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Petron Energy II, Inc.
0001467434
10-Q
2012-06-30
true
--12-31
No
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Smaller Reporting Company
This Amendment No. 2 on Form 10-Q/A (this “Second Amendment”) amends Petron Energy II, Inc.’s Quarterly Report on Form 10-Q (the “Original Filing”) originally filed on August 14, 2012 with the Securities and Exchange Commission (the “Commission”) and Amen
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<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px; font: bold 10pt Times New Roman, Times, Serif">1.</td>
<td style="font: bold 10pt Times New Roman, Times, Serif">INCORPORATION AND NATURE OF OPERATIONS</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Petron Energy II, Inc. (“Petron Energy”
or the “Company”) was formerly known as Restaurant Concepts of America, Inc. 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin-right: 0; margin-left: 0">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.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-right: 0; margin-left: 0"><b>Basis of presentation</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin-right: 0; margin-bottom: 6pt; margin-left: 0">The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:</p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="background-color: #CCEEFF">
<td style="width: 50%; border-bottom: black 1.5pt solid"> Subsidiary Name     </td>
<td style="width: 50%; border-bottom: black 1.5pt solid"> Organization Date</td></tr>
<tr style="background-color: white">
<td> Petron Energy II Pipeline, Inc.  </td>
<td> April 2008</td></tr>
<tr style="background-color: #CCEEFF">
<td> Petron Energy II Well Service, Inc. </td>
<td> July 2008</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The interim consolidated financial statements
as of June 30, 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The consolidated statements of operations reflect
the results of operations of the Company for the three and six month period ended June 30, 2012 and 2011 and the statements of
cash flows reflect the activity for the six month periods ended June 30, 2012 and 2011. Operating results for the six month period
ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin-right: 0; margin-left: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin-right: 0; margin-left: 0"><b>Going concern uncertainty</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin-right: 0; margin-left: 0">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 $7,025,145 for the six months ended June 30, 2012 (2011 - $1,026,092) and at June 30, 2012
had an accumulated deficit of $18,520,305 (2011 – $11,495,160). 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin-right: 0; margin-left: 0">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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-right: 0; margin-left: 0"><b>3. ASSET IMPAIRMENT</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 8, 2011, the Company entered into
an “Asset Purchase Agreement” with ONE Energy Capital Corp. (“ONE Energy”). The Company purchased producing
oil and gas wells owned by ONE Energy by issuing 5,910,000 shares of the Company’s Series B Preferred Stock. ONE Energy has
the right to convert such Series B Preferred Shares into the number of common shares having a total value of $5,910,000 based on
the trading price of the Company’s common stock on the date of such conversion. The purchase transaction was completed and
the convertible preferred shares issued on February 9, 2012. Upon completion of the purchase the Company recorded the $5,910 par
value of the preferred shares and a common stock issuance liability of $5,904,090 which will be recognize as additional paid-in
capital at the time the preferred shares are converted to common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s investment in the ONE Energy
properties was as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 1.5in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="background-color: #CCEEFF">
<td style="vertical-align: bottom; font: 10pt Times New Roman, Times, Serif">Cash payment to ONE Energy </td>
<td colspan="2" style="font: 10pt Times New Roman, Times, Serif; text-align: right">$</td>
<td style="vertical-align: bottom; font: 10pt Times New Roman, Times, Serif; text-align: right">106,000</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="font: 10pt Times New Roman, Times, Serif">Other cost associated with purchase </td>
<td colspan="2" style="font: 11pt Calibri, Helvetica, Sans-Serif; text-align: right"> </td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: right">119,000</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="font: 10pt Times New Roman, Times, Serif">Preferred stock conversion value </td>
<td style="border-bottom: black 1pt solid; font: 11pt Calibri, Helvetica, Sans-Serif; text-align: right"> </td>
<td style="border-bottom: black 1pt solid; font: 11pt Calibri, Helvetica, Sans-Serif; text-align: right"> </td>
<td style="border-bottom: black 1pt solid; font: 10pt Times New Roman, Times, Serif; text-align: right">5,910,000</td></tr>
<tr style="background-color: white">
<td style="vertical-align: bottom; padding-left: 33.75pt; font: 10pt Times New Roman, Times, Serif">Total investment </td>
<td colspan="2" style="border-bottom: black 2.25pt double; font: 10pt Times New Roman, Times, Serif; text-align: right">$</td>
<td style="vertical-align: bottom; border-bottom: black 2.25pt double; font: 10pt Times New Roman, Times, Serif; text-align: right">6,135,000</td></tr>
<tr>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">This investment was reviewed by management
to determine if there was impairment. The facts considered by management in the impairment review included among other items the
following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt Times New Roman, Times, Serif"><font style="font-size: 10pt">•</font></td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">During the three year period ended December 31, 2011 the operating expenses of the purchased wells exceeded revenues by approximately $500,000.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt Times New Roman, Times, Serif"><font style="font-size: 10pt">•</font></td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">ONE Energy’s reserve report related to the well sold estimated the discounted cash inflows of $132,000.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 1in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt Arial, Helvetica, Sans-Serif">•</td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">The Company had a reserve report for these wells prepared as of March 31, 2012 reported discounted cash inflows of $232,000.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Management concluded that an impairment had
occurred and that the investment in the purchased wells should be reduced to $232,000 at March 31, 2012, resulting in an impairment
charge of $5,903,000.</p>
<p style="margin: 0pt"></p>