-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TxMlxSQBXD53ZqM39MELo+ik6kpAPis37q/oHc5hGC6ZIblq5CongfAOKlR5izti berNl3pA5l1TTLG0vlfeHQ== 0001013762-10-001266.txt : 20100521 0001013762-10-001266.hdr.sgml : 20100521 20100521150709 ACCESSION NUMBER: 0001013762-10-001266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20100331 FILED AS OF DATE: 20100521 DATE AS OF CHANGE: 20100521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US NATURAL GAS CORP CENTRAL INDEX KEY: 0001448695 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 262317506 STATE OF INCORPORATION: FL FISCAL YEAR END: 1021 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-154799 FILM NUMBER: 10850847 BUSINESS ADDRESS: STREET 1: 33 6TH STREET SOUTH STREET 2: SUITE 600 CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 727-482-1505 MAIL ADDRESS: STREET 1: 33 6TH STREET SOUTH STREET 2: SUITE 600 CITY: ST PETERSBURG STATE: FL ZIP: 33701 FORMER COMPANY: FORMER CONFORMED NAME: Adventure Energy, Inc. DATE OF NAME CHANGE: 20081024 10-Q 1 form10q.htm US NATURAL GAS CORP FORM 10-Q form10q.htm

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

FORM 10-Q
(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
 
¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 333-154799

US NATURAL GAS CORP
 (Name of registrant in its charter)

Florida
  
26-2317506
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
33 6th Street South, Suite 600, St Petersburg, FL 33701
 (Address of principal executive offices) (Zip Code)

Issuer’s telephone Number: (727) 824-2800

WITH COPIES TO:

Christopher K. Davies, Esq.
2234 N Federal Highway, Suite #330
Boca Raton, FL 33431
 
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  o
 
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 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). Yes  o No  x
 
The number of shares of registrant’s common stock outstanding as of May 18, 2010 was 25,908,910.


 
 
 
 

 


US NATURAL GAS CORP
INDEX
 

PART I: FINANCIAL INFORMATION    
  
ITEM 1:
FINANCIAL STATEMENTS (Unaudited)
  
 
Consolidated Balance Sheets as of  March  31, 2010 (unaudited) and December 31, 2009
F-3
 
Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009, and from March 28, 2008 (inception) through March 31, 2010 (unaudited)
F-4
 
Consolidated Statement of Stockholders' Equity for the period March 28, 2008 (inception) through March 31, 2010 (unaudited)
F-5
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009, and from March 28, 2008 (inception) though March 31, 2010 (unaudited)
F-6
 
Notes to the Consolidated Financial Statements
F-7
ITEM 2:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3
ITEM 3 :
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
9
ITEM 4:
CONTROLS AND PROCEDURES
9
PART II: OTHER INFORMATION    
  
Item 1
LEGAL PROCEEDINGS
9
ITEM 1A :
RISK FACTORS
9
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
9
ITEM 3
DEFAULTS UPON SENIOR SECURITIES
10
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
10
ITEM 5
OTHER INFORMATION
10
ITEM 6:
EXHIBITS
11
SIGNATURES
  
12



 
2
 


 
INDEX TO FINANCIAL STATEMENTS
 
 
Financial Statements
  
Page
     
Report of Independent Registered Public Accounting Firm
  
F-2
     
Consolidated Balance Sheets as of  March 31, 2010 (unaudited) and December 31, 2009
  
F-3
     
Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (unaudited)
  
 
           and for the period March 28, 2008 (inception) through March 31, 2010
  
F-4
     
Consolidated Statement of Stockholders’ Equity for the period
  
 
            March 28, 2008 (inception) through March 31, 2010
  
F-5
     
Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)
  
 
           and for the period March 28, 2008 (inception) through March 31, 2010
  
F-6
     
Notes to the Consolidated Financial Statements
  
F-7
     
 
 
 
 
F-1
 
 
 
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors
US NATURAL GAS CORP (Effective March 22, 2010)
St Petersburg, Florida


In accordance with the terms and objectives of our engagement, we have reviewed the accompanying consolidated balance sheet of US NATURAL GAS CORP (Formally Adventure Energy, Inc.) (A Development Stage Enterprise) as of March 31, 2010, and the related consolidated statements of operations and cash flows for the three months ended March 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows from inception (March 28, 2008) through March 31, 2010.  These consolidated financial statements are the responsibility of US NATURAL GAS CORP’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim consolidated financial statements consists principally of applying analytical procedures and making inquires of persons responsible for financial and accounting matters.  A review (as defined by the Public Company Accounting Oversight Board (United States)) is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United Statements of America.
 
We audited the accompanying consolidated balance sheet at December 31, 2009, and we expressed an unqualified opinion on it in our report dated April 15, 2010.  We have not performed any auditing procedures since that date.

The accompanying consolidated financial statements assume that US NATURAL GAS CORP will continue as a going concern.  As discussed in the notes to the consolidated financial statements and elsewhere in this Form 10-Q, US NATURAL GAS CORP has incurred significant operating losses for the three months ended March 31, 2010 and 2009 and for the period from inception (March 22, 2008) through March 31, 2010.  In addition, US NATURAL GAS CORP has virtually no revenue from natural gas and oil production and sale, has not commenced planned principal business operations, and its current liabilities substantially exceed its current assets.

These factors raise substantial doubt about US NATURAL GAS CORP’s ability to continue as a going concern.  US NATURAL GAS CORP management’s plans regarding these matters are described in the notes to the consolidated financial statements.  In accordance with accounting principles generally accepted in the United States of America, these consolidated financial statements do not, at this time, include any adjustments that might result from the resolution of this significant uncertainty.




LGG & Associates, PC
Certified Public Accountants
and Management Consultants

May 20, 2010
Lawrenceville, Georgia

 
 
 
 
F-2
 
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
 
   
   
 
March 31, 2010
    
 
December 31, 2009
  
 ASSETS
            
             
CURRENT ASSETS
            
      Cash and cash equivalents
  
$
55,203
    
$
26,488
  
      Accounts receivable, joint interest billing
    
120,675
      
0
  
      Accounts receivable, other
    
32,312
      
97,900
  
      Marketable equity securities
    
38,368
      
0
  
      Materials and supplies
    
15,000
      
15,000
  
      Prepaid expenses
    
15,372
      
21,000
  
      Notes receivable, current
    
54,800
      
50,000
  
                 
      Total current assets
    
331,730
      
210,388
  
                 
PROPERTY AND EQUIPMENT
                
      Oil and gas properties
    
5,240,402
      
224,474
  
                 
OTHER ASSETS
                
      Notes receivable
    
59,900
      
1,225,000
  
      Debenture escrow
    
99,190
      
99,190
  
      Investments
    
3,000
      
72,900
  
      Other assets
    
189,962
      
150,473
  
                 
      Total other assets
    
352,052
      
1,547,563
  
                 
 TOTAL ASSETS
  
$
5,924,184
    
$
1,982,425
  
                 
     LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                 
CURRENT LIABILITIES
                
       Accounts payable and accrued expenses
  
$
942,779
    
$
282,745
  
       Advances due related entities, net
    
0
      
86,752
  
       Notes payable, current
    
1,083,868
      
595,868
  
       Loans payable-other
    
25,300
      
23,000
  
       Loans payable-shareholders
    
51,731
      
85,100
  
       Convertible debenture payable
    
50,000
      
50,000
  
                 
       Total current liabilities
    
2,153,678
      
1,123,465
  
                 
LONG-TERM LIABILITIES
                
        Notes payable
    
1,635,699
      
900,000
  
                 
STOCKHOLDERS’ EQUITY
                
      Preferred stock authorized 3,000,000 shares, $.001 par value-Series A
                
           At March 31, 2010 and December 31, 2009 there are 1,000,000 shares issued and outstanding
    
1,000
      
1,000
  
      Preferred stock authorized 300,000 shares, $.001 par value-Series B
                
            At March 31, 2010 and December 31, 2009 there are 300,000 shares issued and outstanding
    
300
      
300
  
      Common stock authorized 50,000,000 shares, $.001 par value
                
             each.  At March 31, 2010 and December 31,2009  there are
                
             24,438,910 and 22,185,910 shares issued and outstanding, respectively
    
24,439
      
22,186
  
Additional paid in capital
    
2,463,166
      
2,323,739
  
Non controlling interest
    
2,305,863
      
0
  
       Deficit accumulated during the development stage
    
(2,659,961
)
  
(2,388,265
)
                 
              Total stockholders’ equity (deficit)
    
2,134,807
      
(41,040
)
                 
 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
5,924,184
    
$
1,982,425
  
                 
 
 
The accompanying notes are an integral part of these statements.
 
 
 
F-3
 
 
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
 
   
For the
3 months ended
March 31,
2010
    
For the
3 months ended
March 31,
2009
    
March 28,
2008 (inception)
to March 31,
2010
  
                   
                   
Revenue
  
$
0
    
$
0
    
$
44,191
  
                         
Cost of oil and gas operations
    
15,947
      
0
      
73,327
  
                         
    Gross profit (loss)
    
(15,947
)
    
0
      
(29,136
)
                         
Operating Expenses
                        
    Selling, general and administrative
    
243,766
      
16,335
      
599,263
  
    Stock issued for legal services
    
79,680
      
122,500
      
643,031
  
    Stock issued for consulting and other services
    
54,000
      
59,999
      
1,493,201
  
    Amortization and depreciation
    
22,530
    
0
      
44,191
  
                         
Total operating expenses
    
399,976
      
198,834
      
2,779,686
  
                         
Net loss from operations
    
(415,923
)
    
(198,834
)
    
(2,808,822
)
                         
Other Income (Expenses)
                        
                         
Net gain from marketable equity securities
    
169,227
      
5,363
      
184,688
  
Interest expense
    
(25,000
)
    
0
      
(35,827
)
                         
          Total other income (expenses)
    
    144,227
      
5,363
      
148,861
  
                         
                  Net loss
  
$
(271,696
)
  
$
(193,471
)
  
$
(2,659,961
)
                         
                         
Basic loss  per common share
  
$
(.01
)
  
$
(.02
)
        
Diluted loss per common share    $   (.01 )    $   (.02 )         
                         
Weighted average common shares outstanding- basic
   
23,941,525
      
12,781,949
          
Weighted average common shares outstanding- diluted    
45,652,075
         12,781,949          
 
 


The accompanying notes are an integral part of these statements.
 
 
 
F-4
 
 
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
March 28, 2008 (inception) to March 31, 2010
 
 
 
 
   
Common stock
    
Preferred Stock
    
Additional
Paid in
   
Non
Controlling
    
Deficit Accumulated
During Development
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Interest
    
Stage
    
Total
  
Issuance of common stock for cash
                                                
  on March 28, 2008 at $.001 per share
     10,000,000     $ 10,000           $ 0     $ 0     $ 0     $ 0     $ 10,000  
Issuance of common stock for leases and right of
                                                              
   ways at $.35 per share
     900       1                     314                       315  
Issuance of common stock for expense
                                                              
  reimbursements at $.25 per share
     76,837       77                     19,132                       19,209  
Issuance of common stock for consulting
                                                              
  and other services at $.35 per share
     776,499       776                     270,999                       271,775  
Issuance of common stock for legal services
                                                              
   valued at $.35 per share
     1,250,000       1,250                     436,250                       437,500  
Issuance of common stock and warrants for
                                                              
   cash at $.35 per share
     95,715       96                     33,404                       33,500  
Issuance of common stock for cash at $.25 per
                                                              
   Share
     40,000       40                     9,960                       10,000  
Net loss for the period March 28, 2008
                                                              
   to  December  31, 2008
                                                   (749,550 )     (749,550 )
                                                               
Balance at December 31, 2008, Restated-Note K
     12,239,951       12,240       0       0       770,059       0       (749,550 )     32,749  
Issuance of Series A and B shares at par value
                     1,300,000       1,300                               1,300  
 
Issuance of common stock for services at $0.664
                                                                
thru  $0.35 per share
     9,345,959       9,346                       1,503,180                       1,512,526  
 
Issuance of common stock for services at $.07
                                                                
 and $.10 per share
     600,000       600                       50,500                       51,100  
 
Net loss for the year ended December 31, 2009
                                                     (1,638,715 )     (1,638,715 )
                                                                 
Balances at December 31, 2009
     22,185,910       22,186       1,300,000       1,300       2,323,739       0       (2,388,265 )     (41,040 )
Issuance of common stock for services at per share prices from $.04 to $.10
     2,253,000       2,253                       139,427                       141,680  
Consolidation with Wilon Resources, Inc
                                             2,305,863               2,305,863  
Net loss for the 3 months ending March 31, 2010
                                                     (271,696 )     (271,696 )
Balance at March 31, 2010
     24,438,910     $ 24,439       1,300,000     $ 1,300     $ 2,463,166     $ 2,305,863     $ (2,659,961 )   $ 2,134,807  
 
 
The accompanying notes are an integral part of these statements.
 
 
 
 
F-5
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
    
   
For the
3 months ended
March 31,
2010
    
For the
3 months ended
March 31,
2009
    
March 28,
2008 (inception)
to March 31,
2010
  
OPERATING ACTIVITIES
                  
Net loss
  
$
(271,696
)
  
$
(193,471
)
  
$
(2,659,961
)
     Adjustments to reconcile net loss to net cash provided by
                        
       operating activities:
                        
       Depreciation and amortization
    
22,530
      
0
      
44,191
  
       Net gain from marketable equity securities
    
(169,227
)
    
0
      
(169,227
)
       Issuance of common stock for services, leases, and reimbursements
    
133,680
      
182,499
      
2,136,232
  
     Changes in operating assets and liabilities:
                        
      Accounts receivable, joint interest billing
    
(120,675
)
    
0
      
(120,675
)
      Accounts receivable, other
    
76,311
      
0
      
(21,589
)
       Materials and supplies
    
0
      
0
      
(15,000
)
       Prepaid expenses
    
5,628
      
0
      
5,628
  
       Other assets
    
(60,700
)
    
0
      
(62,700
)
       Accounts payable and accrued expenses
    
42,856
      
0
      
325,601
  
                         
                 Net cash flows from operating activities
    
(341,293
)
    
(10,972
)
    
(537,500
)
                         
INVESTING ACTIVITIES:
                        
Purchase of investments
    
(3,000
)
    
0
      
(75,900
)
Proceeds from sale of investments
    
21,000
      
0
      
21,000
  
Purchases of  marketable equity securities
    
(1,990,563
)
    
0
      
(1,990,563
)
Proceeds from sale of marketable equity securities
    
2,121,423
      
0
      
2,121,423
  
Lending on notes receivable
    
(1,400
)
    
0
      
(1,276,400
)
Collections on notes receivable
    
62,255
      
0
    
 
62,255
  
Purchase of property and equipment
    
(305,138
)
    
0
      
(530,063
)
                         
                 Net cash flows from investing activities
    
(95,423
)
    
0
      
(1,668,248
)
                         
FINANCING  ACTIVITIES:
                        
Issuance of common stock and warrants for cash
    
12,500
      
0
      
66,000
  
Issuance of preferred stock
    
0
      
0
      
1,300
  
Borrowings from notes payable
    
510,300
      
0
      
2,006,168
  
Payments on notes payable
    
(24,000
)
    
0
      
(24,000
)
Loans payable - other
    
0
      
0
      
23,000
  
Loans payable - shareholders
    
(33,369
)
    
3,488
      
51,731
  
Advances due to related entity, net
    
0
      
0
      
86,752
  
Convertible debenture payable
    
0
      
0
      
50,000
  
                         
            Net cash flows from financing activities
    
465,431
      
3,488
      
2,260,951
  
                         
NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
28,715
 
    
(7,484
)
    
55,203
  
                         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
26,488
      
27,389
      
0
  
                         
CASH AND CASH EQUIVALENTS,  END OF PERIOD
  
$
55,203
    
$
19,905
    
$
55,203
  
                         
 
Supplemental Disclosures of Cash Flow Information:
                        
        Interest paid
  
$
25,000
      
0
    
$
25,000
  
        Consolidation of Wilon Resources, Inc.
    
2,345,562
      
0
      
2,345,262
  
        Issuance of common stock for loans payable, other
    
8,000
      
0
      
8,000
  
        Issuance of common stock for other assets
    
0
      
0
      
169,683
  
        Issuance of common stock for prepaid services
    
0
      
0
      
21,000
  
        Issuance of common stock for debenture escrow
    
0
      
0
      
99,190
  
 Acquisition of SLMI Options - preferred stock
    
0
      
0
      
1,300
  
 
 


The accompanying notes are an integral part of these statements.


 
F-6
 

 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 ( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Unaudited

NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    Nature of Operations
 
US Natural Gas Corp (the “Company”) was incorporated in Florida on March 28, 2008. The Company is an independent oil and natural gas company engaged in exploration, development and production activities in the Appalachian Basin, particularly in Kentucky and West Virginia. Our business strategy focuses primarily on the drilling and acquisitions of proved developed and undeveloped properties and on the enhancement and development of these properties.

On August 25, 2009, the Company incorporated Wilon Resources, Inc. in the state of Tennessee. On February 9, 2010, Wilon Resources, Inc. (Wilon), a wholly owned subsidiary of the Company, merged with and into Wilon Resources of Tennessee, Inc. (WRT), a Tennessee Corporation.  All of the stock of Wilon's shareholders was acquired by WRT for consideration equal to 1000 shares of WRT for every one share of Wilon held by Wilon shareholders.  Subsequent to the merger, Wilon approved the use of the name Wilon Resources, Inc. by WRT.

On March 19, 2010, the Company's shareholders approved with 16,611,138 votes for and zero votes against to a share exchange between the Company and Wilon Resources, Inc. (Wilon), a Tennessee corporation whereby the Company acquired all of the outstanding shares of Wilon and hold Wilon as a wholly-owned subsidiary.  For each share of common stock of Wilon exchanged, the Company issued one share of the Company's common stock plus one warrant to purchase one additional share of common stock of the Company at an exercise price of  $.25 (25 cents) per share to be exercisable for a period of 5 years from the date of issue.  The shareholders for Wilon approved of the share exchange with 27,843,109 votes for and zero votes against.  As of the filing of these financial statements, the Company is awaiti ng final approval of the share exchange by Financial Industry Regulatory Authority (FINRA).

On March 19, 2010, the Company's shareholders approved an amendment to the Company's Articles of Incorporation changing the name of the Company to US Natural Gas Corp.  Wilon simultaneously completed a name change to US Natural Gas Corp WV.  Also, the Company's shareholders approved an amendment to the Company's Articles of Incorporation deleting Article 8 thereof to eliminate reference to a non-existent "Shareholders' Restrictive Agreement."
 
Basis of Presentation
 
The accompanying interim unaudited financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission  (the “SEC”) for interim financial statements and in the opinion of management contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2010, and the results of operations for the three months ended March 31, 2010 and 2009, and cash flows for the three months ended March 31, 2010 and 2009. These results have been determined on the basis of accounting principles generally accepted in the United States and applied consistently as those used in the preparation of the Company's 2009 Annual Report on Form 10-K.
 
Cash and Cash Equivalents
 
The Company considers all liquid debt securities with an original maturity of 90 days or less that are readily convertible into cash to be cash equivalents.
                                                         
Principles of Consolidation
 
The consolidated financial statements include the accounts of US Natural Gas Corp, it's wholly owned subsidiariesus US Natural Gas Corp KY, SLMI Options LLC, E2 Invesments LLC and E3 Petroleum Corp and US Natural Gas Corp WV a 27% owned Subsidiary.  All significant intercompany accounts and transactions have been eliminated in the consolidation.
                                                       
Non Controlling Interest

The Company's March 31, 2010 financial statements have consolidated Wilon Resources, Inc. as a result of obtaining managerial control of Wilon through the Securities Purchase Agreement between Harlis Trust and E 2 Investments, LLC, a wholly owned subsidiary of the Company. Wilon's estimated fair market values of its assets and liabilities are consolidated in the Company's balance sheet at March 31, 2010.  These estimates could significantly change both negatively and/or positively pending valuations by third parties.  In particular, oil and gas properties with an estimated fair market value of approximately $4,643,000 includes 115 natural gas wells, 12,000 acres of mineral rights leases, and the gathering system interconnecting the Company's wells. The Company intends to retain a third party to complete a Reserve s Report covering the 12,000 acres located in Wayne County, West Virginia substantiating proven and probable reserves.
 
Marketable Equity Securities
 
Marketable equity securities are stated at fair value with unrealized gains and losses included in operations. The Company has classified its marketable equity securities as trading securities.

 

 
 
F-7
 

 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.) 
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited


NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Recently Enacted Accounting Standards
 
On December 31, 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements. Many of the revisions are updates to definitions in the existing oil and gas rules to make them consistent with the petroleum resource management system, which is a widely accepted standard for the management of petroleum resources that was developed by several industry organizations. Key revisions include changes to the pricing used to estimate reserves utilizing a 12-month average price rather than a single day spot price which eliminates the ability to utilize subsequent prices to the end of a reporting period when the full cost ceiling was exceeded and subsequent pricing exceeds pricing at the end of a reporting period, the ability to include nontraditional resources in reserves, the use of new technology for d etermining reserves, and permitting disclosure of probable and possible reserves. The SEC will require companies to comply with the amended disclosure requirements for registration statements filed after January 1, 2010, and for annual reports on Form 10-K for fiscal years ending on or after December 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact that the adoption will have on the Company’s disclosures, operating results, financial position and cash flows.
 
In June 2009, the FASB issued guidance now codified as ASC 105, Generally Accepted Accounting Principles as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC.
 
ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. The adoption of ASC 105 did not have a material impact on our company’s consolidated financial statements, but did eliminate all references to pre-codification standards.
 
In May 2009, FASB issued ASC 855, Subsequent Events which establishes general standards of for the evaluation, recognition and disclosure of events and transactions that occur after the balance sheet date. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard, which includes a new required disclosure of the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009.
 



 
F-8
 


 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)  
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited



NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Materials and Supplies

Materials and supplies consist primarily of  parts and accessories necessary to maintain the oil and gas properties.  They are recorded at the lower of cost or market value.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (see Note A - Non Controlling Interest)
 
Concentration of Credit Risk

Financial  instruments which potentially subject the Company to a concentration of credit risk consists primarily of trade accounts receivable with a variety of local,  national, and international oil and natural gas companies. Such credit risks are considered by management to be limited due to the financial resources of the oil and natural gas companies.

Risk Factors

The Company operates in an environment with many financial  risks including, but not limited to, the ability to acquire additional economically recoverable gas reserves, the continued ability to market drilling programs, the inherent risks of the search for, development of and production of  gas, the ability to sell natural gas at prices which will provide attractive rates of return, the volatility and seasonality of  gas production and prices, and the highly competitive nature of the industry as well as worldwide economic conditions.

Fair Value of Financial Instruments

The Company defines the fair value of a financial  instrument  as the amount at which the instrument could be exchanged  in a current transaction between willing  parties.  Financial instruments  included in the  Company's financial statements include cash and cash equivalents,  short-term investments, accounts receivable,  other receivables,  other assets,  accounts payable, notes payable and due to affiliates. Unless otherwise disclosed in the notes to the financial statements, the carrying value of financial instruments is considered to approximate fair value due to the short maturity and characteristics of those instruments.  The carrying value of debt  approximates  fair value as terms approximate those currently available for similar debt instruments.
 
Reclassifications
 
Certain amounts in the consolidated statements of operations were reclassified to conform with March 31, 2010 presentation.
 
          

 
F-9
 



US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.) 
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited


Oil and Gas Properties

The Company adopted the successful efforts method of accounting for gas producing activities. Under successful efforts, costs to acquire mineral interest in gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip developmental wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, costs of developmental wells on properties the Company has no further interest in, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed. Unproved gas properties that are significant are periodically assessed for impairment of value and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are expensed when surrendered or expired.

When a property is determined to contain proved reserves, the capitalized costs of such properties are transferred from unproved properties to proved properties and are amortized by the unit-of-production method based upon estimated proved developed reserves. To the extent that capitalized costs of groups of proved properties having similar characteristics exceed the estimated future net cash flows, the excess capitalized costs are written down to the present value of such amounts. Estimated future net cash flows are determined based primarily upon the estimated future proved reserves related to the Company's current proved properties and, to a lesser extent, certain future net cash flows related to operating and  related fees due the Company related to its management of various partnerships. The Company follows U.S. GAAP in Accounting for Impairments.
 
On sale or abandonment of an entire interest in an unproved property, gain or loss is recognized, taking into consideration the amount of any recorded impairment. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.

Revenue Recognition

Revenue from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred.

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with U.S. GAAP.
 
Income Taxes

Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.





 
F-10
 






US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited


Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options, warrants, and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

For the period March 28, 2008 (inception) to March 31, 2010, diluted weighted average common shares outstanding exclude 15,000 shares issuable on exercise of the 15,000 warrants outstanding at December 31, 2009 (see Note I).
 
Advertising Cost
 
The Company had advertising cost in the amount of $930 for the period of March 28, 2008 (date of inception) to March 31, 2010.

NOTE B—RELATED PARTY TRANSACTIONS

The Company owes officers $51,731 and $85,100 at no interest for various expenses as of March 31, 2010 and December 31, 2009.

Included within accounts payable and accrued expenses are wages due shareholders of $255,000 and $210,000 as of March 31, 2010 and December 31, 2009.

See Note-N for Executives’ employment agreement.







 
F-11
 
 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited

NOTE C—GOING CONCERN

The Company is a development stage Company and has not commenced planned principal operations. The Company had no significant revenues and has incurred losses of $2,659,961 for the period March 28, 2008 (inception) to March 31, 2010 and negative working capital aggregating $1,821,948. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing stockholders.
 
The Company intends to overcome the circumstances that impact its ability to remain a going concern through a combination of the commencement of revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. The Company anticipates raising additional funds through public or private financing, strategic relationships or other arrangements in the near future to support its business operations; however the Company may not have commitments from third parties for a sufficient amount of additional capital. The Company cannot be certain that any such financing will be available on acceptable terms, or at all, and its failure to raise capital when needed could limit its ability to continue its operations. The Company’s ability to obtain additional funding will determine its ability to continue a s a going concern. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on the Company’s financial performance, results of operations and stock price and require it to curtail or cease operations, sell off its assets, seek protection from its creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of the Company’s common stock, and debt financing, if available, may involve restrictive covenants, and strategic relationships, if necessary to raise additional funds, and may require that the Company relinquish valuable rights.
 
The accompanying financial statements do not include any adjustments related to the recoverability of classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

NOTE D - MARKETABLE EQUITY SECURITIES

At March 31, 2010, marketable equity securities consisted of equity securities held through Transcend Capital LP with a fair market value of $38,368.  The cost of the marketable equity securities was $40,648. The Net gain for Marketable Equity Securities of $169,227 for the three months ended March 31, 2010 includes an unrealized loss of $2,280.  For the period March 28, 2008 (inception) to March 31, 2010, the net gain from marketable equity securities was $184,688.

NOTE E – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at
 
                                                                                                         
  
3/31/2010
     12/31/2009  
Computer Software
   $ 13,000     $ -  
Field Equipment 
     10,585       10,585  
Transportation Equipment                                                                   
     74,833       -  
Oil and Gas Properties
     5,143,755       214,340  
Accumulated depreciation                                                                  
     (1,771 )        (451 )
                 
Total Oil and Gas Properties
   $ 5,240,402     $ 224,474  
 
The company uses the straight line method of depreciation for computer software and field and transportation equipment with an estimated useful life ranging from three to 20 years.

Included in the March 31, 2010 balances are the consolidated estimated fair market values of Wilon Resources, Inc. These estimates could change both negatively and/or positively pending a valuation by third parties.  (See Note A - Non Controlling Interest)



 
F-12
 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited







NOTE F - NOTES RECEIVABLE

Notes receivable consists of the following at,
 
                                                                                                                             
  
3/31/2010
     12/31/2009  
Non-interest bearing notes due 2010
   $ 50,000     $ 50,000  
Notes receivable, interest at prime + 1%, due on demand
     -       925,000  
Note receivable, due on 2013
     -       300,000  
Note receivable, interest at 9%, $605 monthly through December 2025
     64,700          
Less current portion                                                                                         
     (54,800 )     ( 50,000 )
                 
Notes Receivable  Long-Term
   $ 59,900     $ 1,225,000  
 
NOTE G - OTHER ASSETS

Other assets consist of the following at,
 
             
    3/31/2010     12/31/2009  
Loan commitment fee
   $ 169,683     $ 169,683  
Accumulated amortization
     (42,420 )     ( 21,210 )
Operating bonds and deposits
     62,699       2,000  
                 
Total Other Assets
   $ 189,962     $ 150,473  

Loan commitment fee is amortized over the life of the agreement using a straight line method.
 
 
 
F-13
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.) 
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited

NOTE H - NOTES PAYABLE

Notes payable consists of the following at,
 
 
  
3/31/2010
    
12/31/2009
  
Notes payable due 2010, interest at 1% per annum
   $ 100,000     $ 100,000  
Notes payable due September 2013, $250,000 annual installments,
                
     interest at 3% per annum
     988,000       1,000,000  
Notes payable due November 2011, annual installments,
                
     non-interest bearing
     296,500       296,500  
Notes payable, due 2010, non-interest bearing
     99,368       99,368  
Notes payable due July 2010, interest paid monthly
     500,000       -  
Notes payable due 2013, non-interest bearing
     735,699       -  
Less current portion
   $ (1,083,868 )   $ (595,868 )
    $ 1,635,699     $ 900,000  
Notes Payable Long Term
                

Current maturities of long term debt at March 31, 2010 are $1,083,868 in 2010, $400,000 in 2011, $250,000 in 2012, and $985,699 in 2013.
 
NOTE I - INCOME TAXES
 
The Company accounts for income taxes using the asset and liability method described in SFAS No. 109, “Accounting For Income Taxes”, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax basis of the Company’s assets and liabilities at the enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company recorded a deferred income tax asset for the effect of net operating loss carryforwards. In recognition of the uncertainty regarding the ultimate amount of income tax benefits to be derived, the Company has recorded a full valuation allowance at March 31, 2010 and December 31, 2009.
 
 

 
F-14
 

 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited


NOTE J – COMMON STOCK ISSUANCES/WARRANTS

On March 28, 2008, the Company  sold a total of 10,000,000 post split shares (6,000,000 shares to Around the Clock Partners, LP (“ACP”), 3,000,000 shares to Jim Anderson, and 1,000,000 shares to Around the Clock Trading & Capital Management, LLC (“ACT”)) at a price of $.001 per share, or $10,000 total. Wayne Anderson, a director and chief executive officer of the Company, owns ACT and ACT is the general partner of ACP. Jim Anderson is a director and secretary of the Company.

On April 1, 2008, the Company amended its certificate of incorporation to increase the authorized number of shares to 50,000,000 shares of common stock at $0.001 par value and 5,000,000 shares of preferred stock at $0.001 par value and also effected a 1,000:1 forward stock split. All shares and per share amounts have been revised to retroactively reflect this stock split.

In June 2008, the Company issued a total of 900 shares of common stock to nine landowners in exchange for seven leases for mineral rights and two rights of way for a pipeline.

In July 2008, the Company sold 40,000 shares of common stock to Jim Anderson at a price of $.25 per share, or $10,000.

In July 2008, the Company issued a total of 76,837 shares of common stock (52,473 shares to Wayne Anderson and 24,364 shares to Jim Anderson) valued at $.25 per share in reimbursement of expenses totaling $19,209.

From June 2008 to December 2008, the Company issued a total of 776,499 shares of common stock to a number of consultants and service providers (including 10,000 shares to Wayne Anderson and 10,000 shares to Jim Anderson for director services) for services rendered. The 776,499 shares were valued at $.35 per share, or $271,775 total.

In July 2008, the Company issued 1,250,000 shares of common stock to its law firm for legal services rendered. The 1,250,000 shares were valued at $.35 per share, or $437,500 total.

In June and July 2008, the Company sold a total of 28,572 shares of common stock to four investors at a price of $.35 per share, or $10,000 total. In October 2008, the Company sold a total of 30,000 shares to three investors at a price of $.35 per share, or $10,500 total. In December 2008, the Company sold 37,143 shares of common stock at a price of $.35 per share and a warrant to purchase 15,000 shares exercisable at $.50 per share with an expiration date of December 2, 2013 to an investor, or $13,000.

In April 2009, the Company issued an aggregate of 170,100 shares for consulting services.

In April 2009, the Company issued warrants to Wayne Anderson to purchase 1,250,000 at an average price of $.55as per the executed employment agreement.

In April 2009, the Company issued warrants to Jim Anderson to purchase 625,000 at an average price of $.55as per the executed employment agreement.

In May 2009, the Company issued 162,400 shares to an accredited investor at a price of $0.25 per share.

In May 2009, the Company issued an aggregate of 2,005,000 to its President and 1,005,000 shares to its Vice-President as compensation pursuant to the employment agreements and for board service. The stock was $.30 per share upon issuance.

In August, 2009 the Company issued 50,000 shares of our common stock at $.11 per share to John Richardson for the purchase of a generator.
 
 
 
F-15
 
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited

 
In August 2009, the Company issued an aggregate of 30,000 shares of common stock at a per share price of $0.11 to two participants who purchased a working interest in one of the Company’s wells.

In August, 2009 the Company issued 25,000 shares of our common stock of $0.11 to Republic Exploration in exchange for consulting services

In September, 2009 the Company issued 1,500,000 shares of our common stock of $0.06 to SLMI Holdings, LLC in connection with the acquisition of SLMI Options, LLC

In September 2009, the Company issued an aggregate of 950,000 shares of common stock at an average per share price of $0.12 in exchange for consulting services.

In September 2009, the Company issued 1,209,628 shares of common stock at a per share price of $0.08 to Tangiers, LP as collateral for the Debenture
 
In September 2009, the Company issued 1,696,833 shares of common stock at a per share price of $0.10 to Tangiers, LP as a commitment fee for a financing transaction.

In September 2009, the Company issued warrants to Del Mar Corporate Consulting to purchase 300,000 at an average price of $.18 with an expiration date of September 23, 2012.

In December 2009, the Company issued 300,000 shares of common stock at a per share price of $0.07 to SLMI Holdings, LLC for a financing transaction.

In December 2009, the Company issued 200,000 shares of common stock at $.07 per share to White Oak Land and Minerals Development, LLC in exchange for consulting services.

In December 2009, the Company issued 100,000 shares of common stock at $.07 per share to Valvasone Trust in exchange for consulting services.

In January 2010, the Company issued 453,000 shares of common stock at $.06 per share to  Chris Davies in exchange for legal services.

In January 2010, the Company issued 900,000 shares of common stock at $.06 per share to Around the Clock Partners, LP for reimbursement of expenses paid on behalf of the company.

In January 2010, the Company issued 350,000 shares of common stock at $.05 per share to  Chris Davies in exchange for legal services.

In February 2010, the Company issued 200,000 shares of common stock at $.04 per share to  Around the Clock Partners, LP for reimbursement of expenses paid on behalf of the company.

In March 2010, the Company issued 453,000 shares of common stock at $.10 per share to  Chris Davies in exchange for legal services.
 
NOTE K – LOANS PAYABLE-OTHER
 
Loans payable with no interest to potential investors aggregated $ 25,300 and $23,000 as of March 31, 2010 and December 31, 2009.

NOTE L – CONVERTIBLE DEBENTURE PAYABLE
 
On September 25, 2009, the Company entered into a Debenture Securities Purchase Agreement (“Debenture Agreement”) with Atlas Capital Partners, LLC, (“Atlas”) pursuant to which the Company issued to Atlas Fifty Thousand Dollars ($50,000) in secured convertible debentures (the “Debentures”) dated of even date with the Debenture Agreement. The Debentures were fully funded on September 25, 2009.  The Debentures are convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at the lower of (a) $0.25 or (b) seventy percent (70%) of the two lowest volume weighted average prices of common stock for ten (10) trading days immediately preceding the conversion date.  The Debentures have a term of nine (9) months, piggy-back registration rights and accr ue interest at a rate equal to seven percent (7%) per year.  The Debentures are secured by certain pledged assets of the Company. The Parties have also entered into an Investor Registration Rights Agreement, pursuant to which the Company has agreed, if required by Atlas, to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, and applicable state securities laws.
 
 
 
 
 
F-16
 

 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited


 NOTE M – COMMITMENTS AND CONTINGENCIES
 
The Company leases office premises in St. Petersburg, Florida at an annual rental of $16,800, payable monthly. The three year lease was entered into on February 1, 2008 and commenced on April 1, 2008. The Company amended the original lease in December 2009 increasing the monthly rent from $600 to $1,400 monthly. We may renew for one more three year period commencing February 1, 2011, upon the same terms adjusted for changes in the Consumer Price Index. Management believes the current office space will be sufficient after the acquisition of Wilon Resources, Inc. is completed.
 
The Company entered into an operating lease in January 2010 for field equipment. The lease is for a term of 24 months with a monthly rent of $3,100 plus applicable taxes.
 
Rent expenses on all operating leases for the period of March 28, 2008 (inception) to March 31, 2010 was $19,900. Future minimum rental obligations at March 31, 2010 are $40,500 in 2010, $38,600 in 2011, and $3,100 in 2012.
 
As of April 1, 2009, the Company executed an employment contract for the President, Vice-President, Treasurer, and Secretary of the Company upon the terms and provisions, and subject to the conditions, set forth in the Agreement, for a term of three (3) years, commencing on April 1, 2009, and terminating on March 31, 2012, unless earlier terminated as provided in the Agreement.  The Agreement included options to the President to purchase 500,000 shares of common stock at an average price of $.75 per share and 250,000 shares to the Vice-President. In addition, the Vice-President can be issued annual grants of 125,000 options on May 1 of each year of employment throughout the duration of the term at an average price of $.75.
 
Executives agree to accept, for the first year of the Employment Term a salary at an annual rate of $120,000 for the President and $60,000 for the Vice-President, payable in accordance with the Company's regular payroll practices as from time to time in effect, less all withholdings and other deductions required to be deducted in accordance with any applicable federal, state, local or foreign law, rule or regulation. After the first year during the Employment Term, the annual salary for each successive year will be increased by the lesser of (i) 10% or (ii) the percentage increase, if any, in the CPI for each year just completed measured for the entire twelve (12) month period, plus three percent (3%).





 
F-17
 
 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited



NOTE N- LENDER ACQUISITION AGREEMENT/SUBSIDIARIES
 
On February 2, 2010, the Company incorporated E 3 Petroleum Corp in the state of Florida. E 3 will act as the operator and bonding entity for the Company’s wells in the states of Kentucky and West Virginia. 

On February 1, 2010, the Company incorporated US Natural Gas Corp in the state of Florida.

A lender acquisition agreement was entered into on September 4, 2009 by US Natural Gas Corp and SLMI Holdings, LLC. Through the agreement, US Natural Gas Corp acquired SLMI Options, LLC, a Nevada Limited Liability Company. SLMI Options, LLC is the secured lender of the three commercial notes defined below.
 
This Agreement is made with respect to loans made by SLMI Holdings, LLC to Harry Thompson (“Thompson”), Harlis Trust (“Trust”), Wilon Resources Inc. (“Wilon”) and/or Wilon Gathering System Inc. Purchase Price. US Natural Gas Corp agrees to pay the following consideration herewith in return for conveyance of the Lender Units:
 
$500,000 in financing given May 6, 2005 for construction of a natural gas gathering system in Kentucky (the “Gathering System Loan”), $300,000 mortgage on the Wilon business offices given October 13, 2005 (the “Office Loan”), $175,000 in financing given on October 24, 2006 to finance 176 acres of land in West Virginia and to finance the placement of a natural gas treatment station (the “WV Loan”); these loans include that certain Amendment to Loan Agreements dated August 2, 2006, that certain Receipt for Shares Pledged as Collateral dated December 8, 2007 and that certain Second Amendment to Loan Agreements dated January 27, 2009 (with 7.8 million Wilon shares attached and pledged as additional collateral). Further, the Borrowers and SLMI have agreed to special terms for assignment of loan rights by SL MI and subsequent holders of the loans pursuant to that Acknowledgment by Borrowers delivered Jan. 5, 2009.
 
$1,000,000 in financing was made payable by secured promissory note. By December 31, 2010, US Natural Gas Corp shall have paid at least $250,000 in cash toward the Secured Note. By December 31, 2011, US Natural Gas Corp shall have paid at least $200,000 more. By December 31, 2012, US Natural Gas Corp shall have paid at least $300,000 more. All unpaid principal and interest shall be due no later than December 31, 2013. To the extent US Natural Gas Corp tenders proceeds from dispositions of real estate collateral on the SLMI Loans (which dispositions shall require the written consent of Owner), said payments shall be applied toward the Secured Note, but they shall not reduce the minimum installments required for years 2010 through 2012. From January, 2010 to December, 2013, a minimum monthly cash installment of $4,000 shall be paid by US N atural Gas Corp on the Secured Note until it is paid in full. Additional Security and Collateral for the Secured Note and the covenants hereunder:


 
F-18
 



 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited



NOTE N- LENDER ACQUISITION AGREEMENT/SUBSIDIARIES (Continued)
 
The Company issued 1 million shares of Series A Preferred Stock at the stated value of One Dollar ($1.00) per share in the name of Owner. These shares shall be convertible into 10 million voting common shares of US Natural Gas Corp in an Event of Default under this Agreement. The preferred shares shall be voting (1 for 1 basis) and shall include the right to appoint a non-voting, ex-officio member of the Board of Directors who shall also be a non-voting, ex-office member of all committees of the Board of Directors. The Company issued three hundred thousand (300,000) Series B Preferred Shares to Owner that are convertible into 3 million (3,000,000) common shares of US Natural Gas Corp.

On August 25, 2009, the Company incorporated Wilon Resources, Inc. in the state of Tennessee. On February 9, 2010, Wilon Resources, Inc. (Wilon), a wholly owned subsidiary of the Company, merged with and into Wilon Resources of Tennessee, Inc. (WRT), a Tennessee Corporation.  All of the stock of Wilon's shareholders was acquired by WRT for consideration equal to 1000 shares of WRT for every one share of Wilon held by Wilon shareholders.  The name of WRT remained the same after the filing of the merger and Wilon approved the use of its name by WRT.

On July 20, 2009 the Company formed E-2 Investments, LLC to hold equity and energy investments. As of May 31, 2010, E 2 Investments, LLC holds approximately 160 acres of mineral rights located in Wayne County, West Virginia purchased for $35,000.00. In addition E 2 Investments, LLC holds 12 million shares of Sharp Holding Corp obtained through the purchase, from a non-affiliate, of a Promissory Note and subsequent conversion into shares.
 
NOTE O-PREFERRED STOCK
 
On September 2, 2009, the Board of Directors unanimously approved the designation of a series of preferred stock to be known as “Series A Preferred Stock”. The designations, powers, preferences and rights, and the qualifications, limitations or restrictions hereof, in respect of the Series A Preferred Stock shall be as hereinafter described. The Board of Directors of the Company, pursuant to authority granted in the Articles of Incorporation, created a series of preferred stock designated as Series A Preferred Stock (the “Series A Preferred Stock”) with a stated value of $0.001 per share. The number of authorized shares constituting the Series A Preferred Stock was Three Million (3,000,000) shares.
 
On September 2, 2009, the Board of Directors unanimously approved the designation of a series of preferred stock to be known as “Series B Preferred Stock”. The designations, powers, preferences and rights, and the qualifications, limitations or restrictions hereof, in respect of the Series B Preferred Stock shall be as hereinafter described. The Board of Directors of the Company, pursuant to authority granted in the Articles of Incorporation, created a series of preferred stock designated as Series B Preferred Stock (the “Series B Preferred Stock”) with a stated value of $0.001 per share. The number of authorized shares constituting the Series B Preferred Stock was Three Hundred Thousand (300,000) shares.
 


 
F-19
 


 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2010
Unaudited



NOTE P – SUBSEQUENT EVENTS

On May 7, 2010, E 3 Petroleum Corp executed a new Agreed Order with the West Virginia Department of Environmental Protection, Office of Oil & Gas, to abate the violations previously cited to US Natural Gas Corp WV’s (formerly Wilon Resources, Inc.) previous operator, B.T.U. Pipeline, Inc. BTU is a wholly owned subsidiary of WV. Under the new agreed order, all wells previously listed under BTU’s bond will be transferred to the new bond posted by E 3. E 3 shall agree to abate the violations on a schedule provided by E 3 and pay a one-time administrative penalty of $25,000.00.

On April 23, 2010, the Company submitted the required documentation to Finra, Financial Industry Regulatory Authority, to change the name of Wilon Resources, Inc. ("Wilon") to US Natural Gas Corp WV. In addition, the Company has requested that the acquisition of Wilon by US Natural Gas Corp be deemed effective and that Wilon no longer trades as a standalone entity.

On April 14, 2010, the Company's name change from Adventure Energy, Inc. to US Natural Gas Corp became effective. In addition, the Company's stock trading symbol changed from "ADVE" to "UNGS".



 
F-20
 
 


 ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Special Note on Forward-Looking Statements.

Certain statements in “Management’s Discussion and Analysis or Plan of Operation” below, and elsewhere in this quarterly report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, 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 such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will ,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth below and elsewhere in this quarterly report, and in other reports filed by us with the SEC.

You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this report.
 
Overview
 
We began operations on March 28, 2008 and are engaged in the natural gas and oil industry focusing on exploration, development, and production. We operate oil and gas wells in which we own the majority of the working interest. We maintain leaseholds on mineral rights covering approximately 5,700 acres in addition to rights of way in Kentucky and 11,000 acres in West Virginia through US Natural Gas Corp WV (formerly Wilon Resources, Inc.). Our first revenue from production was generated in July 2009. We have incurred a net loss of $ 271,696 for the 3 month period ending March 31, 2010.
 
We expect to generate long-term reserve and production growth through drilling activities and further acquisitions. We believe that our management’s experience and expertise will enable it to identify, evaluate, and develop our oil and natural gas projects. Our operations are currently divided into two entities, US Natural Gas Corp KY (“KY”) and US Natural Gas Corp WV (“WV”) (formerly Wilon Resources, Inc.).

US Natural Gas Corp KY, a wholly owned subsidiary, concentrates on oil producing properties mainly in the counties of Green, Hart, Adair, Russell, and Monroe in Kentucky. E 3 Petroleum acts as the bonding entity for all wells in Kentucky which KY maintains a working interest. On average, KY maintains a 95% working interest and 83% net revenue interest in each well. To date, E 3 Petroleum has 25 wells under bond of which 14 are currently producing commercially viable crude with minimal revenue. KY continues to reopen, treat, and maintain the wells acquired in the November 2009 asset acquisition with KYTX Oil & Gas, LLC. During April 2010, the Company initiated drilling activities on a leasehold in Green County, Kentucky. It is the Company’s intentions to continue to drill new wells on the current leasehold base as well as acquir e previously drilled wells for reopening.

The Company maintains a minority stake in US Natural Gas Corp WV, but the day to day decisions of this entity are controlled by our President, Mr. Wayne Anderson. WV’s operations are based in Wayne County, West Virginia and are solely dedicated to the production of commercially viable natural gas. The wells maintained and owned by WV are held under the bond of B.T.U. Pipeline, a wholly owned subsidiary of WV. The Company has 115 natural gas wells under bond which have been shut-in since June 2005 due to a delivery constraint. Management has entered into an agreement with a third party to allow for delivery and purchase of natural gas which the Company believes will remedy the prior transmission constraint.
 
We continue to seek to identify oil and natural wells for possible acquisition. However, there can be no assurance that we will be able to enter into agreements for the acquisition of these wells upon terms that are satisfactory to the Company.
 
We believe we will be able to generate long-term reserve and production growth through drilling activities and further acquisitions. We believe that our management’s experience and expertise will enable us to identify, evaluate, and develop oil and natural gas projects.
 
 
 
3
 
 
 
While we anticipate the majority of future capital expenditures will be expended on the acquisition of previously drilled wells, reworking of wells, repair and maintenance to our gathering system, and drilling of wells, we intend to use our experience and regional expertise to add leasehold interests to the inventory of leases for future drilling activities, as well as property acquisitions.
 
Recent Developments
 
On March 25, 2010, Wilon Resources, Inc filed an amendment to the Articles of Incorporation to change the Company’s name to US Natural Gas Corp WV.

On March 22, 2010, the Company amended the Articles of Incorporation for US Natural Gas Corp, a wholly owned subsidiary of the Company, to change the name to US Natural Gas Corp KY.

On March 19, 2010, the Company's shareholders approved with 16,611,138 votes for and zero votes against to a share exchange between the Company and Wilon Resources, Inc. (Wilon), a Tennessee corporation whereby the Company will acquire all of the outstanding shares of Wilon and hold Wilon as a wholly-owned subsidiary.  For each share of common stock of Wilon exchanged, the Company will  issue one share of the Company's common stock plus one warrant to purchase one additional share of common stock of the Company at an exercise price of  $.25 (25 cents) per share to be exercisable for a period of 5 years from the date of issue.  The shareholders for Wilon approved of the share exchange with 27,843,109 votes for and zero votes against.

On March 19, 2010, the company's shareholders approved an amendment to the Company's Articles of Incorporation changing the name of the Company to US Natural Gas Corp.  The majority shareholders of Wilon simultaneously approved an amendment to the Company's Articles of Incorporation changing the name of the Company to US Natural Gas Corp WV. In addition, the company's shareholders approved an amendment to the Company's Articles of Incorporation deleting Article 8 thereof to eliminate reference to a non-existent "Shareholders' Restrictive Agreement."

On February 28, 2010, the Company and Wilon Resources, Inc executed a plan of share exchange between the two companies which was placed before shareholder vote on March 19, 2010.

On January 1, 2010, the Company hired Mr. Louis Ledet as the Field Supervisor for the West Virginia operations. Mr. Ledet along with contractor labor spent the majority of the 1st quarter of 2010 repairing the gathering system, repairing roads leading to wells, installing components to the Company’s meter run, fabricating a Hydrogen Sulfide detection facility, installing a Glycol unit, and concentrating on the infrastructure in preparation of delivery. From late March through the present, the focus has been on swabbing wells, replacing completion components, hooking up previously drilled wells, and placing the wells into production. Over the course of the next 6-9 months, the Company’s efforts will stay on course to increase production by focusing on individual wells.

On November 18, 2009, Mr. Anderson , our current President and Chairman, was appointed as the sole director of Wilon Resources of Tennessee, Inc. (”WRT”) as per the Securities Purchase Agreement executed between Harlis Trust and E 2 Investments, LLC. WRT is a publicly traded Company trading on the Otc Pink Sheets under the symbol WLON and previously known as Wilon Resources, Inc.

On October 23, 2009, E 2 Investments, LLC, a subsidiary of the Company, was the successful high bidder in an auction of 7,800,000 shares of Wilon Resources, Inc. The shares were auctioned by SLMI Options, LLC, a wholly owned subsidiary of the Company, after they were seized as collateral due to a non-cured default on three commercial loans.

On November 5, 2009, an asset purchase agreement was entered into between KYTX Oil & Gas, LLC and Adventure Energy, Inc. Adventure Energy, Inc. agreed to buy leaseholds, well assignments and on field equipment at a total price of $120,000.

On November 13, 2009, E 2 Investments, LLC, a subsidiary of the Company, executed a Securities Purchase Agreement with Harlis Trust to purchase all shares of Wilon Resources, Inc. controlled by the Trust. In addition, Mr. Harry Thompson, the President of Wilon Resources and Trustee of the Trust, has agreed to resign as an officer and director of the Company. Additional information pertaining to the Securities Purchase Agreement can be found in the accompanying Exhibit.


 
4
 
 
 
 
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2010 AND 2009

This discussion should be read in conjunction with our financial statements included elsewhere in this report.
 
Revenues for the three months ended March 31, 2010 and March 31, 2009 were none and none respectively. The Company had revenues of $44,191 for period from March 28, 2008 (inception) to March 31, 2010.  Over the next twelve months, the Company anticipates an increase in revenue from the Company’s newly acquired subsidiary, US Natural Gas Corp WV. This increase in revenue is predicated upon the closing of the acquisition. In addition, the Company expects to generate additional revenue as it reworks, reopens, or drills new wells through its other wholly owned subsidiary, US Natural Gas Corp KY.

Operating Expenses for the three months ended March 31, 2010 was $ 399,976. Operating expenses for the three months ended March 31, 2009 was $ 198,834, which is an increase of $201,142. The increase in operating expenses was mainly from the increase in selling general and administrative expenses. 

Operating Expenses for the period from March 28, 2008 (inception) to March 31, 2010 was $2,779,686. Operating expenses for the three months ended March 31, 2010 included selling, general, and administrative expenses of $305,884. The increase in operating expenses was mainly from the issuance of common stock for consulting, legal and other fees of $805,935.

The Company anticipates that its operating expenses will increase substantially over the next twelve months for both operating subsidiaries as it continues to bring additional wells online and into production.

Net Loss for the period from March 28, 2008 (inception) to March 31, 2010 was $2,659,961. Net loss for the three months ended March 31, 2010 and 2009 was $271,696 and 193,491, respectively.  The increase in net loss was mainly from the increase in selling general and administrative expenses.
 
 
LIQUIDITY AND CAPITAL RESOURCES
 
As of March 31, 2010 and December 31, 2009 we had cash and cash equivalents of $55,203 and $26,488, respectively. 
 
For the period from March 28, 2008 (inception) to March 31, 2010, cash used by operating activities was $ 537,500. A total of $2,136,232 was expensed from the issuance of common stock for services and leases for the period from March 28, 2008 (inception) to March 31, 2010. For the three months ended March 31, 2010, cash by operating activities was $341,293. 
  
For the period from March 28, 2008 (inception) to March 31, 2010, the cash used by investing activities was $1,668,248, which was primarily for the purchase of gas properties. For the three months ended March 31, 2010, there was $95,423, which was primarily for the purchase of oil and gas properties.
 
For the period from March 28, 2008 (inception) to March 31, 2010, cash provided by financing activities was $2,260,951 which was primarily from borrowing from notes payable. For the three months ending March 31, 2010, there was $465,431 provided by financing activities.
 

 
5
 


 
PLAN OF OPERATION AND FINANCING NEEDS

We intend to acquire producing oil and gas properties where we believe significant additional value can be created. Management is primarily interested in developmental properties where some combination of these factors exist: (1) opportunities for long production life with stable production levels; (2) geological formations with multiple producing horizons; (3) substantial exploitation potential; and (4) relatively low capital investment production costs.
 
We intend to acquire adjacent mineral rights leaseholds to further expand our block of acreage for development. We also intend to expand further in Wayne County, West Virginia, to explore for leaseholds. Currently, the rate to acquire mineral rights leases in the states of Kentucky and West Virginia ranges from $5.00-$25.00 per acre. In addition, the Lessor is given a 12.5% royalty from gross production.
 
We intend to maximize the value of properties through a combination of successful drilling, increasing recoverable reserves and reducing operating costs. We employ the latest technology such as directional and horizontal drilling. These methods have historically produced oil and gas at faster rates and with lower operating costs basis than traditional vertical drilling.
 
We intend to maintain a highly competitive team of experienced and technically proficient employees and motivate them through a positive work environment and stock ownership. We believe that employee ownership, which may be encouraged through a stock option plan, is essential for attracting, retaining and motivating qualified personnel. While we have not yet adopted a stock option plan, we intend to do so in the near future.
 
In order to fund our current drilling program, as well as future drilling programs, we rely upon partnerships and joint ventures with accredited investors. Once we become profitable, we intend to drill wells in which we will maintain 100% of the net revenue.
 
Including the net proceeds from the 2008 stock offering, we only have sufficient funds to conduct our operations for three to six months. There can be no assurance that additional financing will be available in amounts or on terms acceptable to us, if at all.
 
If we are not successful in generating sufficient liquidity from our operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.
 
We presently do not have any available credit, bank financing or other external sources of liquidity, other than the net proceeds from the offering. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.
 
We will need additional investments in order to continue operations, but we cannot offer any assurance that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. The recent downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that it could incur unexpected costs and expenses, fail to collect significant amounts owed to it, or experience unexpected cash requirements that would force it to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have ri ghts, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
 
Recent Financings
 
Between January 1, 2010 and March 31, 2010, the Company raised $27,500 in private financing from accredited investors. These funds were utilized for the daily operating activities of the company. The investors purchased shares from the Company at prices between $.03 to $.07 per share.

On November 12, 2009, we entered into a promissory note (interest of 1% per annum)  with SLMI Holdings, LLC for a total of $100,000.  The original maturity date of February 12, 2010 has been amended to July 12, 2010..
 
 
 
6
 
 

 
On September 24, 2009 we entered into a Securities Purchase Agreement with Tangiers. Pursuant to the Securities Purchase Agreement the Company may, at its discretion, periodically sell to Tangiers shares of its common stock for a total purchase price of up to $3,000,000. For each share of common stock purchased under the Securities Purchase Agreement, Tangiers will pay us 90% of the lowest volume weighted average price of the Company's common stock as quoted by Bloomberg, LP on the Over-the-Counter Bulletin Board or other principal market on which the Company's common stock is traded for the five days immediately following the notice date. The price paid by Tangiers for the Company's stock shall be determined as of the date of each individual request for an advance under the Secur ities Purchase Agreement. Tangiers’ obligation to purchase shares of the Company's common stock under the Securities Purchase Agreement is subject to certain conditions, including the Company obtaining an effective registration statement for shares of the Company's common stock sold under the Securities Purchase Agreement and is limited to $250,000 per ten consecutive trading days after the advance notice is provided to Tangiers. The Securities Purchase Agreement shall terminate and Tangiers shall have no further obligation to make advances under the Securities Purchase Agreement at the earlier of the passing of 18 months after the date that the Securities and Exchange Commission declares the Company’s registration statement effective or the Company receives advances from Tangiers equal to the $3,000,000. Upon the execution of the Securities Purchase Agreement, Tangiers received a one-time commitment fee equal to $150,000 of the Company's common stock divided by the lowest volume weighted av erage price of the Company's common stock during the 10 business days immediately following the date of the Securities Purchase Agreement, as quoted by Bloomberg, LP.

On September 25, 2009, the Company issued Atlas, a 7% secured convertible debenture in the amount of $50,000. This convertible debenture has a term of nine months and was fully funded on September 25, 2009.  Payment of interest on the convertible debenture can be made in cash or, at the option of the Company, in shares of the Company’s common stock valued at the then applicable conversion price. Interest on the convertible debenture will accrue as of September 25, 2009 and will not be payable until the maturity date of June 25, 2010. The debenture also has a conversion price equal to 70% of the average of the two lowest volume weighted average trading prices of the Company’s common stock during the 10 trading days immediately preceding the conversion date as quoted by Bloomberg, LP.

Between June 2008 and March 24, 2009, the Company raised $ 46,793 in private financing from accredited investors. These funds were utilized for the daily operating activities of the company. The investors purchased shares from the Company at $.35 per share. Since inception, the President and Vice-President have funded the Company’s operations.
 


 
7
 

 

Critical Accounting Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
 
Effect of Recently Issued Accounting Pronouncements
 
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.
 
Application of Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated futu re undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.
   
Use of Estimates

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Therefor, a change in conditions could affect these estimates.
 
Recently Issued Accounting Pronouncements

None
 
Off-Balance Sheet Arrangements
 
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.


 
8
 


 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
n/a
 
ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our President and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our President and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) accumulated and communicated to our management, including our President and chief financial officer, as are appropriate to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and fo rms.

Changes in Internal Control over Financial Reporting
 
There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION
  
ITEM 1. LEGAL PROCEEDINGS
 
There are no legal proceedings against US Natural Gas Corp or any of its wholly owned subsidiaries.

We are involved in litigation arising in the normal course of our business. While, from time to time, claims are asserted that make demands for a large sum of money, we do not believe that contingent liabilities related to these matters, either individually or in the aggregate, will materially affect our financial position, results of our operations, or cash flows.
 
 
ITEM 1A. RISK FACTORS
 
There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on April 15, 2010.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
In January 2010, the Company issued 900,000 shares of common stock at a per share price of $0.06 to a shareholder in exchange for the payment of an accounts payable.

In February 2010, the Company issued 200,000 shares of common stock at a per share price of $0.04 to Around the Clock Partners, LP in exchange for conversion of a previous loan to the Company.
 
The above issuances were made pursuant to Rule 506 and Section 4(2) of the Securities Act of 1933, as amended.
 


 
 
9
 

 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
On March 19, 2010, the Company held a special meeting of its shareholders.  The meeting was held to vote on the following proposals set forth below (the “Proposals”).
 
Proposals:
 
1. To approve a share exchange between the Company and Wilon Resources, Inc., a Tennessee corporation (“Wilon”) whereby the Company would acquire all of the outstanding shares of Wilon and hold Wilon as a wholly-owned subsidiary.  For each share of common stock of Wilon to be exchanged, the Company would issue one share of the Company’s common stock plus one warrant to purchase one additional share of common stock of the Company at an exercise price of $.25 (25 cents) per share to be exercisable for a period of 5 years from the date of issue.
 
2. To approve an amendment to the Company’s Articles of Incorporation to change the name of the Company to US Natural Gas Corp.
 
3. To approve an amendment to the Company’s Articles of Incorporation to delete Article 8 thereof, which states “all of the shares of the Company may be subject to a Shareholders’ Restrictive Agreement.”  No such agreement was ever entered into by the shareholders and there is no current intent to enter into any such agreement at the present time.
 
The Company’s shareholders approved each of the Proposals with 16,611,138 votes for and 0 votes against. The shareholders for Wilon approved Proposal #1 with 27,843,109 votes for and 0 votes against.
 
ITEM 5. OTHER INFORMATION
 
On October 23, 2009, E 2 Investments, LLC, a subsidiary of the Company, was the successful high bidder in an auction of 7,800,000 shares of Wilon Resources, Inc. The shares were auctioned by SLMI Options, LLC, a wholly owned subsidiary of the Company, after they were seized as collateral due to a non-cured default on three commercial loans.
 
On November 13, 2009, E 2 Investments, LLC, a subsidiary of the Company, executed a Securities Purchase Agreement with Harlis Trust to purchase all shares of Wilon Resources, Inc. controlled by the Trust. In addition, Mr. Harry Thompson, the President of Wilon Resources and Trustee of the Trust, has agreed to resign as an officer and from the Board of Wilon. Additional information pertaining to the Securities Purchase Agreement can be found in the accompanying Exhibit.

 
10
 

 
ITEM 6. EXHIBITS

                                                                                                     
3.1
Articles of Incorporation (filed with Form S-1 (File No. 333-154799) on October 29, 2008 and incorporated by reference)
   
3.2
Articles of Incorporation (amended and restated) (filed with Form S-1/A (File No. 333-154799) on December 9, 2008 and incorporated by reference)
   
3.3
Amended and Restated Articles of Incorporation filed with the Secretary of State on October 21, 2009.
   
3.4
By-Laws (filed with Form S-1/A (File No. 333-154799) on December 9, 2008 and incorporated by reference)
   
4.1
Specimen certificate of common stock (previously filed with Form S-1 (File No. 333-154799) on October 29, 2008 and incorporated by reference)
   
10.1
Form of Right of Way Easement and Grant (previously filed with Form S-1 (File No. 333-154799) on October 29, 2008 incorporated by reference)
   
10.2
Form of Subscription Agreement for Well (previously filed with Form S-1 (File No. 333-154799) on October 29, 2008 incorporated by reference)
   
10.3
Form of Oil, Gas & Coalbed Methane Lease (previously filed with Form S-1 (File No. 333-154799) on October 29, 2008) and incorporated by reference)
   
10.4
Gathering Line Operators License dated April 28, 2008 (previously filed with Form S-1 (File No. 333-154799)
   
10.5
Record of transfer of Troy Isom well dated July 2, 2008 (previously filed with Form S-1 (File No. 333-154799)  on October 29, 2008 and incorporated by reference)
   
10.6
Adventure Energy-Rebell Turnkey Drilling Contract, dated March 10, 2009, by and between Adventure Energy, Inc. and Rebell Oil of Kentucky (previously filed with Annual Report on Form 10-K filed with the SEC on March 27, 2009)
   
10.7
Employment Agreement between Wayne Anderson and Adventure Energy, Inc. dated as of April 1, 2009 (Previously filed with Current Report on Form 8-K filed with the SEC on July 7, 2009
   
10.8
Employment Agreement between Jim Anderson and Adventure Energy, Inc. dated as of April 1, 2009 (Previously filed with Current Report on Form 8-K filed with the SEC on July 7, 2009)
   
10.9
 
Lender Acquisition Agreement dated as of September 4, 2009 among Adventure Energy. Inc., SLMI Holdings, LLC and SLMI Options, LLC. Previously filed with Current Report on Form 8-K filed with the SEC on September 11, 2009)
   
10.10
Securities Purchase Agreement between Tangiers Investors, LP and Adventure Energy, Inc. dated as of September 24, 2009.
   
10.11
Pledge and Escrow Agreement among Atlas Capital Partners, LLC, Adventure Energy Inc. and Atlas Capital Partners, LP, as escrow agent, dated as of September 24, 2009.
   
10.12
Debenture Securities Purchase Agreement between Atlas Capital Partners, LLC and Adventure Energy, Inc.
   
10.13
Secured Convertible Debenture issued to Atlas Capital Partners, LLC
   
10.14
Security Agreement between Adventure Energy, Inc. and Atlas Capital Partners, LLC.
   
10.15
Securities Purchase Agreement by and among, E 2 investments, LLC and Harlis Trust dated as of November 10, 2009
   
14
Code of Ethics (previously filed with Annual Report on Form 10-K filed with the SEC on March 27, 2009)
   
31.1*
Certification by Principal Executive Officer and Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
   
32.1*
Certification by Principal Executive Officer and Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
* Filed herewith
 

 
11
 







SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida, on May 21, 2010.
 
 
US Natural Gas Corp
  
       
 
By:
/s/ Wayne Anderson  
 
  
   
President, Acting Chief Financial Officer and Director
(Principal Executive Officer, Principal Financial Officer
and Principal Accounting Officer)
  
 
 
 
 
 
 

 


12
 EX-31.1 2 ex311.htm EXHIBIT 31.1 ex311.htm
Exhibit 31.1
 
CERTIFICATION

I, Wayne Anderson , the President and Acting Chief Financial Officer of US Natural Gas Corp, certify that certify that:

1. I have reviewed this quarterly report on Form 10-Q of US Natural Gas Corp for the quarter ended March 31, 2010;

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 small business issuer as of, and for, the periods presented in this report;

4. The small business issuer'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)) for the small business issuer and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the small business issuer's disclosure controls 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

(c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting.

May 21, 2010
 
/s/ Wayne Anderson
  
Wayne Anderson
President and
Acting Chief Financial Officer

EX-32.1 3 ex321.htm EXHIBIT 32.1 ex321.htm
Exhibit 32.1
 
 
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 US Natural Gas Corp (the “Company”) on Form 10-Q for the quarter ended March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Wayne Anderson, President and Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and 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.

A signed original of this written statement required by Section 906 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.


May 21, 2010
/s/ Wayne Anderson
 
Wayne Anderson
 
President
 
Acting Chief Financial Officer

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