UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number: 000-51465 

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

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

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

As of March 31, 2014, there were 97,418,383 shares of the issuer’s $0.001 par value common stock issued and outstanding.

TABLE OF CONTENTS

PART II

OTHER INFORMATION

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

UNITED AMERICAN PETROLEUM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

UNITED AMERICAN PETROLEUM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS PERIODS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

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

UNITED AMERICAN PETROLEUM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(UNAUDITED)

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

UNITED AMERICAN PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.      Nature of Operations and Basis of Presentation

Nature of Operations

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

Basis of Presentation

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim consolidated financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8 of SEC Regulation S-X. The principles for interim consolidated financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements on Form 10-K for the year ended December 31, 2013. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair statement of the condensed results for the interim periods. Operating results for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. We made certain reclassifications to prior-period amounts to conform to the current presentation.

2.       Going Concern

The Company has incurred a net loss and negative operating cash flows since inception through March 31, 2014. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s management is implementing plans to sustain the Company’s cash flow from operating activities and/or acquire additional capital funding. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

3.       Related Party Transactions

As of March 31, 2014 the Company had a related party receivable in the amount of $79,564 due from a company with working interest amounts payable. This represents a $19,972 decrease from an amount of $99,536 as of December 31, 2013. Our directors are also officers in this company.

4.       Convertible Notes and Detached Warrants

Credit Facility – January 31, 2013

On January 31, 2013, we entered into a Note Purchase Agreement with an investor pursuant to which the investor agreed to lend the Company up to $400,000 in multiple installments in exchange for a senior secured convertible

promissory note with a conversion price equal to 60% of the lowest trading price per share during the previous 25 trading days. The first installment of $55,000 was delivered less a fee of $5,000 on the date of the Purchase Agreement. The second installment of $25,000 was delivered in April 2013. The notes mature on January 31, 2014, or upon default, whichever is earlier and bear interest at an annual rate of 12%. As described in Note 5, the embedded conversion feature qualified for liability classification at fair value. As a result, the Company recorded a full discount of $55,000 to the note payable on issuance of the first installment, and a full discount of $25,000 to the note payable on issuance of the second installment. As of March 31, 2014 there was $20,072 in outstanding principal and $18,333 in outstanding original interest discount (OID) on this note.

On January 7, 2014 the holder of the convertible note exercised a portion of the conversion rights of the note for 2,800,000 shares of common respectively at a stock price of $0.0011 for a total of $6,380 principal converted.

In January 2014, JMJ submitted a conversion request under one of its Convertible Notes; however, the Company was unable to comply with this request due to insufficient authorized shares of common stock. The lack of authorized shares constituted a default pursuant to the Note. The Company promptly notified JMJ of its inability to honor the conversion request. The Company expects to increase the number of authorized shares by May 29, 2014 (see Note 7, “Subsequent Events”). JMJ has not expressed an intention to assert the remedies set forth in the Note at this time.

Convertible Note – February 19, 2013

On February 19, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant to which the investor lent $103,500 to us in a single installment (minus fees of $16,500) in exchange for a convertible promissory note with a conversion price equal to the average lowest trading price per share during the previous 10 trading days. The embedded conversion option cannot be exercised until 180 days from the date of the note and as such, was not priced until exercisable. The total number of conversion shares is calculated by dividing the amount of the notes by the conversion price.

On January 2, 2014 the holder of the convertible note exercised a portion of the conversion rights of the note for 2,235,294 shares of common respectively at a stock price of $0.0017, for a total of $3,800 accrued interest converted.

As of December 31, 2013 the principal on this note had been fully converted. Upon conversion of the final accrued interest of $3,800 described above, the obligations relating to the note were fully satisfied.

Convertible Note – April 22, 2013

On April 22, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant to which the investor lent $63,000 (minus fees of $3,000) to us in a single installment in exchange for a convertible promissory note with a conversion price equal to 60% of the average lowest trading price per share during 5 of the previous 10 trading days. The embedded conversion option cannot be exercised until 180 days from the date of the note and as such, will not be priced until exercisable. The total number of conversion shares is calculated by dividing the amount of the notes by the conversion price. 

On January 7, 2014 and January 13, 2014 the holder of the convertible note exercised a portion of the conversion rights of the note for 2,757,895 and 2,750,000 shares of common stock respectively at stock prices of $0.0019 and $0.0018 respectively for a total of $10,190 principal converted.

On September 23, 2013 the investor lent an additional $50,000 in a single installment (minus fees of $3,000) under the same terms agreement and terms as the previous installment made April 22, 2013.

As of March 31, 2014, there was $106,593 in outstanding principal and interest on these notes.

In January 2014, Asher submitted a conversion request under one of its Convertible Notes; however, the Company did not have sufficient shares of authorized common stock to honor the conversion request. Asher issued us a notice of default; however, Asher immediately waived the default provided that we began the process to increase our number of authorized shares. We have begun this process; however, the shares are not yet authorized. Consequently, Asher reissued the notice of default to us. Therefore, we have recognized a liability and a loss of $102,810 as of March 31, 2014, which represents the additional amount due under the Notes in the event of default.

5.       Fair Value Measurements and Derivative Liabilities

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

The following table sets forth the Company's consolidated financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

During 2013, the Company issued debt instruments that were convertible into common stock at a conversion price equal to 60% of the lowest trading price per share during the previous 25 trading days. The conversion options embedded in these instruments contain no explicit limit to the number of shares to be issued upon settlement and as a result are classified as liabilities under ASC 815. Additionally, because the number of shares to be issued upon settlement is indeterminate, all other share settle-able instruments must also be classified as liabilities. As a result, the Company measured its outstanding warrants on March 31, 2014 at fair value and re-classified these amounts from additional paid-in capital to derivative liabilities.

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

The Company’s conversion option liabilities are valued using pricing models and the Company generally uses similar models to value similar instruments. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility and correlations of such inputs. These consolidated financial liabilities do not trade in liquid markets, and as such, model inputs cannot generally be verified and do involve significant management judgment. Such instruments are typically classified within Level 3 of the fair value hierarchy. The Company uses the Black Scholes Option Pricing Model to value its derivatives based upon the following assumptions: dividend yield of -0-%, volatility of 138%-398%, risk free rate of 0.03-0.44% and an expected term of 0.08 years to 3 years.

6.       Significant Sale of Assets

On February 26, 2014, the Company completed the sale of a 46% working interest (comprising a 34.5% net revenue interest) in an oil, gas and mineral lease covering 430 acres in Duval County, Texas, to RTO Exploration, LLC (“Buyer”) for the purchase price of $400,000. In addition to the purchase price, in 2013 the Buyer paid a $10,000 non-refundable option payment to the Company. The purchase price was the result of negotiations between the Company and the Buyer.

UAPC’s chief executive officer and chief operating officer have performed certain consulting services for the Buyer.

To account for the sale, we applied the two step process required by the full cost rules. First we calculated the impact of the sale of the working interest on the Company’s depletion rate, determining that the resulting change was not significant (less than 10%). Therefore, step two of the process (calculate loss or gain on sale) was not applicable, and we recognized the $410,000 proceeds as a direct reduction to the full cost pool. We also reduced the asset retirement obligation by $3,127 which was the amount attributable to the working interest that was sold.

7.       Subsequent Events

On January 30, 2014, the Company’s Board of Directors voted to propose for shareholder approval an increase in the number of authorized shares of common stock of the Company to 750,000,000. On the same date, holders of 57.44% of the voting power of the Company voted to approve this action. This increase is expected to become effective on May 29, 2014.

In April 2014, we settled a judgment that had been rendered against the Company in the amount of $19,856 plus attorneys’ fees of $73,669. We settled this judgment by assigning our interest in the Walker Smith lease and having the other working interest owners assign their interest in the lease as well.

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

Forward Looking Statements

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

Critical Accounting Policy and Estimates.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the period ended March 31, 2014, together with notes thereto, which are included in this Quarterly Report.

Recent Events. On February 26, 2014, the Company sold a 46% working interest in a lease covering 430 acres in Duval County, Texas. The Company received $410,000 for this sale, $10,000 of which was received as a non-refundable deposit in the fourth quarter of 2013.

Results of Operations for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013

Revenues.  We had total revenues of $137,185 for the three months ended March 31, 2014, which were generated from oil and gas sales of $134,260 and well operating revenues of $2,925.  This was a $789 increase from total revenues of $136,396 for the three months ended March 31, 2013, which were generated from oil and gas sales of $130,346 and well operation revenues of $6,050. Barrels of oil per day produced (BOPD) increased to an average of 16.85 BOPD from 16.22 BOPD for the three months ended March 31, 2013.

Our administrative revenue increase was a result of income derived from well administrative/operator fees charged through United Operating, LLC, our wholly-owned subsidiary, to third party well owners for managing and accounting for the development and production of their oil and gas property interests. Administrative revenue was only recognized on wells where the Company did not own an interest. The Company also operates certain wells where the Company also has an ownership interest. For these partially owned wells, no administrative income is recognized. Rather, operating fees received from other well interest owners are recorded as a reduction to the full cost pool per the full cost rules.

The following table sets forth the revenue and production data for the three months ended March 31, 2014 and 2013.

Operating Expenses.  For the three months ended March 31, 2014, our total operating expenses were $429,225, which consisted of lease operating expenses of $139,258, accretion expense of $3,186, depletion expense of $19,887, bad debt expense of $12,660 and general and administrative expenses of $254,234.  By comparison, for the three months ended March 31, 2013, our total operating expenses were $259,330, which consisted of lease operating expenses of $75,461, accretion expense of $1,000, depletion expense of $18,364, and general and administrative expenses of $164,505.

The following table sets forth information relating to our operating expenses for the three months ended March 31, 2014 and 2013.

For the three months ended March 31, 2014 we incurred well operating expenses of $139,258, an increase of $63,797 or 85% compared to the three months ended March 31, 2013, as a result of Company conducting incurring higher extraction costs on their wells during 2014.

During the three months ended March 31, 2014 compared to the three months ended March 31, 2013, our depreciation, depletion, amortization, and accretion expenses increased by $3,709, or 19%. These expenses increased largely due to a higher ARO liability based on revised estimates from December 31, 2013, which drove an increase in accretion for the three months ended March 31, 2014.

The increase in general and administrative expenses of $89,729 or 55% during the three months ended March 31, 2014, compared to the prior period, was largely due to an increase in officer compensation and other general and administrative expenses.

Net Operating Loss. For the three months ended March 31, 2014, our total net operating loss was $292,040 as compared to a net operating loss of $122,934 for the three months ended March 31, 2013, an increase of $169,106 or 138% from the prior period. Our net operating loss increased over the prior period due to higher costs of oil and gas extraction on the Company’s wells, partially offset by decreases to workover expenses.

Other Income (Expense). For the three months ended March 31, 2014, we incurred interest expense of $114,736 associated with the amortization of debt discount related to the conversion features on our convertible notes, compared to interest expense of $17,252 for the three months ended March 31, 2013, relating to our outstanding convertible promissory notes. We recorded a gain on embedded derivatives of $85,736 for the three months ended March 31, 2014 compared to a gain on embedded derivatives of $24,520 for the three months ended March 31, 2013. We also incurred a $102,810 penalty due to default on a convertible note for the three months ended March 31, 2014, compared to no penalties recognized for the three months ended March 31, 2013.

Net Loss. For the three months ended March 31, 2014, our net loss was $423,850 as compared to a net loss of $115,666 for the three months ended March 31, 2013, a deterioration of $308,184 or 266% from the prior period. Net loss for the current quarter was largely due to a net operating loss for the same period. 

Liquidity and Capital Resources. During the three months ended March 31, 2014, we used $517,046 in operations, largely due to our net loss for the period and a decrease in accounts payable and accrued expenses. We received proceeds from investing activities of $400,000 from the sale of a working interest in an oil and gas property, and we had no cash provided by or used in financing activities during the three months ended March 31, 2014. We did not obtain new financing during the first quarter of 2014; however, see a discussion of our outstanding notes payable below.

Credit Facility – January 31, 2013

On January 31, 2013, we entered into a Note Purchase Agreement with an investor pursuant to which the investor agreed to lend the Company up to $400,000 in multiple installments in exchange for a senior secured convertible promissory note with a conversion price equal to 60% of the lowest trading price per share during the previous 25 trading days. The first installment of $55,000 was delivered less a fee of $5,000 on the date of the Purchase Agreement. The second installment of $25,000 was delivered in April 2013. The notes mature on January 31, 2014, or upon default, whichever is earlier and bear interest at an annual rate of 12%. As described in Note 5, the embedded conversion feature qualified for liability classification at fair value. As a result, the Company recorded a full discount of $55,000 to the note payable on issuance of the first installment, and a full discount of $25,000 to the note payable on issuance of the second installment. As of March 31, 2014, there was $20,072 in outstanding principal and $18,333 in outstanding original interest discount (OID) on this note.

On January 7, 2014 the holder of the convertible note exercised a portion of the conversion rights of the note for 2,800,000 shares of common respectively at a stock price of $0.0011 for a total of $6,380 principal converted.

In January 2014, JMJ submitted a conversion request under one of its Convertible Notes; however, the Company was unable to comply with this request due to insufficient authorized shares of common stock. The lack of authorized shares constituted a default pursuant to the Note. The Company promptly notified JMJ of its inability to honor the conversion request. The Company is currently working to increase the number of authorized shares by March 15, 2014. The Company is not currently in compliance with this undertaking; however, we have remained in contact with JMJ. JMJ has not expressed an intention to assert the remedies set forth in the Note at this time.

Convertible Note – February 19, 2013

On February 19, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant to which the investor lent $103,500 to us in a single installment (minus fees of $16,500) in exchange for a convertible promissory note with a conversion price equal to the average lowest trading price per share during the previous 10 trading days. The embedded conversion option cannot be exercised until 180 days from the date of the note and as such, was not priced until exercisable. The total number of conversion shares is calculated by dividing the amount of the notes by the conversion price.

On January 2, 2014 the holder of the convertible note exercised a portion of the conversion rights of the note for 2,235,294 shares of common respectively at a stock price of $0.0017, for a total of $3,800 accrued interest converted.

As of December 31, 2013 the principal on this note had been fully converted. Upon conversion of the final accrued interest of $3,800 described above, the obligations relating to the note were fully satisfied.

Convertible Note – April 22, 2013

On April 22, 2013, we entered into a credit facility with an investor unrelated to the investor described above pursuant to which the investor lent $63,000 (minus fees of $3,000) to us in a single installment in exchange for a convertible promissory note with a conversion price equal to 60% of the average lowest trading price per share during 5 of the previous 10 trading days. The embedded conversion option cannot be exercised until 180 days from the date of the note and as such, will not be priced until exercisable. The total number of conversion shares is calculated by dividing the amount of the notes by the conversion price. 

On January 7, 2014 and January 13, 2014 the holder of the convertible note exercised a portion of the conversion rights of the note for 2,757,895 and 2,750,000 shares of common stock respectively at stock prices of $0.0019 and $0.0018 respectively for a total of $10,190 principal converted.

On September 23, 2013 the investor lent an additional $50,000 in a single installment (minus fees of $3,000) under the same terms agreement and terms as the previous installment made April 22, 2013.

As of March 31, 2014, there was $106,593 in outstanding principal and interest on these notes.

In January 2014, Asher submitted a conversion request under one of its Convertible Notes; however, the Company did not have sufficient shares of authorized common stock to honor the conversion request. Asher issued us a notice of default; however, Asher immediately waived the default provided that we began the process to increase our number of authorized shares. We have begun this process; however, the shares are not yet authorized. Consequently, Asher reissued the notice of default to us. Therefore, we have recognized a liability and a loss of $102,810 as of March 31, 2014, which represents the additional amount due under the Notes in the event of default.

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements as of March 31, 2014.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4. Controls and Procedures.

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

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

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company’s Form 10-K filed with the Commission on April 16, 2014, which risk factors are incorporated by reference herein. Investors are encouraged to read and review the risk factors included in the Form 10-K prior to making an investment in the Company.

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

None.

Item 3. Defaults Upon Senior Securities.

In January 2014, Asher submitted a conversion request under one of its Convertible Notes; however, the Company did not have sufficient shares of authorized common stock to honor the conversion request. Asher issued us a notice of default; however, Asher immediately waived the default provided that we began the process to increase our number of authorized shares. We have begun this process; however, the shares are not yet authorized. Consequently, Asher reissued the notice of default to us. Therefore, we have recognized a liability and a loss of $102,810 as of March 31, 2014, which represents the additional amount due under the Notes in the event of default.

In January 2014, JMJ submitted a conversion request under one of its Convertible Notes; however, the Company was unable to comply with this request due to insufficient authorized shares of common stock. The lack of authorized shares constituted a default pursuant to the Note. The Company promptly notified JMJ of its inability to honor the conversion request. The Company is currently working to increase the number of authorized shares by March 15, 2014. The Company is not currently in compliance with this undertaking; however, we have remained in contact with JMJ. JMJ has not expressed an intention to assert the remedies set forth in the Note at this time.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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.