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 June 30, 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 August 6, 2009 is as follows:




Class
      of Securities
            
            Shares
      OutstandingCommon
      Stock, $.001 par value
            
            42,223,290














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 June 30,
      2009 (unaudited) and December 31, 2008
            2Condensed Consolidated Statements of Income (unaudited) for
      the six months and thethree months ended June 30, 2009 and 2008 and for the period from
      inception (August 25, 2005) through June 30, 2009
            3Condensed Consolidated Statements of Comprehensive Income
      (Loss)  (unaudited) for the six months and thethree
      months ended June 30, 2009 and 2008 and for the period from inception
      (August 25, 2005) through June 30, 2009
            4Condensed Consolidated Statement of  Equity
      (Deficiency) (unaudited) for the period from inception (August 25, 2005)
      through June 30, 2009
            5Condensed Consolidated Statements of Cash
      Flows  (unaudited) for the six months ended June 30, 2009 and
      2008 and for the period from inception (August 25, 2005) through June
      30, 2009
            6Notes to Condensed Consolidated Financial Statements
      (unaudited)
            7Item
      2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.
            10Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            17Item
      4.
            Controls and Procedures
            17PART
      II
            OTHER INFORMATION
            18Item
      1.
            Legal Proceedings
            18Item
      1A.
            Risk Factors
            18Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            18Item
      3.
            Defaults Upon Senior Securities
            19Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            19Item
      5.
            Other Information
            19Item
      6.
            Exhibits
            19SIGNATURES
            
            20














- 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 Operations” 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
      stockholders.


·
            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
      ofJune
      30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)AssetsCurrent assetsCash
      and cash equivalents
            
            $
            8,559,869
            
            
            $
            10,515,657Short-term
      investments
            
            
            720,000
            
            
            
            1,260,000Income
      tax refunds receivable
            
            
            8,500
            
            
            
            8,500Prepaid
      expenses
            
            
            567,266
            
            
            
            90,657Deposits
            
            
            23,980
            
            
            
            37,556Advances
            
            
            197
            
            
            
            383Total
      current assets
            
            
            9,879,812
            
            
            
            11,912,753Non-current assetsProperty,
      plant and equipment - at cost (net of accumulated depreciation and
      amortization:June
      30, 2009 - $145,580;  December 31, 2008 -
    $88,577)
            
            
            580,169
            
            
            
            569,303Intangible
      assets
            
            
            384
            
            
            
            384Long-term
      advance
            
            
            385,902
            
            
            
            386,415Investment
      in a nonsubsidiary carrried at cost
            
            
            552,900
            
            
            
            -Deferred
      charges
            
            
            411,518
            
            
            
            1,250,234Total
      Assets
            
            $
            11,810,685
            
            
            $
            14,119,089Liabilities and EquityCurrent liabilitiesAccounts
      payable
            
            $
            88,859
            
            
            $
            25,446Income
      taxes payable
            
            
            16,000
            
            
            
            5,148Accrued
      and other liabilities
            
            
            1,032,324
            
            
            
            658,257Total
      current liabilities
            
            
            1,137,183
            
            
            
            688,851EquityStockholders'
      equity - Pacific Asia Petroleum, Inc. and Subsidiaries:Common
      stockAuthorized
      - 300,000,000 shares at $.001 par value; Issued and outstanding
      -42,103,290
      as of June 30, 2009;  40,061,785 as of December 31,
      2008
            
            
            42,103
            
            
            
            40,062Preferred
      stockAuthorized
      - 50,000,000 shares at $.001 par value;Issued
      - 23,708,952 as of June 30, 2009 and December 31, 2008Outstanding
      - none as of June 30, 2009 and December 31, 2008
            
            
            -
            
            
            
            -Paid-in
      capital
            
            
            24,072,697
            
            
            
            21,741,965Other
      comprehensive income - currency translation adjustment
            
            
            225,502
            
            
            
            229,860Deficit
      accumulated during the development stage
            
            
            (14,049,065
            )
            
            
            (8,968,064
            )Total
      stockholders' equity - Pacific Asia Petroleum, Inc. and
      Subsidiaries
            
            
            10,291,237
            
            
            
            13,043,823Noncontrolling
      interest
            
            
            382,265
            
            
            
            386,415Total
      equity
            
            
            10,673,502
            
            
            
            13,430,238Total
      Liabilities and Equity
            
            $
            11,810,685
            
            
            $
            14,119,089The
      accompanying notes to unaudited condensed consolidated financial
      statements are an integral part of this statement.





- 2
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 table of contents





Pacific Asia Petroleum, Inc. and Subsidiaries(A
      Development Stage Company)Condensed
      Consolidated Statements of Income(Unaudited)For
      the periodfrom
      inceptionFor
      the six months
            
            
            For
      the three months
            
            
            (August
      25, 2005)ended
      June 30,
            
            
            ended
      June 30,
            
            
            through2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            6/30/2009Operating ExpensesDepreciation
            
            $
            56,939
            
            
            $
            22,792
            
            
            $
            30,781
            
            
            $
            13,437
            
            
            $
            144,297All
      other operating expenses
            
            
            5,031,560
            
            
            
            2,328,686
            
            
            
            2,118,693
            
            
            
            1,252,061
            
            
            
            14,948,626Total
      operating expenses
            
            
            5,088,499
            
            
            
            2,351,478
            
            
            
            2,149,474
            
            
            
            1,265,498
            
            
            
            15,092,923Operating
      Loss
            
            
            (5,088,499
            )
            
            
            (2,351,478
            )
            
            
            (2,149,474
            )
            
            
            (1,265,498
            )
            
            
            (15,092,923
            )Other Income (Expense)Interest
      Income
            
            
            26,079
            
            
            
            193,194
            
            
            
            4,785
            
            
            
            67,388
            
            
            
            1,067,336Other
      Income
            
            
            216
            
            
            
            -
            
            
            
            216
            
            
            
            -
            
            
            
            27,848Other
      Expense
            
            
            (356
            )
            
            
            (72
            )
            
            
            (356
            )
            
            
            (72
            )
            
            
            (1,242
            )Total
      Other Income
            
            
            25,939
            
            
            
            193,122
            
            
            
            4,645
            
            
            
            67,316
            
            
            
            1,093,942Net
      loss before income taxes andnoncontrolling
      interest
            
            
            (5,062,560
            )
            
            
            (2,158,356
            )
            
            
            (2,144,829
            )
            
            
            (1,198,182
            )
            
            
            (13,998,981
            )Income
      tax (expense) benefit
            
            
            (22,506
            )
            
            
            160
            
            
            
            (16,071
            )
            
            
            (6,419
            )
            
            
            (74,414
            )Net
      loss
            
            
            (5,085,066
            )
            
            
            (2,158,196
            )
            
            
            (2,160,900
            )
            
            
            (1,204,601
            )
            
            
            (14,073,395
            )Less:
      Net loss - noncontrolling interest
            
            
            4,065
            
            
            
            7,186
            
            
            
            2,250
            
            
            
            3,599
            
            
            
            24,330Net
      Loss - Pacific Asia Petroleum, Inc.and
      Subsidiaries
            
            $
            (5,081,001
            )
            
            $
            (2,151,010
            )
            
            $
            (2,158,650
            )
            
            $
            (1,201,002
            )
            
            $
            (14,049,065
            )Net
      loss per common share - Pacific AsiaPetroleum,
      Inc. common stockholders -basic
      and diluted
            
            $
            (0.12
            )
            
            $
            (0.05
            )
            
            $
            (0.05
            )
            
            $
            (0.03
            )Weighted
      average number of commonshares
      outstanding, basic and diluted
            
            
            41,094,777
            
            
            
            39,979,469
            
            
            
            41,802,725
            
            
            
            40,006,983The
      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 six months
            
            
            For
      the three months
            
            
            (August
      25, 2005)ended
      June 30,
            
            
            ended
      June 30,
            
            
            through2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            6/30/2009Net
      loss
            
            $
            (5,081,001
            )
            
            $
            (2,151,010
            )
            
            $
            (2,158,650
            )
            
            $
            (1,201,002
            )
            
            $
            (14,049,065
            )Other
      comprehensive income (loss) -pre-tax
      and net of tax:Currency
      translation adjustment
            
            
            (4,443
            )
            
            
            105,875
            
            
            
            (3,532
            )
            
            
            35,667
            
            
            
            232,667Comprehensive
      income (loss)
            
            
            (5,085,444
            )
            
            
            (2,045,135
            )
            
            
            (2,162,182
            )
            
            
            (1,165,335
            )
            
            
            (13,816,398
            )Less:
      Comprehensive (income) loss -Noncontrolling
      interest share:Net
      loss plus pre-tax and net oftax
      currency translation adjustment
            
            
            4,150
            
            
            
            4,010
            
            
            
            2,250
            
            
            
            2,529
            
            
            
            17,166Comprehensive
      income (loss) -Pacific
      Asia  Petroleum, Inc. andSubsidiaries
            
            $
            (5,081,294
            )
            
            $
            (2,041,125
            )
            
            $
            (2,159,932
            )
            
            $
            (1,162,806
            )
            
            $
            (13,799,232
            )The
      accompanying notes to the unaudited condensed consolidated financial
      statements are an integral part of this statement.





- 4
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 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 June 30,
    2009(Unaudited)Stockholders'
      equity - Pacific Asia Petroleum, Inc. and SubsidiariesOtherComprehensive
            
            
            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 originalstockholders
      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 optionsand
      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
            
            
            
            13,430,238Issued
      on exercise of warrants
            
            
            8,505
            
            
            
            8
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exchanged
      for stock of Sino Gas & Energy Holdings Limited
            
            
            970,000
            
            
            
            970
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            551,930
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            552,900Vesting
      of restricted stock
            
            
            184,000
            
            
            
            184
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (184
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Compensation
      cost of stock options and restricted stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,032,723
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,032,723Issued
      for services
            
            
            879,000
            
            
            
            879
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            746,271
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            747,150Currency
      translation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,358
            )
            
            
            -
            
            
            
            (85
            )
            
            
            (4,443
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,081,001
            )
            
            
            (4,065
            )
            
            
            (5,085,066
            )Balance
      - June 30, 2009
            
            
            42,103,290
            
            
            $
            42,103
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            $
            24,072,697
            
            
            $
            225,502
            
            
            $
            (14,049,065
            )
            
            $
            382,265
            
            
            $
            10,673,502The
      accompanying notes to the unaudited condensed consolidated financial
      statements are an integral part of this statement.





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Pacific Asia Petroleum, Inc. and Subsidiaries(A
      Development Stage Company)Condensed
      Consolidated Statements of Cash FlowsFor
      the six months ended June 30, 2009 and 2008,and
      for the period from inception (August 25, 2005) to June 30,
      2009(Unaudited)For
      the periodSix
      months
            
            
            Six
      months
            
            
            from
      inceptionended
            
            
            ended
            
            
            (August
      25, 2005)June
      30,
            
            
            June
      30,
            
            
            through2009
            
            
            2008
            
            
            June
      30, 2009Cash flows from operating
      activitiesNet
      loss - Pacific Asia Petroleum, Inc. and Subsidiaries
            
            $
            (5,081,001
            )
            
            $
            (2,151,010
            )
            
            $
            (14,049,065
            )Adjustments
      to reconcile net loss to cashused
      in operating activities:Interest
      income on long-term advance
            
            
            -
            
            
            
            (56,644
            )
            
            
            (188,987
            )Currency
      transaction loss
            
            
            1,142
            
            
            
            52,822
            
            
            
            85,633Stock-related
      compensation – employees and others
            
            
            1,196,399
            
            
            
            715,173
            
            
            
            3,447,413Noncontrolling
      interest in net loss
            
            
            (4,065
            )
            
            
            (7,186
            )
            
            
            (24,331
            )Depreciation
      expense
            
            
            56,939
            
            
            
            22,792
            
            
            
            144,298Impairment
      of assets adjustment
            
            
            -
            
            
            
            -
            
            
            
            273,618Changes
      in current assets and currentliabilities:(Increase)
      decrease in accrued interest and other receivables
            
            
            -
            
            
            
            (28,241
            )
            
            
            (8,500
            )(Increase)
      decrease in advances
            
            
            186
            
            
            
            2,390
            
            
            
            (197
            )(Increase)
      decrease in deposits
            
            
            13,576
            
            
            
            (29,324
            )
            
            
            (23,980
            )(Increase)
      decrease in prepaid expenses
            
            
            (117,133
            )
            
            
            (20,294
            )
            
            
            (207,790
            )Increase
      (decrease) in accounts payable
            
            
            63,413
            
            
            
            47,947
            
            
            
            73,708Increase
      (decrease) in income tax and accrued liabilities
            
            
            298,519
            
            
            
            153,112
            
            
            
            813,156Net
      cash used in operating activities
            
            
            (3,572,025
            )
            
            
            (1,298,463
            )
            
            
            (9,665,024
            )Cash flows from investing
      activitiesNet
      sales (purchases) of available for sale securities
            
            
            540,000
            
            
            
            10,900,000
            
            
            
            (720,000
            )Refunds/
      ( deposits) on prospective property acquisitions
            
            
            1,150,000
            
            
            
            (500,000
            )
            
            
            (50,000
            )(Increase)
      decrease in deferred charges
            
            
            (886
            )
            
            
            -
            
            
            
            (51,120
            )Additions
      to property, plant and equipment
            
            
            (67,305
            )
            
            
            (219,009
            )
            
            
            (685,609
            )Net
      cash provided by (used in) investing activities
            
            
            1,621,809
            
            
            
            10,180,991
            
            
            
            (1,506,729
            )Cash flows from financing
      activitiesPayment
      of notes payable
            
            
            -
            
            
            
            -
            
            
            
            (5,000
            )Increase
      in noncontrolling interest investment
            
            
            -
            
            
            
            -
            
            
            
            399,430Increase
      in long-term advance 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
            
            
            (5,572
            )
            
            
            1,257
            
            
            
            38,607Net
      increase (decrease) in cash and cash equivalents
            
            
            (1,955,788
            )
            
            
            8,883,785
            
            
            
            8,559,869Cash
      and cash equivalents at beginning of period
            
            
            10,515,657
            
            
            
            2,208,969
            
            
            
            -Cash
      and cash equivalents at end of period
            
            $
            8,559,869
            
            
            $
            11,092,754
            
            
            $
            8,559,869Supplemental disclosures of cash flow
      informationInterest
      paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -Income
      taxes paid
            
            $
            11,880
            
            
            $
            38,536
            
            
            $
            60,747Supplemental
      schedule of non-cash investing and financing activitiesCommon
      and preferred stock issued for services and fees
            
            $
            747,150
            
            
            $
            -
            
            
            $
            1,418,067Common
      stock issued for stock of nonsubsidiary
            
            $
            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


PacificAsia Petroleum, Inc. and Subsidiaries


(A
Development Stage Company)


Notes
to Condensed Consolidated Financial Statements


June
30, 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- and six-month periods ended June 30,
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 June 30, 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- and six-month periods ending and as of June
30, 2009. In addition, the Company is now reporting detail of comprehensive
income on a separate financial statement.





In
preparing the accompanying financial statements, we have evaluated information
about subsequent events that became available to us through the date the
financial statements were issued (August 6, 2009).  This information
relates to events, transactions or changes in circumstances that would require
us to adjust the amounts reported in the financial statements or to disclose
information about those events, transactions or changes in
circumstances.





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 STANDARDS





In April
2009, the FASB issued FSP 107-1 and APB 28-1 (“FSP 107 and APB 28-1”) “Interim
Disclosures about Fair Value of Financial Instruments.” FSP 107-1 and APB 28-1
enhance consistency in financial reporting by increasing the frequency of fair
value disclosures. FSP 107-1 and APB 28-1 relate to fair value disclosures for
any financial instruments that are not currently reflected on a company’s
balance sheet at fair value. Prior to the effective date of FSP 107-1 and APB
28-1, fair values for these assets and liabilities have only been disclosed once
a year. FSP 107-1 and APB 28-1 will now require these disclosures on a quarterly
basis, providing qualitative and quantitative information about fair value
estimates for all those financial instruments not measured on the balance sheet
at fair value. The disclosure requirements under this FSP are effective for the
Company’s interim reporting periods ending after June 15, 2009. The adoption of
this statement did not have a material impact on the Company’s results of
operations or financial condition.


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 table of contents


At June
30, 2009, the carrying amounts of the Company’s financial instruments, which
include cash equivalents, short-term investments, deposits, an investment in a
nonsubsidiary, long-term advance, accounts payable and accrued expenses
approximate their fair values, due to the short-term nature and maturities of
many of the above


listed
items.





As
discussed in Note 8, the Company has an investment in a long-term note
receivable and an investment in a nonsubsidiary that are not measured at fair
value on a recurring basis, but are periodically reviewed for possible
impairment. During 2008, we recorded an impairment loss on our long-term note
receivable.





That
impairment loss and 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.





SFAS No.
160


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.





SFAS No.
165


The
Company adopted SFAS No. 165,  “Subsequent Events” effective with the
six months ended June 30, 2009.   Subsequent events are events or
transactions about which information becomes available after the balance sheet
date but before the financial statements are issued or are available to be
issued.  In the case of the Company as a public entity, the applicable
cutoff date is the date the financial statements are issued, whereas prior to
SFAS No. 165 the cutoff date could be the date the financial statements were
available for issuance.





The
statement requires that certain subsequent events (“recognized subsequent
events”) be recorded in the financial statements of the latest preceding period
currently being issued.  These items provide evidence about conditions
that existed at the date of that balance sheet, including estimates inherent in
preparing the financial statements for that period.   Other
subsequent events (“nonrecognized subsequent events”) are not recorded in
balance sheet for the latest preceding period currently being issued. Those
items relate to conditions that arose only after the balance sheet
date.   Disclosure is required for nonrecognized subsequent
events if necessary to prevent those financial statements from being
misleading.





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
June 30, 2009 the following new accounting standards had been issued but not yet
adopted by the Company.  These standards are not expected to have a
material effect on the Company’s financial statements in the foreseeable
future.


- 8
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 table of contents


SFAS No. 167:“Amendments to FASB
Interpretation  No. 46(R)


This
standard amends Interpretation No. 46(R) by requiring consolidation of certain
special purpose entities that


were
previously exempted from consolidation. The revised criteria will define a
controlling financial interest for requiring consolidation as:  the
power to direct the activities that most significantly affect the entity’s
performance, and (1) the obligation to absorb losses of the entity or (2) the
right to receive benefits from the entity.





SFAS No.
168:  “The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted


Accounting
Principles


This
standard replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles”. The standard establishes the FASB Accounting Standards Codification
(Codification) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in conformity with
Generally Accepted Accounting Principles (GAAP).  The Codification
specifies those principles and practices now to be defined as authoritative
sources of GAAP.





NOTE
7. LITIGATION AND CONTINGENCIES





The
Company at June 30, 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 a long-term advance and an investment in a nonsubsidiary carried at
cost that it periodically reviews for possible impairment. At June 30, 2009, the
carrying amounts of the long-term advance and the investment in a nonsubsidiary
carried at cost were $385,902 and $552,900, respectively. The Company did not
perform any fair value assessments of these investments during the first six
months of 2009, since in the opinion of Company management no impairment
indicators were present that would necessitate such evaluations to be
performed.





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 July
7, 2009 the Company announced that its subsidiary, Inner Mongolia Sunrise
Petroleum JV Company (“Sunrise”) had entered into a Letter of Intent with Handan
Hua Ying Company Limited (“Handan”) for the acquisition of a 49% ownership
interest in the Handan Chang Yuan Natural Gas Company, Ltd. (“HGC”) held by
Handan.  HGC owns and operates gas distribution assets in and around
Handan City in the Hegei Province of the People’s Republic of
China.  The intent is to enter into a final purchase and sale
agreement before the end of the year.   The Company will also
enter into negotiations with HGC with the intent of creating a joint venture to
operate and manage the HGC business.  The Letter of Intent supplements
the original Letter of Intent entered into by the Company in November 2008
covering the same gas distribution assets.





On July
16, 2009, the Company’s Hong Kong subsidiary, Pacific Asia Petroleum Energy
Limited (“PAPE”), made an aggregate cash payment, on behalf of the CJVC, of
$300,000 to Mr. Li Xiangdong and Mr. Ho Chi Kong upon the entry by Mr. Li and
PAPE into an agreement with respect to the assignment of certain enhanced oil
recovery technology rights to the CJVC and the receipt by PAPE of certain
related documentation from Messrs. Li and Ho, all as required pursuant to that
certain Letter of Understanding entered into by and among the Company, PAPE, and
Messrs. Li and Ho on May 13, 2009, as amended (the “LOU”), and the
Agreement for Cooperation entered into by and between PAPE and Mr. Li, dated
June 7, 2009 (the “2nd AOC”),
in connection with the Company’s enhanced oil recovery and
production (“EORP”) project.





- 9
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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. (“PAP”), a Delaware
corporation, and its present and former subsidiaries, including Pacific Asia
Petroleum, Ltd. (“PAPL”), Pacific Asia Petroleum Energy Limited (“PAPE”), 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 June 30, 2009 are
$14,049,065.  Our losses have resulted primarily from exploration
activities on our Zijinshan Block, as well as general and administrative
expenditures associated with developing a new enterprise, and consulting, legal
and accounting expenses.  From inception through June 30, 2009, we did
not generate revenues from operations.








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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 coalbed methane (“CBM”) 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
interpreted.  Based on the seismic interpretation, four potential well
locations have been identified. A regional environmental impact assessment study
(“EIA”) has also been completed. Prior to the commencement of drilling the first
well, which the Company anticipates will be drilled in the 2nd half of
2009, a site-specific EIA will be completed for the final location
selected.





OTHER
CBM ACTIVITIES





In
September 2007, the Company entered into an Asset Transfer Agreement , as
amended (the “Chevron ATA”), with ChevronTexaco China Energy Company
(“ChevronTexaco”) for the purchase by the Company of a participating interest
held by ChevronTexaco in a production sharing contract (the “Baode PSC”) in
respect of a CBM resource block located in the Shanxi Province in China (the
“Baode Block”).  In March 2008, the Company also entered into an Asset
Transfer Agreement, as amended (the “BHP ATA”) with BHP Billiton World
Exploration Inc. (“BHP”) for the purchase by the Company of BHP’s participating
interest held in the Baode PSC.  On May 11, 2009, the Company was
informed by ChevronTexaco that it was exercising its right to terminate the
Chevron ATA, and by BHP that it was exercising its right to terminate the BHP
ATA.  As a result of these terminations, ChevronTexaco returned to the
Company a prepaid deposit of $650,000 and BHP returned to the Company a prepaid
deposit of $500,000.





The
Company is currently in advanced discussions with several other third parties
regarding the possible contribution of their CBM assets (and cash) to the
Company.





ENHANCED
OIL RECOVERY AND PRODUCTION (EORP)





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 contemplated 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
parties related to Well Lead, to revise and expand the scope of the original
AOC.  This Amended AOC, and subsequent negotiations, expanded the
scope of the proposed transaction to include the Company potentially 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 was contemplated to be $1.5 million in cash and 4.0 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.





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On May
13, 2009, PAP and its wholly-owned Hong Kong subsidiary, PAPE, entered into a
Letter of Understanding (“LOU”) with Mr. Li Xiangdong (“LXD”) and Mr. Ho Chi
Kong (“HCK”), superseding in full that certain Amended AOC, which Amended AOC
was terminated by the parties effective May 13, 2009 following the parties’
determination that the transactions proposed under the Amended AOC should be
restructured to remove Well Lead Group Limited (“Well Lead”) as a party thereto.
Well Lead agreed to terminate the AOC, and further agreed and acknowledged that
the Company, PAPE, LXD and HCK could proceed with a similar transaction as
contemplated under the AOC without any further involvement of, or obligation to,
Well Lead.





The LOU
covers substantially the same transaction as contemplated under the AOC, but is
expanded to potentially include two additional oilfield projects in the
Fulaerjiqu Oilfield in Qiqihar City, the Heilongjiang Province in the People’s
Republic of China (the “Fulaerjiqu Oilfield”). Pursuant to the LOU, the parties
agreed to form a Chinese joint venture company (the “CJVC”), to be 75.5% owned
by PAPE and 24.5% owned by LXD, into which  LXD will assign certain
patent rights related to chemical enhanced oil recovery (the “LXD Patents”).
Upon formation of the CJVC, PAPE will issue shares to HCK to provide him with
30% ownership of PAPE, with the Company retaining 70% ownership of PAPE. HCK
will also receive 400,000 shares of Common Stock of the Company and options to
buy 400,000 additional   shares of Common Stock of the Company in
place of the 4.0 million shares he was previously to receive under the Amended
AOC.  HCK will thus retain equity interest in the projects to which he
is contributing his efforts but have a smaller equity position in the Company
than as contemplated under the Amended AOC.





Thereafter,
HCK shall work to assign to the CJVC two contracts relating to oilfield projects
in the Fulaerjiqu Oilfield. These contracts are anticipated to each deliver to
the CJVC a significant percentage of the oil produced and/or fixed fees per ton
for the incremental production using the technology covered by the LXD Patents.
According to the Qiqihar City branch of the Chinese Ministry of Land and
Resources, the Fulaerjiqu Oilfield contains 115,000,000 barrels of Original Oil
In Place (“OOIP”), of which only 510,000 barrels of cumulative oil have been
produced to date. In addition, LXD shall be engaged as a consultant by CJVC to
provide research and development services, training, and assistance in promoting
certain other opportunities developed by him that target


the
application of the technology embodied in the LXD Patents, including assistance
with entering into a contract with respect to the Liaohe Oilfield (the “Liaohe
Contract”), and helping to develop projects in both the Shandong Province and
the Xinjiang autonomous region of the People’s Republic of China for the
provision and application of technology and chemicals developed by
LXD.





The
Company has agreed to loan up to $5 million to PAPE, which may then invest up to
RMB 22,650,000 as registered capital of the CJVC (approximately $3.3 million)
when and to the extent required under applicable law, to be used by the CJCV to
carry out work projects, fund operations, and to make aggregate payments of up
to $1.5 million in cash to LXD and HCK. The payments of up to $1.5 million to
LXD and HCK shall be subject to the achievement of certain milestones, including
the formation of the CJVC, the transfer of the LXD Patents to the CJVC, and the
signing of the contracts with respect to the Fularjiqu Oilfield and the Liaohe
Contract by the CJVC, as well as certain production-based milestones resulting
from the implementation of these contracts.




The loan
from the Company to PAPE will be repaid from funds distributed to PAPE by way of
dividends or other appropriate payments from the CJVC.





As noted
previously, the Company has agreed to issue to HCK up to an aggregate of 400,000
shares of Common Stock of the Company, and an option exercisable for up to an
aggregate of 400,000 shares of the Common Stock of the Company, subject to the
achievement of certain milestones, including the transfer of the LXD Patents to
the CJVC, and the signing of certain contracts by the CJVC with respect to the
Fulaerjiqu Oilfield.





In
accordance with the terms of the LOU and the 2nd AOC, on
June 7, 2009, PAPE, LXD and the Company’s Chinese joint venture company, Inner
Mongolia Sunrise Petroleum JV Company (“Sunrise”), entered into
an


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Assignment
Agreement of Application Right for Patent, Consulting Engagement Agreement, and
an Interest Assignment Agreement.





Pursuant
to the Assignment Agreement of Application Right for Patent, through its
interest in the CJVC, PAPE has acquired rights to certain enhanced oil recovery
technology in the form of six pending patents and related rights covering
chemical enhanced oil recovery, subject to issuance of such pending patent
rights by the State Intellectual Property Office of the People's Republic of
China.





With
these EORP-related agreements signed and in place, the Company – initially
through Sunrise and then through the CJVC following its incorporation – expects
to commence operations in various oil fields located in the Heilongjiang,
Liaoning, Shandong, Henan and Xinjiang Provinces in China within the next
calendar quarter and commence production and generation of revenues as early as
the 4th quarter of 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, the Company will
need to raise 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 June 30, 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 drilling of one firm and one contingent well on the
Zijinshan Block. The Company also plans to put into commercial use the new EORP
technology in oilfields located in the Heilongjiang, Liaoning, Shandong, Henan
and Xinjiang Provinces in China through the operations of the CJVC
entity.  The Company will also assess the applicability of the new
EORP  technology 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 seek 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 is continuing 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


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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 to date not engaged in any product research or development, however,
it does anticipate that the CJVC will engage in further research and development
related to its new EORP technology during the Next Year.





Liquidity
and Capital Resources





The
Company has sufficient funds to fund all of its current operations for the Next
Year.  The discussion below considers the Company’s ability to fund
its operations and overhead expenses.





As of
June 30, 2009, the Company had net working capital of $8,742,629 and cash, cash
equivalents and short-term investments of $9,279,869. For the six months ended
June 30, 2009, the Company incurred a net loss of $5,081,001. As a result of our
operating losses from our inception through June 30, 2009, we generated a cash
flow deficit of $9,665,024 from operating activities. Cash flows used in
investing activities were $1,506,729 during the period from inception through
June 30, 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 six months of 2009 was $3,572,025,
compared to $1,298,463 for the first six months of 2008.  The increase
in 2009 versus 2008 was due to increases in expenses, principally for
exploratory expenses incurred on the Zijinshan Block.




Net cash
provided by investing activities was $1,621,809 for the first six months of
2009, as compared to of $10,180,991 for the first six months of
2008.  The net change was principally due to $540,000 in net sales of
available for sale short-term securities in the first six months of 2009 versus
net sales of $10,900,000 of such securities in the first six months of
2008.  Partly offsetting the decrease in cash flows from sales of
short-term securities were combined refunds of $1,150,000 from Chevron and BHP
in 2009 for amounts the Company had previously deposited with them in connection
with the proposed Baode PSC transaction.  There were no net cash
effects from financing activities in the first six months of 2009 and the first
six months of 2008.
  Our
available working capital and capital requirements will depend upon numerous
factors, including progress of our exploration and development programs,
progress of our EORP efforts, 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 June 30, 2009
virtually all of our financing has been raised through private placements
of equity instruments.  The Company at June 30, 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 June 30, 2009, we can sustain operations at the present “burn rate” for
approximately one year. We will need additional equity or debt financing to
expand our operations through 2010 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 and other energy related investments
and rights, consistent with its business plan, the Company will need to raise
additional funds for such projects.





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.


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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


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





ExpensesSix
      months ended
            
            
            Three
      months endedJune
      30,
            
            
            June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008DescriptionSalaries
            
            $
            864,401
            
            
            $
            620,620
            
            
            $
            398,701
            
            
            $
            389,556Consulting
      and PSC management fees
            
            
            611,579
            
            
            
            295,517
            
            
            
            414,753
            
            
            
            70,724Stock-based
      compensation
            
            
            1,032,722
            
            
            
            600,672
            
            
            
            678,077
            
            
            
            306,641Exploratory
      expenses
            
            
            1,386,285
            
            
            
            -
            
            
            
            52,380
            
            
            
            -Legal
      fees
            
            
            218,655
            
            
            
            187,135
            
            
            
            156,610
            
            
            
            129,754Travel
            
            
            122,407
            
            
            
            124,348
            
            
            
            64,561
            
            
            
            74,368Auditing
            
            
            111,550
            
            
            
            116,483
            
            
            
            24,158
            
            
            
            58,284All
      other operating expenses
            
            
            740,900
            
            
            
            406,703
            
            
            
            360,234
            
            
            
            236,171Total
      Operating Expenses
            
            $
            5,088,499
            
            
            $
            2,351,478
            
            
            $
            2,149,474
            
            
            $
            1,265,498








Six months ended June 30,
2009 versus six months ended June 30, 2008





For the
six months ended June 30, 2009, total operating expenses before income taxes
were $5,088,499.  For the six months ended June 30, 2008, the
comparable amount was $2,351,478.  The increase in expenses reflects
increased effort in identifying potential oil and gas opportunities, seeking
related financing, increased administrative costs, and the continuing of seismic
work (Exploratory Expenses) which commenced in December 2008 on the Zijinshan
Block.  The major components of the expense differences are as
follows:





·
            Salaries: For the six
      months ended June 30, 2009, salaries totaled $864,401 versus
      $620,620 for the six months ended June 30, 2008, an increase of
      $243,781.  The increase is principally due to additional
      personnel and increased
compensation.





·
            Consulting and PSC management
      fees:  For the six months ended June 30, 2009, consulting
      fees totaled $611,579 versus $295,517 for the six months ended June 30,
      2008, an increase of $316,062.  Consulting fees payable in cash
      totaled $447,902 versus $181,017 for the six months ended June 30,
      2008.  The increase in cash consulting fees of $266,885 was
      principally due to additional consulting fees in connection with the
      Company’s activities in China, including management contract fees for a
      CBM project under exploration for future
      development.  Consulting fees expense for amounts paid as equity
      were $163,677 for the six months ended June 30, 2009, versus $114,500 for
      the six months ended June 30, 2008.





·
            Stock-based
      compensation:For the six months ended June 30, 2009,
      expense was $1,032,722 for stock options and restricted stock
      compensation, versus $600,672 for the six months ended June 30,
      2008.  The increase of $432,050 was due to option and restricted
      stock awards existing during 2009 that were not present
      in the 2008 period.


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·
            Exploratory Expenses:During the six months ended June 30, 2009,the Company
      continued seismic data acquisition, interpretation and evaluation work on
      the Zijinshan Block and expects to undertake further exploration
      activities on the Zijinshan Block during
2009.





·
            Legal
      fees:For the six months ended June 30, 2009, these
      fees totaled $218,655 versus $187,135 for the six months ended June
      30, 2008, an increase of $31,520.  The increase was due to
      greater legal work in 2009 related to possible mergers and
      acquisitions.





·
            Travel:For
      the six months ended June 30, 2009, travel expense totaled $122,407
      versus $124,348 for the six months ended June 30, 2008, a decrease of
      $1,941.  There was a high level of activity in both periods relative
      to possible acquisitions.





·
            Auditing:For the six months ended June
      30, 2009, auditing expense totaled $111,550 versus $116,483 for the six
      months ended June 30, 2008, a decrease of
  $4,933.





Three months ended June 30,
2009 versus three months ended June 30, 2008





For the
three months ended June 30, 2009, total operating expenses before income taxes
were $2,149,474.  For the three months ended June 30, 2008, the
comparable amount was $1,265,498.  The increase in expenses reflects
increased effort in identifying potential oil and gas opportunities, seeking
related financing, increased administrative costs, and the continuation of
seismic work (Exploratory Expenses), which commenced in December 2008 on the
Zijinshan Block.  The major components of the expense differences are
as follows:





·
            Salaries: For the three
      months ended June 30, 2009, salaries totaled $398,701 versus
      $389,556 for the three months ended June 30, 2008, an increase of
      $9,145. The increase was due to an increase of $75,118 from increased
      personnel costs, offset by a decrease from a nonrecurring adjustment of
      $65,973 charged in the 2008 period due to a reclassification to salaries
      from prior 2008 consulting expense.





·
            Consulting and PSC management
      fees:  For the
      three months ended June 30, 2009, consulting fees totaled $414,753 versus
      $70,724 for the three months ended June 30, 2008, an increase of $344,029.
      Consulting fees payable in cash totaled $251,076 for the three months
      ended June 30, 2009 versus negative for the three months ended June 30,
      2008.  The increase in cash consulting fees was principally due
      to additional consulting fees in connection with the Company’s activities
      in China, including management contract fees for a CBM project under
      exploration for future development, and a nonrecurring reclassification in
      the 2008 period for prior 2008 consulting expense to salaries expense.
      Consulting fees expense for amounts paid as equity was $163,677
      for the three months ended June 30, 2009 versus $114,500 for the
      three months ended June 30, 2008.





·
            Stock-based
      compensation:For the three months ended June 30, 2009,
      expense was $678,077 for stock options and restricted stock compensation,
      versus $306,641 for the three months ended June 30, 2008, an increase of
      $371,436.  The increase was due to option and restricted stock
      awards existing during 2009 that were not present in the 2008
      period.





·
            Exploratory Expenses:
      During the three months ended June 30, 2009,the Company
      continued seismic data acquisition, interpretation and evaluation work on
      the Zijinshan Block and expects to undertake further exploration
      activities on the Zijinshan Block during
2009.





·
            Legal
      fees:For the three months ended June 30, 2009, these
      fees totaled $156,610 versus $129,755 for the three months ended June
      30, 2008, an increase of $26,855.  The increase was due to
      increased legal work in 2009 related to possible mergers and
      acquisitions.





·
            Travel:For the
      three months ended June 30, 2009, travel expense totaled $64,561
      versus $74,368 for the three months ended June 30, 2008, a
      decrease of $9,807. There was a high level of activity in both periods
      relative to possible
acquisitions.


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·
            Auditing: For the three
      months ended June 30, 2009, auditing expense totaled $24,158 versus
      $58,284 for the three months ended June 30, 2008, a decrease of
      $34,126.  The decrease was due to greater accruals in first
      quarter 2009 than 2008 in connection with the year-end audits, while year-
      to-date for 2009 and 2008 were approximately the
  same.





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 as of
December 31, 2008.   On June 12, 2009, the Company entered into a two
year lease agreement for office space in Beijing, beginning on September 1,
2009.  Aggregate rental and management payments due under this
agreement will equal approximately $129,268 during the first year and $157,712
during the second year.





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 six months ended June 30, 2009, is not materially
different from that provided in Item 7A of the Company’s 2008 Annual Report on
Form 10-K.





At June
30, 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 June 30, 2009.  Based
on that evaluation, Mr. Ingriselli and Mr. Groth concluded that as of June 30,
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 June 30, 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.


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PART II.   OTHER INFORMATION





Item
1.                     Legal
Proceedings





None.





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 2008 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





On June
17, 2009, the Company issued an aggregate of 8,505 shares of Common Stock to
five individuals upon the cashless "net" exercise by such individuals of
placement agent warrants held by them exercisable for an aggregate of 22,500
shares of the Company's Common Stock at a price of $1.25 per share.  The
aggregate number of shares of Common Stock issued upon exercise of the warrants
was reduced from 22,500 to 8,505 shares of Common Stock to effect the cashless
"net" exercise of the warrants in accordance with their terms, assuming a deemed
fair market value of $2.01 per share as calculated under the warrants as the
closing price quoted for one share of the Company's Common Stock as reported on
the National Association of Securities Dealers, Inc. OTC Bulletin Board on the
last trading day prior to the exercise date.  The warrants were originally
issued to Garden State Securities, Inc. (the “Original Holder”) in its role as a
placement agent for the Company on May 7, 2007, and subsequently assigned to the
individual warrant holders in August 2007.





No
underwriters were involved in the transaction described above.  All of
the securities issued in the foregoing transaction were issued by the Company to
the Original Holder in reliance upon the exemption from registration available
under Section 4(2) of the Securities Act, including Regulation D promulgated
thereunder, in that the transaction involved the issuance and sale of the
Company’s securities to financially sophisticated individuals or entities that
were aware of the Company’s activities and business and financial condition and
took the securities for investment purposes and understood the ramifications of
their actions.  The Company did not engage in any form of general
solicitation or general advertising in connection with the transaction. The
Original Holder represented that it was an “accredited investors” as defined in
Regulation D at the time of issuance of the original warrant and that it was
acquiring such securities for its own account and not for
distribution.  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.





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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.








Item
6.                     Exhibits





ExhibitNumber
            Description10.1
            Tenancy Agreement, dated June 12, 2009, entered into by
      and between the Company and Bluewater Property Management Co.,
      Ltd.*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.





*English
translation of executed Chinese original document included.  Document
provides that in the event of any conflicts or inconsistencies between the
Chinese and English versions of the document, the Chinese version shall
prevail.





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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:
August 6,
2009                                                                                                     Pacific
Asia Petroleum, Inc.


/s/
Frank C.
Ingriselli


Frank
Ingriselli


President
and Chief Executive Officer


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