONTHS ENDED MARCH 31, 2013				FOR THREE MONTHS ENDED MARCH 31, 2012
REVENUE
Oil and Gas sales		$	130,346			$	38,633
Operator Income			6,050				21,193
TOTAL REVENUE			136,396				59,826
OPERATING EXPENSES (INCOME)
Lease operating expenses			75,461				77,608
Accretion expense			1,000				1,971
Depletion expense			18,364				13,380
General and administrative			164,505				159,923
TOTAL OPERATING EXPENSES			259,330				252,882
NET LOSS BEFORE OTHER EXPENSE			(122,934	)			(193,056	)
OTHER INCOME (EXPENSE)
Interest Expense			(17,252	)			(95,255	)
Gain (Loss) on embedded derivatives			24,520				(3,865,685	)
Total Other Income (Expense)			7,268				(3,960,940	)
NET INC (LOSS)		$	(115,666	)		$	(4,153,996	)
INCOME (LOSS) PER SHARE - BASIC			(0.00	)			(0.09	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC			50,339,543				44,000,000
INCOME (LOSS) PER SHARE - DILUTED			(0.00	)			(0.09	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED			50,339,543				44,000,000

 

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

 

 

UNITED AMERICAN PETROLEUM CORP.

CONSOLIDATED STATEMENTS OF CASH FLOW

UNAUDITED

		FOR THE THREE MONTHS ENDED				FOR THE TWELVE MONTHS ENDED
		MARCH 31, 2013				MARCH 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)		$	(115,666	)		$	(4,153,996	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depletion expense			18,364				13,380
Accretion expense			1,000				1,971
Amortization of debt discount			8,890				38,887
Loss (Gain) on embedded derivatives			(24,520	)			3,865,685
Change in assets and liabilities
(Increase) in accounts receivable			(22,445	)			(64,274	)
(Increase) in prepaid expenses			—				(10,073	)
Decrease in related party receivable			(12,125	)			25,718
Other receivable			—				(27,790	)
Accounts payable and accrued expenses			29,793				226,707
Increase in related party payable			—				91,970
Other payable			151,055				9,090
Net cash (used in) operating activities			34,346				17,275
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of oil and gas properties			—				(212,292	)
Net cash used in investing activities			—				(212,292	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes			153,500				400,000
Net cash provided by financing activities			153,500				400,000
NET INCREASE IN CASH AND CASH EQUIVALENTS			187,846				204,983
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD			572,784				593,469
CASH AND CASH EQUIVALENTS - END OF PERIOD		$	760,630			$	798,452
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	—			$	—
Taxes		$	—			$	—
NON CASH TRANSACTIONS:
Discount from derivative liabilities		$	55,000			$	400,000
Discount to additional paid-in capital from relative fair value of warrants		$	—			$	192,207
Reclassification of derivative liabilities from additional paid in capital		$	197,821			$	—

 

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

 

 

1.      Nature of Operations and Basis of Presentation

 

Nature of Operations

 

United American Petroleum Corp. was incorporated under the laws of the state of Nevada (“United”). United’s principal business was the acquisition and management of leasehold interests in petroleum and natural gas rights, either directly or indirectly, and the exploitation and development of properties subject to these leases.

 

Basis of Presentation

 

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim consolidated financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8 of SEC Regulation S-X. The principles for interim consolidated financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements on Form 10-K for the year ended December 31, 2012. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair statement of the condensed results for the interim periods. Operating results for the three month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. We made certain reclassifications to prior-period amounts to conform to the current presentation.

 

2.      Going Concern

 

The Company has incurred a net loss and negative operating cash flows since inception through March 31, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s management is implementing plans to sustain the Company’s cash flow from operating activities and/or acquire additional capital funding. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

3.      Reclassification

 

In accordance with the SEC’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company recorded a reclassification adjustment for the three months ended March 31, 2012 of $145,726 which served to reduce Administrative income, Lease operating expenses and General & Administrative expenses. This non-cash adjustment resulted from incorrectly recognizing revenue for administrative income collected from third party working interest owners of properties that were partially owned by the Company. As a result of the Company’s evaluation of this error under SAB 108, the Company determined that this error was not material in relation to the current year, but not material to the year ended March 31, 2012. Consequently, the March 31, 2012 income statement was adjusted to reflect the correction of this error. In evaluating materiality and determining the appropriateness of applying SAB 108 to this error, the Company considered materiality both qualitatively and quantitatively as prescribed by the SEC’s Staff Accounting Bulletin No. 99. The table noted below reflects the impact of the above error to the consolidated statements of operations as of and for the three months ended March 31, 2012.

 

Certain amounts disclosed in prior periods have been reclassified to conform to current presentation. Such reclassifications are for presentation purposes only and have no effect on the Company’s net loss or financial position in any of the periods presented.

 

 

A summary of these changes by category is as follows:

 

						Reclassification				Adjusted
		March 31,				of Previously				March 31,
		2012				Reported Activity				2012
Oil and Gas sales			38,633								38,633
Well Operator Income			52,254				(31,061	)			21,193
TOTAL REVENUE			90,887				(31,061	)			59,826
OPERATING EXPENSES (INCOME)
Lease operating expenses			101,073				(23,465	)			77,608
Accretion expense			1,971								1,971
Depletion expense			13,380								13,380
General and administrative			167,519				(7,596	)			159,923
TOTAL OPERATING EXPENSES			283,943				(31,061	)			252,882
NET LOSS BEFORE OTHER EXPENSE			(193,056	)			—				(193,056	)
OTHER INCOME (EXPENSE)
Interest Expense			(95,255	)							(95,255	)
Gain (Loss) on embedded derivatives			(3,865,685	)							(3,865,685	)
NET INCOME (LOSS)			(4,153,996	)			—				(4,153,996	)

 

4.      Related Party Transactions

 

As of March 31, 2013 and December 31, 2012, the Company had a related party receivables of $25,321 and $13,196, respectively, related to working interest amounts payable. Our directors are also officers in the Company.

 

5.      Fair Value Measurements and Derivative Liabilities

 

The Company measures fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

	Level 1		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
	Level 2		Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
	Level 3		Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

During 2013, the Company issued debt instruments that were convertible into common stock at a conversion price equal to 60% of the lowest trading price per share during the previous 25 trading days. See Note 6. The conversion options embedded in these instruments contain no explicit limit to the number of shares to be issued upon settlement and as a result are classified as liabilities under ASC 815. Additionally, because the number of shares to be issued upon settlement is indeterminate, all other share settle-able instruments must also be classified as liabilities. As a result, the Company measured its outstanding warrants on January 31, 2013 at fair value and re-classified these amounts from additional paid-in capital to derivative liabilities.

 

 

The following is a reconciliation of the conversion option liability and embedded warrant liability for which Level 3 inputs were used in determining fair value:

 

Beginning balance January 1, 2013		$	—
Initial recognition of debt derivative from issuance of January 31, 2013, $55,000 convertible note			139,295
Reclassification of derivative liabilities from additional paid in capital			197,821
Mark to market of debt derivative			(113,814	)
Debt derivative as of March 31, 2013		$	223,302

 

During the three months ended March 31, 2013, the gain on embedded derivatives in the condensed consolidated statement of operations of $24,520 consisted of a gain on the change in fair value of $62,888 above, a loss of $84,295 which was the amount by which the embedded derivative liabilities exceeded the principal of the related notes payable on the date the notes were issued.

 

The Company’s conversion option liabilities are valued using pricing models and the Company generally uses similar models to value similar instruments. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility and correlations of such inputs. These consolidated financial liabilities do not trade in liquid markets, and as such, model inputs cannot generally be verified and do involve significant management judgment. Such instruments are typically classified within Level 3 of the fair value hierarchy. The Company uses the Black Scholes Option Pricing Model to value its derivatives based upon the following assumptions: dividend yield of -0-%, volatility of 129.70-143.41%, risk free rate of 0.14-0.42% and an expected term of 0.50 to 1 year.

 

6.      Convertible Note Payable

 

Credit Facility – January 31, 2013

 

On January 31, 2013, we entered into a Note Purchase Agreement with an investor pursuant to which the investor agreed to lend the Company up to $400,000 in multiple installments in exchange for a senior secured convertible promissory note with a conversion price equal to 60% of the lowest trading price per share during the previous 25 trading days. The first installment of $55,000 was delivered less a fee of $5,000 on the date of the Purchase Agreement. The notes mature on January 31, 2014, or upon default, whichever is earlier and bear interest at an annual rate of 12%. As described in Note 5, the embedded conversion feature qualified for liability classification at fair value. As a result, the Company recorded a full discount of $55,000 to the note payable on issuance.

 

 Credit Facility – February 19, 2013

 

On February 19, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant to which the investor lent $103,500 to us in a single installment in exchange for a convertible promissory note with a conversion price equal to the average lowest trading price per share during the previous 10 trading. The embedded conversion option cannot be exercised until 180 days from the date of the note and as such, will not be priced until exercisable. The total number of conversion shares is calculated by dividing the amount of the notes by the conversion price.

 

 

Notes issued in 2013

 

		January 31, 2013				February 19, 2013				Total
Total Proceeds		$	55,000			$	103,500			$	158,500
Allocated to:
Conversion Option Liability			139,295				—				139,295
Debt Discount			(55,000	)			—				(55,000	)
Loss on debt derivative		$	84,295			$	—			$	84,295

 

During the three months ended March 31, 2013, the Company amortized $8,890 of the debt discount to interest expense.

 

7.      Subsequent Events

 

Subsequent to the date of this report, the Company obtained $25,000 of funding related to the credit facility entered into on January 31, 2013 and $65,000 of funding related to the credit facility entered into on February 19, 2013.

 

 

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

 

Forward Looking Statements

 

This Quarterly Report of United American Petroleum Corp. on Form 10-Q contains forward-looking statements, particularly those identified with the words “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis and Plan of Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Quarterly Report on Form 10-Q. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guarantee, or warranty is to be inferred from those forward-looking statements.

 

The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

 

Critical Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in this Quarterly Report on Form 10-Q for the period ended March 31, 2013.

 

Oil and Gas Properties

 

The Company follows the full cost method of accounting for its investments in oil and gas properties. Under the full cost method, all costs associated with the exploration of properties are capitalized into appropriate cost centers within the full cost pool. Internal costs that are capitalized are limited to those costs that can be directly identified with acquisition, exploration, and development activities undertaken and do not include any costs related to production, general corporate overhead, or similar activities. Cost centers are established on a country-by-country basis.

 

Capitalized costs within the cost centers are amortized on the unit-of-production basis using proved oil and gas reserves. The cost of investments in unproved properties and major development projects are excluded from capitalized costs to be amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such a determination is made, the properties are assessed annually to ascertain whether impairment has occurred. The costs of drilling exploratory dry holes are included in the amortization base immediately upon determination that the well is dry.

 

 

For each cost center, capitalized costs are subject to an annual ceiling test, in which the costs shall not exceed the cost center ceiling. The cost center ceiling is equal to i) the present value of estimated future net revenues computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus ii) the cost of properties not being amortized; plus iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less iv) income tax effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a cost center, less related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately disclosed during the period in which the excess occurs.

 

Share-Based Compensation

 

The Company accounts for share-based compensation in accordance with Accounting Standards Codification subtopic 718-10, Stock Compensation (“ASC 718-10”). This requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.

 

As of March 31, 2013, there were no outstanding employee stock options.

 

Recent Accounting Pronouncements

 

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

 

Overview. United American Petroleum Corp. (“we” or the “Company”), formerly Forgehouse, Inc., was incorporated in the State of Nevada on November 19, 2004. On December 31, 2010, we entered into and closed an Agreement and Plan of Merger (“Merger Agreement”) with our then newly formed wholly-owned subsidiary, United PC Acquisition Corp., a Nevada corporation (“Merger Sub”), and United American Petroleum Corp., a Nevada Corporation (“United”) (the “Merger Transaction”), pursuant to which Merger Sub merged with and into United with United surviving, making United our new wholly-owned subsidiary. Immediately thereafter and pursuant to the Merger Agreement, United merged with and into the Company, with the Company surviving and we changed our name to “United American Petroleum Corp.” In connection with the Merger Transaction, we assumed all of United’s contractual obligations and acquired certain oil and gas properties of United located in Texas. The Merger Transaction was deemed to be a reverse acquisition, where the Company (the legal acquirer) is considered the accounting acquiree and United (the legal acquiree) is considered the accounting acquirer. The Company is deemed a continuation of the business of United, and the historical financial statements of United became the historical financial statements of the Company.

 

Recent Events.

 

On October 11, 2012, the Company filed with the Nevada Secretary of State, a Certificate of Designations, Establishing the Designations, Preferences, Limitations and Relative Rights of Its Series B Preferred Stock (the “Designation”). The Designation, which was approved by the Board of Directors on October 9, 2012 and authorized under the Company’s Articles of Incorporation, which provides the Board of Directors the right to designate series of preferred stock, provided for the designation of a series of 1,000 shares of Series B Preferred Stock, par value $0.001 (the “Series B Preferred Stock”). The Series B Preferred Stock have no dividend rights, no liquidation preference, no redemption rights and no conversion rights. The Series B Preferred Stock have the right, voting in aggregate, to vote on all shareholder matters (including, but not limited to at every meeting of the stockholders of the Company and upon any action taken by stockholders of the Company with or without a meeting) equal to fifty-one percent (51%) of the total vote (the “Super Majority Voting Rights”). Additionally, we are not allowed to adopt any amendments to our Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of the Series B Preferred Stock.

 

 

No shares of the Company’s newly designated Series B Preferred Stock have been issued.

 

The Company also filed a Certificate of Withdrawal with the Secretary of State of Nevada on October 11, 2012, which terminated its previous designation of Series A Convertible Preferred Stock, of which no shares were outstanding as of such termination.

 

Our Business. We are an exploration company engaged in the acquisition, exploration, development and production of oil and gas properties. Our principal business is the acquisition of leasehold interests in petroleum and natural gas rights, either directly or indirectly, and the exploitation and development of properties subject to these leases. Our primary focus is to develop our properties that have potential for near-term production. We also provide operational expertise for several third-party well owners out of our operation base in Austin, Texas. We currently have proved reserves in the State of Texas.

 

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the period ended March 31, 2013, together with notes thereto, which are included in this Quarterly Report.

 

Results of Operations for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012.

 

Revenues. We had total revenues of $136,396 for the three months ended March 31, 2013, which were generated from oil and gas sales of $130,346 and administrative revenue of $6,050. This was a $91,713 increase from total revenues of $90,887 for the three months ended March 31, 2012, which were generated from oil and gas sales of $38,633 and administrative revenue of $52,254.

 

Our administrative revenue increase was a result of income derived from well administrative fees charged through United Operating, LLC, our wholly-owned subsidiary, to third party well owners for managing and accounting for the development and production of their oil and gas property interests.

 

The following table sets forth the revenue and production data for the three months ended March 31, 2013 and 2012.

 

		THREE MONTHS ENDED MARCH 31, 2013				THREE MONTHS ENDED MARCH 31, 2012				INCREASE (DECREASE)				% INCREASE (DECREASE)
REVENUES
Oil and Gas Revenues		$	130,346			$	38,633			$	91,713				237	%
Administrative revenues			6,050				21,193				(15,143	)			(71	)%
Total Revenues		$	136,396			$	59,826			$	76,570				128	%
PRODUCTION:
Total production (BOE)			1,460				456				1,004				220	%
BOPD			4.00				1.25				2.75				220	%
AVERAGE SALES PRICES:
Price per BOE		$	89.28			$	84.63			$	4.65				5	%

 

For the three months ended March 2013, we increased total barrels of oil equivalent (BOE) produced by 220% over the same period in the prior year. For the three months ended March 31, 2013 and 2012, total BOE produced was 1,460 and 456, respectively. The increase in oil and gas production and revenues is primarily related to production increases on the Lozano, McKenzie, and Welder properties. The Company conducted workover procedures on these properties during 2012 which has yielded significant increases in production for the current year’s period over the prior year’s period.

 

 

During the three months ended March 31, 2013, we increased our barrels of oil per day (BOPD) produced to an average of 4.00 BOPD from 1.25 BOPD for the three months ended March 31, 2012.

 

Operating Expenses. For the three months ended March 31, 2013, our total operating expenses were $279,564, which consisted of lease operating expenses of $75,461, accretion expense of $1,000, depletion expense of $18,364, amortization expense of 20,233, and general and administrative expenses of $164,505. By comparison, for the three months ended March 31, 2012, our total operating expenses were $283,943, which consisted of lease operating expenses of $101,073, accretion expense of $1,971, depletion expense of $13,380, and general and administrative expenses of $167,519.

 

The following table sets forth information relating to our operating expenses for the three months ended March 31, 2013 and 2012.

 

		THREE MONTHS ENDED MARCH 31, 2013				THREE MONTHS ENDED MARCH 31, 2012				INCREASE (DECREASE)				% INCREASE (DECREASE)
LEASE OPERATING EXPENSES
Lease and well operating expenses		$	48,363			$	61,449			$	(13,086	)			(21	%)
Workover expenses			23,313				6,639				16,674				251	%
Legal, title and administrative well expenses			3,785				9,520				(5,735	)			(60	%)
Total Lease Operating Expenses		$	75,461			$	77,608			$	(2,147	)			(2.8	%)
DEPRECIATION AND ACCRETION EXPENSE
Depreciation and Accretion expense			19,364				15,351				4,013				26.1	%
GENERAL AND ADMINISTRATIVE EXPENSE
Public reporting and compliance related expense			79,211				50,478				28,733				57	%
Employee and officer expenses			49,000				62,382				(13,382	)			(21	%)
Other general and administrative expenses			36,294				47,063				(10,769	)			(23	%)
Total General and Administrative Expenses		$	164,505			$	159,923			$	4,582				2.9	%

 

For the three months ended March 31, 2013 compared to the three months ended March 31, 2012, we incurred decreases in lease and well operating expenses of $13,086 or 21% related to the properties acquired in 2012 and increases in production activities on our properties. During the three months ended March 31, 2013, we worked over the McKenzie property resulting in an increase to workover expenses of $16,674 or 251%, from the prior period.

 

During the three months ended March 31, 2013 compared to the three months ended March 31, 2012, our depreciation and accretion expenses increased by $4,013or 26.1% due to an increase in our production and producing properties.

 

The increase in general and administrative expenses of $4,582 or 2.9% during the three months ended March 31, 2013, compared to the prior period, was largely due to increases in public reporting and compliance related expenses. This increase is directly attributable to our cost of operating as a public company.

 

 

Net Operating Loss. For the three months ended March 31, 2013, our total net operating loss was $183,870 as compared to a net operating loss of $193,056 for the three months ended March 31, 2013, a decrease of $9,186 or 5% from the prior period. Our net operating decreased over the prior period due to increases in oil and gas sales.

 

Other Income (Expense). For the three months ended March 31, 2013, we had interest income of $8,361 associated with the conversion of certain of our previously outstanding convertible promissory notes during the period, compared to interest expense of $95,255 for the three months ended March 31, 2012, relating to our outstanding convertible promissory notes. 

 

Net Income (Loss). For the three months ended March 31, 2013, our net loss was $115,666, as compared to a net loss of $4,153,996 for the three months ended March 31, 2012, a decrease in net loss of $4,038,330 or 97% from the prior period.

 

Liquidity and Capital Resources. During the three months ended March 31, 2013, we used $34,345 in operations, $0 in investing activities, related solely to property acquisitions and received $153,500 of cash from financing activities, related directly to proceeds on convertible notes. Our convertible notes are described below.

 

Third Note. On January 31, 2013, we entered into a credit facility with one investor, whereby the investor agreed to lend up to $400,000 to us in multiple installments in exchange for senior secured convertible promissory notes with a conversion price equal to 60% of the lowest trading price per share during the previous 25 trading days. The note is due on January 31, 2014, or upon default, whichever was earlier, and accrued interest at the annual rate of 12%. The total number of conversion shares are calculated by dividing the amount of the notes by the conversion price. Pursuant to the credit facility, we issued the following notes to the investor on the following dates:

 

Date of Note			Amount of Note
January 31, 2013		$	55,000
TOTAL		$	55,000

 

The agreement provided that the investor would lend additional amounts to us in installments at their discretion.

 

Fourth Note. On February 19, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant to which the investor lent $103,500 to us in a single installment in exchange for a convertible promissory note with a conversion price equal to the average lowest trading price per share during the previous 10 trading days (the “Second Notes”). The total number of conversion shares are calculated by dividing the amount of the notes by the conversion price.

 

As of March 31, 2013, we had total current assets of $941,653, consisting of cash of $760,630, accounts receivable of $155,703, related party receivable of $25,321.

 

As of March 31, 2013, we had a working capital deficit of $19,303 and  an accumulated deficit of $7,435,367.

 

In the opinion of management, available funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. If we do not raise additional capital, then we may not be able to conduct oil and gas exploration and development activities and expand our operations. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could differ as a result of a number of factors. In addition to generating revenues from our current operations, we will need to raise additional capital to expand our operations to the point at which we are able to operate profitably.

 

 

We have been, and intend to continue, working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders. Moreover, in the event that we can raise additional funds, we cannot guarantee that additional funding will be available on favorable terms. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows.

 

If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or to obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued operations and our expansion efforts with respect to our properties.

 

During the remainder of 2012 and through 2013, we expect that the following will continue to impact our liquidity: (i) legal and accounting costs of being a public company; (ii) expected expenses related to the exploration and development of our properties; (iii) expected expenses related to repair and maintenance costs on wells that are currently producing and (iv) anticipated increases in overhead and the use of independent contractors for services to be provided to us. We will need to obtain funds to pay those expenses. Other than those items specified above, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.

 

We are in the exploration stage, have limited revenue and have incurred net losses to date. These factors raise substantial doubt about our ability to continue as a going concern. No assurances can be given that we will obtain sufficient working capital to sustain ongoing operations. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We are not currently conducting any research and development activities. We do not anticipate conducting such activities in the near future. In the event that we expand our operations, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment. Our management believes that we do not require the services of independent contractors to operate at our current level of activity. However, if our level of operations increases beyond the level that our current staff can provide, then we may need to supplement our staff in this manner.

 

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements as of March 31, 2013.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

Item 4. Controls and Procedures.

 

Evaluation of disclosure controls and procedures. We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officer, to allow timely decisions regarding required disclosures. Based upon the evaluation by our principal executive and principal financial officer, of those controls and procedures, performed as of the end of the period covered by this report, our principal executive and principal financial officer concluded that our disclosure controls and procedures were not effective due to our over reliance on consultants in our accounting and financial statement closing processes. To address the need for more effective internal controls, management has plans to improve the existing controls and implement new controls as our financial position and capital availability improves.

 

Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, we may be party to various legal proceedings. We do not currently expect that any currently pending legal proceedings will have a material adverse effect on our business, results of operations or financial condition.

 

Item 1A. Risk Factors.

 

There have been no material changes from the risk factors previously disclosed in the Company’s Form 10-K/A filed with the Commission on October 19, 2012, which risk factors are incorporated by reference herein, and investors are encouraged to read and review the risk factors included in the Form 10-K prior to making an investment in the Company.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

The information set forth below is included herewith for the purpose of providing the disclosures required under “Item 3.03 – Material Modification to Rights of Security Holders” and “Item 5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year” of Form 8-K.

 

As described above under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Recent Events”, on October 11, 2012, the Company filed with the Nevada Secretary of State, a Certificate of Designations, Establishing the Designations, Preferences, Limitations and Relative Rights of Its Series B Preferred Stock (the “Designation”). The Designation, which was approved by the Board of Directors on October 9, 2012 and authorized under the Company’s Articles of Incorporation, which provides the Board of Directors the right to designate series of preferred stock, provided for the designation of a series of 1,000 shares of Series B Preferred Stock, par value $0.001 (the “Series B Preferred Stock”). The Series B Preferred Stock have no dividend rights, no liquidation preference, no redemption rights and no conversion rights. The Series B Preferred Stock have the right, voting in aggregate, to vote on all shareholder matters (including, but not limited to at every meeting of the stockholders of the Company and upon any action taken by stockholders of the Company with or without a meeting) equal to fifty-one percent (51%) of the total vote (the “Super Majority Voting Rights”). Additionally, we are not allowed to adopt any amendments to our Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of the Series B Preferred Stock. No shares of the Company’s newly designated Series B Preferred Stock have been issued.

 

The Company also filed a Certificate of Withdrawal with the Secretary of State of Nevada on October 11, 2012, which terminated its previous designation of Series A Convertible Preferred Stock, of which no shares were outstanding as of such termination.

 

 

Item 6. Exhibits.

 

31.1	Certification of Principal Executive and Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (1)
32.1	Certification of Principal Executive and Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101.ins*	XBRL Instance Document (1)
101.sch*	XBRL Taxonomy Schema Document (1)
101.cal*	XBRL Taxonomy Calculation Linkbase Document (1)
101.lab*	XBRL Taxonomy Label Linkbase Document (1)
101.pre*	XBRL Taxonomy Presentation Linkbase Document (1)
(1)          Filed herewith.

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

SIGNATURES

 

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

 

	United American Petroleum Corp., a Nevada corporation
Date: May 14, 2012	By:	/s/ Michael Carey
		Michael Carey
		Chief Executive Officer, Chief Financial Officer, President, Treasurer and a director (Principal Executive and Financial Officer)

 

 

Exhibit Index

 

31.1	Certification of Principal Executive and Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (1)
32.1	Certification of Principal Executive and Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101.ins*	XBRL Instance Document (1)
101.sch*	XBRL Taxonomy Schema Document (1)
101.cal*	XBRL Taxonomy Calculation Linkbase Document (1)
101.lab*	XBRL Taxonomy Label Linkbase Document (1)
101.pre*	XBRL Taxonomy Presentation Linkbase Document (1)
(1)          Filed herewith.

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

19