usog10q063011.htm

10-Q 1 usog10q063011.htm usog10q063011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

UNITED STATES OIL AND GAS CORP

(Exact name of registrant as specified in its charter)

Delaware		26-0231090
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

11782 Jollyville Road, Suite 211B

Austin, Texas 78759

(Address of Principal Executive Offices including Zip Code)

Issuer’s telephone number: (512) 464-1225

þ	Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________to_________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 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). Yes ¨ No ¨

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

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

As of August 12, 2011, there were 2,337,209,521 shares of the issuer’s common stock, $0.000003 par value, outstanding.

Caution Regarding Forward-Looking Information; Risk Factors

This quarterly report on Form 10-Q contains forward-looking statements. From time to time, our public filings, press releases and other communications will contain forward-looking statements. Forward-looking information is often, but not always, identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “forecast”, “target”, “project”, “may”, “will”, “should”, “could”, “estimate”, “predict” or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this quarterly report on Form 10-Q include, but are not limited to, statements with respect to expectations of our prospects, future revenues, earnings, activities and technical results.

Forward-looking statements and information are based on current beliefs as well as assumptions made by, and information currently available to, us concerning anticipated financial performance, business prospects, strategies and regulatory developments. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements in this quarterly report on Form 10-Q are made as of the date it was issued and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that outcomes implied by forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These risks and uncertainties may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. When relying on our forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.

Our public filings are available at www.usaoilandgas.com and on EDGAR at www.sec.gov.

Please see Part I, Item 1A—“Risk Factors” of our Annual Report on Form 10-K, as well as Part II, Item IA—“Risk Factors” of this quarterly report on Form 10-Q, for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such factors nor to assess the impact such factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Item 1. Financial Statements

UNITED STATES OIL AND GAS CORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2011			December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	42,578		$	4,007
Restricted Cash		585,293			286,376
Accounts receivable – trade, net		2,092,927			1,694,592
Inventory		394,440			421,468
Prepaid Expenses		22,122			26,193
Other current assets		2,572			450
Total Current Assets		3,139,932			2,433,086
Property and equipment, net		884,836			953,532
Other Assets:
Deposits		-			1,490
Intangible Assets, net		666,837			706,239
Goodwill		2,757,036			2,757,036
Total Other Assets		3,423,873			3,464,765
Total Assets	$	7,448,641		$	6,851,383
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes Payable – Current		41,423			47,811
Related Party Notes Payable – Current		516,427			626,300
Common Stock Payable – Related Party		-			150,000
Convertible Notes Payable, net of discount		676,251			809,960
Deferred Revenue		-			34,489
Derivative Liability		644,200			810,539
Accounts Payable		1,192,287			913,473
Accrued Expenses		139,794			119,660
Lines of Credit		293,333			160,076
Interest Payable		94,320			47,210
Total Current Liabilities		3,598,035			3,719,518
Notes Payable – Long Term		21,619			39,781
Convertible Notes Payable – Long Term, net of discount		275,112			49,642
Related Party Notes Payable – Long Term		3,450,000			3,754,803
Total Liabilities		7,344,766			7,563,744
Stockholders’ Earnings (Deficit)
Common Stock, .000003 par value, 5,000,000,000 shares authorized, 2,337,209,521 and 1,590,690,900 outstanding at June 30, 2011 and December 31, 2010, respectively		7,012			4,771
Preferred Stock, .001 par value, 10,000,000 shares authorized, 54,163 and 115,638 issued and outstanding at June 30, 2011 and December 31, 2010, respectively pari passu or senior to any new preferred shares, convertible to common at 80% of market price, callable by the Company any time at $6 per share, dividends shall not accrue unless declared, $5 per share liquidation preference		54			116
Additional Paid In Capital		5,479,334			3,465,082
Retained Deficit		(5,382,525	)		(4,182,330	)
Total Stockholders’ Equity (deficit)		103,875			(712,361	)
Total Liabilities and Stockholders’ Equity (deficit)	$	7,448,641		$	6,851,383

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

United States Oil and Gas Corp

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
				Restated, see Note 3						Restated, see Note 3
SALES, net	$	8,672,364		$	5,970,172		$	15,739,851		$	11,365,619
Cost of Goods Sold		8,271,072			5,481,670			14,797,790			10,541,740
Gross Profit		401,292			488,502			942,061			823,879
Operating Expenses:
Salaries and Benefits		277,405			149,239			532,578			247,809
Consultant Fees		16,000			9,325			37,000			38,589
Service and Prospecting Fees		20,485			21,025			50,433			28,525
Travel and Entertainment		4,082			4,312			8,549			49,760
Professional Fees		31,418			62,856			88,659			64,978
General and Administrative		67,160			48,601			160,204			176,092
Repairs and Maintenance		74,278			46,764			124,922			76,335
Depreciation		18,160			18,983			36,249			37,174
Amortization		19,701			19,700			39,402			40,177
Change in A/R provision		(28,691	)		(633	)		128,999			168,512
Other Operating Expense		-			26,357			1,235			44,864
Total Operating Expenses		499,998			406,529			1,208,230			972,815
Income (Loss) from Operations		(98,706	)		81,973			(266,169	)		(148,936	)
Non-Operating Income (expense):
Interest Income		26,366			28,499			54,854			52,928
Interest Expense		(47,515	)		(17,334	)		(94,451	)		(61,501	)
Accretion Expense on Cvt. Notes		(84,628	)		(14,624	)		(308,917	)		(81,990	)
Loss on Conversion of Debt		(344,877	)		-			(481,080	)		-
Gain (loss) on Derivative Liability		(118,825	)		41,965			(108,309	)		4,547
Finance Fee		-			-			(5,000	)		(250,000	)
Other Income (loss)		7,068			(1,092	)		13,071			(4,592	)
Total Non-Op. Inc.(expense), net		(562,411	)		37,414			(929,832	)		(340,608	)
Income (Loss) Before Income Taxes		(661,117	)		119,387			(1,196,001	)		(489,544	)
Income Tax Expense (benefit)		(4,194	)		(102,969	)		(4,194	)		(132,914	)
NET INCOME (LOSS)	$	(665,311	)	$	16,418		$	(1,200,195	)	$	(622,458	)

Earnings Per Share:
Basic	$	(0.00	)	$	0.00		$	(0.00	)	$	(0.00	)
Diluted	$	(0.00	)	$	0.00		$	(0.00	)	$	(0.00	)
Wtd. avg. shares outstanding basic		2,286,892,530			1,029,378,400			2,049,148,449			1,028,695,164
Wtd. avg. shares outstanding diluted		2,286,892,530			1,372,145,492			2,049,148,449			1,028,695,164

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

United States Oil and Gas Corp

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2011			2010
				Restated, see Note 3
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)	$	(1,200,195	)	$	(622,458	)
Adjustments to reconcile net loss to net cash (used) provided by operating activities:
Loss on conversion of debt		481,080			-
Amortization of discount on debt		308,917			81,990
Amortization of deferred financing costs		5,000			-
Fee to extend note's maturity		-			250,000
Shares issued for services		25,000			-
Gain/Loss on derivative liabilities		108,309			(4,547	)
Change in accts. receivable provision		141,919			169,145
Depreciation expense		108,908			107,174
Amortization of intangibles		39,402			40,177
Gain on preferred stock received		(62	)		-
Changes in operating assets and liabilities:
Accounts receivable		(540,254	)		(254,519	)
Inventory		27,028			(42,085	)
Other current assets		(295,478	)		64,624
Accounts payable		430,028			75,499
Accrued expenses		76,259			40,394
Deferred revenue		(34,489	)		102,970
CASH (USED) PROVIDED BY OPERATING ACTIVITIES		(318,628	)		8,364
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of fixed assets		(41,832	)		(14,117	)
CASH (USED) PROVIDED BY INVESTING ACTIVITIES		(41,832	)		(14,117	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock		-			125,000
Borrowings on convertible debt		410,000			35,000
Financing costs for debt offering		(5,000	)		-
Borrowings on letters of credit, net		133,257			-
Interest Expense		-			18,269
Principal payments on debt		(24,550	)		(27,244	)
Borrowings on related party debt		75,000			-
Principal payments on related party debt		(189,676	)		(20,615	)
CASH PROVIDED BY FINANCING ACTIVITIES		399,031			130,410
NET INCREASE (DECREASE) IN CASH		38,571			124,657
CASH AT BEGINNING OF YEAR		4,007			337,350
CASH AT PERIOD END	$	42,578		$	462,007


NON-CASH TRANSACTIONS
Conversion of related party debt		450,000			-
Conversion of convertible debt and accrued interest to common stock		383,815			267,808
Derivative liability from issuance of convertible notes payable (recorded as discount on debt)		251,886			-
Settlement of portion of derivative liability		526,530			18,118
Shares issued for stock payable		150,000			-

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

UNITED STATES OIL AND GAS CORP

Notes to Unaudited Consolidated Financial Statements

Note 1. Organization, Nature of Operations, Concentration of Credit Risk, and Summary of Significant Accounting Policies

United States Oil and Gas Corp (the “Company”), a Delaware corporation, was organized in 1988. The principal business activity of the Company is the acquisition and subsequent management of domestic oil and gas service companies, with particular focus on those companies that primarily market and distribute refined fuels, distillates (liquid petroleum products that are burned in a furnace or boiler for the generation of heat or used in an engine for the generation of power) and propane to retail and wholesale customers. The Company’s principal executive office is located in Austin, Texas. The Company acquired its first company, Turnbull Oil, Inc. (“Turnbull”), located in Plainville, Kansas, on May 15, 2009. On January 1, 2010, the Company acquired its second wholly owned operating subsidiary, United Oil & Gas, Inc. (“United”), located in Bottineau, North Dakota.

Turnbull is a corporation organized under the laws of Kansas. Its wholly owned subsidiary, Basinger, Inc., is also a corporation organized under the laws of Kansas. The corporations are bulk distributors of petroleum products from Plainville, Palco, Hill City and Utica, Kansas. Their primary customers are businesses in the agricultural and oil related industries in Kansas.

The principal business activities of United are sales, made throughout North Dakota and neighboring states, of oil and gas, and the operation of a convenience store located in Belcourt, North Dakota.

Oil and gas service companies such as Turnbull and United purchase bulk fuel, distillates and propane from regional suppliers, then store, sell, and deliver to, among other customers, local businesses, drillers, farms, wholesalers, and individuals. The margin on sales is adjusted according to purchase price. Therefore, while sales volume can vary greatly from one year to the next (because of large fluctuation in wholesale fuel costs), margins remain fairly consistent.

In addition to its acquisition strategy, the Company intends to acquire and/or develop and deploy proprietary technologies that will explore or extract oil and gas trapped in the earth using the latest technologies that create the smallest ecological footprint as possible. The Company has one patent that supports this ancillary strategy but does not rely on revenue generation from this technology in its financial projections.

Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of United States Oil and Gas Corp and its wholly owned subsidiaries Turnbull, Basinger, and United (collectively, the “Company” or “USOG”). All significant intercompany transactions and balances have been eliminated in the consolidated financial statements.

The Company derives revenues from three primary sources—refined fuels sales, parts sales and services. For refined fuels sales and parts sales, revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the contract price is fixed or determinable, title and risk of loss has passed to the customer and collection is reasonably assured. The Company’s sales are typically not subject to rights of return and, historically, sales returns have not been significant. System sales that do not involve unique customer acceptance terms or new specifications or technology with customer acceptance provisions and that involve installation services are accounted for as multiple-element arrangements, where the fair value of the installation service is deferred when the product is delivered and recognized when the installation is complete. In all cases, the fair value of undelivered elements, such as accessories ordered by customers, is deferred until the related items are delivered to the customer. For certain other system sales that do involve unique customer acceptance terms or new specifications or technology with customer acceptance provisions, all revenue is generally deferred until customer acceptance. Deferred revenue from such sales is presented as unearned revenues in accrued liabilities in the accompanying consolidated balance sheets.

Taxes collected from customers and remitted to government agencies for specific revenue producing transactions are recorded net with no effect on the income statement.

Deferred Revenue. At June 30, 2011, and December 31, 2010, the Company had $0 and $34,489, respectively, of deferred revenue related to payments received in advance from the State of North Dakota through its fuel assistance program. This revenue was realized in the first fiscal quarter of 2011.

Shipping and Handling Costs. Shipping and handling costs are included in products cost of revenues.

Cash and Cash Equivalents. The Company considers all highly liquid cash investment instruments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash accounts at banks which are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company’s deposits are periodically in excess of federally insured limits on a temporary basis. The Company had at June 30, 2011 and December 31, 2010, $0 and $0, respectively, of cash balances in excess of the FDIC limits. There were no cash equivalents at June 30, 2011 or December 31, 2010.

Cash Restriction. The Company considers $585,293 and $286,376 of cash on hand to be restricted cash at June 30, 2011 and December 31, 2010, respectively. This cash is considered restricted to working capital purposes of the subsidiaries, and the cash is controlled by managers of the subsidiaries as stipulated in the acquisition agreements. Once payment has been made on debt outstanding to subsidiary managers, cash will become unrestricted.

Accounts Receivable. Accounts receivable is recorded net of an allowance for expected losses. The allowance is estimated from historical performance and projections of trends.

Gross accounts receivables of approximately $2.6 million and $2.0 million at June 30, 2011 and December 31, 2010, respectively, consist principally of trade receivables from a large number of customers dispersed across a wide geographic base in Kansas, the Dakotas and parts of Montana and have been reduced by allowances for doubtful accounts of approximately $468,000 and $325,820 at June 30, 2011 and December 31, 2010, respectively.

Inventories. Inventories consist of equipment and various components and are stated at the lower of cost or market. Cost is determined on a standard cost basis, which approximates the first-in first-out (FIFO) basis.

Property, Plant, and Equipment. Property, plant, and equipment is recorded at cost and depreciated over the estimated useful lives of 3 to 40 years using the straight-line method. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Cost of Goods Sold. Cost of Goods Sold for the three months ended June 30, 2011 includes the cost of delivery driver’s salaries in the amount of $73,464 and depreciation of assets used for the storage and delivery of product to customer in the amount of $58,944. Cost of Goods Sold for the three months ended June 30, 2010 includes the cost of delivery driver’s salaries in the amount of $80,000 and depreciation of assets used for storage and delivery of product to customers in the amount of $35,000.

Advertising Costs. All advertising costs are expensed as incurred and are included in selling and administrative expenses in the consolidated statements of income. Advertising expenses for the three months ended June 30, 2011 and June 30, 2010 were approximately $0 and $0, respectively.

Presentation of Sales and Use Tax. Several states impose various sales, use, utility and excise tax on all of the Company's sales to non-exempt customers. The company collects the various taxes from these non-exempt customers and remits the entire amount to the applicable jurisdiction. The Company's accounting policy is to exclude the tax collected and remitted to the various taxing jurisdictions from revenue and cost of sales.

Income Taxes. The Company provides for deferred taxes in accordance with ASC Topic 740 Income Taxes, which requires the Company to use the asset and liability approach to account for income taxes. This approach requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The provision for income taxes is based on income before income taxes as reported in the accompanying consolidated statements of income. The Company recognizes tax benefits for uncertain tax positions when they satisfy a greater than 50% probability threshold and provides for the estimated impact of interest and penalties for the uncertain tax benefits.

Deferred tax provisions/benefits are calculated for certain transactions and events because of differing treatments under generally accepted accounting principles and the currently enacted tax laws of the Federal government. The results of these differences on a cumulative basis, known as temporary differences, result in the recognition and measurement of deferred tax assets and liabilities in the accompanying balance sheets.

Intangible Assets. Intangible assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, which is ten years.

Goodwill. Goodwill represents the excess of the cost for the United and Turnbull acquisitions over the net of the amounts assigned to the assets acquired and liabilities assumed. The Company accounts for its goodwill in accordance with generally accepted accounting standards, which requires the Company to test goodwill for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, rather than amortize.

The goodwill balance of $2,757,036 at June 30, 2011, is related to the Company's acquisitions of Turnbull Oil Inc in 2009 for $2,681,925 and United Oil and Gas in 2010 for $75,111. The acquired subsidiaries have years of historical operations which represent the goodwill associated with these companies.

Generally accepted accounting standards require that a two-step impairment test be performed annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The first step of the test for impairment compares the book value of the Company to its estimated fair value. The second step of the goodwill impairment test, which is only required when the net book value of the item exceeds the fair value, compares the implied fair value of goodwill to its book value to determine if an impairment is required.

The Company tested for impairment of our goodwill at December 31, 2010 and determined that an impairment was not necessary. No evaluation was necessary at June 30, 2011, as no impairment indicators were prevalent.

Impairment of Long Lived Assets. The Company has adopted the FASB standard that requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should an impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. The FASB also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Concentrations of Credit Risk. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables. All of its customers are located in the U.S. and all sales are denominated in U.S. dollars. The Company performs ongoing credit evaluations of its customers to minimize credit risk.

Use of Estimates. The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounting for Derivative Instruments. The FASB statement on derivative instruments and hedging activities requires all derivatives to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Company's structured borrowings, are separately valued and accounted for on the Company's balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

Monte Carlo Valuation Model. The Company valued the conversion features in their convertible notes using a Monte Carlo method, with the assistance of a valuation consultant. The Monte Carlo model for valuating financial derivatives relies on simulating the possible behavior of a stock price many times, with the results of each simulation varying based on a stochastic model. The various results are then combined through averaging or another method to estimate the value of the stock (and, derivatively, the stock option). In general, the more random simulations computed, and the more complex the model will be and subsequently the more accurate the estimate will be.

Stock Based Compensation. Beginning January 1, 2006, the Company adopted the FASB standard related to stock based compensation. The standard requires all share-based payments to employees (which includes non-employee Directors), including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of common stock options or warrants granted to employees is estimated at the date of grant using the Black-Scholes option pricing model by using the historical volatility of comparable public companies. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.

The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the date required by the Emerging Issues Task Force guidance related to accounting for equity instruments issued to non-employees. In accordance with this guidance, the options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. As of June 30, 2011 and December 31, 2010, no options or warrants related to compensation have been issued, and none are outstanding.

Fair Value of Financial Instruments. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, other assets, fixed assets, derivative liability, deferred revenue, accounts payable, accrued liabilities and short-term debt. The estimated fair value of cash, accounts receivable, other assets, accounts payable, deferred revenue and accrued liabilities approximated their carrying amounts due to the short-term nature of these instruments. The carrying value of short-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with comparable risks. None of these instruments are held for trading purposes.

The Company utilizes various types of financing to fund its business needs, including debt with warrants attached and other instruments indexed to its stock. The Company reviews its warrants and conversion features of securities issued as to whether they are freestanding or contain an embedded derivative and if so, whether they are classified as a liability at each reporting period until the amount is settled and reclassified into equity with changes in fair value recognized in current earnings. At June 30, 2011, the Company had convertible notes valued at $1,159,954 that contain an embedded derivative due to their conversion features not being considered fixed or determinable. In addition to these convertible notes all other debt and equity instruments convertible to common stock at the discretion of the holder were considered as a part of the derivative liability due to the tainted equity environment. These instruments consisted of convertible preferred stock valued at fair value and recorded as a part of the derivative liability.

Inputs used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

·	Level one – Quoted market prices in active markets for identical assets or liabilities;

·	Level two – Inputs other than level one inputs that are either directly or indirectly observable; and

·	Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with the convertible debt and tainted equity (discussed above). The Company classifies the fair value of the derivative liability under level three. The fair value of the derivative liability was calculated using the Monte Carlo model. Under the Monte Carlo model using an expected term equal to the contractual terms of the debt, volatility ranging from 98.8% to 109.1% and a risk-free interest rate ranging from 0.45% to 0.81%, the Company determined the fair value of the derivative liability to be $644,200 as of June 30, 2011.

The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and June 30, 2011:

			Fair value measurements using
	Carrying Value		Level 1		Level 2		Level 3		Total
Derivative Liabilities		810,539		-		-		810,539		810,539
Total at 12/31/10		810,539						810,539		810,539
Derivative Liabilities		644,200		-		-		644,200		644,200
Total at 6/30/11:		644,200		-		-		644,200		644,200

There were no instruments valued at fair value on a non-recurring basis as of June 30, 2011 and December 31, 2010.

Recently Issued Accounting Standards. In January 2010, the FASB issued FASB ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which is now codified under FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” This ASU will require additional disclosures regarding transfers in and out of Levels 1 and 2 of the fair value hierarchy, as well as a reconciliation of activity in Level 3 on a gross basis (rather than as one net number). The ASU also provides clarification on disclosures about the level of disaggregation for each class of assets and liabilities and on disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. FASB ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures requiring a reconciliation of activity in Level 3. Those disclosures will be effective for interim and annual periods beginning after December 15, 2010. The adoption of the portion of this ASU effective after December 15, 2009, as well as the portion of the ASU effective after December 15, 2010, did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2010, the FASB issued FASB ASU No. 2010-17, “Milestone Method of Revenue Recognition,” which is now codified under FASB ASC Topic 605, “Revenue Recognition.” This ASU provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. Consideration which is contingent upon achievement of a milestone in its entirety can be recognized as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. A milestone should be considered substantive in its entirety, and an individual milestone may not be bifurcated. An arrangement may include more than one milestone, and each milestone should be evaluated individually to determine if it is substantive. FASB ASU No. 2010-17 was effective on a prospective basis for milestones achieved in fiscal years (and interim periods within those years) beginning on or after June 15, 2010, with early adoption permitted. If an entity elects early adoption, and the period of adoption is not the beginning of its fiscal year, the entity should apply this ASU retrospectively from the beginning of the year of adoption. This ASU did not have any effect on the timing of revenue recognition and the Company’s consolidated results of operations or cash flows.

In December 2010, the FASB issued FASB ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,” which is now codified under FASB ASC Topic 350, “Intangibles — Goodwill and Other.” This ASU provides amendments to Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not a goodwill impairment exists. When determining whether it is more likely than not an impairment exists, an entity should consider whether there are any adverse qualitative factors, such as a significant deterioration in market conditions, indicating an impairment may exist. FASB ASU No. 2010-28 is effective for fiscal years (and interim periods within those years) beginning after December 15, 2010. Early adoption is not permitted. Upon adoption of the amendments, an entity with reporting units having carrying amounts which are zero or negative is required to assess whether is it more likely than not the reporting units’ goodwill is impaired. If the entity determines impairment exists, the entity must perform Step 2 of the goodwill impairment test for that reporting unit or units. Step 2 involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss results if the amount of recorded goodwill exceeds the implied goodwill. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. This guidance will be applied as necessary during the 2011 fiscal year when evaluating goodwill for impairment.

In December 2010, the FASB issued FASB ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” which is now codified under FASB ASC Topic 805, “Business Combinations.” A public entity is required to disclose pro forma data for business combinations occurring during the current reporting period. This ASU provides amendments to clarify the acquisition date to be used when reporting the pro forma financial information when comparative financial statements are presented and improves the usefulness of the pro forma revenue and earnings disclosures. If a public company presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) which occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The supplemental pro forma disclosures required are also expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. FASB ASU No. 2010-29 is effective on a prospective basis for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of this ASU will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

Note 2. Going Concern

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated modest revenues since inception and has never paid any dividends and is unlikely to pay dividends. The Company has accumulated losses since inception equal to $5,382,525 as of June 30, 2011. These factors raise substantial doubt regarding the ability of the Company to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its debt holders, the ability of the Company to obtain necessary equity financing to continue operations and pay down debt and to generate enough operating cash flows to sustain operations in the future.

Note 3. Restatement of Consolidated Financial Statements for Prior Period

The Company has determined that its previously issued consolidated financial statements for the three and six months ended June 30, 2010 contained errors. As part of the financial statement review, it was determined that certain accounting policies had not been applied properly in the prior periods.

A summary of the changes made is listed below. One source of the restatements was the application of the purchase price for the acquisition of United Oil and Gas. Significant adjustments from this were the $357,809 reclassification of purchase price from fixed assets to goodwill. The second source of restatement was the reclassification of $99,013 of Additional Paid In Capital primarily to Preferred Convertible Shares. Finally, there was a significant restatement of expense due to the improper GAAP accounting for several Derivative Instruments the Company has on its balance sheet. These are Convertible Notes Payable that have a variable conversion feature that is dependent on the price of the stock at the time of conversion. This primarily resulted in a derivative liability of $845,921, a loss on the valuation of the derivative at period end of $37,418, discounts to notes payable of $232,801, and amortization expense of $67,366. All of these adjustments were made to the financial statements for the three months ended March 31, 2010 and were presented in the Form 10-Q for the period ended March 31, 2011. However, there are some additional adjustments related to the derivative liability for the three and six months ended June 30, 2010 that are presented below (see note 15 for more detail).

Consolidated Balance Sheet at June 30, 2010

	Prior			Adjustment			Restated
Property and equipment, net	$	1,456,409		$	(497,426	)	$	958,983
Goodwill		3,396,126			(639,091	)		2,757,035
Intangible Assets, net		841			744,797			745,638
Total Assets:		7,184,153			(391,720	)		6,792,433

Notes Payable – current – total, including $162,000 related Party Note Payable and $227,800 convertible		5,325,381			(150,811	)		5,174,570
Derivative Liability		-			803,956			803,956
Total Current Liabilities		6,496,506			653,145			7,149,651
Total Liabilities		7,094,618			653,145			7,747,763
Additional Paid In Capital		2,517,775			55,679			2,573,454
Retained Earnings, including current year loss		(2,431,449	)		(1,100,544	)		(3,531,993	)
Total Stockholders’ Equity (Deficit)		89,535			(1,044,865	)		(955,330	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	7,184,153		$	(391,720	)	$	6,792,433

Consolidated Statement of Operations for the three months ended June 30, 2010

	Prior		Adjustment			Restated
Cost of Goods Sold	$	5,366,670	$	115,000		$	5,481,670
Gross Profit		603,502		(115,000	)		488,502
Operating Expenses:
Salaries and Benefits		229,239		(80,000	)		149,239
Depreciation		56,629		(37,646	)		18,983
Amortization		100		19,600			19,700
Bad Debt Expense		577		(1,210	)		(633	)
Total Operating Expense		505,785		(99,256	)		406,529
Income (loss) from Operations		97,717		(15,744	)		81,973
Amortization Expense - Convertible Notes		-		(14,624	)		(14,624	)
Gain (Loss) on derivative liability		-		41,965			41,965
Bad debt recovery (expense)		1,210		(1,210	)		-
Total Non-operating income, net		11,283		26,131			37,414
Income (loss) before income taxes		109,000		10,387			119,387
Net Income (loss)	$	6,031	$	10,387		$	16,418

Consolidated Statement of Operations for the six months ended June 30, 2010

	Prior			Adjustment			Restated
Cost of Goods Sold	$	10,311,740		$	230,000		$	10,541,740
Gross Profit		1,053,879			(230,000	)		823,879
Operating Expenses:
Salaries and Benefits		407,809			(160,000	)		247,809
Depreciation		113,242			(76,068	)		37,174
Amortization		201			39,976			40,177
Bad Debt Expense		2,075			166,437			168,512
Total Operating Expense		1,002,470			(29,655	)		972,815
Income (loss) from Operations		51,409			(200,345	)		(148,936	)
Amortization Expense - Convertible Notes		-			(81,990	)		(81,990	)
Gain (Loss) on derivative liability		-			4,547			4,547
Bad debt recovery (expense)		3,570			(3,570	)		-
Total Non-operating income, net		(259,595	)		81,013			(340,608	)
Income (loss) before income taxes		(208,186	)		(281,358	)		(489,544	)
Net Income (loss)	$	(341,100	)	$	(281,358	)	$	(622,458	)

Consolidated Statement of Cash Flows for the six months ended June 30, 2010

	Prior			Adjustment			Restated
Net Income	$	(341,100	)	$	(281,358	)	$	(622,458	)
Amortization expense on debt discount		-			81,990			81,990
Gain on derivative liabilities		-			(41,965	)		(41,965	)
Depreciation expense		113,242			(6,068	)		107,174
Amortization of intangibles		201			39,976			40,177

Note 4. Accounts Receivable

Accounts receivable consisted of the following:

	June 30, 2011			December 31, 2010
Accounts receivable	$	2,560,666		$	2,020,412
Allowance for uncollectible accounts		(467,739	)		(325,820	)
	$	2,092,927		$	1,694,592

Note 5. Property, Plant and Equipment

Property, plant and equipment at cost consisted of the following:

	June 30, 2011			December 31, 2010
Buildings	$	286,716		$	274,229
Equipment		372,624			550,864
Land		15,273			15,273
Vehicles		899,616			1,078,311
Accumulated depreciation		(689,393	)		(965,145	)
Net Property, Plant, and Equipment	$	884,836		$	953,532

Depreciation expense for the six months ended June 30, 2011 and June 30, 2010 totaled $108,908 and $107,174, respectively. Depreciation expense for the three months ended June 30, 2011 and June 30, 2010, totaled $47,632 and $53,983, respectively.

Note 6. Intangible Assets

Intangible assets consisted of the following:

	June 30, 2011			December 31, 2010
Trade Name – Basinger	$	6,050		$	6,050
Trade Name – United		128,000			128,000
Customer List		656,000			656,000
Accumulated amortization		(123,213	)		(83,811	)
Net Intangible Assets	$	666,837		$	706,239

Amortization expense for the six months ended June 30, 2011 and June 30, 2010 totaled $39,402 and $39,402, respectively. Amortization expense for the three months ended June 30, 2011 and June 30, 2010, totaled $19,701 and $19,700, respectively. Intangible assets are amortized straight line over an estimated useful life of 10 years.

Note 7. Accrued Liabilities

Accrued liabilities consisted of the following:

		June 30, 2011		December 31, 2010
Accrued salaries	$	44,466	$	30,537
Accrued state fuel tax		89.323		77,244
Miscellaneous accruals		6,005		11,879
	$	139,794	$	119,660

Note 8. Lines of Credit

The Company has a $750,000 line of credit at Sunflower Bank, maturing December 31, 2011, with an interest rate of 1.3% plus the Wall Street Journal prime rate (3.25% as of June 30, 2011). The line of credit is secured by all accounts receivable, inventory and equipment. As of June 30, 2011 and December 31, 2010, the balance outstanding was $249,583 and $140,000, respectively. The Company also has a $50,000 open line of credit with the State Bank of Bottineau with an interest rate of 6.95%. As of June 30, 2011 and December 31, 2010, the balance outstanding was $43,750 and $20,076, respectively. The debt is due on demand.

Note 9. Debt

Debt consisted of the following:

	June 30, 2011			December 31, 2010
Short term:
Unsecured convertible notes payable with annual interest rate of 5%1	$	-		$	259,800
Unsecured convertible notes payable with annual interest rate of 10%2		64,954			64,954
Unsecured convertible notes payable with annual interest rate of 8%3		125,000			50,000
Convertible note payable with interest payable quarterly4		650,000			750,000
Long-term:
Unsecured convertible notes payable - annual interest of 10%2		320,000			-
Discount on convertible notes from derivative valuation		(208,591	)		(265,152	)
Total convertible notes		951,363			859,602
Unsecured related party notes payable5		350,803			631,103
Common Stock payable6		-			150,000
Notes payable on capital equipment7		63,042			87,592
Long term unsecured related party note payable with 5% annual interest8		3,615,624			3,750,000
Total Debt	$	4,980,832		$	5,478,297

1 Notes bear 5% interest and become due in 2011. No interest payments are required and the note can be converted to common stock by the note holder or the company. The note holder can convert the note into common stock at 50% of the average closing bid price of the Common Stock for the ten days prior to the date of conversion. All notes have been converted to stock as of April 13, 2011. There was no accrued interest expense payable at June 30, 2011.

2 Convertible notes bear 10% interest, payable in stock upon conversion. The note includes a conversion feature whereby the holder can convert the note at any time into common stock at 80% of the average price per share over the last fiscal quarter. There is no accrued interest at June 30, 2011. There was $6,071 of accrued interest payable at June 30, 2011. Notes are due on demand.

3 Convertible notes bear 8% interest, payable in stock upon conversion. The note holder can convert the note after six months into common stock at 45% of the average price per share over the last fiscal quarter. Notes are due from September 30, 2011 to January 25, 2012, and there was $4,497 in accrued interest payable at June 30, 2011.

4 The note bears 8% annual interest that is payable quarterly. The note originally came due on April 9, 2011 but was extended to December 31, 2011. Note may be converted to common stock by note holder. The note holder can convert the note into common stock at 80% of most recent public trading value anytime before note becomes due. During the second fiscal quarter of 2011, the noteholder sold $100,000 of the note to a third party that converted the debt into 100 million shares of common stock. There was $10,475 of accrued interest at June 30, 2011.

5 Balance primarily consists of note for $500,000 to Debbie Werner of which $340,000 remains due at June 30, 2011. The note is due December 31, 2011 and bears 5% interest. During the second fiscal quarter of 2011, Ms Werner sold $100,000 of the note to a third party that converted the debt into 100 million shares of common stock. There was $34,713 of accrued interest at June 30, 2011. Remaining balance of $10,803 consists of related party debt bearing no interest.

6 Balance consists $150,000 of common stock due to Debbie Werner. The payable was part of the acquisition agreement dated January 1, 2010. Stock was paid in February 2011.

7 Balance consists of four notes payable on capital equipment. The average interest rate is 9%. $41,423 is current and due in 2011. $21,619 is long term and due beyond 2011. There was no accrued interest at June 30, 2011.

8 Balance primarily consists of note to Jeff Turnbull. This note was extended from April 9, 2010 to December 31, 2010 in exchange for increasing balance of the note from $3,750,000 to $4,000,000. The $250,000 increase was booked as finance fee expense in the first quarter of 2010. During the quarter ended September 30, 2010, Jeff Turnbull converted $250,000 of note payable into 500 million shares of common stock. The balance was reduced to $3,750,000 in July, 2010 when Mr. Turnbull converted $250,000 of the debt into 500 million shares of USOG common stock. In the first six months of 2011, Mr. Turnbull sold an additional $300,000 of the debt to third parties who converted the debt into 233 million shares of common stock. In December, 2010, the note term was extended to December 31, 2012. The note earns 2% interest in 2011 and 10% interest in 2012. Note balance at June 30, 2011 was $3,450,000. There was $34,559 of accrued interest at June 30, 2011. The remaining balance of $165,624 at June 30, 2011 is unsecured note payable with zero interest to related party. The amount of imputed interest was immaterial to the financial statements.

Minimum principal payments of debt in subsequent years:

2011	$	1,397,804
2012		3,410,000
2013		49,690
2014		11,929
2015		320,000

Interest expense on the notes payable totaled $94,451 for the six months ended June 30, 2011 and $61,501 for the six months ended June 30, 2010. Interest expense on the notes payable totaled $47,515 for the three months ended June 30, 2011, and $28,499 for the three months ended June 30, 2010. Accretion expense for the six months ended June 30, 2011 and the six months ended June 30, 2010 was $308,447 and $81,990, respectively. Accretion expense for the three months ended June 30, 2011, and the three months ended June 30, 2010, was $84,628 and $14,624, respectively.

Note 10. Concentrations

The Company had concentrations with certain customers (receivables in excess of 10% of total) as follows:

	June 30, 2011				December 31, 2010
	Amount		%		Amount		%
Customer A	$	282,000		11	$	260,121		15
Customer B		-		-		242,779		14

The Company had concentrations in volume of business with certain vendors (purchases in excess of 10% of total) as follows:

	June 30, 2011				December 31, 2010
	Amount		%		Amount		%
Vendor A	$	-		-	$	3,988,823		18	%

The Company had no sales concentrations over 10% during the twelve months ended December 31, 2010 or six months ended June 30, 2011.

Note 11. Stockholders’ Deficit

The Company’s Certificate of Incorporation authorize the issuance of up to 10,000,000 shares of preferred stock at a par value of $0.001. The voting rights, dividend rate, redemption price, rights of conversion, rights upon liquidation and other preferences are subject to determination by the Board of Directors. At June 30, 2011, 54,163 shares were issued and outstanding.

On May 6, 2011, the Company retired 61,475 shares of preferred stock and recognized a gain of $62. The shares were owned by one shareholder who initially received the shares for services to be performed. The shares were retired in exchange for cancellation of the contract for services that were never delivered.

The Company’s Certificate of Incorporation authorize the issuance of up to 5,000,000,000 shares of common stock at a par value of $0.000003. At June 30, 2011, 2,337,209,521 shares were issued and outstanding.

Earnings Per Share (EPS) was calculated by dividing net loss as of June 30, 2011 of (665,311) by the weighted average number of common shares outstanding in the quarter (2,286,892,530). The result was ($0.00).

On a fully diluted basis, the calculation was the same as all potential stock issuances from convertible notes and preferred shares would have an anti-dilutive effect on earnings per share.

During the three months ended March 31, 2011, the Company issued 60,000,000 shares of common stock to Debbie Werner to pay $150,000 liability from acquisition of United. The Company relieved the stock payable of $150,000 with the issuance and recognized no gain or loss as the value of the shares was equal to $150,000 on the date of issuance.

The Company issued 10 million shares of restricted common stock to an employee for services during the three months ended March 31, 2011. These shares were valued and expensed for $25,000 based on the closing price of the shares on the date of grant.

During the six months ended June 30, 2011, convertible debt holders converted $56,027 of convertible notes and accrued interest into 46,677,083 shares of common stock. These notes converted were converted at the holder’s option. No gain or loss was recorded on these conversions as the conversions were within the original contract terms.

During the six months ended June 30, 2011, related party debt holders sold a total of $450,000 of debt to third parties. The third parties then exchanged the debt into convertible notes that were converted to common stock. A total of 373,139,008 common shares were issued upon conversion of these modified notes. The loss on these conversions was $224,000 and is included within the loss of $324,000 for modification and conversion of notes described below.

During the six months ended June 30, 2011, a third party convertible debt holder sold a total of $100,000 of convertible debt to another third party. The recipient of the convertible note then converted the note into common stock. A total of 100,000,000 common shares were issued upon conversion. The convertible note was a part of the derivative liability prior to conversion. The embedded derivative was marked to market upon the settlement date and re-classed to additional paid in capital upon settlement. No gain or loss was recorded on the conversion.

Loss on conversions The Company booked a loss on conversion of $324,000 for the modification and conversion of $550,000 of debt into common stock. The loss was the difference between the reduction of debt and the stock value of the shares issued on the date of conversion for all notes convertible at the Company’s option. All convertible notes convertible at the holder’s option were valued as a part of the derivative liability with an offsetting discount of $113,794 and loss at the modification date. The discount was fully amortized upon conversion of the debt.

The Company also recognized a loss of $157,148 on the conversion of convertible debt of $219,800 and accrued interest of $7,991. These convertible notes were convertible at the Company’s option and therefore not considered to have substantive conversion features. As a result a loss was recorded on the conversion dates based on the difference between the fair value of the shares issued and the value of the liability converted.

Note 12. Related Party Transactions and Commitments

The Company has entered into various agreements with certain shareholders and related parties. Such commitments are expected to be satisfied through cash payments. Cash payments under these agreements for the six months ended June 30, 2011 and June 30, 2010 totaled $72,000 and $141,031, respectively. These related party payments included:

Contract	Related Party	Monthly Amount	June 30, 2011		June 30, 2010
The Company entered into a contractual agreement for the procurement of human resources. The contract was terminated at Sep. 30, 2010	HR Management Systems is a related party of the Company with Alex Tawse, President and Shareholder of both entities	No current commitment	$	-	$	47,750
The Company has entered into a contract with its President for services	Alex Tawse, President and Shareholder	Currently $12,000 per month		72,000		60,000
The Company has paid Jeff Turnbull for prepaid interest on Note Payable	Jeff Turnbull is an officer of Turnbull Oil but is not an affiliate of the Company			-		38,281
			$	72,000	$	141,031

Note 13. Employee Benefit Plans

The Company sponsors a defined contribution retirement plan for its employees, which allows participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. Employees of the Company are eligible to participate in the plan. The Company matches the employees’ contribution with an employer contribution up to 3% of gross salary. The Company made contributions for the three months ended June 30, 2011 and June 30, 2010 of $3,151 and $1,629, respectively.

Note 14. United Business Combination

On January 1, 2010, the Company entered into an agreement to purchase a 100% of the issued and outstanding capital stock of United (the "Purchase Agreement") in exchange for forgiveness of debt in the amount of $520,000, $150,000 in stock and a promissory note in the aggregate principal amount of $500,000 payable to Debbie and Mike Werner, bearing interest at 5.0% per annum and maturing on December 31, 2011. The promissory note contains a provision that allows for the profits from the operations of United to be used towards payment of the note. Payments on the note from profits from the operations are evaluated on a quarterly basis and as of April 13, 2011 no payments have been made. The stock was issued on February 11, 2011 in the amount of 60 million shares.

Until such time as the promissory notes issued in these transactions are repaid in full, all cash generated from the operation of United will be managed and controlled by the managers of United. The Company is not entitled to utilize the cash proceeds from United for any purpose other than to provide working capital for United without the consent of United’s manager.

The following table summarizes the final allocation of the purchase price:

Consideration Provided by USOG
Forgiveness of Receivable	$	170,000
Forgiveness of Note Receivable		350,000
Note payable issued to Deb and Mike Werner		500,000
Stock Payable		150,000
Total Consideration Provided:		1,170,000
Net Liabilities Assumed
Current assets assumed		179,920
Current liabilities assumed		(342,431	)
Long term liabilities assumed		(101,959	)
Consideration paid in excess of working capital and long-term liabilities assumed:		1,434,470
Fixed assets		575,359
Customer relationships		656,000
Trade name		128,000
Residual goodwill		75,111
Total Allocation:	$	1,434,470

Impairment of goodwill is evaluated annually. There was no impairment for the twelve months ended December 31, 2010. The Company noted no impairment indicators during the three and six months ended June 30, 2011. The intangible assets included the fair value of trade name, customer relationships, residual goodwill, and non-compete. The useful lives of the acquired intangibles are as follows:

		Useful Lives (Years)
Trade name		10
Customer relationships		10
Residual goodwill		Indefinite

The financial results of the acquired business are included in the Company's consolidated financial statements from date of acquisition.

The purchase transaction was negotiated at arm's length and was accounted for as a purchase transaction. As required by the applicable guidance in effect at the time of the acquisition, the Company valued all assets and liabilities acquired at their fair values on the date of acquisition. An independent valuation expert was hired to assist the Company in determining these fair values. Accordingly, the assets and liabilities of the acquired entity were recorded at their estimated fair values at the date of the acquisition.

In addition, the Company entered into an employment agreement effective January 1, 2010 with Mike Werner to serve as President of United for three years ended January 1, 2013. His base salary is $36,000 on an annualized basis.

The Company entered into an employment agreement effective January 1, 2010 with Deb Werner to serve as Vice President of United for three years ended January 1, 2013. Her base salary is $18,000 on an annualized basis.

Note 15. Derivative Liability

At June 30, 2011, the Company had convertible notes with a face value of $1,159,954 that contain an embedded derivative due to their conversion features not being considered fixed or determinable. In addition to these convertible notes all other debt and equity instruments convertible to common stock at the discretion of the holder were considered as a part of the derivative liability due to the tainted equity environment. These instruments consisted of convertible preferred stock valued at fair value and recorded as a part of the derivative liability.

The following shows the changes in the derivative liability measured on a recurring basis for the six months ended June 30, 2011:

Derivative liability at December 31, 2010	$	810,539
Derivative liability from issuance of convertible notes payable (recorded as discount on debt)		251,886
Derivative liability from issuance of convertible notes payable (recorded as loss)		44,940
Gain on derivative liability		63,365
Settlement of portion of derivative liability		(526,530	)
Derivative liability at June 30, 2011	$	644,200

The following tabular presentation reflects the components of derivative financial instruments on the Company’s balance sheet at June 30, 2011 and December 31, 2010:

Derivative Liabilities	June 30, 2011		December 31, 2010
Embedded conversion feature	$	383,974	$	256,749
Other derivative instruments		260,226		553,790
Totals	$	644,200	$	810,539

The fair values of certain other derivative financial instruments (tainted equity) that existed at the time of the initial Debenture Financing were re-classed from stockholders’ equity to liabilities when, in connection with the Debenture Financing, the Company no longer controlled its ability to share-settle these instruments.

Note 16. Subsequent Events

On August 4, the Company filed a Definitive Proxy Statement on schedule 14A with the SEC giving shareholders notice of the 2011 Annual Meeting to be held on August 31, 2011 and vote to elect three board members, to approve an amendment to the Company’s Certificate of Incorporation to effectuate a reverse split of the Company’s issued and outstanding shares of common stock at a ratio of 1-for-1,000 and reduce the authorized number of shares of Common Stock from five billion (5,000,000,000) to twenty million (20,000,000), and to ratify the appointment of the independent registered public accounting firm for the year ending December 31, 2011. Proxy has not yet been ratified.

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

The following discussion should be read in conjunction with the unaudited consolidated financial statements and the notes thereto. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K. This discussion also contains forward-looking statements. Please see the “Caution Regarding Forward-Looking Information; Risk Factors” above.

Executive Summary

United States Oil and Gas Corp, referred to as “USOG,” “we,” “our” or “us”, was founded in 1988. Headquartered in Austin, Texas, we identify and attempt to acquire domestic oil and gas service companies that market and distribute refined fuels, distillates (which are liquid petroleum products that are burned in a furnace or boiler for the generation of heat or used in an engine for the generation of power) and propane to retail and wholesale customers and oversee the operations of the businesses we acquire. Our acquisition targets are small to mid-sized family-run companies with historically profitable results, strong balance sheets, high profit margins, and solid management teams in place. Oil and gas service companies typically purchase bulk fuel and propane from regional suppliers, then store, sell, and deliver the fuel and propane to local businesses, drillers, farms, wholesalers, and individuals. We intend to improve operational efficiencies through the application of executive level expertise and hope to gain additional advantages by realizing synergies among the acquired companies.

We deploy a prospecting system to identify potential acquisition targets that fit our strategy. The system incorporates successful small to mid-size Midwest companies that are not readily targeted by larger competitors. Our management then intends to use its operational expertise to increase the profitability of the acquired businesses through the implementation of streamlined processes and the synergies between the companies that are purchased.

We acquired Turnbull, located in Plainville, Kansas, and its subsidiary, Basinger propane, located in Utica, Kansas, on May 15, 2009. We made our second acquisition, United, located in Bottineau, North Dakota, effective January 1, 2010. The operations of Turnbull (including Basinger) and United were our sole source of revenue from sales in the quarter. In the short-term we intend to continue to integrate these acquisitions and improve operating results by leveraging internal growth opportunities. We have a medium to long -term focus of acquiring additional oil and gas service companies and expanding within the oil and gas service sector. We purchase fuel from local suppliers and then sell and deliver it to a broad range of regional customers. This diversification of our customer base mitigates our dependence on any one segment and allowed us to remain operationally profitable and increase revenue even during the recession in 2009-2010. Customers are primarily wholesale businesses, farmers, drillers, private individuals and construction businesses. While fuel sales remained fairly constant throughout the year, propane sales are significantly higher in the winter months when heating fuel is in high demand.

Going forward, our primary emphasis will be a consolidation on a tax basis of both of our subsidiaries; leveraging internal growth opportunities and continuing to reduce debt.

Results of Operations

	Three Months Ended June 30,
Sales by Subsidiary ($000’s)	2011				2010				Change
	$		%		$		%		$		%

Turnbull		6,980	80	%		4,375	73	%		2,605	60	%
United		1,692	20	%		1,595	27	%		97	6	%
Total		8,672	100	%		5,970	100	%		2,702	45	%

Net Sales. For the quarter ended June 30, 2011, total net sales were $8.7 million. Turnbull provided 80% of sales compared to 20% from United. Sales for the quarter ended June 30, 2011 compare to $6.0 million of sales for the quarter ended June 30, 2010. The percentage of sales for United dropped by 7% in 2011 compared to the three months ended June 30, 2010, primarily due to heavy rain and flooding in North Dakota that caused a significant drop in fuel sales to farmers. The overall sales increase of 45% in 2011 is primarily attributable to significant price increase in fuel and propane in April, 2011.

	Six Months Ended June 30,
Sales by Subsidiary ($000’s)	2011				2010				Change
	$		%		$		%		$		%

Turnbull		12,297	78	%		8,090	71	%		4,207	52	%
United		3,443	22	%		3,276	29	%		167	5	%
Total		15,740	100	%		11,366	100	%		4,374	38	%

Net Sales. For the six months ended June 30, 2011, total net sales were $15.7 million compared to $11.4 million for the same period in 2010. Turnbull provided 78% of sales compared to 22% from United. The percentage of sales for United dropped by 7% in 2011 compared to the six months ended June 30, 2010, primarily due to heavy rain and flooding in North Dakota that caused a significant drop in fuel sales to farmers. The overall sales increase of $4.4 million (38%) is primarily attributable to price increase in fuel and propane in April, 2011.

The overall economy appears to be improving at a very slow rate, and we anticipate flat sales volume for the remainder of 2011 at both Turnbull and United. The increase in oil and gas prices in the first and second quarter of 2011 had a positive impact on sales but it did not materially affect volume. At United we expect improved sales volume over the first half of 2011 due in part to the planned opening of a second retail store and gas station late in 2011 and continued growth in the propane business due to increase in economic activity in the area. This is in large part due to increased oil drilling within the area covered by the Bakken Formation. In addition, we expect flood conditions to improve.

	Three Months Ended June 30,
Operating Expenses by Division: ($000’s)	2011				2010				Change
	$		%		$		%		$			%
Corporate		152	30	%		155	38	%		(3	)	(2	)%
Turnbull		210	42	%		112	28	%		98		88	%
United		138	28	%		140	34	%		(2	)	(1	)%
Total		500	100	%		407	100	%		93		23	%

Operating expenses. Operating expenses increased by $91,000, or 23%, for the quarter ended June 30, 2011 compared to the same period in 2010. Corporate overhead costs and operating costs at United remained fairly constant. The overall increase is attributable to salary and benefit costs as well repair and maintenance costs at Turnbull. Total increase in these totaled $91,000 and $20,000, respectively, for the three months ended June 30, 2011, over the three months ended June 30, 2010. The salary increase was implemented on January 1, 2011, so the impact will affect the entire year’s comparative figures.

	Six Months Ended June 30,
Operating Expenses by Division: ($000’s)	2011				2010				Change
	$		%		$		%		$		%
Corporate		352	29	%		315	32	%		37	12	%
Turnbull		571	47	%		407	42	%		164	40	%
United		285	24	%		251	26	%		34	14	%
Total		1,208	100	%		973	100	%		235	24	%

Operating expenses. Operating expenses increased by $235,000 or 24%, for the six months ended June 30, 2011 compared to the same period in 2010. Corporate overhead costs increased by $37,000 (12%) for the six months ended June 30, 2011 compared to the same period in 2010. This is primarily the result of increased legal and audit fees (professional fees) that were incurred in connection with becoming a reporting company under the Securities Exchange Act of 1934 in July 2010. Turnbull operating costs increased by $164,000 (40%) from an increase in salaries due to an additional driver and an increase in repair and maintenance expense from preventative maintenance costs to existing equipment. United operating expenses increased by $34,000 (14%). The increase was partly attributed to slightly higher salary costs and increased repair and maintenance expense on existing equipment, and from additional expense for prepaid improvements at the second convenience store location. These increases occurred during the first quarter of 2011.

We anticipate consistent operating expenses for the second half of 2011 at the Corporate level and at Turnbull. At United we anticipate additional costs from planned opening of a second retail convenience store and gas station towards the end of 2011.

	Three Months Ended June 30,
Operating Income(Loss) by Division: ($000’s)	2011					2010					Change
	$			%		$			%			$		%
Corporate		(152	)	154	%		(155	)	(189	)%		3			(2	)%
Turnbull		151		(153	)%		236		288	%		(85	)		(36	)%
United		(98	)	99	%		1		1	%		(99	)		(9,900	)%
Total		(99	)	100	%		82		100	%		(181	)		(259	)%

Operating Income/(Loss). For the three months ended June 30, 2011, operating loss was $99,000, compared to a profit of $82,000 for the same period in 2010. This is due in part to the increase in corporate operating costs, as described above. However, the lower sales volume at United is also a significant factor. Turnbull provided operating income for the three months ended June 30, 2011 of $151,000 compared to a profit of $236,000 for the same period in 2010. The reduction is due to the increase in operating costs described above. For the three months ended June 30, 2011, United sustained an operating loss of $98,000 compared to operating profit of $1,000 for the same period in 2010. The difference is primarily attributable to the decrease in fuel sales due to heavy rains and flooding in North Dakota.

	Six Months Ended June 30,
Operating Income(Loss) by Division: ($000’s)	2011					2010					Change
	$			%		$			%		$			%
Corporate		(353	)	133	%		(316	)	212	%		(37	)	12	%
Turnbull		226		(85	)%		116		(78	)%		110		95	%
United		(139	)	52	%		51		(34	)%		(190	)	(373	)%
Total		(266	)	100	%		(149	)	100	%		(117	)	79	%

Operating Income/(Loss). For the six months ended June 30, 2011, operating loss was $266,000 compared to a loss of $149,000 for the same period in 2010. Corporate operating costs increased by $37,000 (12%) due to the increase in legal and audit fees described above. Turnbull provided operating income for the six months ended June 30, 2011, of $226,000 compared to a profit of $116,000 for the same period in 2010. The 2010 operating income at Turnbull included a $170,000 expense for reserve against accounts receivable. This, in addition to the additional expense operating costs described above, accounts for the difference between 2011 and 2010. For the six months ended June 30, 2011, United sustained an operating loss of $139,000 compared to operating profit of $51,000 for the same period in 2010. This is due to increased operating cost described above in addition to slightly lower gross margins due to increased competition in the local market created by the increase in fuel prices during the first calendar quarter of 2011 and the drop in sales during the second fiscal quarter of 2011 due to heavy rain and flooding.

	Three Months Ended June 30,
Net Income(Loss) by Division: ($000’s)	2011					2010					Change
	$			%		$			%		$			%
Corporate		(742	)	112	%		(144	)	(900	)%		(598	)	415	%
Turnbull		170		(26	)%		163		1,019	%		7		4	%
United		(93	)	14	%		(3	)	(19	%		(90	)	3,000	%
Total		(665	)	100	%		16		100	%		(681	)	(4,256	)%

Net Income/(Loss). For the three months ended June 30, 2011, Net Loss was $665,000, compared to net income of $16,000 for the same period in 2010. $212,000 of the total difference of $681,000 is attributable to the reduction in operating income discussed above. The remaining difference is made up of a loss on conversion of debt of $355,000 and loss on derivative liability of $108,000 during the three months ended June 30, 2011. These are non-cash expenses related to the conversion of debt into stock at below market value and the booking of a loss on derivative debt instruments.

	Six Months Ended June 30,
Net Income(Loss) by Division: ($000’s)	2011					2010					Change
	$			%		$			%		$			%
Corporate		(1,347	)	112	%		(702	)	113	%		(645	)	92	%
Turnbull		279		(23	)%		38		(6	)%		241		634	%
United		(132	)	11	%		42		(7	)%		(174	)	(414	)%
Total		(1,200	)	100	%		(622	)	100	%		(578	)	93	%

Net Income/(Loss). For the six months ended June 30, 2011, Net Loss was $1,200,000, compared to a loss of $622,000 over the same period in 2010. In addition to the factors discussed above, the biggest component of the difference was a non-operating expense of $250,000 incurred in 2010 as part of renegotiating the terms of the note payable to Jeff Turnbull. This was offset by accretion expense from derivative instruments of $308,000 for the six months ended June 30, 2011 compared to $82,000 for the same period in 2010 and a net loss from conversion of debt of $480,000 for the six months ended June 30, 2011 compared to $0 for the same period in 2010. Both of these items are non-cash expense items. Additional items are discussed below.

Interest Income/Expense and Other Income/(Loss). We incurred interest expense of $48,000 for the three months ended June 30, 2011 compared to expense of $17,000 for the same period in 2010. Most of the increase is attributable to interest accruing on our outstanding promissory notes, especially the $3.5 million note to Jeff Turnbull, which did not have interest payable for the three months ended June 30, 2010. For the three months ended June 30, 2011, this was offset by interest income of $26,000, mostly from Turnbull. Interest income for the same period in 2010 was $28,000. Interest expense for the six months ended June 30, 2011 was $55,000 compared to $62,000 for same period in 2010.

Provision for Income Taxes. The tax expense for the three months ended June 30, 2011 was $0 compared to $103,000 for the same period in 2010. The tax expense for the six months ended June 30, 2011 was $0 compared to $133,000 for the same period in 2010. The difference is because as of July 1, 2010 we consolidated with Turnbull on a tax basis as well as financial reporting basis.

Liquidity and Capital Resources

Our cash balance at June 30, 2011 was $43,000 compared to $4,000 at December 31, 2010. An additional $585,000 is held as restricted cash at quarter ended June 30, 2011 because cash balances at subsidiaries are restricted to working capital purposes for each respective subsidiary until the promissory notes issued in connection with such acquisition are paid in full. In the six months ended June 30, 2011, operating activities used $319,000 ($1,200,000 from net loss). Included as a non-cash expense was $148,000 of depreciation and amortization expense and $481,000 expense from the loss on conversion of debt. Other adjustments related primarily to changes in accounts receivable, inventory, and accounts payable. Investing activities utilized $42,000. This balance is for the purchase of equipment at Turnbull subsidiary. Financing activities provided $399,000. Financing activities for the six months ended June 30, 2011 included the reduction of existing debt by $219,000 and the sale of convertible notes in the amount of $410,000.

On a consolidated basis, current assets on the balance sheet as of June 30, 2011 were $3.1 million against current liabilities of $3.6 million. A large component of the current liabilities is a $644,000 liability for derivatives. This is a non-cash liability based on the expected loss on conversion of convertible debt into stock. Long-term debt primarily consists of note payable to Jeff Turnbull that is due on December 31, 2012. The balance on that note at June 30, 2011 was $3.5 million.

Accounts receivable at June 30, 2011 were $2.1 million compared to $1.7 million December 31, 2010. These balances are shown net of allowance for doubtful accounts in the amount of $468,000 and $326,000, respectively. Accounts receivable are from customers of Turnbull, Basinger, and United. Turnbull evaluates accounts receivable annually and writes off accounts considered uncollectible. Turnbull also charges 21% interest on all accounts receivable over 30 days, which historically has covered amounts lost due to uncollectible accounts. A reserve is booked against all accounts that are over 90 days past due. Goodwill of $2.8 million is the result of the Turnbull/Basinger and United acquisitions. The value of the Goodwill is evaluated on an annual basis for impairment and adjusted down if necessary. There was no adjustment made at June 30, 2011.

We consider a number of liquidity and working capital performance ratios in evaluating our financial condition. The following table includes certain ratios, working capital information, and summarized cash flows for use in understanding our current liquidity and recent trends in this area:

Liquidity and Working Capital Performance Measures	June 30, 2011			December 31, 2010
Ratio of current assets to current liabilities		0.87			0.65
Ratio of total assets to total liabilities		1.01			0.91
Working capital (current assets minus current liabilities)	$	(458,000	)	$	(1,286,000	)
Net cash provided by (used in) the six months ended:		June 30, 2011			June 30, 2010
Operating activities	$	(319,000	)	$	8,000
Investing activities		(42,000	)		(14,000	)
Financing activities		399,000			130,000
Earnings before taxes, interest, depreciation/amortization gain/loss on convertible debt (Modified EBITDA)	$	(128,000	)	$	(291,000	)

Balance sheet ratios and working capital improved during the three months ended June 30, 2011 as overall debt was reduced.

We use a modified EBITDA number as a key performance measure. Modified EBITDA is net income adjusted by removing tax expense, interest expense, depreciation and amortization expense, amortization of discount on convertible debt, and gain and loss on the conversion of debt. We feel that this provides an accurate and useful measure of performance because it eliminates non-cash expenses that are largely unrelated to operations. Modified EBITDA is a non-GAAP financial measure. The following presents a reconciliation of our modified EBITDA to Net Income:

	Three months ended June 30,
	2011			2010
Modified EBITDA	$	(28,000	)	$	155,000
Income Tax Expense		-			(103,000	)
Net Interest (Income)/Expense		(21,000	)		11,000
Depreciation Expense		(48,000	)		(54,000	)
Amortization Expense		(20,000	)		(20,000	)
Amortization of discount on convertible debt		(84,000	)		(15,000	)
Loss on Conversion of Debt		(464,000	)		42,000
Net Income:	$	(665,000	)	$	16,000

The modified EBITDA balance for the three months ended June 30, 2011 was a loss of $28,000 compared to a gain of 155,000 for the same period in 2010. The difference is primarily attributable to the variance in operating income/loss which was a loss of $130,000 for the three months ended June 30, 2011 and was a profit of $82,000 for the same period in 2010.

	Six months ended June 30,
	2011			2010
Modified EBITDA	$	(128,000	)	$	(256,000	)
Income Tax Expense		-			(133,000	)
Net Interest (Income)/Expense		(40,000	)		(11,000	)
Depreciation Expense		(95,000	)		(106,000	)
Amortization Expense		(39,000	)		(40,000	)
Amortization of discount on convertible debt		(309,000	)		(81,000	)
Loss on Conversion of Debt		(589,000	)		5,000
Net Income:	$	(1,200,000	)	$	(622,000	)

The modified EBITDA balance for the six months ended June 30, 2011 was a loss of $128,000, a 100% improvement of $128,000 over the same period in 2010. Modified EBITDA includes bad debt expense of $158,000 and $169,000 for the six months ended June 30, 2011 and 2010, respectively. These items were incurred primarily during the first quarter of both years. The 2010 modified EBITDA includes a one-time non-cash fee of $250,000 that was incurred from the renegotiation of Turnbull note payable.

We are pursuing additional cash from the sale of convertible notes to existing shareholders as well as equity financing through investment banks and accredited investors to fund the remaining balance on our outstanding promissory notes.

Off-Balance Sheet Arrangements

As of June 30, 2011 we had no off-balance sheet arrangements.

Critical Accounting Policies

Revenue Recognition. Revenue is generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed and determinable, and collectability is probable. We derive revenues from three primary sources—refined fuels sales, parts sales and services. For refined fuels sales and parts sales, revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the contract price is fixed or determinable, title and risk of loss has passed to the customer and collection is reasonably assured. Our sales are typically not subject to rights of return and, historically, sales returns have not been significant. System sales that do not involve unique customer acceptance terms or new specifications or technology with customer acceptance provisions and that involve installation services are accounted for as multiple-element arrangements, where the fair value of the installation service is deferred when the product is delivered and recognized when the installation is complete. In all cases, the fair value of undelivered elements, such as accessories ordered by customers, is deferred until the related items are delivered to the customer. For certain other system sales that do involve unique customer acceptance terms or new specifications or technology with customer acceptance provisions, all revenue is generally deferred until customer acceptance. Deferred revenue from such sales is presented as unearned revenues in accrued liabilities in the accompanying consolidated balance sheets.

Taxes collected from customers and remitted to government agencies for specific revenue producing transactions are recorded net with no effect on the income statement.

Deferred Revenue. At June 30, 2011 and December 31, 2010, we had $0 and $34,489 of deferred revenue related to payments received in advance from the State of North Dakota through its fuel assistance program. This revenue was realized in the first fiscal quarter of 2011.

Shipping and Handling Costs. Shipping and handling costs are included in products cost of revenues.

Cash and Cash Equivalents. We consider all highly liquid cash investment instruments with an original maturity of three months or less to be cash equivalents. We maintain our cash accounts at banks which are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Our deposits are periodically in excess of federally insured limits on a temporary basis. We had at June 30, 2011 and December 31, 2010, $0 and $0, respectively, of cash balances in excess of the FDIC limits. There were no cash equivalents at June 30, 2011 or December 31, 2010.

Cash Restriction. We consider $585,293 and $286,376 of cash on hand to be restricted cash at June 30, 2011 and December 31, 2010, respectively. This cash is considered restricted to working capital purposes of the subsidiaries, and the cash is controlled by managers of the subsidiaries as stipulated in the acquisition agreements. Once payment has been made on debt outstanding to subsidiary managers, cash will become unrestricted.

Accounts Receivable. Accounts receivable is recorded net of an allowance for expected losses. The allowance is estimated from historical performance and projections of trends.

Presentation of Sales and Use Tax. Several states impose various sales, use, utility and excise tax on all of our sales to non-exempt customers. We collect the various taxes from these non-exempt customers and remit the entire amount to the applicable jurisdiction. Our accounting policy is to exclude the tax collected and remitted to the various taxing jurisdictions from revenue and cost of sales.

Income Taxes. We provide for deferred taxes in accordance with ASC Topic 740 Income Taxes, which requires us to use the asset and liability approach to account for income taxes. This approach requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The provision for income taxes is based on income before income taxes as reported in the accompanying consolidated statements of income. We recognize tax benefits for uncertain tax positions when they satisfy a greater than 50% probability threshold and provides for the estimated impact of interest and penalties for the uncertain tax benefits.

Goodwill. Goodwill represents the excess of the cost for the United and Turnbull acquisitions over the net of the amounts assigned to the assets acquired and liabilities assumed. We account for our goodwill in accordance with generally accepted accounting standards, which requires us to test goodwill for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, rather than amortize.

The goodwill balance of $2,757,036 at June 30, 2011, is related to our acquisitions of Turnbull in 2009 for $2,681,925 and United in 2010 for $75,111. The acquired subsidiaries have years of historical operations which represent the goodwill associated with these companies.

Generally accepted accounting standards require that a two-step impairment test be performed annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The first step of the test for impairment compares our book value to our estimated fair value. The second step of the goodwill impairment test, which is only required when the net book value of the item exceeds the fair value, compares the implied fair value of goodwill to its book value to determine if an impairment is required.

We tested for impairment of our goodwill at December 31, 2010 and determined that an impairment was not necessary. No evaluation was necessary at June 30, 2011, as no impairment indicators were prevalent.

Impairment of Long Lived Assets. We adopted the FASB standard that requires that long-lived assets and certain identifiable intangibles held and used by us be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. We evaluate the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should an impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. The FASB also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Concentrations of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of trade receivables. All of our customers are located in the U.S. and all sales are denominated in U.S. dollars. We perform ongoing credit evaluations of our customers to minimize credit risk.

Accounting for Derivative Instruments. The FASB statement on derivative instruments and hedging activities requires all derivatives to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in our structured borrowings, are separately valued and accounted for on our balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

Monte Carlo Valuation Model. We valued the conversion features in our convertible notes using a Monte Carlo method, with the assistance of a valuation consultant. The Monte Carlo model for valuating financial derivatives relies on simulating the possible behavior of a stock price many times, with the results of each simulation varying based on a stochastic model. The various results are then combined through averaging or another method to estimate the value of the stock (and, derivatively, the stock option). In general, the more random simulations computed, and the more complex the model will be and subsequently the more accurate the estimate will be.

Stock Based Compensation. Beginning January 1, 2006, we adopted the FASB standard related to stock based compensation. The standard requires all share-based payments to employees (which includes non-employee Directors), including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of common stock options or warrants granted to employees is estimated at the date of grant using the Black-Scholes option pricing model by using the historical volatility of comparable public companies. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.

We from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the date required by the Emerging Issues Task Force guidance related to accounting for equity instruments issued to non-employees. In accordance with this guidance, the options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. As of June 30, 2011 and December 31, 2010, no options or warrants related to compensation have been issued, and none are outstanding.

Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, accounts receivable, other assets, fixed assets, derivative liability, deferred revenue, accounts payable, accrued liabilities and short-term debt. The estimated fair value of cash, accounts receivable, other assets, accounts payable, deferred revenue and accrued liabilities approximated their carrying amounts due to the short-term nature of these instruments. The carrying value of short-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with comparable risks. None of these instruments are held for trading purposes.

We utilize various types of financing to fund its business needs, including debt with warrants attached and other instruments indexed to its stock. We review our warrants and conversion features of securities issued as to whether they are freestanding or contain an embedded derivative and if so, whether they are classified as a liability at each reporting period until the amount is settled and reclassified into equity with changes in fair value recognized in current earnings. At June 30, 2011, we had convertible notes valued at $1,159,954 that contain an embedded derivative due to their conversion features not being considered fixed or determinable. In addition to these convertible notes all other debt and equity instruments convertible to common stock at the discretion of the holder were considered as a part of the derivative liability due to the tainted equity environment. These instruments consisted of convertible preferred stock valued at fair value and recorded as a part of the derivative liability.

·	Level one – Quoted market prices in active markets for identical assets or liabilities;

·	Level two – Inputs other than level one inputs that are either directly or indirectly observable; and

·	Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter. Our only asset or liability measured at fair value on a recurring basis is its derivative liability associated with the convertible debt and tainted equity (discussed above). We classify the fair value of the derivative liability under level three. The fair value of the derivative liability was calculated using the Monte Carlo model. Under the Monte Carlo model using an expected term equal to the contractual terms of the debt, volatility ranging from 98.8% to 109.1% and a risk-free interest rate ranging from 0.45% to 0.81%, we determined the fair value of the derivative liability to be $644,200 as of June 30, 2011.

The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and June 30, 2011:

			Fair value measurements using
	Carrying Value		Level 1		Level 2		Level 3		Total
Derivative Liabilities		810,539		-		-		810,539		810,539
Total at 12/31/10		810,539						810,539		810,539
Derivative Liabilities		644,200		-		-		644,200		644,200
Total at 6/30/11:		644,200		-		-		644,200		644,200

There were no instruments valued at fair value on a non-recurring basis as of June 30, 2011 and December 31, 2010.

Recently Issued Accounting Standards. In January 2010, the FASB issued FASB ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which is now codified under FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” This ASU will require additional disclosures regarding transfers in and out of Levels 1 and 2 of the fair value hierarchy, as well as a reconciliation of activity in Level 3 on a gross basis (rather than as one net number). The ASU also provides clarification on disclosures about the level of disaggregation for each class of assets and liabilities and on disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. FASB ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures requiring a reconciliation of activity in Level 3. Those disclosures will be effective for interim and annual periods beginning after December 15, 2010. The adoption of the portion of this ASU effective after December 15, 2009, as well as the portion of the ASU effective after December 15, 2010, did not have an impact on our consolidated financial position, results of operations or cash flows.

In April 2010, the FASB issued FASB ASU No. 2010-17, “Milestone Method of Revenue Recognition,” which is now codified under FASB ASC Topic 605, “Revenue Recognition.” This ASU provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. Consideration which is contingent upon achievement of a milestone in its entirety can be recognized as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. A milestone should be considered substantive in its entirety, and an individual milestone may not be bifurcated. An arrangement may include more than one milestone, and each milestone should be evaluated individually to determine if it is substantive. FASB ASU No. 2010-17 was effective on a prospective basis for milestones achieved in fiscal years (and interim periods within those years) beginning on or after June 15, 2010, with early adoption permitted. If an entity elects early adoption, and the period of adoption is not the beginning of its fiscal year, the entity should apply this ASU retrospectively from the beginning of the year of adoption. This ASU did not have any effect on the timing of revenue recognition and our consolidated results of operations or cash flows.

In December 2010, the FASB issued FASB ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” which is now codified under FASB ASC Topic 805, “Business Combinations.” A public entity is required to disclose pro forma data for business combinations occurring during the current reporting period. This ASU provides amendments to clarify the acquisition date to be used when reporting the pro forma financial information when comparative financial statements are presented and improves the usefulness of the pro forma revenue and earnings disclosures. If a public company presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) which occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The supplemental pro forma disclosures required are also expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. FASB ASU No. 2010-29 is effective on a prospective basis for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of this ASU will not have a material effect on our consolidated financial position, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary financial market risks include commodity prices for refined fuels and propane and interest rates on borrowings.

Commodity Price Risk

The risk associated with fluctuations in the prices we pay for refined fuels and propane is principally a result of market forces reflecting changes in supply and demand for refined fuels and propane and other energy commodities. Our profitability is sensitive to changes in refined fuels and propane supply costs and we generally pass on increases in such costs to customers. We may not, however, always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly.

Interest Rate Risk

We have fixed-rate debt. Changes in interest rates impact the fair value of fixed-rate debt but do not impact their cash flows. Our long-term debt is typically issued at fixed rates of interest based upon market rates for debt having similar terms. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. This debt may have an interest rate that is more or less than the refinanced debt.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. We performed an evaluation, under the supervision and participation of our management, including our Chief Executive Officer/Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based on this evaluation, our Chief Executive Officer/Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2011 based on our material weaknesses described below. We believe that the consolidated financial statements contained in this report present fairly our financial condition, results of operations, and cash flows for the fiscal years covered thereby in all material respects.

Material Weaknesses Previously Disclosed

Our management, including the Chief Executive Officer/ Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The following deficiencies were noted during our annual audit for the year ended December 31, 2010 and still exist at June 30, 2011:

As of June 30, 2011, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees its accounting policies and procedures. This has resulted in inconsistent practices. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

As of June 30, 2011, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any legal proceedings and, to our knowledge, no action, suit or proceeding has been threatened against us. There are no material proceedings to which any of our directors, officers, or subsidiaries are parties to that are adverse to us or have a material interest adverse to us.

Item 1A. Risk Factors

In addition to the risk factors described in Part I, Item 1A, “Risk Factors”, of Annual Report on Form 10-K we filed with the Securities and Exchange Commission on April 19, 2011, we face the following additional risk.

Along with 16 other small issuers as part of a broad regulatory effort focused on microcap stocks, we were subject to a ten day Order of Suspension of Trading ended June 17, 2011. If the Securities and Exchange Commission (“SEC”) continues to have such concerns our stock price and ability to raise additional capital will be impacted.

On June 7, 2011 we received an Order of Suspension of Trading from the SEC. The SEC informed us that they had questions concerning the adequacy and accuracy of press releases concerning our operations as well as stock promotion activities. In response to the Order we conferred with SEC regarding its concerns and conducted a thorough review of our press releases, financial statements and other disclosure documents.

After a review of our historical press releases, we noted that on May 20, 2011, we filed our Quarterly Report for the three month period ended March 31, 2011 on Form 10-Q which included for the first time, restated figures for the period ended March 31, 2010. The Notes to those financial statements detail all the adjustments. The SEC noted that we did not issue a press release specifically addressing the restatement. In sum, Total Assets and Liabilities and Stockholders’ Deficit were reduced by $375,000 to $6.6 million. Net loss increased by $292,000 to $639,000.

We believe we have properly complied with the regulations pertaining to the dissemination of information under our control. However, if the SEC continues to have concerns regarding our public statements and issues a second order suspending trading in our stock, our stock price and ability to raise additional capital will be negatively impacted.

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

Between April 5, 2011 and June 6, 2011, outstanding principal and interest owed with respect to $90,000 of convertible note was converted by us into an aggregate 96,153,846 shares of our Common Stock (the “Common Stock”), at an average conversion price of $0.0021 per share.

On April 7, 2011, outstanding principal owed with respect to $300,000 of notes payable, was purchased by independent third parties via a Wrap Around Agreement then subsequently converted into 300 million shares of our Common Stock. The average conversion price was $0.001 per share.

Between May 6, 2011 and May 16, 2011, we accepted an aggregate of $135,000 in exchange for the Notes to five (5) accredited investors. At the market price, when purchased, the Notes would convert into 93,750,000 shares of common stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Removed and Reserved

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit	Description
31*	Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*	Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith

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 STATES OIL AND GAS CORP
		(Registrant)

Date:	August 12, 2011	BY: /s/ Alex Tawse
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive and Principal Financial Officer)