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EXCEL - IDEA: XBRL DOCUMENT - United American Petroleum Corp. | Financial_Report.xls |
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - United American Petroleum Corp. | ex-31_1.htm |
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - United American Petroleum Corp. | ex-32_1.htm |
AMENDMENT NO. 1
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
For the quarterly period ended September 30, 2013
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
For the transition period from ____to____
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United
American Petroleum Corp.
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(Exact name of registrant as specified in its charter) |
Nevada
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20-1904354
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(State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification No.) |
9600 Great Hills Trail, Suite 150W, Austin, TX 78759
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(Address of principal executive offices) (Zip Code) |
(512) 852-7888
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(Registrant’s Telephone Number, including area code) |
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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EXPLANATORY NOTE
United American Petroleum Corp. (the “Registrant”) is filing this Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) to amend the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013, which the Registrant previously filed with the Securities and Exchange Commission (“SEC”) on November 19, 2013 (the “Original Filing”). The Original Filing was not reviewed by the Company’s independent register public accounting firm. However, this Form 10-Q filing was reviewed by the Company’s independent register public accounting firm and the firm’s report is contained herein. This Amendment No. 1 is filed to correct and update certain disclosure items. This Amendment No. 1 therefore supersedes the Original Filing in its entirety.
PART I
FINANCIAL INFORMATION
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders of United American Petroleum Corporation
We have reviewed the condensed balance sheet of United American Petroleum Corporation as of September 30, 2013, and the related statements of operations for the three and nine months ended September 30, 2013 and 2012, and statements of cash flows for the nine months ended September 30, 2013 and 2012. These financial statements are the responsibility of the company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the balance sheet of December 31, 2012 and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended (not presented herein); and in our report dated April 16, 2013, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 2012, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
MaloneBailey, LLP
Houston, Texas
November 21, 2013
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SEPTEMBER 30, | DECEMBER 31, | |||||||
2013 | 2012 | |||||||
ASSETS | ||||||||
CURRENT ASSET | ||||||||
Cash | $ | 624,267 | $ | 572,784 | ||||
Accounts receivable | 259,459 | 133,258 | ||||||
Related party receivables | 23,771 | 13,196 | ||||||
Total current assets | 907,497 | 719,238 | ||||||
Oil and gas properties (full cost method): | ||||||||
Evaluated, net of accumulated depletion of $301,742 and $137,120 as of September 30, 2013 and December 31, 2012, respectively | 963,701 | 1,054,322 | ||||||
Unevaluated | 261,975 | 261,975 | ||||||
TOTAL ASSETS | $ | 2,133,173 | $ | 2,035,535 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued liabilities | 481,505 | 407,284 | ||||||
Convertible note payable, as of September 30, 2013 and December 31, 2012, respectively | 224,409 | — | ||||||
Embedded derivative liability | 236,988 | — | ||||||
Other payable | 592,524 | 451,939 | ||||||
Total current liabilities | 1,535,426 | 859,223 | ||||||
Asset retirement obligation | 53,671 | 69,316 | ||||||
TOTAL LIABILITIES | 1,589,097 | 928,539 | ||||||
STOCKHOLDERS' DEFICIT | ||||||||
Preferred Stock, Series B, $0.001 par value, 1,000 shares authorized, 1,000 shares issued and 1,000 shares outstanding and no shares issued and outstanding, respectively | 1 | 1 | ||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 53,335,367 and 50,339,442 shares issued and outstanding as of September 30 2013, and December 31 2012 | 55,335 | 50,339 | ||||||
Additional paid-in capital | 8,298,137 | 8,313,299 | ||||||
Accumulated deficit | (7,809,397 | ) | (7,256,643 | ) | ||||
Total stockholders' deficit | 544,076 | 1,106,996 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 2,133,173 | 2,035,535 | |||||
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FOR THE THREE | FOR THE THREE | FOR THE NINE | FOR THE NINE | |||||||||||||
MONTHS ENDED | MONTHS ENDED | MONTHS ENDED | MONTHS ENDED | |||||||||||||
SEPTEMBER 30, 2013 | SEPTEMBER 30, 2012 | SEPTEMBER 30, 2013 | SEPTEMBER 30, 2012 | |||||||||||||
REVENUE | ||||||||||||||||
Oil and Gas sales | $ | 106,634 | $ | 194,723 | $ | 475,145 | $ | 376,140 | ||||||||
Operating Income | 5,250 | 19,298 | 21,450 | 55,564 | ||||||||||||
TOTAL REVENUE | 111,884 | 214,021 | 496,595 | 431,704 | ||||||||||||
OPERATING EXPENSES (INCOME) | ||||||||||||||||
Lease operating expenses | 82,518 | 98,023 | 354,930 | 320,467 | ||||||||||||
Accretion expense | 1,000 | 1,757 | 3,000 | 5,271 | ||||||||||||
Depletion expense | 14,769 | 21,922 | 89,022 | 57,224 | ||||||||||||
General and administrative | 156,042 | 251,120 | 423,590 | 637,047 | ||||||||||||
TOTAL OPERATING EXPENSES | 254,329 | 372,822 | 870,542 | 1,020,009 | ||||||||||||
NET LOSS BEFORE OTHER EXPENSE | (142,445 | ) | (158,801 | ) | (373,947 | ) | (588,305 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest Income (Expense) | (193,956 | ) | 21,548 | (274,895 | ) | (2,252,939 | ) | |||||||||
Gain (Loss) on embedded derivatives | 29,186 | — | 96,088 | (3,030,218 | ) | |||||||||||
Total other Income (Expense) | (164,770 | ) | 21,548 | (178,807 | ) | (5,283,157 | ) | |||||||||
NET INCOME (LOSS) | $ | (307,215 | ) | $ | (137,253 | ) | $ | (552,754 | ) | $ | (5,871,462 | ) | ||||
INCOME (LOSS) PER SHARE - BASIC | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.13 | ) | ||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC | 51,010,765 | 50,034,543 | 50,565,742 | 46,803,104 | ||||||||||||
INCOME (LOSS) PER SHARE - DILUTED | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.13 | ) | ||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED | 51,010,765 | 50,034,543 | 50,565,742 | 46,803,104 | ||||||||||||
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FOR THE | FOR THE | |||||||
NINE MONTHS ENDED | NINE MONTHS ENDED | |||||||
SEPTEMBER 30, 2013 | SEPTEMBER 30, 2012 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) | $ | (552,754 | ) | $ | (5,871,462 | ) | ||
Adjustments to reconcile net loss | ||||||||
to net cash used in operating activities: | ||||||||
Depletion expense | 89,022 | 57,224 | ||||||
Accretion expense | 3,000 | 5,271 | ||||||
Amortization of debt discount and non-cash interest expense | 274,895 | 2,176,996 | ||||||
Loss (Gain) on embedded derivatives | (96,088 | ) | 3,030,218 | |||||
Change in assets and liabilities | ||||||||
Accounts receivable | (126,201 | ) | (39,840 | ) | ||||
Related party receivable | (10,575 | ) | (3,799 | ) | ||||
Other receivable | — | 160,302 | ||||||
Prepaid expenses | — | (8,394 | ) | |||||
Accounts payable and accrued expenses | 74,221 | 179,316 | ||||||
Accrued interest | — | (9,425 | ) | |||||
Other payable | 116,516 | — | ||||||
Net cash (used in) operating activities | (227,964 | ) | (323,593 | ) | ||||
CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||
Acquisition of oil and gas properties | — | (274,527 | ) | |||||
Net cash used in investing activities | — | (274,527 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from convertible notes | 279,447 | 615,000 | ||||||
Net cash provided by financing activities | 279,447 | 615,000 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 51,483 | 16,880 | ||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 572,784 | 593,469 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 624,267 | $ | 610,349 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | — | $ | — | ||||
Taxes | $ | — | $ | — | ||||
NON CASH TRANSACTIONS: | ||||||||
Conversion of convertible notes payable | $ | 117,656 | $ | 2,800,000 | ||||
Conversion of accrued interest | $ | — | $ | 217,272 | ||||
Discount from derivative liabilities | $ | 210,250 | $ | 615,000 | ||||
Discount to additional paid-in capital from relative fair value of warrants | $ | — | $ | 289,520 | ||||
Reclassification of derivative liabilities from additional paid-in capital | $ | 197,821 | $ | — | ||||
Settlement of derivative liabilities to additional paid-in capital | $ | 70,000 | $ | 4,493,669 | ||||
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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 and the nine months ended September 30, 2012 of $31,686 and $94,293 respectively which served to reduce Administrative income, Lease operating expenses and General & Administrative expenses. This non-cash adjustment had no effect on net income or EPS. The 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 was material to the nine months ended September 30, 2012. Consequently, the September 30, 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 and nine months ended September 30, 2012.
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FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 | Reclassification of Previously Reported Activity | ADJUSTED FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 | ||||||||||
Oil and Gas sales | 194,723 | 194,723 | ||||||||||
Operating Income | 50,984 | (31,686 | ) | 19,298 | ||||||||
TOTAL REVENUE | 245,707 | (31,686 | ) | 214,021 | ||||||||
OPERATING EXPENSES (INCOME) | ||||||||||||
Lease operating expenses | 105,827 | (7,804 | ) | 98,023 | ||||||||
Accretion expense | 1,757 | 1,757 | ||||||||||
Depletion expense | 21,922 | 21,922 | ||||||||||
General and administrative | 275,002 | (23,882 | ) | 251,120 | ||||||||
TOTAL OPERATING EXPENSES | 404,508 | (31,686 | ) | 372,822 | ||||||||
NET LOSS BEFORE OTHER EXPENSE | (158,801 | ) | (158,801 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest Expense | 21,548 | 21,548 | ||||||||||
Gain (Loss) on embedded derivatives | — | — | ||||||||||
21,548 | — | 21,548 | ||||||||||
NET INCOME (LOSS) | (137,253 | ) | — | (137,253 | ) | |||||||
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 | Reclassification of Previously Reported Activity | ADJUSTED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 | ||||||||||
Oil and Gas sales | 376,140 | 376,140 | ||||||||||
Operating Income | 149,857 | (94,293 | ) | 55,564 | ||||||||
TOTAL REVENUE | 525,997 | (94,293 | ) | 431,704 | ||||||||
OPERATING EXPENSES (INCOME) | ||||||||||||
Lease operating expenses | 343,531 | (23,064 | ) | 320,467 | ||||||||
Accretion expense | 5,271 | 5,271 | ||||||||||
Depletion expense | 57,224 | 57,224 | ||||||||||
General and administrative | 708,276 | (71,229 | ) | 637,047 | ||||||||
TOTAL OPERATING EXPENSES | 1,114,302 | (94,293 | ) | 1,020,009 | ||||||||
NET LOSS BEFORE OTHER EXPENSE | (588,305 | ) | (588,305 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest Expense | (2,252,939 | ) | (2,252,939 | ) | ||||||||
Gain (Loss) on embedded derivatives | (3,030,218 | ) | (3,030,218 | ) | ||||||||
Total other expense | (5,283,157 | ) | — | (5,283,157 | ) | |||||||
NET INCOME (LOSS) | (5,871,462 | ) | — | (5,871,462 | ) | |||||||
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Level 1
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Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
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Level 2
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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
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Level 3
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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).
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Beginning balance January 1, 2013 | $ | — | ||
Additions due to new convertible debt | 346,846 | |||
Reclassification of derivative liabilities from additional paid-in capital | 197,821 | |||
Reclassification of derivative liabilities to additional paid-in capital due to conversion of related notes payable | (70,000 | ) | ||
Mark to market of debt derivative | (237,679 | ) | ||
Debt derivative as of September 30, 2013 | $ | 236,988 |
The gain on derivative liabilities in the consolidated statement of operations of $96,088 consists of the gain of $237,679 noted above and a loss on derivative liabilities of $141,591 which is the amount by which the derivative liabilities exceeded the principal balance of the related notes payable on issuance.
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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 second installment of $25,000 was delivered in April 2013. 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.
On August 13, 2013, September 9, 2013 and September 26, 2013 the holder of the convertible note exercised a portion of the conversion rights of the note for 250,000, 300,000 and 600,000 shares of common respectively at stock prices of $0.03, $0.0265, and $0.01160 respectively for a total of $22,410 principal converted.
As a result of the exercise of the conversion option of the note, the Company fully amortized the remaining balance of the associated debt discount of $55,000 recognizing interest expense for the same amount.
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 days. 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.
In May of 2013, we did not comply with the timely filing requirement on this loan. Pursuant to the promissory note, a penalty of 50% of the outstanding principal amount equaling $51,750 was added to the balance of the note. This additional sum will be eligible for conversion at the same terms as the original principal balance.
On August 26, 2013, September 6, 2013 and September 26, 2013 the holder of the convertible note exercised a portion of the conversion rights of the note for 478,469, 840,336 and 1,034,483 shares of common respectively at stock prices of $0.0418, $0.0357, and $0.145 respectively for a total of $90,250 principal converted.
As a result of the exercise of the conversion option of the note, the Company fully amortized the remaining balance of the associated debt discount of $155,250 recognizing interest expense for the same amount.
Credit Facility – April 22, 2013
On April 22, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant to which the investor lent $63,000 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 5 of the previous 10 trading days. 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.
On September 23, 2013 the investor lent an additional $47,000 in a single installment under the same terms agreement and terms as the previous installment made April 22, 2013.
7. Subsequent Events
On October 7, 2013, the holder of the February 19, 2013 note exercised a portion of the conversion rights of the note for 1,492,537 shares of common stock at a stock price of $0.0134 for a total of $70,250 principal converted.
In addition, on October 16, 2013, October 31, 2013 and November 13, 2013 the holder of the January 31, 2013 convertible note exercised a portion of the conversion rights of the note for 1,200,000, 150,000 and 2,200,000 shares of common respectively at stock prices of $0.006, $0.004, and $0.003 respectively for a total of $18,650 principal converted.
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Revenues. We had total revenues of $111,884 for the three months ended September 30, 2013, which were generated from oil and gas sales of $106,634 and operating income of $5,250. This was a $102,137 decrease from total revenues of $214,021 for the three months ended September 30, 2012, which were generated from oil and gas sales of $194,723 and operating income of $19,298. The Company reduced workover expenditures in 2013 resulting in decreasing well yields in the third quarter, decreasing barrels of oil per day produced (BOPD) to an average of 12.01 BOPD from 22.05 BOPD for the three months ended September 30, 2012.
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THREE MONTHS ENDED SEPTEMBER 30, 2013 | THREE MONTHS ENDED SEPTEMBER 30, 2012 | INCREASE (DECREASE) | % INCREASE (DECREASE) | |||||||||||||
REVENUES | ||||||||||||||||
Oil and Gas Revenues | $ | 106,634 | $ | 194,723 | $ | (88,089 | ) | (45 | %) | |||||||
Administrative revenues | 5,250 | 19,298 | (14,048 | ) | (73 | %) | ||||||||||
Total Revenues | 111,884 | 214,021 | (102,137 | ) | (48 | %) | ||||||||||
PRODUCTION: | ||||||||||||||||
Total production (BOE) | 1,081 | 2,012 | (46 | %) | ||||||||||||
Barrels of Oil Equivalent per day (BOPD) | 12.01 | 22.05 | (46 | %) | ||||||||||||
AVERAGE SALES PRICES: | ||||||||||||||||
Price per Barrel of Oil Equivalent | $ | 98.65 | $ | 98.78 | $ | (.13 | ) | (0 | %) |
Operating Expenses. For the three months ended September 30, 2013, our total operating expenses were $254,329, which consisted of lease operating expenses of $82,518, accretion expense of $1,000, depletion expense of $14,769 and general and administrative expenses of $156,042. By comparison, for the three months ended September 30, 2012, our total operating expenses were $372,822, which consisted of lease operating expenses of $98,023, accretion expense of $1,757, depletion expense of $21,922, and general and administrative expenses of $251,120.
THREE MONTHS ENDED SEPTEMBER 30, 2013 | THREE MONTHS ENDED SEPTEMBER 30, 2012 | INCREASE (DECREASE) | % INCREASE (DECREASE) | |||||||||||||
LEASE OPERATING EXPENSES | ||||||||||||||||
Lease operating expenses | 62,481 | 34,670 | 27,811 | 80 | % | |||||||||||
Workover expenses | 13,071 | 61,063 | (47,992 | ) | (79 | %) | ||||||||||
Legal, title and administrative well expenses | 6,966 | 2,290 | 4,676 | 204 | % | |||||||||||
Total Lease Operating expenses | 82,518 | 98,023 | (15,505 | ) | (16 | %) | ||||||||||
Depreciation, depletion, amortization and accretion expense | 15,769 | 23,679 | (7,910 | ) | (33 | %) | ||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||||||
SEC related general and administrative expenses | 65,644 | 89,565 | (23,921 | ) | (27 | %) | ||||||||||
Employee and officer expenses | 27,126 | 106,871 | (79,745 | ) | (75 | %) | ||||||||||
Other general and administrative | 63,272 | 54,684 | 8,588 | 16 | % | |||||||||||
Total General and Administrative expenses | 156,042 | 251,120 | (95,078 | ) | (38 | %) | ||||||||||
TOTAL OPERATING EXPENSES | 254,329 | 372,822 | (118,493 | ) | (32 | %) |
For the three months ended September 30, 2013 compared to the three months ended September 30, 2012, the Company incurred decreasing lease and well operating expenses of $15,505 or 16% as a result of Company conducting significant workover of the Lozano, McKenzie, Merrick Davis and Welder properties in 2012 that continued into 2013 but decreased by the third quarter resulting in decreasing well yields.
During the three months ended September 30, 2013 compared to the three months ended September 30, 2012, our depreciation, depletion, amortization, and accretion expenses decreased by $7,910 or 33% due to an decrease in our production and producing properties.
The decrease in general and administrative expenses of $95,075 or 38% during the three months ended September 30, 2013, compared to the prior period, was largely due to decreases in officer compensation and public reporting and compliance related expenses. We believe we have reduced our costs of operating as a public company to their absolute minimum amount.
Net Operating Loss. For the three months ended September 30, 2013, our total net operating loss was $142,445 as compared to a net operating loss of $158,801 for the three months ended September 30, 2012, a decrease of $16,356 or 10% from the prior period. Our net operating loss decreased over the prior period due to increases in oil and gas sales partially offset by increases to workover expenses and decreases in General and Administrative expenses.
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Other Income (Expense). For the three months ended September 30, 2013, we had interest expense $193,956 associated with the conversion of certain of our previously outstanding convertible promissory notes during the period, compared to interest income of $21,548 for the three months ended September 30, 2012, relating to our outstanding convertible promissory notes.
Net Income (Loss). For the three months ended September 30, 2013, our net loss was $307,215 as compared to a net loss of $137,253 for the three months ended September 30, 2012, an increase of $169,962 or 520% from the prior period.
Results of Operations for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012.
Revenues. We had total revenues of $496,595 for the nine months ended September 30, 2013, which were generated from oil and gas sales of $475,145 and Operating income of $21,450. This was a $64,891 increase from total revenues of $431,704 for the nine months ended September 30, 2012, which were generated from oil and gas sales of $376,140 and administrative revenue of $55,564. Our Oil and Gas Revenue increased nearly 50% over the same period in the prior year because of results from recently completed workover procedures. Those workover procedures were planned on properties with the best possible results.
Additionally, our properties are commonly owned by many working interest owners. Some of those working interest owners have elected not to contribute amounts due for workover procedures resulting in an election of “non-consent”. We have been able to benefit by paying for those non-consenting portions of the workover procedure. We are able to benefit from paying the non-consenting portion because we are allowed to collect from production an amount equal 400% of the non-consenting portion that we paid. Approximately 50% of our increase in oil and gas sales was directly attributable to non-consenting revenues.
Our administrative revenue decrease 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.
NINE MONTHS ENDED SEPTEMBER 30, 2013 | NINE MONTHS ENDED SEPTEMBER 30, 2012 | INCREASE (DECREASE) | % INCREASE (DECREASE) | |||||||||||||
REVENUES | ||||||||||||||||
Oil and Gas Revenues | $ | 475,145 | $ | 376,140 | $ | 99,005 | 26 | % | ||||||||
Administrative revenues | 21,450 | 55,564 | (34,114 | ) | (61 | %) | ||||||||||
Total Revenues | 496,595 | 431,704 | 64,891 | (15 | %) | |||||||||||
PRODUCTION: | ||||||||||||||||
Total production (BOE) | 5,053 | 4,346 | 707 | 16 | % | |||||||||||
Barrels of Oil Equivalent per day (BOPD) | 28.07 | 24.07 | 4 | 17 | % | |||||||||||
AVERAGE SALES PRICES: | ||||||||||||||||
Price per Barrel of Oil Equivalent | $ | 94.03 | $ | 86.55 | $ | 7.48 | 9 | % |
Operating Expenses. For the nine months ended September 30, 2013, our total operating expenses were $870,542, which consisted of lease operating expenses of $345,930, accretion expense of $3,000, depletion expense of $89,022, and general and administrative expenses of $423,590. By comparison, for the nine months ended September 30, 2012, our total operating expenses were $1,020,009, which consisted of lease operating expenses of $320,467, accretion expense of $5,271, depletion expense of $57,224, and general and administrative expenses of $637,047.
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NINE MONTHS ENDED SEPTEMBER 30, 2013 | NINE MONTHS ENDED SEPTEMBER 30, 2012 | INCREASE (DECREASE) | % INCREASE (DECREASE) | |||||||||||||
LEASE OPERATING EXPENSES | ||||||||||||||||
Lease operating expenses | 207,218 | 177,520 | 29,698 | 17 | % | |||||||||||
Workover expenses | 129,081 | 139,731 | (10,650 | ) | (8 | %) | ||||||||||
Legal, title and administrative well expenses | 18,631 | 3,216 | 15,415 | 479 | % | |||||||||||
Total Lease Operating expenses | 354,930 | 320,467 | 34,463 | 11 | % | |||||||||||
Depreciation, depletion, amortization and accretion expense | 92,022 | 62,495 | 29,527 | 47 | % | |||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||||||
SEC related general and administrative expenses | 209,557 | 282,196 | (72,639 | ) | (26 | %) | ||||||||||
Employee and officer expenses | 100,632 | 242,200 | (141,568 | ) | (58 | %) | ||||||||||
Other general and administrative | 113,401 | 112,651 | 750 | 1 | % | |||||||||||
Total General and Administrative expenses | 423,590 | 637,047 | (213,457 | ) | (34 | %) | ||||||||||
TOTAL OPERATING EXPENSES | 870,542 | 1,020,009 | (149,467 | ) | (15 | %) |
During the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, our depreciation, depletion, amortization, and accretion expenses increased by $29,527 or 47% due to an increase in our production and producing properties.
The decrease in general and administrative expenses of $213,457 or 34% during the nine months ended September 30, 2013, compared to the prior period, was largely due to decreases in public reporting and compliance related expenses offset by increases to employee and officer related compensation.
Net Operating Loss. For the nine months ended September 30, 2013, our total net operating loss was $373,947 as compared to a net operating loss of $588,305 for the nine months ended September 30, 2012, a decrease of $214,358 or 36% 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 nine months ended September 30, 2013, we had interest expense $274,895 associated with the conversion of certain of our previously outstanding convertible promissory notes during the period, compared to interest expense of $2,252,939 for the nine months ended September 30, 2012, relating to our outstanding convertible promissory notes.
Net Income (Loss). For the nine months ended September 30, 2013, our net loss was $552,754, as compared to a net loss of $5,871,462 for the nine months ended September 30, 2012, an increase in net income of $5,318,709 or 91% from the prior period.
Liquidity and Capital Resources. During the nine months ended September 30, 2013, we used $227,964 in operations, $0 in investing activities, related solely to property acquisitions and received $279,447 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 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 second installment of $25,000 was delivered in April 2013. 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.
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On August 13, 2013, September 9, 2013 and September 26, 2013 the holder of the convertible note exercised a portion of the conversion rights of the note for 250,000, 300,000 and 600,000 shares of common respectively at stock prices of $0.03, $0.0265, and $0.01160 respectively for a total of $22,410 principal converted.
As a result of the exercise of the conversion option of the note, the Company fully amortized the remaining balance of the associated debt discount of $55,000 recognizing interest expense for the same amount.
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 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.
In May of 2013, we did not comply with the timely filing requirement on this loan. Pursuant to the promissory note, a penalty of 50% of the outstanding principal amount equaling $51,750 was added to the balance of the note. This additional sum will be eligible for conversion at the same terms as the original principal balance.
On August 26, 2013, September 6, 2013 and September 26, 2013 the holder of the convertible note exercised a portion of the conversion rights of the note for 478,469, 840,336 and 1,034,483 shares of common respectively at stock prices of $0.0418, $0.0357, and $0.145 respectively for a total of $90,250 principal converted.
As a result of the exercise of the conversion option of the note, the Company fully amortized the remaining balance of the associated debt discount of $155,250 recognizing interest expense for the same amount.
On September 23, 2013 the investor lent an additional $47,000 in a single installment under the same terms agreement and terms as the previous installment made April 22, 2013.
As of September 30, 2013, we had total current assets of $907,497 , consisting of cash of $624,267, accounts receivable of $259,459, related party receivable of $23,771.
As of September 30, 2013, we had a working capital deficit of $627,929 and an accumulated deficit of $7,809,397.
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2.1
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Agreement and Plan of Exchange by and between Northern Future Energy Corp. and NFE Acquisition Corp., dated December 16, 2009 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed February 7, 2008).
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2.2
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Asset Purchase Agreement by and between Enforce Global Solutions, LLC and the Company, dated as of December 29, 2009 (incorporated by reference to Exhibit 2.5 of the Company’s Annual Report on Form 10-K, filed May 14, 2010).
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2.3
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Membership Interest Purchase Agreement by and between the Company and John Britchford-Steel, dated as of December 31, 2009 (incorporated by reference to Exhibit 2.6 of the Company’s Annual Report on Form 10-K, filed May 14, 2010.
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2.4
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Agreement and Plan of Merger, by and among the Company, United American Petroleum Corp. and United PC Acquisition Corp., dated December 31, 2010 (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011).
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2.5
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Agreement and Plan of Merger and Reorganization dated December 31, 2010, by and between the Company and United American Petroleum Corp. (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011).
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3.1
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Amended and Restated Articles of Incorporation, as filed with the Secretary of State of the State of Nevada, effective January 31, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed February 7, 2008).
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3.2
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Bylaws (incorporated by reference to Exhibit 3(ii) of the Company’s Registration Statement on Form SB-2, filed April 15, 2005).
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3.3
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Certificate of Designation of Series A Convertible Preferred Stock, as filed with the Secretary of State of the State of Nevada, effective January 31, 2008 (incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K, filed February
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7, 2008). | |
3.4 | Articles of Exchange, as filed with the Secretary of State of the State of Nevada, effective January 31, 2008 (incorporated by reference to Exhibit 3.4 of the Company’s Current Report on Form 8-K, filed February 7, 2008). |
3.5 | Articles of Merger, as filed with the Secretary of State of the State of Nevada, effective December 16, 2009. |
3.6 | Certificate of Correction to Articles of Merger, as filed with the Secretary of State of the State of Nevada, effective January 29, 2010 (incorporated by reference to Exhibit 3.6 of the Company’s Annual Report on Form 10-K, as amended, filed January 21, 2011). |
3.7 | Articles of Merger between United PC Acquisition Corp. and United American Petroleum Corp. (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
3.8 | Articles of Merger between United American Petroleum Corp. and Forgehouse, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
3.9 | Certificate of Designation of Series B Preferred Stock (1) |
3.10 | Certificate of Withdrawal of Certificate of Designation of Series A Convertible Preferred Stock (1) |
4.1 | Form of Registration Rights Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
4.2 | Form of Registration Rights Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed October 18, 2011). |
10.1 | 2008 Incentive Plan (incorporated by reference to Exhibit B of the Company’s Definitive Information Statement on Schedule 14C, filed January 2, 2008). |
10.2 | Form of Note and Warrant Purchase Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.3 | Form of Senior Secured Convertible Promissory Note (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.4 | Form of Warrant (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.5 | Form of Security Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.6 | Stock Vesting Agreement by and among the Company and Michael Carey, dated as of December 31, 2010 (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.7 | Stock Vesting Agreement by and among the Company and Ryan Hudson, dated as of December 31, 2010 (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.8 | Employment Agreement of Michael Carey (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.9 | Employment Agreement of Ryan Hudson (incorporated by reference to the Company’s Current Report on Form 8-K filed January 5, 2011). |
10.10 | Form of Note and Warrant Purchase Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed October 18, 2011). |
10.11 | Form of Convertible Promissory Note (incorporated by reference to the Company’s Current Report on Form 8-K filed October 18, 2011). |
10.12 | Form of Warrant (incorporated by reference to the Company’s Current Report on Form 8-K filed October 18, 2011). |
10.13 | Purchase and Sale Agreement by and between the Company and Alamo Energy Corp. dated October 28, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed November 8, 2011). |
10.14 | Purchase and Sale Agreement by and between the Company and McKenzie Corp. dated November 30, 2011(incorporated by reference to the Company’s Current Report on Form 8-K filed December 5, 2011). |
10.15 | Promissory Note by and between the Company and JMJ Financial date January 31, 2013 (incorporated by reference to the Company’s Current Report on Form 8-K filed March 7, 2013). |
10.16 | Security Purchase Agreement between the Company and Asher Enterprises, Inc. dated February 19, 2013 (incorporated by reference to the Company’s Current Report on Form 8-K filed March 7, 2013). |
10.17 | Promissory Note by and between the Company and Asher Enterprises, Inc. dated February 19, 2013 (incorporated by reference to the Company’s Current Report on Form 8-K filed March 7, 2013). |
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) |
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United American Petroleum Corp.,
a Nevada corporation |
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Date:
November 21, 2013
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By:
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/s/ Michael Carey
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Michael Carey
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Chief Executive Officer, Chief Financial Officer, President, Treasurer and a director
(Principal Executive and Financial Officer)
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