##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 Commission file number 000-52770
 PACIFIC ASIA PETROLEUM, INC.
 
  Delaware
    
    30-0349798(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer Identification No.)
 250 Hartsdale Ave.
Hartsdale, New York 10530
 
  (914) 472-6070
  o þ
 o þ
  o þ




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##### 



PACIFIC
ASIA PETROLEUM, INC.
 FORM 10-QSB
 Table of Contents
 PagePART I FINANCIAL INFORMATION
    
    
    2Item 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of September 30, 2007 (unaudited)
and December 31, 2006
    
    
    2Condensed Consolidated Statements of Operations (unaudited) for the Nine
and Three Months Ended September 30, 2007 and 2006 and from August
25, 2005 (Inception) through September 30, 2007
    
    
    3Condensed Consolidated Statement of Stockholders Equity (Deficiency)
(unaudited) for the period from August 25, 2005 (Inception) through
September 30, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 30, 2007 and 2006 and from August 25,
2005 (Inception) through September 30, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)Item 2. Managements Discussion and Analysis or Plan of Operation.
    
    
    15Item 3. Controls and Procedures
    
    
    25PART II OTHER INFORMATION
    
    
    26Item 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28EXHIBIT LIST
    
    
    29EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBTI 32.1EXHIBIT 32.2
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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
 
 Condensed Consolidated Balance Sheets
 As of
    
    As ofSeptember 30,
    
    December 31,2007
    
    2006(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    2,410,382
    
    
    $
    1,867,374Short-term investments(note 6)
    
    
    11,700,199
    
    
    
    1,400,000Miscellaneous receivables
    
    
    23,454
    
    
    
    Prepaid expenses
    
    
    39,806
    
    
    
    31,486Deposits
    
    
    21,534
    
    
    
    11,498Total current assets
    
    
    14,195,375
    
    
    
    3,310,358Non-current assetsProperty, plant and equipment  at cost(note 7)
(net of reserve for depreciation: 2007- $11,788; 2006- $1,740)
    
    
    282,448
    
    
    
    208,511Long-term advances and deferred charges
    
    
    3,630,541
    
    
    
    410,452Total Assets
    
    $
    18,108,364
    
    
    $
    3,929,321Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    79,754
    
    
    $
    103,391Accrued and other liabilities
    
    
    116,783
    
    
    
    96,149Total current liabilities
    
    
    196,537
    
    
    
    199,540Minority interest in subsidiaries
    
    
    396,596
    
    
    
    358,190Stockholders equityCommon stock:Authorized - 300,000,000 shares at $.001 par value
Issued and outstanding - 39,931,106 as of September 30, 2007;
5,304,000 as of December 31, 2006
    
    
    39,931
    
    
    
    5,304Preferred stock:Authorized - 50,000,000 shares at $.001 par value
Issued - 23,708,952 as of September 30,2007;
9,991,223 as of December 31, 2006
Outstanding  none as of September 30, 2007;
9,991,223 as of December 31,2006
    
    
    
    
    
    
    9,991Paid-in capital
    
    
    20,131,527
    
    
    
    4,474,799Other comprehensive income  currency translation adj.
    
    
    82,500
    
    
    
    19,228Deficit accumulated during the development stage
    
    
    (2,738,727
    )
    
    
    (1,137,731
    )Total stockholders equity
    
    
    17,515,231
    
    
    
    3,371,591Total Liabilities and Stockholders Equity
    
    $
    18,108,364
    
    
    $
    3,929,321
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##### Table of Contents



Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 For the periodfrom inceptionFor the nine months
    
    
    For the three months
    
    
    (August 25, 2005)ended September 30,
    
    
    ended September 30,
    
    
    through2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    9/30/2007Operating ExpensesDepreciation
    
    $
    10,039
    
    
    $
    209
    
    
    $
    6,064
    
    
    $
    209
    
    
    $
    11,779All other operating expenses
    
    
    2,018,354
    
    
    
    815,910
    
    
    
    582,671
    
    
    
    428,900
    
    
    
    3,254,971Total operating expenses
    
    
    2,028,393
    
    
    
    816,119
    
    
    
    588,735
    
    
    
    429,109
    
    
    
    3,266,750Operating Loss
    
    
    (2,028,393
    )
    
    
    (816,119
    )
    
    
    (588,735
    )
    
    
    (429,109
    )
    
    
    (3,266,750
    )Other Income (Expense)Interest Income
    
    
    411,008
    
    
    
    57,086
    
    
    
    233,328
    
    
    
    38,819
    
    
    
    510,414Other Income
    
    
    12,937
    
    
    
    
    
    
    
    648
    
    
    
    
    
    
    
    12,937Other Expense
    
    
    (713
    )
    
    
    
    
    
    
    (671
    )
    
    
    
    
    
    
    (713
    )Total Other Income (Expense)
    
    
    423,232
    
    
    
    57,086
    
    
    
    233,305
    
    
    
    38,819
    
    
    
    522,638Net loss before minority interest
    
    
    (1,605,161
    )
    
    
    (759,033
    )
    
    
    (355,430
    )
    
    
    (390,290
    )
    
    
    (2,744,112
    )Minority interest
    
    
    4,165
    
    
    
    586
    
    
    
    2,406
    
    
    
    586
    
    
    
    5,385Net (Loss)
    
    $
    (1,600,996
    )
    
    $
    (758,447
    )
    
    $
    (353,024
    )
    
    $
    (389,704
    )
    
    $
    (2,738,727
    )Per Share of Common Stock:Net (Loss) -Basic and Diluted
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (0.01
    )
    
    $
    (0.03
    )Weighted Average Number of
Shares Outstanding
    
    
    28,744,811
    
    
    
    9,848,556
    
    
    
    39,931,106
    
    
    
    14,284,224
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##### Table of Contents



Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
 
 Condensed Consolidated Statements of Stockholders Equity (Deficiency)
 For the period from inception (August 25, 2005) through September 30, 2007
 (Unaudited)
 DeficitNo. of
    
    
    
    
    
    
    
    
    
    No. of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    TotalCommon
    
    
    
    
    
    
    
    
    
    Preferred
    
    
    
    
    
    
    
    
    
    Other
    
    During the
    
    Stockholders'Shares
    
    Common
    
    Subscriptions
    
    Shares
    
    Preferred
    
    Paid-in
    
    Comprehensive
    
    Development
    
    Equity$.001 par value
    
    Stock
    
    Receivable
    
    $.001 par value
    
    Stock
    
    Capital
    
    Income (Loss)
    
    Stage
    
    (Deficiency)Balance  August 25, 2005
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Issued for cash - 2005
    
    
    1,852,320
    
    
    
    1,852
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,148
    
    
    
    
    
    
    
    
    
    
    
    12,000Subscriptions - 2005
    
    
    3,451,680
    
    
    
    3,452
    
    
    
    (28,000
    )
    
    
    
    
    
    
    
    
    
    
    24,548
    
    
    
    
    
    
    
    
    
    
    
    Net loss  year 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,344
    )
    
    
    (51,344
    )Stockholders Equity (Deficiency)  December 31, 2005
    
    
    5,304,000
    
    
    
    5,304
    
    
    
    (28,000
    )
    
    
    
    
    
    
    
    
    
    
    34,696
    
    
    
    
    
    
    
    (51,344
    )
    
    
    (39,344
    )Subscriptions paid in 2006
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,000Issued for fees and services - 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,829,421
    
    
    
    1,829
    
    
    
    195,776
    
    
    
    
    
    
    
    
    
    
    
    197,605Issued for cash- 2006, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,161,802
    
    
    
    8,162
    
    
    
    4,215,262
    
    
    
    
    
    
    
    
    
    
    
    4,223,424Amortization of options fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,065
    
    
    
    
    
    
    
    
    
    
    
    29,065Currency translation  year 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,228
    
    
    
    
    
    
    
    19,228Net loss  year 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,086,387
    )
    
    
    (1,086,387
    )Stockholders Equity (Deficiency)  December 31, 2006
    
    
    5,304,000
    
    
    
    5,304
    
    
    
    
    
    
    
    9,991,223
    
    
    
    9,991
    
    
    
    4,474,799
    
    
    
    19,228
    
    
    
    (1,137,731
    )
    
    
    3,371,591Issued for services - 2007 - pre-merger
    
    
    600,032
    
    
    
    600
    
    
    
    
    
    
    
    117,729
    
    
    
    118
    
    
    
    330,036
    
    
    
    
    
    
    
    
    
    
    
    330,754Amortization of options fair value pre-merger
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,036
    
    
    
    
    
    
    
    
    
    
    
    34,036Pre-merger acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,879
    )
    
    
    
    
    
    
    
    
    
    
    (71,879
    )Shares retained by Pacific Asia Petroleum original
stockholders in merger - 5/7/07
    
    
    468,122
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (215,289
    )
    
    
    
    
    
    
    
    
    
    
    (215,289
    )Automatic conversion of Preferred Shares - 6/5/07
    
    
    23,708,952
    
    
    
    23,709
    
    
    
    
    
    
    
    (23,708,952
    )
    
    
    (23,709
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of options fair value post merger
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,544
    
    
    
    
    
    
    
    
    
    
    
    42,544Currency translation  nine months 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,272
    
    
    
    
    
    
    
    63,272Net loss  nine months 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,600,996
    )
    
    
    (1,600,996
    )Stockholders Equity (Deficiency)  September 30, 2007
    
    
    39,931,106
    
    
    $
    39,931
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    20,131,527
    
    
    $
    82,500
    
    
    $
    (2,738,727
    )
    
    $
    17,515,231
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Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Nine months
    
    Nine months
    
    For the periodended
    
    ended
    
    from inceptionSeptember 30,
    
    September 30,
    
    (August 25, 2005) through2007
    
    2006
    
    September 30, 2007Cash flows from operating activitiesNet loss
    
    $
    (1,600,996
    )
    
    $
    (758,447
    )
    
    $
    (2,738,727
    )Adjustments to reconcile net loss to cash
used in operating activities:Interest income on long-term advances
    
    
    (65,375
    )
    
    
    
    
    
    
    (75,320
    )Currency transaction loss
    
    
    37,107
    
    
    
    
    
    
    
    37,107Options expense amortization
    
    
    76,581
    
    
    
    
    
    
    
    105,646Minority interest in net loss
    
    
    (4,165
    )
    
    
    (586
    )
    
    
    (5,385
    )Depreciation expense
    
    
    10,039
    
    
    
    209
    
    
    
    11,779Stock compensation
    
    
    335,312
    
    
    
    197,605
    
    
    
    532,917Changes in current assets and current
liabilities:(Increase) in receivables
    
    
    (23,454
    )
    
    
    
    
    
    
    (23,454
    )(Increase) in advances
    
    
    
    
    
    
    (1,016
    )
    
    
    (Increase) in deposits
    
    
    (10,036
    )
    
    
    
    
    
    
    (21,534
    )(Increase) in prepaid expenses
    
    
    (8,320
    )
    
    
    (25,292
    )
    
    
    (39,806
    )Increase (decrease) in accounts payable
    
    
    (11,300
    )
    
    
    10,906
    
    
    
    31,926(Decrease) in notes payable
    
    
    
    
    
    
    (100,000
    )
    
    
    (Decrease) in accrued liabilities
    
    
    (129,734
    )
    
    
    (7,908
    )
    
    
    (33,585
    )Net cash used in operating activities
    
    
    (1,394,341
    )
    
    
    (684,529
    )
    
    
    (2,218,436
    )Cash flows from investing activitiesNet purchases of available for sale short-term securties
    
    
    (10,300,199
    )
    
    
    
    
    
    
    (11,700,199
    )Increase in deposits and other deferred charges
    
    
    (3,109,553
    )
    
    
    
    
    
    
    (3,109,553
    )Additions to property, plant and equipment
    
    
    (77,467
    )
    
    
    (3,760
    )
    
    
    (277,334
    )Net cash used in investing activities
    
    
    (13,487,219
    )
    
    
    (3,760
    )
    
    
    (15,087,086
    )Cash flows from financing activitiesDecrease in loans payable
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )Increase in minority interest investment
    
    
    40,020
    
    
    
    7,756
    
    
    
    399,430Increase in long-term advances to minority shareholder
    
    
    
    
    
    
    (8,127
    )
    
    
    (400,507
    )Decrease in subscriptions receivable
    
    
    
    
    
    
    28,000
    
    
    
    Issuance of common stock
    
    
    15,385,982
    
    
    
    4,290,271
    
    
    
    19,701,605Net cash provided by financing activities
    
    
    15,421,002
    
    
    
    4,317,900
    
    
    
    19,695,528Effect of exchange rate changes on cash
    
    
    3,566
    
    
    
    3,663
    
    
    
    20,376Net increase in cash and cash equivalents
    
    
    543,008
    
    
    
    3,633,274
    
    
    
    2,410,382Cash and cash equivalents at beginning of period
    
    
    1,867,374
    
    
    
    101,929
    
    
    
    Cash and cash equivalents at end of period
    
    $
    2,410,382
    
    
    $
    3,735,203
    
    
    $
    2,410,382Supplemental disclosures of cash flow informationInterest paid
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental schedule of non-cash investing and
financing activitiesCommon stock issued for services and fees
    
    $
    335,412
    
    
    $
    197,605
    
    
    $
    532,917
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##### Table of Contents



Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
 Notes to Condensed Consolidated Financial Statements
as of September 30, 2007 (unaudited)
 NOTE 1.  DESCRIPTION OF BUSINESS
   The Company is pursuing an oil development opportunity in Inner Mongolia.
  The Company has entered into a production sharing contract to explore for coalbed methane resources
in China.
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The Company has agreed to purchase exploration, development and production opportunities involving
coalbed methane and tight gas sand areas in The Peoples Republic of China.
  NOTE 2.  MERGER AND RECAPITALIZATION
     - 7 -




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NOTE 3.  BASIS OF PRESENTATION
     NOTE 4.  LIQUIDITY AND CAPITAL RESOURCES
 (
   NOTE 5.  SIGNIFICANT ACCOUNTING POLICIES
  - 8 -




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
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NOTE 6.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
   NOTE 7.  PROPERTY, PLANT AND EQUIPMENT
  AccumulatedSeptember 30, 2007
    
    Gross
    
    
    Depreciation
    
    
    NetOil and gas wells
    
    $
    199,532
    
    
    $
    
    
    
    $
    199,532Office and computer equipment
    
    
    59,292
    
    
    
    9,347
    
    
    
    49,945Leasehold improvements
    
    
    35,412
    
    
    
    2,441
    
    
    
    32,971Total
    
    $
    294,236
    
    
    $
    11,788
    
    
    $
    282,448December 31, 2006Oil and gas wells
    
    $
    191,877
    
    
    $
    
    
    
    $
    191,877Computer equipment
    
    
    18,374
    
    
    
    1,740
    
    
    
    16,634Total
    
    $
    210,251
    
    
    $
    1,740
    
    
    $
    208,511
   NOTE 8.  COMMITMENTS
 Consulting Agreements and Employment Agreements
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Management Contracts
  Lease Commitments
  
 NOTE 9.  CAPITALIZATION
    - 12 -




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NOTE 10.  WARRANTS AND OPTIONS
     Group 1
    
    Group 2Expected price volatility (basket of comparable public companies)
    
    
    64.60
    %
    
    
    64.60
    %Risk-free interest rate (U.S. Treasury bonds)
    
    
    4.57
    %
    
    
    4.58
    %Expected annual dividend rate
    
    
    0.00
    %
    
    
    0.00
    %Expected option term  weighted average
    
    5.50 yrs.
    
    6.25 yrs.Grant date fair value per common share
    
    $
    .34
    
    
    $
    .36Exercise price per common share
    
    $
    .56
    
    
    $
    .56
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NOTE 11.  2007 STOCK OPTION PLAN
  NOTE 12. LITIGATION AND CONTINGENCIES
  NOTE 13.SUBSEQUENT EVENTS
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Item 2. Managements Discussion and Analysis or Plan of Operation.
 Throughout this Quarterly Report on Form 10-QSB , the terms we, us, our, the Company,
and our Company refer to Pacific Asia Petroleum, Inc., a Delaware corporation, and its
subsidiaries, Inner Mongolia Production Company LLC (IMPCO), Advanced Drilling Services, LLC
(ADS), Sunrise Energy Asia LLC, 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 IMPCO and ADS into wholly-owned subsidiaries thereof,
effective May 7, 2007.
 As discussed in Note 1 and Note 2 of the unaudited financial statements, 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 in the Risk Factors section
included in the Companys Form 10-SB/A effective October 15, 2007. 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.
 Overview
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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
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
    
    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 on-going operations while attempting to limit capital
exposure;
    
    Enlisting external resources and talent as necessary to operate/manage our properties
during peak operations; and
    
    Implementing an exit strategy with respect to each project with a view to maximizing
asset values and returns.
 Product Research and Development
  Liquidity and Capital Resources
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Employees
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Acquisition of Plant and Equipment and Other Assets
   
    
    drilling activities under our agreement with the Chifeng (estimated cost of $2.5
million); and
    
    obligatory operations under our agreement with CUCBM in the CUCBM Contract Area
(estimated cost of $2.0 million).
  
    
    drilling activities under our agreement with the Chifeng (estimated cost of $5.0
million); and
    
    obligatory operations under our agreement with CUCBM in the CUCBM Contract Area
(estimated cost of $3.0 million).
 Results of Operations
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Revenues
  Costs and Expenses
  
    
    Consulting fees paid in cash: $939,923; consulting fees paid in equity compensation:
$523,892. Consulting fees have been paid for activities in relation to the raising of
approximately $20 million in private placements of the Companys equity securities,
Merger-related fees and fees related to technical review of potential oil and gas producing
opportunities.
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
    
    Salaries: $564,958. The Company had nine employees as of September 30, 2007. These
include the Companys officers (3), accountants (3), administrative staff (2), and
technical employees (1).
    
    Travel: $299,917. Travel has largely included travel to China by the Companys
officers to review potential oil and gas producing opportunities as well as establishing a
permanent company office in Beijing.
    
    Legal and professional fees: $202,166. These fees have been paid for preparing
contracts and the performance of legal services in connection with the completion of the
Mergers.
    
    Auditing: $130,371. Auditing fees were paid for certified audits of the 2005 and 2006
financials and interim reviews.
    
    Amortization of stock options at fair value: $105,646. Stock options were awarded to
the Companys officers and employees as compensation for services provided to the Company.
  
    
    Consulting fees: In the nine months ended September 30, 2007, the consulting fees paid
in cash and equity compensation totaled $659,507. These consulting fees were paid in
relation to the raising of $17 million in a private placement of ADSs equity securities,
the Mergers, and technical review of potential oil and gas producing opportunities. In the
nine months ended September 30, 2006, the consulting fees were $617,948. These consulting
fees were largely paid in relation to raising $4 million in a private placement of
securities of IMPCO and the payment of officers of the Company as consultants.
    
    Salaries:In the nine months ended September 30, 2007, salary expenses totaled
$502,658. In the nine months ended September 30, 2006, salaries totaled $14,700. The
increase reflects the increase in employees and the conversion of the Companys officers to
salaried employees.
    
    Travel: In the nine months ended September 30, 2007, travel expense totaled $144,902.
In the nine months ended September 30, 2006, travel expense totaled $86,252. The increase
is largely due to increased travel to China by the Companys officers and technical staff
to review potential oil and gas producing opportunities as well as establishing a permanent
Company office in Beijing. The new Beijing office was opened in August 2007.
    
    Legal and professional fees: In the nine months ended September 30, 2007, these fees
totaled $176,178. In the nine months ended September 30, 2006, these fees totaled $22,140.
The increase in these fees is due to the increase in the Companys activities and the legal
requirements to complete the Mergers.
    
    Auditing: In the nine months ended September 30, 2007, audit and review fees totaled
$99,747. In the nine months ended September 30, 2006, these fees totaled $18,450.
  
    
    Consulting fees: In the three months ended September 30, 2007, the consulting fees
paid in cash totaled $56,840. There was no equity compensation of consultants in this
period. In the three months ended
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September 30, 2006, the consulting fees were $305,638. These consulting fees were largely
paid in relation to raising $4 million in a private placement of securities of IMPCO and the
payment of officers of the Company as consultants.
 
    
    Salaries:In the three months ended September 30, 2007, salaries totaled $184,247. In
the three months ended September 30, 2006, salaries totaled $14,700. This increase reflects
the increase in employees and the conversion of the Companys officers to salaried
employees in 2007.
    
    Travel: In the three months ended September 30, 2007, travel expense totaled $44,748.
In the three months ended September 30, 2006, travel expense totaled $47,774.
    
    Legal and professional fees: In the three months ended September 30, 2007, these fees
totaled $109,791. In the three months ended September 30, 2006, these fees totaled $17,880.
The increase in these fees is due to the increase in the Companys activities and the legal
requirements to prepare SEC filings.
    
    Auditing: In the three months ended September 30, 2007, audit and review fees totaled
$29,169. In the three months ended September 30, 2006, these fees totaled $18,450.
 Off-Balance Sheet Arrangements
  Inflation
  Critical Accounting Policies and Estimates
  Oil and Gas Activities
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Successful Efforts Method
  Depreciation, Depletion and Amortization
  Future Development and Abandonment Costs
   Allocation of Purchase Price in Business Combinations
  Revenue Recognition
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Recently Issued Accounting Standards Not Yet Adopted
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and Financial Liabilities.
  
 Item 3. Controls and Procedures.
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
 Web Site Access and Access to SEC Reports
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Item 6. Exhibits
 ExhibitNumber
    
    Description10.1
    
    Option Deed, dated November 6, 2007, by and among Sino Gas &
Energy Limited, Pacific Asia Petroleum, Ltd. and the Company.31.1
    
    Certification of the Registrants Principal Executive Officer
under Exchange Act Rule 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Registrants Principal Financial Officer
under Exchange Act Rule 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Registrants Principal Executive Officer
under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Registrants Principal Financial Officer
under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
  Dated: November 9, 2007
    PACIFIC ASIA PETROLEUM, INC.By:
    /s/ Frank C. IngriselliName:
    Frank C. IngriselliTitle:
    President (Principal Executive Officer)By:
    /s/ Stephen F. GrothName:
    Stephen F. GrothTitle:
    Chief Financial Officer
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EXHIBIT INDEX
 PACIFIC ASIA PETROLEUM, INC.
 FORM 10-QSB FOR QUARTER ENDED SEPTEMBER 30, 2007
 ExhibitNumber
    
    Description10.1
    
    Option Deed, dated November 6, 2007, by and among Sino Gas &
Energy Limited, Pacific Asia Petroleum, Ltd. and the Company.31.1
    
    Certification of the Registrants Principal Executive Officer
under Exchange Act Rule 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Registrants Principal Financial Officer
under Exchange Act Rule 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Registrants Principal Executive Officer
under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Registrants Principal Financial Officer
under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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