UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 _______________________
 
 FORM
10-Q
 _______________________





(Mark
One)





ýQUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
quarterly period ended March 31, 2009


oTRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE EXCHANGE ACT


Commission
file
number                                                      000-52770





PACIFIC
ASIA PETROLEUM, INC.
 (Exact
name of issuer as specified in its charter)
 
 
 Delaware                                                                 30-0349798
 (State or
Other Jurisdiction of Incorporation or
Organization)                   (I.R.S
Employer Identification No.)
 
 
 250
East Hartsdale Ave.
 Hartsdale,
New York 10530
 (Address
of principal executive offices)
 
 (914)
472-6070
 (Issuer’s
telephone number)


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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
accelerated filer   ̈                                           Accelerated
filer   x


Non-accelerated
filer   ̈(Do
not check if a smaller reporting
company)          Smaller
reporting company   ̈





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





The
number of shares outstanding of each of the issuer’s classes of common stock, as
of May 8, 2009 is as follows:




Class
      of Securities
            
            Shares
      OutstandingCommon
      Stock, $.001 par value
            
            41,919,785








table of contents





Pacific Asia
Petroleum, Inc.


FORM
10-Q


Table
of Contents





PageCAUTIONARY STATEMENT
            1PART I
            FINANCIAL INFORMATION
            2Item 1.
            Financial Statements
            2Condensed Consolidated Balance Sheets as of March 31, 2009
      (unaudited) and December 31, 2008
            2Condensed Consolidated Statements of Income (unaudited) for
      the three months ended March 31, 2009 and 2008 and for the period from
      inception (August 25, 2005) through March 31,
2009
            3Condensed Consolidated Statements of Comprehensive Income
      (Loss) (unaudited) for the three months ended March 31, 2009 and 2008
      and for the period from inception (August 25, 2005) through March 31,
      2009
            4Condensed Consolidated Statement of Equity
      (Deficiency) (unaudited) for the period from inception (August 25, 2005)
      through March 31, 2009
            5Condensed Consolidated Statements of Cash
      Flows (unaudited) for the three months ended March 31, 2009 and 2008
      and for the period from inception (August 25, 2005) through March 31,
      2009
            6Notes to Condensed Consolidated Financial Statements
      (unaudited)
            7Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.
            9Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            15Item 4.
            Controls and Procedures
            15PART II
            OTHER INFORMATION
            15Item 1.
            Legal Proceedings
            15Item 1A.
            Risk Factors
            16Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            16Item 3.
            Defaults Upon Senior Securities
            16Item 4.
            Submission of Matters to a Vote of Security
      Holders
            16Item 5.
            Other Information
            16Item 6.
            Exhibits
            17SIGNATURES
            
            18














i
 table of contents


CAUTIONARY
STATEMENT








All
statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under “Management’s Discussion
and Analysis of Financial Condition and Results of Operation” and “Description
of Business,” are, or may be deemed to be, forward-looking statements. Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors, which may cause the actual results, performance
or achievements of Pacific Asia Petroleum, Inc. and its subsidiaries
(collectively, the “Company”), to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Form 10-Q.




In our
capacity as Company management, we may from time to time make written or oral
forward-looking statements with respect to our long-term objectives or
expectations which may be included in our filings with the Securities and
Exchange Commission (the “SEC”), reports to stockholders and information
provided in our web site.




The words
or phrases “will likely,” “are expected to,” “is anticipated,” “is predicted,”
“forecast,” “estimate,” “project,” “plans to continue,” “believes,” or similar
expressions identify “forward-looking statements.”  Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected.  We wish to caution you not
to place undue reliance on any such forward-looking statements, which speak only
as of the date made.  We are calling to your attention important
factors that could affect our financial performance and could cause actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.




The
following list of important factors may not be all-inclusive, and we
specifically decline to undertake an obligation to publicly revise any
forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.  Among the factors that could
have an impact on our ability to achieve expected operating results and growth
plan goals and/or affect the market price of our stock are:








·
            Lack
      of operating history, operating revenue or earnings
    history.


·
            Dependence
      on key personnel.


·
            Fluctuation
      in quarterly operating results and seasonality in certain of our
      markets.


·
            Possible
      significant influence over corporate affairs by significant
      shareholders.


·
            Our
      ability to enter into definitive agreements to formalize foreign energy
      ventures and secure necessary


exploitation
rights.


·
            Our
      ability to raise capital to fund our
operations.


·
            Our
      ability to successfully integrate and operate acquired or newly formed
      entities and multiple foreign energy ventures and
      subsidiaries.


·
            The
      competition from large petroleum and other energy
    interests.


·
            Changes
      in laws and regulations that affect our operations and the energy industry
      in general.


·
            Risks
      and uncertainties associated with exploration, development and production
      of oil and gas, drilling and production
risks.


·
            Expropriation
      and other risks associated with foreign
  operations.


·
            Risks
      associated with anticipated and ongoing third party pipeline construction
      and transportation of oil and gas.


·
            The
      lack of availability of oil and gas field goods and
    services.


·
            Environmental
      risks, economic conditions, and other risk factors detailed
      herein.










- 1
-
 table of contents





PART IFINANCIAL
      INFORMATIONItem 1.  Financial StatementsPacific
      Asia Petroleum, Inc. and Subsidiaries(A
      Development Stage Company)Condensed
      Consolidated Balance SheetsAs
      of
            
            
            As
      ofMarch
      31,
            
            
            December
      31,2009
            
            
            2008(Unaudited)AssetsCurrent
      assetsCash
      and cash equivalents
            
            $
            9,336,669
            
            
            $
            10,515,657Short-term
      investments
            
            
            1,440,000
            
            
            
            1,260,000Income
      tax refunds receivable
            
            
            8,500
            
            
            
            8,500Prepaid
      expenses
            
            
            42,877
            
            
            
            90,657Deposits
            
            
            31,354
            
            
            
            37,556Advances
            
            
            289
            
            
            
            383Total
      current assets
            
            
            10,859,689
            
            
            
            11,912,753Non-current
      assetsProperty,
      plant and equipment - at cost (net of accumulated depreciation and
      amortization:March
      31, 2009 - $114,805;  December 31, 2008 -
    $88,577)
            
            
            593,605
            
            
            
            569,303Intangible
      assets
            
            
            384
            
            
            
            384Long-term
      advances
            
            
            385,934
            
            
            
            386,415Investments
      in nonsubsidiaries carrried at cost
            
            
            552,900
            
            
            
            -Deferred
      charges
            
            
            1,250,234
            
            
            
            1,250,234Total
      Assets
            
            $
            13,642,746
            
            
            $
            14,119,089Liabilities and
      EquityCurrent
      liabilitiesAccounts
      payable
            
            $
            927,310
            
            
            $
            25,446Income
      taxes payable
            
            
            11,582
            
            
            
            5,148Accrued
      and other liabilities
            
            
            1,291,148
            
            
            
            658,257Total
      current liabilities
            
            
            2,230,040
            
            
            
            688,851EquityStockholders'
      equity - Pacific Asia Petroleum, Inc. and Subsidiaries:Common
      stockAuthorized
      - 300,000,000 shares at $.001 par value; Issued and outstanding
      -41,040,785
      as of March 31, 2009;  40,061,785 at December 31,
      2008
            
            
            41,041
            
            
            
            40,062Preferred
      stockAuthorized
      - 50,000,000 shares at $.001 par value;Issued
      - 23,708,952 as of March 31, 2009 and December 31, 2008Outstanding
      - none as of March 31, 2009 and December 31, 2008
            
            
            -
            
            
            
            -Paid-in
      capital
            
            
            22,648,531
            
            
            
            21,741,965Other
      comprehensive income - currency translation adjustment
            
            
            229,034
            
            
            
            229,860Deficit
      accumulated during the development stage
            
            
            (11,890,415
            )
            
            
            (8,968,064
            )Total
      stockholders' equity - Pacific Asia Petroleum, Inc. and
      Subsidiaries
            
            
            11,028,191
            
            
            
            13,043,823Noncontrolling
      interest
            
            
            384,515
            
            
            
            386,415Total
      equity
            
            
            11,412,706
            
            
            
            13,430,238Total
      Liabilities and Equity
            
            $
            13,642,746
            
            
            $
            14,119,089The
      accompanying notes to unaudited condensed consolidated financial
      statements are an integral part of this statement.




- 2
-
 table of contents





Pacific Asia Petroleum, Inc. and
    Subsidiaries(A
      Development Stage Company)Condensed
      Consolidated Statements of Income(Unaudited)For
      the periodfrom
      inceptionFor
      the three months
            
            
            (August
      25, 2005)ended
      March 31,
            
            
            through2009
            
            
            2008
            
            
            3/31/2009Operating
      ExpensesDepreciation
            
            $
            26,157
            
            
            $
            9,355
            
            
            $
            113,516All
      other operating expenses
            
            
            2,912,868
            
            
            
            1,076,625
            
            
            
            12,829,933Total
      operating expenses
            
            
            2,939,025
            
            
            
            1,085,980
            
            
            
            12,943,449Operating
      Loss
            
            
            (2,939,025
            )
            
            
            (1,085,980
            )
            
            
            (12,943,449
            )Other Income
      (Expense)Interest
      income
            
            
            21,294
            
            
            
            125,805
            
            
            
            1,062,551Other
      income
            
            
            -
            
            
            
            -
            
            
            
            27,632Other
      expense
            
            
            -
            
            
            
            -
            
            
            
            (886
            )Total
      Other Income
            
            
            21,294
            
            
            
            125,805
            
            
            
            1,089,297Net
      loss before income taxes andminority
      interest
            
            
            (2,917,731
            )
            
            
            (960,175
            )
            
            
            (11,854,152
            )Income
      tax (expense) benefit
            
            
            (6,435
            )
            
            
            6,580
            
            
            
            (58,343
            )Net
      loss
            
            
            (2,924,166
            )
            
            
            (953,595
            )
            
            
            (11,912,495
            )Less:
      Net loss - noncontrolling interest
            
            
            1,815
            
            
            
            3,587
            
            
            
            22,080Net
      Loss - Pacific Asia Petroleum, Inc.and
      Subsidiaries
            
            $
            (2,922,351
            )
            
            $
            (950,008
            )
            
            $
            (11,890,415
            )Net
      loss per common share - Pacific AsiaPetroleum
      Inc. common shareholders -basic
      and diluted
            
            $
            (0.07
            )
            
            $
            (0.02
            )Weighted
      average number of commonshares
      outstanding, basic and diluted
            
            
            40,378,963
            
            
            
            39,951,954The
      accompanying notes to the unaudited condensed consolidated financial
      statements are an integral part of this statement.





- 3
-
 table of contents





Pacific Asia Petroleum, Inc. and Subsidiaries(A
      Development Stage Company)Condensed
      Consolidated Statements of Comprehensive Income (Loss)(Unaudited)For
      the periodfrom
      inceptionFor
      the three months
            
            
            (August
      25, 2005)ended
      March 31,
            
            
            through2009
            
            
            2008
            
            
            3/31/2009Net
      loss
            
            $
            (2,924,166
            )
            
            $
            (953,595
            )
            
            $
            (11,912,495
            )Other
      comprehensive income (loss),pre-tax
      and net of tax:Currency
      translation adjustment
            
            
            (911
            )
            
            
            70,208
            
            
            
            236,199Comprehensive
      income (loss)
            
            
            (2,925,077
            )
            
            
            (883,387
            )
            
            
            (11,676,296
            )Less:
      Comprehensive (income) loss -Noncontrolling
      interest share:Net
      loss plus pre-tax and net oftax
      currency translation adjustment
            
            
            1,900
            
            
            
            1,481
            
            
            
            14,915Comprehensive
      income (loss) -Pacific
      Asia  Petroleum, Inc. andSubsidiaries
            
            $
            (2,923,177
            )
            
            $
            (881,906
            )
            
            $
            (11,661,381
            )The
      accompanying notes to the unaudited condensed consolidated financial
      statements are an integral part of this statement.





- 4
-
 table of contents








Pacific Asia Petroleum, Inc. and
    Subsidiaries(A
      Development Stage Company)Condensed
      Statement of Equity (Deficiency)For
      the period from inception (August 25, 2005) to March 31,
    2009(Unaudited)Pacific
      Asia Petroleum, Inc. StockholdersOtherComprehensive
            
            
            DeficitNo.
      of
            
            
            
            
            
            
            
            
            No.
      of
            
            
            
            
            
            
            
            
            Income
      (Loss)-
            
            
            AccumulatedCommon
            
            
            
            
            
            
            
            
            Preferred
            
            
            
            
            
            
            
            
            Foreign
            
            
            During
      the
            
            
            
            
            
            TotalShares
            
            
            Common
            
            
            Subscriptions
            
            
            Shares
            
            
            Preferred
            
            
            Paid-in
            
            
            Currency
            
            
            Development
            
            
            Noncontrolling
            
            
            Equity$.001
      par value
            
            
            Stock
            
            
            Receivable
            
            
            $.001
      par value
            
            
            Stock
            
            
            Capital
            
            
            Translation
            
            
            Stage
            
            
            Interest
            
            
            (Deficiency)Balance
      - August 25, 2005
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Issued
      for cash
            
            
            1,852,320
            
            
            
            1,852
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,148
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,000Subscriptions
            
            
            3,451,680
            
            
            
            3,452
            
            
            
            (28,000
            )
            
            
            -
            
            
            
            -
            
            
            
            24,548
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (51,344
            )
            
            
            -
            
            
            
            (51,344
            )Balance
      - December 31, 2005
            
            
            5,304,000
            
            
            
            5,304
            
            
            
            (28,000
            )
            
            
            -
            
            
            
            -
            
            
            
            34,696
            
            
            
            -
            
            
            
            (51,344
            )
            
            
            -
            
            
            
            (39,344
            )Subscriptions
      paid
            
            
            -
            
            
            
            -
            
            
            
            28,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            28,000Issued
      for fees and services
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,829,421
            
            
            
            1,829
            
            
            
            195,776
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            197,605Issued
      for cash
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,161,802
            
            
            
            8,162
            
            
            
            4,215,262
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,223,424Subsidiary
      paid-in capital additions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            359,410
            
            
            
            359,410Amortization
      of options fair value
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            29,065
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            29,065Currency
      translation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            19,228
            
            
            
            -
            
            
            
            -
            
            
            
            19,228Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,086,387
            )
            
            
            (1,220
            )
            
            
            (1,087,607
            )Balance
      - December 31, 2006
            
            
            5,304,000
            
            
            
            5,304
            
            
            
            -
            
            
            
            9,991,223
            
            
            
            9,991
            
            
            
            4,474,799
            
            
            
            19,228
            
            
            
            (1,137,731
            )
            
            
            358,190
            
            
            
            3,729,781Issued
      for services - pre-merger
            
            
            600,032
            
            
            
            600
            
            
            
            -
            
            
            
            117,729
            
            
            
            118
            
            
            
            334,594
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            335,312Shares
      retained by Pacific Asia Petroleum original
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -stockholders
      in merger - 5/7/07
            
            
            468,125
            
            
            
            468
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            83,323
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            83,791Shares
      issued to ADS members in merger - 5/7/07
            
            
            9,850,000
            
            
            
            9,850
            
            
            
            -
            
            
            
            13,600,000
            
            
            
            13,600
            
            
            
            15,453,957
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            15,477,407Post-merger
      acquisition costs and adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (291,093
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (291,093
            )Automatic
      conversion of Preferred Shares - 6/5/07
            
            
            23,708,952
            
            
            
            23,709
            
            
            
            -
            
            
            
            (23,708,952
            )
            
            
            (23,709
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Issued
      for services, compensation cost of stock options
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -and
      restricted stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            195,442
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            195,442Subsidiary
      paid-in capital additions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            40,020
            
            
            
            40,020Currency
      translation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            108,833
            
            
            
            -
            
            
            
            3,961
            
            
            
            112,794Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,383,684
            )
            
            
            (7,077
            )
            
            
            (2,390,761
            )Balance
      - December 31, 2007
            
            
            39,931,109
            
            
            
            39,931
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            20,251,022
            
            
            
            128,061
            
            
            
            (3,521,415
            )
            
            
            395,094
            
            
            
            17,292,693Issued
      on exercise of warrants
            
            
            79,671
            
            
            
            80
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (83
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3
            )Vesting
      of restricted stock
            
            
            76,400
            
            
            
            76
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (76
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Cancellation
      of restricted stock
            
            
            (10,400
            )
            
            
            (10
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            -Compensation
      cost of stock options and restricted stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,355,590
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,355,590Issued
      for services
            
            
            15,000
            
            
            
            15
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            137,985
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            138,000Issued
      for acquisition of Navitas Corporation
            
            
            450,005
            
            
            
            450
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,176,141
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,176,591Acquired
      on acquisition of Navitas Corporation
            
            
            (480,000
            )
            
            
            (480
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8,178,624
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8,179,104
            )Currency
      translation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            101,799
            
            
            
            -
            
            
            
            3,289
            
            
            
            105,088Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,446,649
            )
            
            
            (11,968
            )
            
            
            (5,458,617
            )Balance
      - December 31, 2008
            
            
            40,061,785
            
            
            
            40,062
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            21,741,965
            
            
            
            229,860
            
            
            
            (8,968,064
            )
            
            
            386,415
            
            
            
            13,430,238Exchanged
      for stock of Sino Gas & Energy Holdings Limited
            
            
            970,000
            
            
            
            970
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            551,930
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            552,900Vesting
      of restricted stock
            
            
            9,000
            
            
            
            9
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (9
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Compensation
      cost of stock options and restricted stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            354,645
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            354,645Currency
      translation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (826
            )
            
            
            -
            
            
            
            (85
            )
            
            
            (911
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,922,351
            )
            
            
            (1,815
            )
            
            
            (2,924,166
            )Balance
      - March 31, 2009
            
            
            41,040,785
            
            
            $
            41,041
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            $
            22,648,531
            
            
            $
            229,034
            
            
            $
            (11,890,415
            )
            
            $
            384,515
            
            
            $
            11,412,706The
      accompanying notes to the unaudited condensed consolidated financial
      statements are an integral part of this statement.





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 table of contents





Pacific Asia Petroleum, Inc. and
    Subsidiaries(A
      Development Stage Company)Condensed
      Consolidated Statements of Cash FlowsFor
      the three months ended March 31, 2009 and 2008,and for the period from inception (August 25, 2005) to
      March 31, 2009(Unaudited)For
      the periodThree
      months
            
            
            Three
      months
            
            
            from
      inceptionended
            
            
            ended
            
            
            (August
      25, 2005)March
      31,
            
            
            March
      31,
            
            
            through2009
            
            
            2008
            
            
            March
      31, 2009Cash flows from
      operating activitiesNet
      loss - Pacific Asia Petroleum, Inc. and Subsidiaries
            
            $
            (2,922,351
            )
            
            $
            (950,008
            )
            
            $
            (11,890,415
            )Adjustments
      to reconcile net loss to cashused
      in operating activities:Interest
      income on long-term advances
            
            
            -
            
            
            
            (27,215
            )
            
            
            (188,987
            )Currency
      transaction loss
            
            
            1,029
            
            
            
            28,534
            
            
            
            85,520Stock-related
      compensation
            
            
            354,645
            
            
            
            294,031
            
            
            
            2,605,659Noncontrolling
      interest in net loss
            
            
            (1,815
            )
            
            
            (3,587
            )
            
            
            (22,081
            )Depreciation
      expense
            
            
            26,157
            
            
            
            9,355
            
            
            
            113,516Impairment
      of assets adjustment
            
            
            -
            
            
            
            -
            
            
            
            273,618Changes
      in current assets and currentliabilities:(Increase)
      decrease in accrued interest and other receivables
            
            
            -
            
            
            
            (34,487
            )
            
            
            (8,500
            )(Increase)
      decrease in advances
            
            
            94
            
            
            
            (10,229
            )
            
            
            (289
            )(Increase)
      decrease in deposits
            
            
            6,202
            
            
            
            (652
            )
            
            
            (31,354
            )(Increase)
      decrease in prepaid expenses
            
            
            47,780
            
            
            
            21,395
            
            
            
            (42,877
            )Increase
      (decrease) in accounts payable
            
            
            901,864
            
            
            
            16,171
            
            
            
            912,159Increase
      (decrease) in income tax and accrued liabilities
            
            
            639,325
            
            
            
            8,266
            
            
            
            1,153,962Net
      cash used in operating activities
            
            
            (947,070
            )
            
            
            (648,426
            )
            
            
            (7,040,069
            )Cash flows from
      investing activitiesNet
      sales (purchases) of available for sale securities
            
            
            (180,000
            )
            
            
            10,900,000
            
            
            
            (1,440,000
            )Increase
      in deferred charges
            
            
            -
            
            
            
            -
            
            
            
            (1,250,234
            )Additions
      to property, plant and equipment
            
            
            (50,071
            )
            
            
            (14,485
            )
            
            
            (668,375
            )Net
      cash provided by (used in) investing activities
            
            
            (230,071
            )
            
            
            10,885,515
            
            
            
            (3,358,609
            )Cash flows from
      financing activitiesPayment
      of notes payable
            
            
            -
            
            
            
            -
            
            
            
            (5,000
            )Increase
      in noncontrolling interest investment
            
            
            -
            
            
            
            -
            
            
            
            399,430Increase
      in long-term advances to noncontrolling interest subsidiary
      shareholder
            
            
            -
            
            
            
            -
            
            
            
            (400,507
            )Decrease
      in subscriptions receivable
            
            
            -
            
            
            
            -
            
            
            
            28,000Issuance
      of common stock net of issuance costs
            
            
            -
            
            
            
            -
            
            
            
            19,671,092Net
      cash provided by (used in) financing activities
            
            
            -
            
            
            
            -
            
            
            
            19,693,015Effect
      of exchange rate changes on cash
            
            
            (1,847
            )
            
            
            8,820
            
            
            
            42,332Net
      increase (decrease) in cash and cash equivalents
            
            
            (1,178,988
            )
            
            
            10,245,909
            
            
            
            9,336,669Cash
      and cash equivalents at beginning of period
            
            
            10,515,657
            
            
            
            2,208,969
            
            
            
            -Cash
      and cash equivalents at end of period
            
            $
            9,336,669
            
            
            $
            12,454,878
            
            
            $
            9,336,669Supplemental
      disclosures of cash flow informationInterest
      paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -Income
      taxes paid
            
            $
            -
            
            
            $
            28,241
            
            
            $
            48,867Supplemental
      schedule of non-cash investing and financing activitiesCommon
      and preferred stock issued for services and fees
            
            $
            -
            
            
            $
            -
            
            
            $
            670,917Common
      stock issued for stock of nonsubsidiaries
            
            $
            552,900
            
            
            $
            -
            
            
            $
            552,900Stock
      issuance costs paid as warrants issued
            
            $
            -
            
            
            $
            -
            
            
            $
            929,477Warrants
      exercised for common stock
            
            $
            -
            
            
            $
            (4
            )
            
            $
            (3
            )The
      accompanying notes to unaudited condensed consolidated financial
      statements are an integral part of this statement.





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 table of contents


Pacific Asia Petroleum, Inc. and Subsidiaries


(A
Development Stage Company)


Notes
to Condensed Consolidated Financial Statements


March
31, 2009


(Unaudited)








NOTE
1.  INTERIM FINANCIAL STATEMENTS





The
accompanying condensed consolidated financial statements of Pacific Asia
Petroleum, Inc. and subsidiaries (the “Company”) are
unaudited.  Management believes this interim data includes all
adjustments necessary for a fair presentation of the results for the interim
periods reported.  All adjustments were of a recurring
nature.





Certain
notes and other information have been condensed or omitted from the interim
financial statements present in this Quarterly Report on Form
10-Q.  Therefore, these financial statements should be read in
conjunction with the Company’s year 2008 Annual Report on Form
10-K.  The results for the three month period ended March 31, 2009 are
not necessarily indicative of future results.





NOTE  2.  BUSINESS;
YEAR 2007 MERGER AND RECAPITALIZATION; LIQUIDITY





Refer to
Notes 1 and 2 to the consolidated financial statements in year 2008 Form 10-K
for a description of the Company’s business, and the merger and recapitalization
of the Company that occurred in 2007.





To date,
the Company has incurred expenses and sustained losses and has not generated any
revenue from operations.  Consequently, its operations are subject to
all risks inherent in the establishment of a new business
enterprise.  The Company will require significant financing in excess
of its March 31, 2009 available cash, cash equivalents, and short-term
investments in order to achieve its business plan.  It is not certain
that this financing will be successfully obtained.





NOTE  3.  BASIS
OF PRESENTATION AND USE OF ESTIMATES





The
Company’s interim financial statements are prepared on a consolidated basis
under U.S. Generally Accepted Accounting Principles as a development stage
company.  Refer to Note 5 to the consolidated financial statements in
year 2008 Form 10-K for a description of the Company’s significant accounting
policies.  As required under the adoption of SFAS No. 160 effective
January 1, 2009 (see Note 4), data presented for periods before 2009 has been
revised retrospectively to reflect the revised presentation basis in the
financial statements for the three months period ending and as of March 31,
2009. In addition, the Company is now reporting detail of current period
comprehensive income on a separate financial statement.





Management
uses estimates and assumptions in preparing these financial
statements.   Those estimates and assumptions affect the reported
amounts of assets and liabilities, disclosures of contingencies, and reported
revenues and expenses.  Actual results could vary from those
estimates.





NOTE
4.   ADOPTION OF NEW ACCOUNTING STANDARD





The
Company adopted SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements: An Amendment of ARB No. 51” effective January 1, 2009.
This statement changes the accounting and reporting for noncontrolling interests
(formerly known as minority interests) in subsidiaries and for the
deconsolidation of a subsidiary.  The presentation of noncontrolling
interests in the balance sheet and income statement has been revised to report
noncontrolling interests as a separate component of total consolidated equity
and total consolidated net income, rather than as reduction
adjustments.  In addition, if a subsidiary is deconsolidated, the
parent company will now recognize a gain or loss to net income based upon the
fair value of the noncontrolling equity at that date.




SFAS No.
160 is applied prospectively except for the provisions involving financial
statements line detail presentation.  All of the Company’s financial
statements contain changes as a result of SFAS No. 160. Under SFAS No. 160, the
amount formerly titled “Net Loss” in the income statement is now referred to as
“Net Loss - Pacific Asia Petroleum, Inc. and Subsidiaries”, to designate the
portion of total net loss attributable to the controlling shareholder interest
of the parent company.


- 7
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 table of contents





NOTE
5.  RELATED PARTY TRANSACTION





In March,
2009, the Company issued 970,000 shares of Company Common Stock, to Mr. Richard
Grigg, the Company’s Senior Vice President and Managing Director,  in
exchange for 3,825,000 Ordinary Fully Paid Shares of Sino Gas & Energy
Holdings Limited (SG&E) owned by Mr. Grigg. This represented approximately
3.26% of the outstanding shares of SG&E as of March 9, 2009. The acquired
shares were accounted for as a non-current investment carried at cost by the
Company.  Mr. Grigg is a former executive of SG&E who joined the
Company in October 2007.  The SG&E shares were acquired in order
to eliminate possible conflicts of interest involving Mr. Grigg regarding
possible future transactions that may occur between the Company and SG&E, as
both companies’ business plans involve developing operations in
China.





NOTE
6.  NEW ACCOUNTING STANDARDS NOT YET ADOPTED





As of
March 31, 2009 there were no new accounting standards not yet adopted that are
expected to have a material effect on the Company in the foreseeable
future.





NOTE
7. LITIGATION AND CONTINGENCIES





The
Company at March 31, 2009 had no litigation, actual or potential, of which it
was aware and which could have a material effect on its financial
position.





NOTE
8. INVESTMENTS IN NON-CURRENT ASSETS NOT MEASURED AT FAIR VALUE ON A RECURRING
BASIS





The
Company has an investment in a long-term note receivable and an investment in a
nonsubsidiary entity that must be periodically reviewed for possible impairment.
Any such future impairment measurements will involve the use of “Level 3”
inputs, as that term is defined in SFAS No.157, “Fair Value
Measurements.”  Level 3 inputs are not observable in an active
market.





NOTE
9. SUBSEQUENT EVENT





On April
22, 2009, the Company entered into the Liviakis Amendment with Liviakis
Financial Communications, Inc., (Liviakis) pursuant to which the Company was
obligated to issue on such date an aggregate of 869,000 shares of Company Common
Stock to Liviakis and an employee designee thereof  (Liviakis Shares)
as full consideration for the two-year renewal of the Company’s engagement of
Liviakis for certain investor relations services.  The issuance of the
Liviakis Shares was approved by the Company’s Board of Directors on April 22,
2009, at a price of $0.85 per share, which was the fair market value per share
of the Liviakis Shares as determined by the Board of Directors as of such
date.





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 table of contents


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





Throughout
this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” ” Company,” and
“our Company” refer to Pacific Asia Petroleum, Inc., a Delaware corporation, and
its present and former subsidiaries, including Pacific Asia Petroleum, Ltd.
(“PAPL”), Inner Mongolia Production Co (HK) Limited, and Inner Mongolia Sunrise
Petroleum JV Company (collectively, the “Company”). References to “PAP” refer to
Pacific Asia Petroleum, Inc. prior to the mergers of Inner Mongolia Production
Company LLC (“IMPCO”) and Advanced Drilling Services, LLC (“ADS”) into
wholly-owned subsidiaries thereof, effective May 7, 2007.  Historical
financial results presented herein are the results of IMPCO from inception on
August 25, 2005 to May 6, 2007 and the consolidated entity Pacific Asia
Petroleum, Inc. from May 7, 2007 forward, which is considered to be the
continuation of IMPCO as Pacific Asia Petroleum, Inc.





Cautionary
Statement Regarding Forward-Looking Statements





This
Quarterly Report contains forward-looking statements, which reflect the views of
our management with respect to future events and financial performance. These
forward-looking statements are subject to a number of uncertainties and other
factors that could cause actual results to differ materially from such
statements. Forward-looking statements are identified by words such as
“anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,”
“targets” and similar expressions. Readers are cautioned not to place undue
reliance on these forward-looking statements, which are based on the information
available to management at this time and which speak only as of this date. We
undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.  For a discussion of some of the factors that may cause
actual results to differ materially from those suggested by the forward-looking
statements, please read carefully the information under “Risk Factors” included
in the Company’s Annual Report on Form 10-K for 2008.  The
identification in this Quarterly Report of factors that may affect future
performance and the accuracy of forward-looking statements is meant to be
illustrative and by no means exhaustive. All forward-looking statements should
be evaluated with the understanding of their inherent uncertainty.





Our
Business





The
Company is a development stage company formed to develop new energy ventures,
directly and through joint ventures and other partnerships in which it may
participate.





Members
of the Company’s senior management team have experience in the fields of
international business development, finance, petroleum engineering, geology,
field development and production, and operations. Several members of the
Company’s management team have held management and executive positions with
Texaco Inc. and with other international energy companies and have managed
energy projects in China, elsewhere in Asia and in other parts of the world.
Members of the Company’s management team also have experience in oil drilling,
operations, geological engineering and government relations in China’s energy
sector.





The
Company was originally incorporated in Delaware on December 12, 1979 as Gemini
Marketing Associates Inc., subsequently changed its name to Pacific East
Advisors, Inc., and on May 7, 2007 consummated a reverse merger involving IMPCO
and ADS (the “Mergers”), in connection with which the Company changed its name
to Pacific Asia Petroleum, Inc.  Under applicable accounting
standards, IMPCO was defined as the acquiring company in the
Mergers.





Accordingly,
the reportable results of operations for the Company through the date of the
Mergers of May 7, 2007 are comprised only of the historical results of the
former IMPCO. Therefore, for purposes of financial reporting, the inception of
the Company is reflected as August 25, 2005, the inception date of IMPCO. The
cumulative net losses of the Company from inception through March 31, 2009 are
$11,890,415.  Our losses have resulted primarily from general and
administrative expenditures associated with developing a new enterprise, and
consulting, legal and accounting expenses.  From inception through
March 31, 2009, we did not generate revenues from operations.





ZIJINSHAN
BLOCK CBM OPERATIONS





On April
2, 2008, the Company received written confirmation that the Ministry of Commerce
of The People’s Republic of China approved the entry by the Company’s
subsidiary, PAPL, into that certain Production Sharing Contract entered into on
October 26, 2007 with China United Coalbed Methane Corp. Ltd. for the
exploitation of


- 9
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 table of contents


coalbed
methane resources in the Zijinshan block, which is a 175,000 acre area located
in the Shanxi Province of China (the “Zijinshan Block”).





The
Company has completed seismic data acquisition operations on the Zijinshan Block
and spent approximately $1.5 million to shoot 162 kilometers of seismic under
the work program. This seismic data has since been processed and is currently
being interpreted.  Once the seismic interpretation is complete and
geological models are updated, potential well locations will be identified. In
the meantime, an environmental impact assessment study is underway, and will be
completed prior to locating and drilling the first well, which the Company
anticipates will be drilled in the 2nd half of
2009.





BAODE
ASSET TRANSFER AGREEMENTS





The
Company is currently a party to two asset transfer agreements (the “Baode ATAs”)
to acquire 100% of the foreign contractor participating interests in a
production sharing contract (the “Baode PSC”) with respect to the coalbed
methane (“CBM”) and tight gas sand resource block known as the “Baode Area”
located within the Shanxi Province in China.





On
September 7, 2007, Pacific Asia Petroleum, Ltd. (“PAPL”), a wholly-owned Hong
Kong subsidiary of PAP, and PAP (together with PAPL, the “Company”), entered
into an Asset Transfer Agreement – Baode Area (the “CTCEC Baode ATA”) with
Chevron Texaco China Exploration Company (“CTCEC”), for the purchase by the
Company of CTCEC’s 35.7142% participating interest (“CTCEC Interest”) held in
the Baode PSC.  If consummated in accordance with the terms of the
CTCEC Baode ATA, the Company would purchase CTCEC’s participating interests
pursuant to, and the Company would become a party to, the Baode PSC with respect
to the CTCEC Interest, and the Company would assume CTCEC’s rights and
obligations under certain related operating agreements, effective upon
satisfaction of certain closing conditions, waivers and approvals.





Effective
April 24, 2008, the Company and CTCEC entered into an amendment to the CTCEC
Baode ATA (“Amended CTCEC Baode ATA”), pursuant to which the parties agreed
to, among other things (i) reduce the base purchase price with respect to the
Company’s acquisition of the CTCEC Interest from $13 million to $2 million, (ii)
remove the Company’s obligation to pay interest to CTCEC on the cash portion of
the base purchase price for their CTCEC Interest, with final payment due upon
delivery of these assets to the Company, and (iii) extend the deadlines for
satisfaction of certain closing conditions, including receipt of necessary
Chinese government approvals, from June 6, 2008 to November 6,
2008.





The CTCEC
Baode ATA was one of four asset transfer agreements entered into by and between
CTCEC and the Company in September 2007, as amended, with respect to the
proposed purchase by the Company of participating interests held by CTCEC in
four CBM and tight gas sand resource blocks located in the Shanxi Province of
China (the “CTCEC ATAs”).  On December 5, 2008, the Company exercised
its right to terminate three of the four of the CTCEC ATAs, electing to move
forward with solely the CTCEC Baode ATA.





On March
29, 2008, the Company entered into an Asset Transfer Agreement – Baode Area (the
“BHPB Baode ATA”) with BHP Billiton World Exploration Inc. (“BHPB”), for the
purchase by the Company of BHPB’s 64.2858% participating interest (“BHPB
Interest”) held in the Baode PSC.  If consummated in accordance with
the terms of the BHPB Baode ATA, the Company would purchase BHPB’s participating
interests pursuant to, and the Company would become a party to, the Baode PSC
with respect to the BHPB Interest, and the Company would assume BHPB’s rights
and obligations under certain related operating agreements, effective upon
satisfaction of certain closing conditions, waivers and approvals.





Effective
October 1, 2008, the Company and BHPB entered into an amendment to the BHPB
Baode ATA (“Amended BHPB Baode ATA”), pursuant to which the parties agreed to
extend the deadlines for satisfaction of certain closing conditions, including
receipt of necessary Chinese government approvals, from September 30, 2008 to
October 31, 2008.





Effective
November 1, 2008, the Company and BHPB entered into a further amendment to the
BHPB Baode ATA (“Second Amended BHPB Baode ATA”), pursuant to which the parties
agreed to extend the deadlines for satisfaction of certain closing conditions,
including receipt of necessary Chinese government approvals, from October 31,
2008 to November 30, 2008.


- 10
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 table of contents


Although
deadlines that had previously been extended in amendments to the Baode ATAs have
now expired, expiry of these deadlines do not automatically terminate any of the
Baode ATAs.  Rather, they provided the option for either party to the
respective Baode ATAs to terminate.  To date, no party to either of
the Baode ATAs and their subsequent amendments has terminated either of the
Boade ATAs.  Accordingly, both Baode ATAs and their subsequent
amendments remain in full force and effect.





As
currently set forth in the Baode ATAs, as amended, upon closing of these
agreements the Company will hold 100% of the participating interest under the
Baode PSC, and the Company will assume BHPB’s operating obligations under the
operating agreements related to the Baode PSC.





The
closing of the asset transfers contemplated pursuant to the Baode ATAs, as
amended, are contingent upon a number of conditions precedent, including the
approval of certain related agreements by the PRC Ministry of Land and Natural
Resources and the assignment of ChevronTexaco’s and BHP’S participating
interests by the PRC Ministry of Commerce, which approvals and assignment are
currently in the process of being requested.





WELL
LEAD GROUP LIMITED





On
September 30, 2008, the Company entered into an Agreement on Cooperation (“AOC”)
with Well Lead Group Limited (“Well Lead”) relating to the possible acquisition
of a participating interest in an onshore oil production operation  in
the People’s Republic of China. The acquisition involved the proposed purchase
by the Company from Well Lead of up to a 39% interest in Northeast Oil (China)
Development Ltd., which owns a 95% interest in the production of the Fu710 and
Meilisi723 blocks which form part of the currently producing Fulearji
Oilfield which is under the jurisdiction of  Qiqihar City in
Heilongjiang Province, the People’s Republic of China.





On
February 27, 2009 the Company signed an Amended and Restated Agreement on
Cooperation (“Amended AOC”) with the principals of Well Lead and certain other
related parties to revise and expand the scope of the original
AOC.  This Amended AOC, and subsequent negotiations, expand the scope
of the proposed transaction to include the Company having a 40.8% participation
in the revenues from the production from all blocks comprising the Fulearji
Oilfield (not just Fu710 and Meilisi723), as well as the Company having a 51%
ownership of certain pending patents and proprietary oilfield production
enhancement technologies, along with a 51% interest in the certain Well Lead
contracts entered into with CNPC and other Chinese state oil companies under
which the technology is applied and/or sold.  The aggregate
consideration payable by the Company to Well Lead and other parties to the
Amended AOC is contemplated to be $1.5 million in cash and 4 million shares of
the Company’s capital stock, payable and issuable, respectively, over time upon
attainment of certain milestones, and the Company’s obligation to cover up to $5
million in capital expenditures pursuant to work programs currently in
development and to be agreed upon by the parties.  The Company is
currently negotiating definitive documentation related to the transaction, with
the goal of concluding final documentation by June 30, 2009.





FUNDING





To date,
although the Company has not yet generated any operating revenue, it has raised
approximately $21.6 million in equity financings to fund its ongoing working
capital requirements, as well as possible acquisition and development
activities. In order to fully implement its business strategy, including the
consummation of the asset transfers contemplated pursuant to the Baode ATAs and
anticipated subsequent conduct of operations as operator under the Baode PSC,
the Company will need to raise significant additional capital.  In the
event the Company is unable to raise such capital on satisfactory terms or in a
timely manner, the Company would be required to significantly revise its
business plan.





You
should read the information in this Item 2 together with our unaudited condensed
financial statements and notes thereto that appear elsewhere in this
Report.





Plan
of Operation





The
following describes in general terms the Company’s plan of operation and
development strategy for the twelve-month period ending March 31, 2010 (the
“Next Year”). During the Next Year, the Company plans to focus its efforts by
continuing operations in its 100% owned and operated Zijinshan Block. These
operations will include the interpretation of the 162 kilometers of seismic data
that was shot on the Zijinshan Block and will also include the drilling of at
least one well. The Company also plans to finalize the possible acquisition
transaction with Well Lead


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and
related parties and commence onshore oilfield production operations pursuant to
that acquisition. The Company will also continue with its efforts to consummate
the purchase of 100% of the foreign contractor participating interests in the
Baode PSCs pursuant to the Baode ATAs.





The
Company also plans to put into commercial use the new technology to be acquired
pursuant to the proposed Well Lead acquisition and assess its applicability to
the Company’s August 2006 Contract for Cooperation and Joint Development with
Chifeng Zhongtong Oil and Natural Gas Co. (“Chifeng”), pursuant to which
drilling operations commenced in October 2006 and were subsequently suspended in
2007 pending receipt of a production license from the Chinese government. The
Company’s revised strategy with regards to Chifeng is to enhance all the
relevant parties’ economic positions and use these benefits to acquire the
necessary production licenses in order to carry out the plans under that
agreement.





In
addition to these opportunities, the Company plans to continue to seek to
identify other opportunities in the energy sectors in China and the Pacific Rim,
particularly with respect to oil and gas exploration, development, production,
refining and distribution. Since we are a development stage company, we are
limited in our ability to grow by the availability of capital for our businesses
and each project. The Company’s ability to successfully consummate any of its
projects, including the projects described above, is contingent upon the making
of any required deposits, obtaining the necessary governmental approvals and
executing binding agreements to obtain the rights we seek within limited
timeframes.





The
Company has assembled a management team with experience in the fields of
international business development, petroleum and geologic engineering, geology,
petroleum field development and production, petroleum operations, government
relations and finance. Members of the Company’s management team previously held
positions in similar oil and gas development, and screening roles at Texaco Inc,
and with other international energy companies and will seek to utilize their
contacts in Asia to provide us with access to a variety of energy projects.
Among the strategies that we plan to use are:





·
            Focusing
      on projects that play to the expertise of our management
    team;


·
            Leveraging
      our productive asset base and capabilities to develop
    value;


·
            Actively
      managing our assets and ongoing operations while attempting to limit
      capital exposure;


·
            Enlisting
      external resources and talent as necessary to operate/manage our
      properties during peak operations;
and


·
            Implementing
      an exit strategy with respect to each project with a view to maximizing
      asset values and returns





Product
Research and Development





The
Company has not engaged in any product research or development and does not
anticipate engaging in product research or development during the Next
Year.





Liquidity
and Capital Resources





The
Company has sufficient funds to fund all of its current operations for the Next
Year provided, however, that if the conditions precedent to the closing of the
Baode  ATAs are satisfied and the Company consummates the purchase of
the participating interests thereunder, the Company will be required to raise
significant additional capital to fund the unpaid base purchase price, as well
as additional capital to fund ongoing operational expenses related to the
participating interests.





The
remaining discussion below considers the Company’s ability to fund its other
operations and overhead expenses, exclusive of the funding necessary for the
Baode ATAs and related Baode PSC, and the agreement Well Lead, except insofar as
the deposits required for the Baode ATAs have reduced our
liquidity.





As of
March 31, 2009, the Company had net working capital of $8,629,649 and cash, cash
equivalents and short-term investments of $10,776,669. The Company also has
deposits of $650,000 with CTCEC in consideration of the CTCEC Baode ATA and
$500,000 with BHPB in consideration of the agreement to purchase the BHPB
Interest. For the three months ended March 31, 2009, the Company incurred a net
loss of $2,922,351. As a result of our operating losses from our inception
through March 31, 2009, we generated a cash flow deficit of $7,040,069 from
operating activities. Cash flows used in investing activities were $3,358,609
during the period from inception


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through
March 31, 2009.  We met our cash requirements during this period
through net proceeds of $19,671,092 from the private placement of restricted
equity securities.





Net cash
used in operating activities for the first three months of 2009 was $947,070,
compared to $648,426 for the first three months of 2008.  The increase
in 2009 versus 2008 was due to increases in expenses.





Net cash
used in investing activities was $230,071 for the first three months of 2009, as
compared to net cash provided by investing activities of $10,885,515 for the
first three months of 2008.  The net change was principally due to
$180,000 in net purchases of available for sale short-term securities in three
months, 2009 versus net sales of $10,900,000 of such securities in three months,
2008. There were no net cash effects from financing activities in the first
three months of 2009 and the first three months of 2008.





Our
available working capital and capital requirements will depend upon numerous
factors, including progress of our exploration and development programs, closing
of the acquisition transaction with Well Lead, closing of the Baode ATAs and
purchase of the related participating interests, market developments and the
status of our competitors. Our continued operations will depend on whether we
are able to raise additional funds through various potential sources, such as
equity and debt financing and strategic alliances. Such additional funds may not
become available on acceptable terms, if at all, and any additional funding
obtained may not be sufficient to meet our needs in the long term. Through March
31, 2009, virtually all of our financing has been raised through private
placements of equity instruments.  The Company at March 31, 2009, had
no credit lines for financing and no short-term or long-term debt.





We intend
to continue to fund operations from cash on hand and through the similar sources
of capital previously described for the foreseeable future. Any additional
capital that we are able to obtain may not be sufficient to meet our needs. We
believe that we will continue to incur net losses and negative cash flows from
operating activities for the next 1-2 years. Based on the resources available to
us on March 31, 2009, we can sustain operations at the present “burn rate” for
more than one year. We will need additional equity or debt financing to expand
our operations through 2009 and we may need additional financing
thereafter.





By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits. However, if during the Next Year or thereafter, we are not successful
in generating sufficient liquidity from operations or in raising sufficient
capital resources, on terms acceptable to us, this could have a material adverse
effect on our business, results of operations, liquidity and financial
condition.





To the
extent the Company acquires additional CBM, tight gas sand and other
energy-related rights consistent with its business plan, including the
participating interests from CTCEC and BHPB, the Company will need to raise
additional funds for such projects. The Baode acquisition opportunities pursuant
to the Baode Asset Transfer Agreements that the Company is pursuing would
require significant additional capital.





Results
of Operations





As a
development stage company, we have yet to earn revenues from operations. We may
experience fluctuations in operating results in future periods due to a variety
of factors, including our ability to obtain additional financing in a timely
manner and on terms favorable to us, our ability to successfully develop our
business model, the amount and timing of operating costs and capital
expenditures relating to the expansion of our business, operations and
infrastructure and the implementation of marketing programs, key agreements, and
strategic alliances, and general economic conditions specific to our
industry.





As a
result of limited capital resources and no revenues from operations from the
date of IMPCO’s inception on August 25, 2005, the Company has relied on the
issuance of equity securities as a means of compensating employees and
non-employees for services. The Company enters into equity compensation
agreements with non-employees if it is in the best interest of the Company and
in accordance with applicable federal and state securities laws. In order to
conserve its limited operating capital resources, the Company anticipates
continuing to compensate employees and non-employees partially with equity
compensation for services during the Next Year.  This policy may have
a material effect on the Company’s results of operations during the Next
Year.





Revenues





We have
generated no revenues from operations since IMPCO’s inception on August 25,
2005. We hope to begin


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generating
revenues from operations later in 2009, as the Company transitions from a
development stage company to that of an active growth stage
company.





ExpensesThree months ended March
      31,2009
            
            
            2008DescriptionSalaries
            
            $
            465,700
            
            
            $
            231,064Consulting
      fees
            
            
            406,705
            
            
            
            232,496Stock-based
      compensation
            
            
            354,645
            
            
            
            294,032Exploratory
      expenses
            
            
            1,157,465
            
            
            
            -Legal
      fees
            
            
            62,045
            
            
            
            57,381Travel
            
            
            57,846
            
            
            
            49,981Auditing
            
            
            87,391
            
            
            
            58,200All
      other operating expenses
            
            
            347,228
            
            
            
            162,826Total
      Operating Expenses
            
            $
            2,939,025
            
            
            $
            1,085,980








For the three months ended March 31, 2009, total operating expenses
before income taxes were $2,939,025.  For the three months ended March
31, 2008, the comparable amount was $1,085,980.  The increase in expenses
reflects increased effort in identifying potential oil and gas opportunities,
seeking related financing, and increased administrative costs, and the
continuing of seismic work (Exploratory Expenses) which commenced in December
2008 in the Zijinshan Block.  The major components of the expense
differences are as follows:





·
            Salaries: For three
      months ended March 31, 2009, salaries totaled $465,700 versus
      $231,064  for three months ended March 31, 2008.  The
      increase of $234,636 is principally due to current period expense for
      additional personnel in the 2009 period and increased
      compensation.





·
            Consulting
      fees:  For three months ended March 31, 2009, consulting
      fees payable in cash totaled $406,705 versus $232,496 for the three months
      ended March 31, 2008.  The increase in cash consulting fees of
      $174,209 was principally due to management contract fees in connection
      with a coalbed methane project under exploration for future development,
      partially offset by a decrease in Sarbanes-Oxley implementation-related
      consulting fees.





·
            Stock-based
      compensation:For three months ended March 31, 2009,
      expense was $354,645 for stock options and restricted stock compensation,
      versus $294,032 for three months ended March 31, 2008.  The
      increase of $60,613 was due to option and restricted stock awards existing
      during 2009 that were not present in the 2008 period.·
            Exploratory
      Expenses:The Company began seismic data acquisition in
      the Zijinshan Block and expects to complete interpretation and evaluation
      in the second quarter.







·
            Legal
      fees:For three months ended March 31, 2009, these fees
      totaled $62,045 versus $57,381 for three months ended March 31, 2008,
      an increase of $4,664.  The increase was due to increased legal
      work in 2009 related to possible mergers and
  acquisitions.





·
            Travel:For
      three months ended March 31, 2009, travel expense totaled $57,846
      versus $49,981 for three months ended March 31, 2008.  The
      increase of $7,865 was due to increased travel activity in 2009 related to
      possible acquisitions.





·
            Auditing: For three
      months ended March 31, 2009, auditing expense totaled $87,391 versus
      $58,200 for three months ended March 31, 2008, an increase of
      $29,191.  The increase was due to greater accruals in first
      quarter 2009 than 2008 in connection with the year-end
    audits.


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Off-Balance
Sheet Arrangements





The
Company does not have any off-balance sheet arrangements.





Inflation





It is the
opinion of the Company that inflation has not had a material effect on its
operations.





Tabular
Disclosure of Contractual Obligations





Refer to
Part II, Item 7 of the Company’s year 2008 Annual Report on Form 10-K for a
table summarizing the Company’s significant contractual
obligations.  There have been no material changes outside the ordinary
course of the Company’s business during the three months ended March 31, 2009,
with respect to any of such contractual obligations.





Recently
Issued Accounting Standards Not Yet Adopted





Information
on accounting standards not yet adopted is contained in Note 6 to the
condensed consolidated financial statements in this Form 10-Q.





Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Information
about market risks relative to foreign currency denominated financial
instruments owned for the three months ended March 31, 2009, is not materially
different from that provided in Item 7A of the Company’s 2008 Annual Report on
Form 10-K.





At March
31, 2009, the Company’s exposure to a decrease in income on its short-term
investments if interest rates decline was not materially different as compared
to December 31, 2008.




Item 4.  CONTROLS AND PROCEDURES




Evaluation of Disclosure Controls
and Procedures.





We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) that are designed to ensure that information that would be
required to be disclosed in Exchange Act reports is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.





As
required by Rule 13a-15 under the Exchange Act, our management, including Mr.
Frank C. Ingriselli, our Chief Executive Officer and Mr. Stephen F. Groth, our
Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of March 31, 2009.  Based
on that evaluation, Mr. Ingriselli and Mr. Groth concluded that as of March 31,
2009, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls and
procedures were effective to satisfy the objectives for which they are
intended.





Changes in Internal Control Over
Financial Reporting.





During
the fiscal quarter ended March 31, 2009, there were no changes in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.





PART II.   OTHER INFORMATION





Item
1.                      Legal
Proceedings





None.





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ITEM 1A. RISK FACTORS





In
addition to the other information set forth in this Quarterly Report on Form
10-Q, you should carefully consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our 2008 Annual Report, as well as the risk factors described
below, which could materially affect our business, financial condition, or
future results.  The risks described in our 2007 Annual Report and below
are not the only risks facing our company.  Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.





Continued
disruption in national and international investment and credit markets may
adversely affect our business, financial condition and results of
operation.





Recent
disruptions in national and international markets have led to a significant
slowdown in capital market activities, a scarcity of credit, tighter lending
standards and higher interest rates and costs of investment. Current market
conditions may continue or worsen.  We can make no assurances that we will
be able to obtain additional equity or debt financing to fund our anticipated
drilling, exploration and operation costs on terms that are acceptable to us or
at all.  In the absence of capital obtained pursuant to the consummation of
a strategic relationship or transaction with one or more interested companies,
failure to obtain sufficient equity or debt financing would constrain our
ability to operate and to meet our obligations under our current business plans,
if executed, which would have a material adverse effect on our business,
financial condition and results of operation.





Item 2.





Unregistered
Sales of Equity Securities and Use of Proceeds





As
disclosed in our Form 8-K filed with the Securities and Exchange Commission on
March 4, 2009, and herein in Note 5 – Related Party Transaction in the Notes to
Condensed Consolidated Financial Statements, the Company issued 970,000 shares
of Company Common Stock to Mr. Richard Grigg under a Subscription Agreement
dated March 2, 2009, in exchange for 3,825,000 Ordinary Fully Paid Shares of
Sino Gas & Energy Holdings Limited owned by Mr. Grigg, a non-U.S.
person.





No
underwriters were involved in the transaction described above.  All of the
securities issued in the this transaction were issued by us in reliance upon the
exemption from registration available under Regulation S of the Securities Act,
in that the transaction involved the issuance and sale of our securities outside
the United States in an offshore transaction that did not involve directed
selling efforts within the United States.  All certificates representing
the securities issued have a legend imprinted on them stating that the shares
have not been registered under the Securities Act and cannot be transferred
until properly registered under the Securities Act or an exemption
applies.





Stock
Repurchases





None.





Item
3.                      Defaults
Upon Senior Securities





None.





Item
4.                      Submission
of Matters to a Vote of Security Holders





None.








Item
5.                      Other
Information





None.










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Item
6.                     Exhibits


Exhibit
              Number
            Description10.1
            Amended
      and Restated Employment Agreement, dated January 27, 2009, entered into by
      and between the Company and Richard Grigg (incorporated by reference to
      Exhibit 10.1 of our Form 8-K (No. 000-52770) filed on February 3,
      2009).10.2
            Contract
      of Engagement, dated January 27, 2009, entered into by and between the
      Company and KKSH Holdings Ltd. (incorporated by reference to Exhibit 10.2
      of our Form 8-K (No. 000-52770) filed on February 3, 2009).10.3
            Subscription
      Agreement, dated March 2, 2009, entered into by and between the Company
      and Richard Grigg. (incorporated by reference to Exhibit 10.1 of our Form
      8-K (No. 000-52770) filed on March 4, 2009).10.4
            Employment
      Agreement, dated April 22, 2009, entered into by and between the Company
      and Jamie Tseng (incorporated by reference to Exhibit 10.1 of our Form 8-K
      (No. 000-52770) filed on April 28, 2009).10.5
            Amendment
      to Consulting Agreement, dated April 22, 2009, entered into by and between
      the Company and Liviakis Financial Services, Inc. (incorporated by
      reference to Exhibit 10.2 of our Form 8-K (No. 000-52770) filed on April
      28, 2009).31.1
            Certification of the Registrant’s Principal Executive
      Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.31.2
            Certification of the Registrant’s Principal Financial
      Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.32.1
            Certification of the Registrant’s Principal Executive
      Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002.32.2
            Certification of the Registrant’s Principal Financial
      Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002.


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SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.








Dated:
May 11,
2009                                                                                                        Pacific
Asia Petroleum, Inc.


/s/
Frank C.
Ingriselli


Frank
Ingriselli


President
and Chief Executive Officer





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