XOTC:PEII Quarterly Report 10-Q/A Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q/A

AMENDMENT NO.2
 
 x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012

 o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______ to _______

Commission File Number 333-160517
 
PETRON ENERGY II, INC.
 (Exact name of registrant as specified in its charter)
 
Nevada
 
26-3121630
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
17950 Preston Road, Suite 960
Dallas, Texas 75252
(Address of principal executive offices)
 
(972) 272-8190
(Registrant’s telephone number)


Copy of all Communications to:
Zouvas Law Group, P.C.
2368 Second Avenue, 1st Floor
San Diego, CA 92101
Phone: 619-688-1715
Fax: 619-688-1716


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.
x Yes      o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes     o No (Not required)

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 o Accelerated Filer o

Non-Accelerated Filer o Smaller Reporting Company x

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

As of March 31, 2012, there were 112,787,511 shares of the registrant’s $0.001 par value common stock issued and outstanding.
 
 

 

Explanatory Note

This Amendment No. 2 on Form 10-Q/A (this “Amendment”) amends Petron Energy II, Inc.’s Current Report on Form 10-Q (the “Original Filing”) originally filed on May 21, 2012 with the Securities and Exchange Commission (the “Commission”) We are filing this Amendment to ensure consistency among filings and to add disclosure to describe the assets acquired in exchange for the Series B Preferred Stock. Identify the interests in properties acquired and indicate the status of the underlying properties. comply with Rule 3-05 of Regulation S-X. Also disclose the conversion provisions associated with the Series B Preferred Stock to comply with FASB ASC 505-10-45-3.
 
 
 

 


 
Page - 1

 

 
PETRON ENERGY II, INC.
 

TABLE OF CONTENTS
     
  
Page
   
PART I.                 FINANCIAL INFORMATION
 
  
 
ITEM 1.
FINANCIAL STATEMENTS
  3
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  11
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  12
ITEM 4.
CONTROLS AND PROCEDURES
  12
  
 
PART II.               OTHER INFORMATION
 
  
 
ITEM 1.
LEGAL PROCEEDINGS
  13
ITEM 1A.
RISK FACTORS
  13
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  13
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
  13
ITEM 4.
[REMOVED AND RESERVED]
  13
ITEM 5.
OTHER INFORMATION
  13
ITEM 6.
EXHIBITS
  14
 
Special Note Regarding Forward-Looking Statements
 

 
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Petron Energy II, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
 
*Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "PEII" Petron Energy II, Inc.
 
 
 
 
 
Page - 2

 

 PART I - FINANCIAL INFORMATION
 
 
ITEM 1.                      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


INDEX
 
  F-1
 
Unaudited Consolidated Balance Sheet as of Three Months Ended March 31, 2012 and Audited Consolidated Balance Sheet as of December 31, 2011
 
F-2
Unaudited Consolidated Statement of Operations for the Three Months Ended March 31, 2012 and 2011
 
F-3
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2012 and 2011
 
F-4
Notes to Condensed Consolidated Financial Statements Unaudited
 
F-5

 
 
 
F - 1

 


 
PETRON ENERGY II, INC.
CONSOLIDATED BALANCE SHEET


   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
(unaudited)
   
(audited)
 
ASSETS
           
Current Assets
           
             
Cash
 
$
61,227
   
$
106,850
 
Accounts Receivable--Oil & gas sales
   
40,280
     
53,466
 
Total Current Assets
   
101,507
     
160,316
 
                 
Pipeline, net of accumulated depreciation of $195,755
               
     and $179,289, respectively
   
792,245
     
808,711
 
Producing Oil & Gas Properties, net of accumulated depletion
               
     of $663,295 and $628,795, respectively
   
1,429,266
     
1,433,068
 
Other Depreciable Equipment, net of accumulated
               
     depreciation of $38,597 and $31,339, respectively
   
175,306
     
180,264
 
Other  Assets
   
31,575
     
31,575
 
                 
TOTAL ASSETS
 
$
2,529,899
   
$
2,613,934
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
                 
Accounts Payable--Trade
 
$
704,276
   
$
443,114
 
Accounts Payable--Related Party
   
71,221
     
50,617
 
Accrued Liabilities
   
110,793
     
72,158
 
Total Current Liabilities
   
886,290
     
565,889
 
                 
Asset Retirement Obligation
   
25,540
     
25,540
 
                 
TOTAL LIABILITIES
   
911,830
     
591,429
 
                 
STOCKHOLDERS' EQUITY
               
Preferred Stock, 10,000,000 shares authorized, 5,911,000 designated as follows:
         
Preferred Stock Series B, $0.001 par value
               
     5,910,000 issued and outstanding
   
5,910
     
-
 
Preferred Stock Series A, $0.001 par value
               
      issued and outstanding
   
1
     
1
 
Common Stock, $0.001 par value, 1,000,000,000 shares authorized,
               
     112,787,511 and 110,727,511 issued and outstanding, respectively
   
112,788
     
110,727
 
Additional Paid-In Capital
   
19,546,968
     
13,406,937
 
Accumulated Deficit
   
(18,047,597
)
   
(11,495,160
)
Total Stockholders' Equity
   
1,618,069
     
2,022,505
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
2,529,899
   
$
2,613,934
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
F - 2

 

 
PETRON ENERGY II, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)

   
Three Months Ended March 31,
 
   
2012
   
2011
 
             
Revenues
           
             
     Oil & Gas Sales
 
$
81,731
   
$
41,945
 
     Pipeline Revenue
   
8,903
     
1,064
 
          Total Revenue
   
90,634
     
43,009
 
                 
Costs and Expenses
               
                 
     Cost of Revenue
   
84,486
     
59,358
 
     Depletion, Depreciation and Amortization
   
58,224
     
27,967
 
     Impairment
   
5,903,000
     
-
 
     General and Administrative
   
597,362
     
435,355
 
          Total Expenses
   
6,643,072
     
522,680
 
                 
     Loss from Operations and Income Taxes
   
(6,552,438
)
   
(479,671
)
                 
Income Tax Benefit
   
-
     
-
 
                 
     Net Loss
   
(6,552,438
)
   
(479,671
)
                 
Stock Dividends
   
-
     
(875
)
                 
          Net Loss Available to Common Stockholders
 
$
(6,552,438
)
 
$
(480,546
)
                 
                 
Loss per share--basic and diluted
 
$
(0.06
)
 
$
(0.01
)
                 
Weighted average number of shares--basic and diluted
   
112,147,511
     
83,880,266
 

The accompanying notes are an integral part of these financial statements.
 
 
 
F - 3

 
 
 
PETRON ENERGY II, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)

 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
             
OPERATING ACTIVITIES
           
Net Loss
 
$
(6,552,438
)
 
$
(479,671
)
Adjustments to reconcile net loss to
               
     cash used by operating activitites:
               
     Depletion and depreciation
   
58,224
     
27,967
 
     Stock issued for services
   
-
     
271,276
 
     Impairment
   
5,903,000
     
-
 
Change in other  asset and liabilities:
               
     Decrease in oil & gas receivables
   
13,187
     
840
 
     (Decrease) Increase in accounts payable
   
281,767
     
(9,556
)
     Increase in accrued liabilities
   
38,635
     
75
 
Cash used in operating  activities
   
(257,625
)
   
(189,069
)
                 
INVESTING ACTIVITIES
               
Investment in oil & gas properties
   
(23,698
)
   
(90,332
)
Purchase of other equipment
   
(2,300
)
   
-
 
Cash used in investing activities
   
(25,998
)
   
(90,332
)
                 
FINANCING ACTIVITIES
               
Proceeds from sales of stock
   
238,000
     
257,500
 
Stock dividend
   
-
     
(875
)
Cash from financing activities
   
238,000
     
256,625
 
Decrease in cash
   
(45,623
)
   
(22,776
)
Cash at beginning of quarter
   
106,850
     
88,742
 
                 
Cash at end of quarter
 
$
61,227
   
$
65,966
 
                 
Supplemental Disclosure of Cash Flow Information
               
Non-Cash Investing and Financing Activities:
               
     Oil & gas properties
 
$
5,910,000
   
$
-
 
     Preferred Stock
   
(5,910
)
   
-
 
     Additional Paid-in Capital
   
(5,904,090
)
   
-
 
                 
   
$
-
   
$
-
 

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

 
F - 4

 
 
 
PETRON ENERGY II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011

 1. INCORPORATION AND NATURE OF OPERATIONS
 
 
Petron Energy II, Inc. (“Petron” or the “Company”) was formerly known as Petron Energy Special Corp. and was incorporated in June 2007 under the laws of the State of Texas; and, on April 2011, was reincorporated in the state of Nevada.   Pursuant to a Plan of Merger, the parent company, Petron Energy Special Corp. was merged into its wholly owned subsidiary, Petron Energy II, Inc.  The surviving entity was Petron Energy II, Inc.  The effective date of the Plan of Merger was January 3, 2012.

Petron Energy II, Inc. (“Petron” or the “Company”) was formerly known as Petron Energy Special Corp. and was incorporated in June 2007 under the laws of the State of Texas; and, on April 2011, was reincorporated in the state of Nevada. Pursuant to a Plan of Merger, the parent company, Petron Energy Special Corp. was merged into its wholly owned subsidiary, Petron Energy II, Inc. The surviving entity was Petron Energy II, Inc. The effective date of the Plan of Merger was January 3, 2012.

The Company is engaged primarily in the acquisition, development, production, exploration for and the sale of oil, gas and gas liquids in the United States. As of December 31, 2011 the Company is operating in the states of Texas and Oklahoma. In addition, the Company operates two gas gathering systems located in Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline consists of approximately 132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company sells its oil and gas products primarily to a domestic pipeline and to another oil company.

On August 12, 2011, the Company entered into an Asset Purchase Agreement with Petron Special, which is controlled by Floyd L. Smith, who indirectly became the majority shareholder of and President and sole Director of the Company on August 10, 2011, as described below.  Pursuant to the Asset Purchase Agreement (which was subsequently amended by the parties’ entry into a First Amendment to Asset Purchase Agreement on August 15, 2011 and the Second Amendment to Asset Purchase Agreement, on August 31, 2011, described above under Item 1.01, the terms of which have been reflected in the discussion below), we agreed to purchase substantially all of Petron Special’s assets (which consist of various oil and gas interests, leases and working interests collectively, the “Assets”) and none of the liabilities of Petron Special in consideration for 17,000,000 shares (170,000 pre-forward split shares) of the Company’s restricted common stock (the “Petron Shares”).  All of Petron Special’s Equipment (as defined in Item 1.01) was purchased by the Company in connection with the parties’ entry into the Second Amendment (described above in greater detail under Item 1.01) in consideration for 3,000,000 restricted shares (30,000 pre-forward split shares) of common stock on August 31, 2011.

The Asset Purchase Agreement contemplated the cancellation of 940,000,000 of the restricted shares of common stock purchased by Petron Special as described above pursuant to the Stock Purchase Agreement, which shares have been cancelled to date.

The closing of the transactions contemplated by the Asset Purchase Agreement were to occur upon the satisfaction of certain closing conditions described in the Asset Purchase Agreement, all of which have occurred to date, including: Petron Special providing the Company audited, interim and pro forma financial statements associated with the Assets; Petron Special receiving the required approval of its shareholders of the transactions contemplated by the Asset Purchase Agreement; Petron Special providing the Company all necessary assignments and consents relating to the transfer of the Assets; and Petron Special agreeing to a lock-up agreement associated with the Petron Special Shares, pursuant to which it will agree not to sell or transfer any such Petron Special Shares for one year from the closing of the Asset Purchase Agreement and no more than 30% of such Petron Special shares during the period beginning on the one year anniversary of the closing and ending at the end of the 18th month following the closing.

The Asset Purchase Agreement requires Petron Special to indemnify the Company from any liability associated with the Assets for actions which took place prior to the closing and for us to indemnify Petron Special against any liability associated with the Assets which exists due to actions which take place subsequent to the closing.  The Asset Purchase Agreement also includes a non-compete provision, which prohibits Petron Special and Floyd L. Smith (other than through his positions with the Company) from competing against the Company for a period of twelve (12) months from the closing of the Asset Purchase Agreement.  Additionally, the Asset Purchase Agreement requires that the Company agree to commit a minimum of $5,000 and 2,000,000 shares (20,000 pre-forward split shares) of common stock per month to investor relations services following the closing; and provides for the Company to enter into employment agreements with certain employees of Petron Special (provided that no such employment agreements, other than the Executive Employment Agreement with Mr. Smith, as disclosed above, have been entered into or agreed to, to date).
 
 
The Second Amendment provided for the immediate assumption by the Company and the assignment by Petron Special to the Company (collectively the “Assumption”) of the following agreements in partial consideration for the acquisition of the Equipment:

·  
A Management Services Agreement with ASL Energy Corp. (“ASL Energy”), which has a five year term, provides for ASL Energy to provide management and consulting services to Petron Special (the Company following the
 
·  
 
Assumption); provides for the right for ASL Energy and Petron Special (the Company following the Assumption) to enter into Joint Venture Agreements regarding the purchase of oil and gas interests; provides for ASL Energy to be paid $8,000 per month during the term of the agreement and the right to receive the Series A Preferred Stock (described below) to be issued to Mr. Smith, in connection with the Assignment Rights (defined below); and
 
·  
An Asset Acquisition Agreement, pursuant to which Petron Special (the Company following the Assumption) agreed to acquire the assets of ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated parties, upon the mutual agreement of final closing agreements, in aggregate consideration for shares of convertible preferred stock, which convert into shares of the Company having a total value of $5,910,000, based on the trading price of the Company’s common stock on the date converted; votes one-for-one with the common shares; provides that no shares can be converted by the holders thereof if such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s outstanding stock; provides for the automatic conversion into shares of the Company’s common stock in two tranches; and provides for such converted shares to be subject to a lock-up agreement.  It is also anticipated that the shareholders receiving the convertible preferred stock described above will also receive warrants to purchase an aggregate of 10,000,000 shares of the Company’s common stock with an exercise price of $0.08 per share.
 
 
 
F - 5

 

 
The Asset Purchase Agreement also required that we enter into an Executive Employment Agreement with Mr. Smith, which as described above under Item 1.01, we entered into with Mr. Smith effective on August 31, 2011.

The Company is engaged primarily in the acquisition, development, production, exploration for and the sale of oil, gas and gas liquids in the United States.  As of December 31, 2011 the Company is operating in the states of Texas and Oklahoma.  In addition, the Company operates two gas gathering systems located in Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma.  The pipeline consists of approximately 132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment.  The Company sells its oil and gas products primarily to a domestic pipeline and to another oil company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation
 
 The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:
 
 Subsidiary Name     
 Organization Date
 Petron Energy II Pipeline, Inc.  
 April 2008
 Petron Energy II Well Service, Inc. 
 July 2008
 Petron Energy LLP  
 June 2007
 
                                                                                                                                                                                                  
The interim consolidated financial statements as of March 31, 2012 and 2011 have been prepared in accordance with generally accepted accounting ;principles for interim financial information.  Accordingly, these consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements.  These interim unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011.  In the opinion of management, the interim unaudited consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.

The consolidated statements of operations and cash flows reflect the results of operations and the changes in cash flows of the Company for the three month period ended March 31, 2012 and 2011.  Operating results for the three month period ended March 31, 2012 are not necessarily indicative of the results that may b e expected for the year ending December 31, 2012.
 
Going concern uncertainty
 
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred a net loss of $6,552,438 for the quarter ended March 31, 2012 (2011 - $479,671) and at March 31, 2012 had an accumulated deficit of $18,047,598 (2011 – $8,847,090). While the Company has recognized revenues from operations, the revenues generated are not sufficient to sustain operations.   The Company does not have sufficient funds to acquire new business assets or maintain its existing operations at this time.  Management’s plan is to raise equity and/or debt financing as required but there is no certainty that such financing will be available or that it will be available at acceptable terms. The outcome of these matters cannot be predicted at this time.
 
 
 
Page - 8

 
 

These financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
3. ASSET IMPAIRMENT
 
The Company assesses assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

The oil and gas properties acquired from One Energy pursuant to the Asset Purchase Agreement were purchased for 5,910,000 shares of Series B Preferred Stock with a deemed value of $1.00 per share. Since the preferred stock was issued and outstanding, these preferred shares were considered common stock equivalents, due to the required automatic conversion feature.  These potential common shares had no effect on the weighted average shares outstanding since they were anti- dilutive.

On September 28, 2011, the Company obtained rights to conduct oil and gas exploration and production activities on an aggregate of 320 acres (160 acres pursuant to each lease) located in Wagoner County, Oklahoma (the “Wagoner County Leases”). Pursuant to the lease agreements, we agreed to pay the lessees under each of the leases total consideration for such lease rights consisting of $10 at the time of the entry into the agreements and (a) 3/16th of all oil produced from the leased property; (b) 3/16th of all gas of whatever nature or kind produced or sold from the leased property; (c) 3/16th of the gross proceeds, from the mouth of the well, of any gas produced from any oil well and used to manufacture gasoline; and (d) certain other nominal fees, during the period any well is shut-in. The leases have a term of one (1) year, provided that they continue in effect thereafter for so long as oil or gas is produced on such leases by the Company, if any.

Our three leased properties can be identified on the below map and consist of two leases in Oklahoma, the Tulsa County leases and the Wagoner County Leases. In Texas, the Company operates the Knox County leases. All of these leases are described in more detail below.
 
 
 
Tulsa Leases

The Company’s interest in the Tulsa project is 280 Acres over three leaseholds. The Company has a 75% working interest and a 60.9% net revenue interest.  The wells average EUR’s are 27,500 BOE, which consists of 55% oil. There are 2 producing wells and 6 identified drilling locations.
 

 
 
Page - 9

 
 
 
Wagoner County Leases

The Wagoner Leases consist of 820 Acres with 8 producing wells. The Company has a 75% working interest in the leases and a 60.9% net revenue interest. There are also 10 identified drilling locations. The average EUR’s are 27,500 BOE, which consists of 55% oil. This Lease has recompletion opportunities in water and natural gas injection, with 58 recompletion targets.
 
 
Knox County Leases

The Company has a 100% working interest in the Knox County lease and an 81.25% net working interest. The lease includes 2315 Acres (as depicted below) and an additional option on 500 acres. There are 7 producing wells on the property and 2 identified drilling locations. The average EUR’s are 15,000 BOE, which consists of 99% oil. There are recompletion opportunities for Water and Natural Gas Injection and 48 Recompletion Targets.


The Company believes that with enhanced recovery techniques, this value will be realized in the future, but currently there are no immediate plans to develop the properties. The Company obtained a reserve report that showed the net present value of the properties as they exist now to be $344,000. In addition to the issuance of the preferred stock, the Company has incurred approximately $337,000 of costs that had been capitalized related to these assets.Due to the unknown timing of the implementation of enhanced recovery techniques and the uncertainty that these techniques will be successful, management has decided to record an impairment charge of $5,903,000.


[End Notes to Financial Statements]



 
Page - 10

 


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
 
FORWARD-LOOKING STATEMENTS
 
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Results of Operations

Revenue for the period ended March 31, 2012 was $90,634 compared to $43,009 for the period ended March 31, 2011. This was increase of $47,625.

Net loss for the period ended March 31, 2012 was $6,552,438 compared to $479,671 for the period ended March 31, 2011. This is an increase of nearly 900% of net loss from the year prior.

General and Administrative costs for the period ended March 31, 2012 were $597,362 compared to $435,355 for the period ended March 31, 2011. This increase was related to the costs and expenses of finalizing the merger that the Company entered into.

Liquidity and Capital Resources

As of March 31, 2012, the current liabilities were $886,290 and the Company’s assets were $2,529,899. Cash for the period ended March 31, 2012 decreased by $45,623. The Company does not have any current commitments for capital expenditures or any other commitments that would result in a change in cash flow or cash requirements.

Cash Requirements

Our cash on hand as of March 31, 2012 was $61,227. The Company has incurred a net loss of $6,552,437 for the period ended March 31, 2012 and at March 31, 2012 had an accumulated deficit of $18,047,497 as compared to $11,495,160 in 2011.  While the Company has recognized revenues from operations, the revenues generated are not sufficient to sustain operations. The Company does not have sufficient funds to acquire new business assets or maintain its existing operations at this time. Management’s plan is to raise equity and/or debt financing as required but there is no certainty that such financing will be available or that it will be available at acceptable terms. The outcome of these matters cannot be predicted at this time.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Future Financings

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
 
 
 
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Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note 2 of the notes to our financial statements. In general, management's estimates are based on historical experience, information from third party professionals, and various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Recently Issued Accounting Pronouncements

The adoption of these accounting standards had the following impact on the Company’s statements of income and financial condition:

The FASB established the FASB Accounting Standards Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements issued for interim and annual periods ending after September 15, 2009. The codification has changed the manner in which U.S. GAAP guidance is referenced, but did not have an impact on the consolidated financial position, results of operations or cash flows of the Company

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.” This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Accounting Standards Codification (“ASC”) 820. ASU 2010-06 amends ASC 820 to now require: (1) a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and (2) in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, ASU 2010-06 clarifies the requirements of existing disclosures. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning fter December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. The Company will comply with the additional disclosures required by this guidance upon its adoption in January 2010.

Also in January 2010, the FASB issued Accounting Standards Update No. 2010-03, “Extractive Activities—Oil and Gas—Oil and Gas Reserve Estimation and Disclosures.” This ASU amends the “Extractive Industries—Oil and Gas” Topic of the Codification to align the oil and gas reserve estimation and disclosure requirements in this Topic with the SEC’s Release No. 33-8995, “Modernization of Oil and Gas Reporting Requirements (Final Rule),” discussed below. The amendments are effective for annual reporting periods ending on or after December 31, 2009, and the adoption of these provisions on December 31, 2009 did not have a material impact on our consolidated financial statements.

On December 31, 2008, the Securities and Exchange Commission, referred to in this report as the SEC, issued Release No. 33-8995, “Modernization of Oil and Gas Reporting Requirements (Final Rule),” which revises the disclosures required by oil and gas companies. The SEC disclosure requirements for oil and gas companies have been updated to include expanded disclosure for oil and gas activities, and certain definitions have also been changed that will impact the determination of oil and gas reserve quantities. The provisions of this final rule are effective for registration statements filed on or after January 1, 2010, and for annual reports for fiscal years ending on or after December 31, 2009.

ITEM 3.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4.                       CONTROLS AND PROCEDURES
 
(a)     Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934, as amended (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quatery report (the "Evaluation Date"), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
 
 
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Based on this evaluation, our principal executive and principal financial and accounting officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective as previously on our Annual Report on Form 10-K

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.                      LEGAL PROCEEDINGS

NONE.

ITEM 1A.                    RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2.                       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

1.  
Quarterly Issuances:
 
The Company issued 2,060,000 shares in a private placement in the first quarter for $238,000.
  
Effective February 09, 2012, the Company, pursuant to Section 368(a)(1)(c) of the United States Internal Revenue Code, adopted a plan of reorganization whereby they would be transferred all of the assets of OEI and its Affiliate Companies, as described in the agreement, to the Company in exchange for 5,910,000 shares of the Company’s Series B Convertible Preferred stock..

2.  
Subsequent Issuances:

Subsequent to the quarter, we did not issue any unregistered securities other than as previously disclosed.

 ITEM 3.                      DEFAULTS UPON SENIOR SECURITIES

NONE.

ITEM 4.                       MINE SAFETY DISCLOSURES

NONE.

ITEM 5.                      OTHER INFORMATION

 
Quarterly Events

As reported with the Securities and Exchange Commission on January 6, 2012, the Company reported that on January 3, 2012, Petron Energy II, Inc. (the “Company”) entered into a Plan of Merger with its parent company, Petron Energy Special Corporation, (“Petron Special”). Under the terms of the Plan of Merger, Petron Special will merge into the Company and cease to exist.

Effective January 3, 2012, the Petron Special, pursuant to Nevada Revised Statutes 92A.180, merged into Company in consideration for 78,654,541 restricted shares of common stock pursuant to and in connection with the Plan of Merger. Additionally, in connection with the Plan of Merger (defined above), Petron Special cancelled 60,000,000 shares of common stock of Petron Energy II, Inc., of which it held.

On February 7th, the Board of Directors dismissed LBB & Associates Ltd., LLP (the "Former Accountant") as the Registrant's independent registered public accounts, and engaged Killman, Murrell & Company P.C (the "New Accountant") to serve as the Registrant's independent registered public accountant for the fiscal year of 2012.
 
 
 
Page - 13

 

 
On February 09, 2012, the Company, by and through its Board of Directors, resolved to designate a “Series B Convertible Preferred Stock”, which will consist of up to 6 million shares. By filing the Certificate of Designation and an amendment to the Articles of Incorporation, the Company will cause its Articles of Incorporation to be amended with the State of Nevada.

 
On February 17, 2012 the Company filed with the Securities and Exchange Commission reporting it had entered into a Plan of Reorganization and Asset Purchase Agreement (“Agreement”) on February 09, 2012, between Petron Energy II, Inc. (the “Company”) and ONE Energy International Corp, (“OEI”) a Nevada Corporation, and its Affiliate Companies. Under the terms of the Agreement, the Company will acquire all of the assets of OEI and its affiliates in exchange for 5,910,000 shares of the Company’s Series B Convertible Preferred stock.
 
 
Subsequent Events
 
NONE
 

ITEM 6.                      EXHIBITS

 3.1
 
Articles of Incorporation (Filed as Exhibit 3.1 to Registration Statement on Form S-1, filed with the Securities and Exchange Commission on July 10, 2009)
3.2
 
Bylaws of the Company (Filed as Exhibit 3.2 to Registration Statement on Form S-1, filed with the Securities and Exchange Commission on July 10, 2009)
31.01
 
31.02
 
32.01
 
32.02
 

 
 
 
Page - 14

 
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PETRON ENERGY II INC.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PETRON ENERGY II INC.

Dated: August 24, 2012                                                  /s/ Floyd L. Smith
By: Floyd L. Smith
Its: CEO and CFO, President, Treasurer and Director

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Dated: August 24, 2012                                                  By: /s/ Floyd L. Smith
Floyd L. Smith
Chief Executive Officer
Principal Accounting Officer and
Chief Financial Officer,
President, Treasurer and Director

Dated: August 24, 2012                                                  /s/ David Knepper
David Knepper
Director
 
 
 
Page - 15

 
 
Exhibit 31.01
 
 
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14
 
I, Floyd L. Smith, certify that:
 
1.           I have reviewed this quarterly report on Form 10-Q of Petron Energy II, Inc.;
 
2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 


Date: August 24, 2012
/s/ Floyd L. Smith
 
By: Floyd L. Smith
Its: Principal Executive Officer
 

 
Page - 16

 
 

Exhibit 31.02
 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14
 
I, Floyd L. Smith, certify that:
 
1.           I have reviewed this quarterly report on Form 10-Q of Petron Energy II, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 



Date: August 24, 2012
/s/ Floyd L. Smith
 
By: Floyd L. Smith
Its:  Principal Financial Officer

 
Page - 17

 


 
 
Exhibit 32.01
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Petron Energy II, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Floyd L. Smith, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
 
(1)        The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 
 
(2)        The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
 

 

/s/ Floyd L. Smith
By: Floyd L. Smith
Chief Executive Officer
 
Dated: August 24, 2012
 
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
 


 
Page - 18

 


 
  Exhibit 32.02
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Petron Energy II, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Floyd L. Smith, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
 
 
(1)        The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
 
(2)        The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 

 /s/ Floyd L. Smith
By: Floyd L. Smith
Chief Financial Officer
 
Dated: August 24, 2012
 
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 

 
Page - 19

 

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XOTC:PEII Quarterly Report 10-Q/A Filing - 3/31/2012
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