form10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One) ý QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 000-52770
PACIFIC ASIA PETROLEUM, INC.
(Exact name of issuer as specified in its charter)
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Delaware	30-0349798
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

250 East Hartsdale Ave.
Hartsdale, New York 10530
(Address of principal executive offices)

(914) 472-6070
(Issuer’s telephone number)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer ý Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý The Issuer had 40,006,185 shares of its common stock outstanding as of November 3, 2008.

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PACIFIC ASIA PETROLEUM, INC.

FORM 10-Q

Table of Contents

		Page

CAUTIONARY STATEMENT		1

PART I	FINANCIAL INFORMATION	2
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007	2
	Condensed Consolidated Statements of Income and Comprehensive Income (unaudited) for the nine months and the three months ended September 30, 2008 and 2007 and for the period from inception (August 25, 2005) through September 30, 2008	3
	Condensed Consolidated Statement of Stockholders' Equity (Deficiency) (unaudited) for the period from inception (August 25, 2005) through September 30, 2008	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2008 and 2007 and for the period from inception (August 25, 2005) through September 30, 2008	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15

PART II	OTHER INFORMATION	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	18

SIGNATURES		19

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CAUTIONARY STATEMENT

All statements, other than statements of historical fact, included in this Form 10-Q, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and “Description of Business,” are, or may be deemed to be, forward-looking statements. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Pacific Asia Petroleum, Inc. and its subsidiaries (collectively, the “Company”), to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this Form 10-Q.

In our capacity as Company management, we may from time to time make written or oral forward-looking statements with respect to our long-term objectives or expectations which may be included in our filings with the Securities and Exchange Commission (the “SEC”), reports to stockholders and information provided in our web site.

The words or phrases “will likely,” “are expected to,” “is anticipated,” “is predicted,” “forecast,” “estimate,” “project,” “plans to continue,” “believes,” or similar expressions identify “forward-looking statements.” Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We are calling to your attention important factors that could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The following list of important factors may not be all-inclusive, and we specifically decline to undertake an obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Among the factors that could have an impact on our ability to achieve expected operating results and growth plan goals and/or affect the market price of our stock are:

Lack of operating history, operating revenue or earnings history.

Dependence on key personnel.

Fluctuation in quarterly operating results and seasonality in certain of our markets.

Possible significant influence over corporate affairs by significant shareholders.

Our ability to enter into definitive agreements to formalize foreign energy ventures and secure necessary exploitation rights.

Our ability to raise capital to fund our operations.

Our ability to successfully integrate and operate acquired or newly formed entities and multiple foreign energy ventures and subsidiaries.

The competition from large petroleum and other energy interests.

Changes in laws and regulations that affect our operations and the energy industry in general.

Risks and uncertainties associated with exploration, development and production of oil and gas, drilling and production risks.

Expropriation and other risks associated with foreign operations.

Risks associated with anticipated and ongoing third party pipeline construction and transportation of oil and gas.

The lack of availability of oil and gas field goods and services.

Environmental risks, economic conditions, and other risk factors detailed herein.

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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Balance Sheets
	As of			As of
	September 30,			December 31,
	2008			2007
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	10,195,025		$	2,208,969
Short-term investments		300,000			11,200,000
Income tax refunds receivable		27,868			-
Prepaid expenses		76,126			46,247
Deposits		30,291			22,954
Advances		531			2,758
Total current assets		10,629,841			13,480,928

Non-current assets
Property, plant and equipment - at cost (net of accumulated depreciation and amortization:
September 30, 2008: $61,921; December 31, 2007: $20,779)		567,684			285,027
Intangible assets		384			384
Long-term advances		659,953			534,530
Deferred charges		3,719,479			3,156,058

Total Assets	$	15,577,341		$	17,456,927

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	27,060		$	2,739
Income taxes payable		3,860			38,791
Accrued and other liabilities		348,586			122,704
Total current liabilities		379,506			164,234

Minority interest in subsidiaries		388,574			395,094

Stockholders' equity
Common stock:
Authorized - 300,000,000 shares at $.001 par value; Issued and outstanding -
40,006,185 as of September 30, 2008; 39,931,109 at December 31, 2007		40,006			39,931
Preferred stock:
Authorized - 50,000,000 shares at $.001 par value;
Issued - 23,708,952 as of September 30, 2008 and December 31, 2007
Outstanding - none as of September 30, 2008 and December 31, 2007		-			-
Paid-in capital		21,349,618			20,251,022
Other comprehensive income - currency translation adjustment		250,042			128,061
Deficit accumulated during the development stage		(6,830,405	)		(3,521,415	)
Total stockholders' equity		14,809,261			16,897,599

Total Liabilities and Stockholders' Equity	$	15,577,341		$	17,456,927

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of this statement.

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Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)

													For the period
													from inception
	For the nine months						For the three months						(August 25, 2005)
	ended September 30,						ended September 30,						through
	2008			2007			2008			2007			9/30/2008
Operating Expenses
Depreciation	$	40,115		$	10,039		$	17,323		$	6,064		$	60,705
All other operating expenses		3,562,286			2,018,354			1,233,600			582,671			7,762,300
Total operating expenses		3,602,401			2,028,393			1,250,923			588,735			7,823,005

Operating Loss		(3,602,401	)		(2,028,393	)		(1,250,923	)		(588,735	)		(7,823,005	)

Other Income (Expense)
Interest income		275,231			411,008			82,037			233,328			992,726
Other income		14,695			12,937			14,695			648			27,632
Other expense		(37	)		(713	)		35			(671	)		(751	)
Total Other Income		289,889			423,232			96,767			233,305			1,019,607

Net loss before income taxes and
minority interest		(3,312,512	)		(1,605,161	)		(1,154,156	)		(355,430	)		(6,803,398	)
Income tax (expense) benefit		(6,647	)		-			(6,807	)		-			(45,473	)

Net loss before minority interest		(3,319,159	)		(1,605,161	)		(1,160,963	)		(355,430	)		(6,848,871	)
Minority interest		10,169			4,165			2,983			2,406			18,466

Net Loss		(3,308,990	)		(1,600,996	)		(1,157,980	)		(353,024	)		(6,830,405	)

Other Comprehensive Income (Loss),
Net of Tax:
Foreign currency translation adjustment		121,981			63,272			19,282			37,079			250,042
Comprehensive Income (Loss)	$	(3,187,009	)	$	(1,537,724	)	$	(1,138,698	)	$	(315,945	)	$	(6,580,363	)


Net Loss per Share of Common Stock:

Net Loss - Basic and Diluted	$	(0.08	)	$	(0.06	)	$	(0.03	)	$	(0.01	)

Weighted Average Number of
Shares Outstanding		39,993,133			28,744,811			39,984,024			39,931,106

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of this statement.

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Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
Condensed Statement of Stockholders' Equity (Deficiency)
For the period from inception (August 25, 2005) to September 30, 2008
(Unaudited)
																	Other
																	Comprehensive		Deficit
	No. of								No. of								Income (Loss)-		Accumulated			Total
	Common								Preferred								Foreign		During the			Stockholders'
	Shares		Common			Subscriptions			Shares		Preferred			Paid-in			Currency		Development			Equity
	$.001 par value		Stock			Receivable			$.001 par value		Stock			Capital			Translation		Stage			(Deficiency)
Balance - August 25, 2005	-		$	-		$	-		-		$	-		$	-		$	-	$	-		$	-
Issued for cash	1,852,320			1,852			-		-			-			10,148			-		-			12,000
Subscriptions	3,451,680			3,452			(28,000	)	-			-			24,548			-		-			-
Net loss	-			-			-		-			-			-			-		(51,344	)		(51,344	)
Balance - December 31, 2005	5,304,000			5,304			(28,000	)	-			-			34,696			-		(51,344	)		(39,344	)
Subscriptions paid	-			-			28,000		-			-			-			-		-			28,000
Issued for fees and services	-			-			-		1,829,421			1,829			195,776			-		-			197,605
Issued for cash	-			-			-		8,161,802			8,162			4,215,262			-		-			4,223,424
Amortization of options fair value	-			-			-		-			-			29,065			-		-			29,065
Currency translation	-			-			-		-			-			-			19,228		-			19,228
Net loss	-			-			-		-			-			-			-		(1,086,387	)		(1,086,387	)
Balance - December 31, 2006	5,304,000			5,304			-		9,991,223			9,991			4,474,799			19,228		(1,137,731	)		3,371,591
Issued for services - pre-merger	600,032			600			-		117,729			118			334,594			-		-			335,312
Shares retained by Pacific Asia Petroleum original
stockholders in merger - 5/7/07	468,125			468			-		-			-			83,323			-		-			83,791
Shares issued to ADS members in merger - 5/7/07	9,850,000			9,850			-		13,600,000			13,600			15,453,957			-		-			15,477,407
Post-merger acquisition costs and adjustments	-			-			-		-			-			(291,093	)		-		-			(291,093	)
Automatic conversion of Preferred Shares - 6/5/07	23,708,952			23,709			-		(23,708,952	)		(23,709	)		-			-		-			-
Issued for services, compensation cost of stock options
and restricted stock	-			-			-		-			-			195,442			-		-			195,442
Currency translation	-			-			-		-			-			-			108,833		-			108,833
Net loss	-			-			-		-			-			-			-		(2,383,684	)		(2,383,684	)
Balance - December 31, 2007	39,931,109			39,931			-		-			-			20,251,022			128,061		(3,521,415	)		16,897,599
Issued on exercise of warrants	79,671			80			-		-			-			(83	)		-		-			(3	)
Vesting of restricted stock	10,400			10			-		-			-			(10	)		-		-			-
Compensation cost of stock options and restricted stock	-			-			-		-			-			963,187			-		-			963,187
Issued for services	15,000			15			-		-			-			137,985			-		-			138,000
Issued for acquisition of Navitas Corporation	450,005			450			-		-			-			8,176,141			-		-			8,176,591
Acquired on acquisition of Navitas Corporation	(480,000	)		(480	)		-		-			-			(8,178,624	)		-		-			(8,179,104	)
Currency translation	-			-			-		-			-			-			121,981		-			121,981
Net loss	-			-			-		-			-			-			-		(3,308,990	)		(3,308,990	)
Balance - September 30, 2008	40,006,185		$	40,006		$	-		-		$	-		$	21,349,618		$	250,042	$	(6,830,405	)	$	14,809,261

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of this statement.

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Pacific Asia Petroleum, Inc. and Subsidiaries
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2008 and 2007,
and for the period from inception (August 25, 2005) to September 30, 2008
(Unaudited)

							For the period
	Nine months			Nine months			from inception
	ended			ended			(August 25, 2005)
	September 30,			September 30,			through
	2008			2007			September 30, 2008
Cash flows from operating activities
Net loss	$	(3,308,990	)	$	(1,600,996	)	$	(6,830,405	)

Adjustments to reconcile net loss to cash
used in operating activities:
Interest income on long-term advances		(88,440	)		(65,375	)		(188,987	)
Currency transaction loss		56,310			37,107			99,754
Stock-related compensation		1,101,187			411,893			1,858,611
Minority interest in net loss		(10,169	)		(4,165	)		(18,466	)
Depreciation and amortization expense		40,115			10,039			60,705
Changes in current assets and current
liabilities:
(Increase) decrease in accrued interest and other receivables		(27,868	)		(23,454	)		(27,868	)
(Increase) decrease in advances		2,227			-			(531	)
(Increase) in deposits		(7,337	)		(10,036	)		(30,291	)
(Increase) decrease in prepaid expenses		(29,879	)		(8,320	)		(76,126	)
Increase (decrease) in accounts payable		24,321			(11,300	)		11,909
Increase (decrease) in income tax and accrued liabilities		133,306			(129,734	)		141,496
Net cash used in operating activities		(2,115,217	)		(1,394,341	)		(5,000,199	)

Cash flows from investing activities
Net sales (purchases ) of available for sale short-term securities		10,900,000			(10,300,199	)		(300,000	)
Increase in deferred charges		(513,421	)		(3,109,553	)		(3,669,479	)
Additions to property, plant and equipment		(309,563	)		(77,467	)		(593,548	)
Net cash provided by (used in) investing activities		10,077,016			(13,487,219	)		(4,563,027	)

Cash flows from financing activities
Payment of notes payable		-			(5,000	)		(5,000	)
Increase in minority interest investment		-			40,020			399,430
Increase in long-term advances to minority shareholder		-			-			(400,507	)
Decrease in subscriptions receivable		-			-			28,000
Issuance of common stock net of issuance costs		(2,513	)		15,385,982			19,671,092
Net cash provided by (used in) financing activities		(2,513	)		15,421,002			19,693,015

Effect of exchange rate changes on cash		26,770			3,566			65,236

Net increase in cash and cash equivalents		7,986,056			543,008			10,195,025
Cash and cash equivalents at beginning of period		2,208,969			1,867,374			-
Cash and cash equivalents at end of period	$	10,195,025		$	2,410,382		$	10,195,025

Supplemental disclosures of cash flow information
Interest paid	$	-		$	-		$	-
Income taxes paid	$	43,684		$	-		$	43,719

Supplemental schedule of non-cash investing and financing activities
Common and preferred stock issued for services and fees	$	138,000		$	335,312		$	670,917
Stock issuance costs paid as warrants issued	$	-		$	-		$	929,477
Warrants exercised for common stock	$	(3	)	$	-		$	(3	)

The accompanying notes to unaudited condensed consolidated financial statements are an integral part of this statement.

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Pacific Asia Petroleum, Inc. and Subsidiaries

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited)

NOTE 1. INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements of Pacific Asia Petroleum, Inc. and subsidiaries (the “Company”) are unaudited. Management believes this interim data includes all adjustments necessary for a fair presentation of the results for the interim periods reported. All adjustments were of a recurring nature.

Certain notes and other information have been condensed or omitted from the interim financial statements present in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s year 2007 Annual Report on Form 10-K. The results for the three- and nine-month periods ended September 30, 2008 are not necessarily indicative of future results.

NOTE 2. BUSINESS; YEAR 2007 MERGER AND RECAPITALIZATION; LIQUIDITY

Refer to Notes 1 and 2 to the consolidated financial statements in year 2007 Form 10-K for a description of the Company’s business, and the merger and recapitalization of the Company that occurred in 2007.

To date, the Company has incurred expenses and sustained losses and has not generated any revenue from operations. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise. The Company will require significant financing in excess of its September 30, 2008 available cash, cash equivalents, and short-term investments in order to achieve its business plan. It is not certain that this financing will be successfully obtained.

NOTE 3. BASIS OF PRESENTATION AND USE OF ESTIMATES

The Company’s interim financial statements are prepared on a consolidated basis under U.S. Generally Accepted Accounting Principles as a development stage company. Refer to Note 5 to the consolidated financial statements in year 2007 Form 10-K for a description of the Company’s significant accounting policies.

Management uses estimates and assumptions in preparing these financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, disclosures of contingencies, and reported revenues and expenses. Actual results could vary from those estimates.

NOTE 4. NAVITAS ACQUISITION

On July 1, 2008 the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Navitas Corporation, a Nevada corporation (“Navitas”), whose primary assets at the time of merger were comprised of 480,000 shares of Common Stock of the Company and certain deferred tax assets, and Navitas LLC, a Nevada limited liability company affiliated with Navitas and whose members consisted of Navitas shareholders. The shareholders of Navitas received a total of 450,005 shares of Company Common Stock in return for 100% of the shares of Navitas. The merger was effective July 2, 2008. At that date Navitas was merged into the Company, and Navitas ceased to exist as a separate corporation. The transaction resulted in a net decrease of 29,995 shares of the Company’s outstanding common shares.

A majority in interest of Navitas’ and Navitas LLC’s shareholders and members, respectively, were shareholders of the Company prior to the merger. In addition, Adam McAfee, the President of Navitas and Managing Director of Navitas, LLC, is the brother of Eric A. McAfee, a beneficial owner of approximately 8.1% of the Company’s Common Stock and 50% owner of Cagan McAfee Capital Partners, LLC, a fund owned 50% by Mr. Laird Q. Cagan, member of the Company’s Board of Directors and beneficial owner of approximately 9.0% of the Company’s Common Stock.

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The acquisition of Navitas was accounted for as a merger involving treasury stock and immaterial net working capital. No value was assigned to deferred tax assets acquired. The purchase price paid of 450,005 shares of Common Stock of the Company was valued at $18.17 per share based on a seven-day weighted average related to the measurement date. No gain was recognized on the net reduction of 29,995 shares outstanding in the company’s stock. The total absolute dollar amounts recorded for shares issued and shares acquired were the same except for certain transaction costs recorded as additional cost of shares acquired. No cash consideration was paid by the Company in the merger.

NOTE 5. NEW ACCOUNTING STANDARDS NOT YET ADOPTED

As of September 30, 2008 there were no new accounting standards not yet adopted that are expected to have a material effect on the Company in the foreseeable future. The following new standards may have a future effect on the Company.

SFAS No. 141(R), “Business Combinations” -- This statement includes a number of changes in the accounting and disclosure requirements for new business combinations occurring after its effective date. These changes affect the accounting for acquisition costs, noncontrolling interests, acquired contingent

liabilities, acquired research and development costs, restructuring costs related to the combination, changes in deferred tax asset valuation allowances and income tax uncertainties. The statement is effective for new business combinations occurring on or the first reporting period beginning on or after December 15, 2008.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements: An Amendment of ARB No. 51” – This statement changes the accounting and reporting for noncontrolling (minority) interests in subsidiaries and for the deconsolidation of a subsidiary. The presentation of noncontrolling interests in the balance sheet and income statement will be revised to treat noncontrolling interests as a separate component of total consolidated equity and total consolidated net income, rather than as reductions from them. In addition, if a subsidiary is deconsolidated, the parent company will now recognize a gain or loss to net income based upon the fair value of the noncontrolling equity at that date. The statement is effective prospectively for fiscal years and interim periods beginning on or after December 15, 2008, but upon adoption will require restatement of prior periods for the provisions involving balance sheet and income statement line detail presentation.

SFAS No. 161, In March 2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS 133; and (c) derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Specifically, SFAS No. 161 requires: disclosure of the objectives for using derivative instruments in terms of underlying risk and accounting designation; disclosure of the fair values of derivative instruments and their gains and losses in a tabular format; disclosure of information about credit-risk-related contingent features; and cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial position, results of operations or cash flows.

In May, 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The Company is currently reviewing the effect, if any; the proposed guidance will have on its consolidated financial statements.

In May, 2008, FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60" ("SFAS 163"). SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has

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occurred in an insured financial obligation. SFAS 163 also clarifies how Statement 60 applies to financial guarantee insurance contracts. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company does not expect the proposed guidance will have an impact on its consolidated financial statements.

NOTE 6. LITIGATION AND CONTINGENCIES

The Company at September 30, 2008 had no litigation, actual or potential, of which it was aware and which could have a material effect on its financial position.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” ” Company,” and “our Company” refer to Pacific Asia Petroleum, Inc., a Delaware corporation, and its present and former subsidiaries, including Pacific Asia Petroleum, Ltd. (“PAPL”), Inner Mongolia Production Co (HK) Limited, and Inner Mongolia Sunrise Petroleum JV Company (collectively, the “Company”). References to “PAP” refer to Pacific Asia Petroleum, Inc. prior to the mergers of Inner Mongolia Production Company LLC (“IMPCO”) and Advanced Drilling Services, LLC (“ADS”) into wholly-owned subsidiaries thereof, effective May 7, 2007. Historical financial results presented herein are the results of IMPCO from inception on August 25, 2005 to May 6, 2007 and the consolidated entity Pacific Asia Petroleum, Inc. from May 7, 2007 forward, which is considered to be the continuation of IMPCO as Pacific Asia Petroleum, Inc.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,” “targets” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors” included in the Company’s Annual Report on Form 10-K for 2007. The identification in this Quarterly Report of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

Our Business

The Company is a development stage company formed to develop new energy ventures, directly and through joint ventures and other partnerships in which it may participate.

Members of the Company’s senior management team have experience in the fields of international business development, finance, petroleum engineering, geology, field development and production, and operations. Several members of the Company’s management team have held management and executive positions with Texaco Inc. and have managed energy projects in China, elsewhere in Asia and in other parts of the world. Members of the Company’s management team also have experience in oil drilling, operations, geological engineering and sales in China’s energy sector.

The Company was originally incorporated in Delaware on December 12, 1979 as Gemini Marketing Associates Inc., subsequently changed its name to Pacific East Advisors, Inc., and on May 7, 2007 consummated a reverse merger involving IMPCO and ADS (the “Mergers”), in connection with which the Company changed its name to Pacific Asia Petroleum, Inc. Under applicable accounting standards, IMPCO was defined as the acquiring company in the Mergers.

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Accordingly, the reportable results of operations for the Company through the date of the Mergers of May 7, 2007 are comprised only of the historical results of the former IMPCO. Therefore, for purposes of financial reporting, the inception of the Company is reflected as August 25, 2005, the inception date of IMPCO. The cumulative net losses of the Company from inception through September 30, 2008 are $6,830,405. Our losses have resulted primarily from general and administrative expenditures associated with developing a new enterprise, and consulting, legal and accounting expenses. From inception through September 30, 2008, we did not generate revenues from operations.

On March 29, 2008, Pacific Asia Petroleum, Ltd. (“PAPL”), a wholly-owned Hong Kong subsidiary of PAP, and PAP (together with PAPL, the “Company”), entered into an Asset Transfer Agreement – Baode Area (the “ATA”) with BHP Billiton World Exploration Inc. (“BHP”), for the purchase by the Company of BHP’s 64.2858% participating interest (“BHP Interest”) held in a production sharing contract (the “Baode PSC”) with respect to the coalbed methane (“CBM”) and tight gas sand resource block known as the “Baode Area” located in the Shanxi Province in China. If consummated in accordance with the terms of the ATA, the Company would purchase BHP’s participating interests pursuant to, and the Company would become a party to, the Baode PSC with respect to the BHP Interest, and the Company would assume BHP’s operator obligations under certain related operating agreements, effective upon satisfaction of certain closing conditions, waivers and approvals.

The percentage interest under the Baode PSC being acquired from BHP is 64.2858%. The Company is currently a party to an asset transfer agreement with ChevronTexaco for the purchase of the balance 35.7142% participating interest under the Baode PSC (the “CVX ATA”); accordingly, upon closing of the BHP ATA and the CVX ATA, the Company will hold 100% of the participating interest under the Baode PSC. Upon closing, the Company will assume BHP’s operating obligations under the operating agreements related to the Baode PSC.

On April 2, 2008, the Company received written confirmation that the Ministry of Commerce of The People’s Republic of China approved the entry by the Company’s subsidiary, PAPL, into that certain Production Sharing Contract entered into on October 26, 2007 with China United Coalbed Methane Corp. Ltd. for the exploitation of coalbed methane resources in the Zinjinshan block located in the Shanxi Province of China.

Effective April 24, 2008, the Company entered into four amendment agreements (“Amendment Agreements”) with ChevronTexaco and PAPL amending the Chevron Agreements (including the CVX ATA) entered into in September 2007. Pursuant to the Amendment Agreements, the parties agreed to, among other things (i) reduce the base purchase price with respect to the Baode Area from $13 million to $2 million, (ii) remove the Company’s obligation to pay interest to ChevronTexaco on the cash portion of the base purchase price for the Baode Area assets, with final payment due upon delivery of these assets to the Company, and (iii) extend the deadlines for satisfaction of certain closing conditions, including receipt of necessary Chinese government approvals, from June 6, 2008 to November 6, 2008. The closing of the asset transfers contemplated pursuant to the Chevron Agreements, as amended, is contingent upon a number of conditions precedent, including the approval of certain related agreements by the PRC Ministry of Land and Natural Resources and the assignment of ChevronTexaco’s participating interest by the PRC Ministry of Commerce, which approvals and assignment are currently in the process of being requested.

On September 30, 2008 , the Company entered into an Agreement on Cooperation with Well Lead Group Limited (“Well Lead”) relating to the possible acquisition of a participating interest in two onshore producing areas in the People’s Republic of China. The acquisition, as presently contemplated, would involve purchase by the Company from Well Lead of up to a 39% interest in Northeast Oil (China) Development Ltd. , which owns a 95% interest in currently producing oilfield blocks Fu710 and Meilisi723 located in the Fulaerjiqu Oilfield in Qiqihar City, Heilongjiang Province. The parties have agreed to work toward finalizing a sale and purchase agreement for this transaction by November 30, 2008.

To date, although the Company has not yet generated any operating revenue, it has raised approximately $21.6 million in equity financings to fund its ongoing working capital requirements, as well as possible acquisition and development activities. In order to fully implement its business strategy, including the consummation of the asset transfers contemplated pursuant to the Chevron Agreements, the Company will need to raise significant additional capital. In the event the Company is unable to raise such capital on satisfactory terms or in a timely manner, the Company would be required to revise its business plan and possibly cease operations completely.

You should read the information in this Item 2 together with our unaudited condensed financial statements and notes thereto that appear elsewhere in this Report.

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Plan of Operation

The following describes in general terms the Company’s plan of operation and development strategy for the twelve-month period ending September 30, 2009 (the “Next Year”). During the Next Year, the Company plans to focus its efforts on drilling activities under its agreement with Chifeng Zhongtong Oil and Natural Gas Co. (“CHIFENG”), commencing operations in an area in the Shanxi Province of China referred to as the Zijinshan Block (the “CUCBM Contract Area”), consummating due diligence review and possible acquisition transaction with Well Lead, and consummating the purchase of the ChevronTexaco participating CBM interests pursuant to the Chevron Agreements, as well as developing additional enhanced oil production opportunities in China. In addition to these opportunities, the Company plans to continue to seek to identify other opportunities in the energy sectors in China and the Pacific Rim, particularly with respect to oil and gas exploration, development, production, refining and trading. Since we are a development stage company, we are limited in our ability to grow by the availability of capital for our businesses and each project. The Company’s ability to successfully consummate any of its projects, including the projects described above, is contingent upon the making of any required deposits, obtaining the necessary governmental approvals and executing binding agreements to obtain the rights we seek within limited timeframes.

The Company has assembled a management team with experience in the fields of international business development, petroleum and geologic engineering, geology, petroleum field development and production, petroleum operations and finance. Members of the Company’s management team previously held positions in similar oil and gas development, and screening roles at Texaco, and will seek to utilize their contacts in Asia to provide us with access to a variety of energy projects. Among the strategies that we plan to use are:

•

Focusing on projects that play to the expertise of our management team;

•

Leveraging our productive asset base and capabilities to develop value;

•

Actively managing our assets and ongoing operations while attempting to limit capital exposure;

•

Enlisting external resources and talent as necessary to operate/manage our properties during peak operations; and

•

Implementing an exit strategy with respect to each project with a view to maximizing asset values and returns.

Product Research and Development

The Company has not engaged in any product research or development and does not anticipate engaging in product research or development during the Next Year.

Liquidity and Capital Resources

The Company has sufficient funds to fund all of its current operations for the Next Year provided, however, that if the conditions precedent to the closing of the Chevron Agreements are satisfied and the Company consummates the purchase of the ChevronTexaco participating interests thereunder, the Company will be required to raise additional capital to fund the unpaid base purchase price, as well as additional capital to fund ongoing operational expenses related to the participating interests purchased from ChevronTexaco.

The remaining discussion below considers the Company’s ability to fund its other operations and overhead expenses, exclusive of the funding necessary for the Chevron Agreements, except insofar as that the deposit required for those agreements has reduced our liquidity.

As of September 30, 2008, the Company had net working capital of $10,250,335 and cash, cash equivalents and short-term investments of $10,495,025. The Company also has deposited $3,050,000 with ChevronTexaco in consideration of the Chevron Agreements in October 2007 and $500,000 with BHP in consideration of the agreement to purchase the BHP Interest. For the nine months ended September 30, 2008, the Company incurred a

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net loss of $3,308,990. As a result of our operating losses from our inception through September 30, 2008, we generated a cash flow deficit of $5,000,199 from operating activities. Cash flows used in investing activities were $4,563,027 during the period from inception through September 30, 2008. We met our cash requirements during this period through net proceeds of $19,671,092 from the private placement of restricted equity securities.

Net cash used in operating activities for the first nine months of 2008 was $2,115,217, compared to $1,394,341 for the first nine months of 2007. The increase in 2008 versus 2007 was due to increases in expenses.

Net cash provided by investing activities was $10,077,016 for the first nine months of 2008, as compared to net cash used in investing activities of $13,487,219 for the first nine months of 2007. The net change was principally due to $10,900,000 in net sales of available for sale short-term securities in nine months, 2008 versus net purchases of $10,300,199 of such securities in nine months, 2007. There were minor net cash effects from financing activities in the first nine months of 2008 versus $15,421,002 of cash provided from financing activities during the first nine months of 2007, principally due to the issuance of equity securities.

Our available working capital and capital requirements will depend upon numerous factors, including progress of our exploration and development programs, closing of the acquisition transaction with Well Lead, closing of the Chevron Agreements and purchase of the ChevronTexaco participating interests, market developments and the status of our competitors. Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing and strategic alliances. Such additional funds may not become available on acceptable terms, if at all, and any additional funding obtained may not be sufficient to meet our needs in the long term. Through September 30, 2008, virtually all of our financing has been raised through private placements of equity instruments. The Company at September 30, 2008 had no credit lines for financing and no short-term or long-term debt.

We intend to continue to fund operations from cash on hand and through the similar sources of capital previously described for the foreseeable future. Any additional capital that we are able to obtain may not be sufficient to meet our needs. We believe that we will continue to incur net losses and negative cash flows from operating activities for the next 1-2 years. Based on the resources available to us on September 30, 2008, we can sustain operations at the present “burn rate” for more than one year. We will need additional equity or debt financing to expand our operations through 2009 and we may need additional financing thereafter.

By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits. However, if during the Next Year or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

To the extent the Company acquires additional CBM, tight gas sand and other energy-related rights consistent with its business plan, including the participating interests from ChevronTexaco, the Company will need to raise additional funds for such projects. The ChevronTexaco acquisition opportunities pursuant to the Chevron Agreements that the Company is pursuing would require significant additional capital.

Results of Operations

As a development stage company, we have yet to earn revenues from operations. We may experience fluctuations in operating results in future periods due to a variety of factors, including our ability to obtain additional financing in a timely manner and on terms favorable to us, our ability to successfully develop our business model, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure and the implementation of marketing programs, key agreements, and strategic alliances, and general economic conditions specific to our industry.

As a result of limited capital resources and no revenues from operations from the date of IMPCO’s inception on August 25, 2005, the Company has relied on the issuance of equity securities as a means of compensating employees and non-employees for services. The Company enters into equity compensation agreements with non-employees if it is in the best interest of the Company and in accordance with applicable federal and state securities laws. In order to conserve its limited operating capital resources, the Company anticipates continuing to compensate employees and non-employees partially with equity compensation for services during the

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Next Year. This policy may have a material effect on the Company’s results of operations during the Next Year.

Revenues

We have generated no revenues from operations since IMPCO’s inception on August 25, 2005. We hope to begin generating revenues from operations later in 2008, as the Company transitions from a development stage company to that of an active growth stage company.

Expenses
			Nine months ended				Three months ended
			September 30,				September 30,
			2008		2007		2008		2007
	Description
	Salaries	$	960,570	$	502,658	$	339,950	$	184,247
	Consulting fees		336,767		659,507		84,834		56,840
	Stock-based compensation		963,187		76,581		362,515		25,527
	Legal and professional fees		335,544		176,178		101,667		109,791
	Travel		208,414		144,902		93,664		44,748
	Auditing		143,633		99,747		27,150		29,169
	All other operating expenses		654,286		368,820		241,143		138,414
	Total Operating Expenses	$	3,602,401	$	2,028,393	$	1,250,923	$	588,736

Nine months ended September 30, 2008 versus nine months ended September 30, 2007

For the nine months ended September 30, 2008, total operating expenses before income taxes were $3,602,401. For the nine months ended September 30, 2007, the comparable amount was $2,028,393. The increase in expenses reflects increased effort in identifying potential oil and gas opportunities, seeking related financing and increased administrative costs. The major components of the expense differences are as follows:

Salaries: For nine months ended September 30, 2008, salaries totaled $960,570. For nine months ended September 30, 2007, salaries totaled $502,658. The increase of $457,912 was principally due to additional personnel in 2008 and the change in the status of an officer of the Company from a consultant in the 2007 period to an employee in 2008.

Consulting fees: For nine months ended September 30, 2008, consulting fees payable in cash totaled $198,767. Consulting fees recorded as vested equity compensation in this period totaled $138,000. For nine months ended September 30, 2007, consulting fees payable in cash were $324,195. Consulting fees recorded as vested equity compensation in this period were $335,312. The total decrease of $322,740 in consulting fees in 2008 was principally due to non-recurring amounts in 2007 relative to merger negotiation assistance and contractual obligations for assistance in the raising of equity funds prior to the Mergers. This was partially offset by increased cash consulting for Sarbanes-Oxley compliance work.

Stock-based compensation: For nine months ended September 30, 2008, expense was $963,187 for stock options and restricted stock compensation. For nine months ended September 30, 2007, expense was $76,581. The increase of $886,606 in 2008 was due to option and restricted stock awards existing during 2008 that were not present in the 2007 period.

Legal and professional fees: For nine months ended September 30, 2008, these fees totaled $335,544. For nine months ended September 30, 2007, these fees totaled $176,178. The increase in these fees of $159,366 was due to the increase in the Company’s activities, the legal requirements to prepare SEC filings, and assistance in compliance with Sarbanes-Oxley Act requirements.

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·	Travel: For nine months ended September 30, 2008, travel expense totaled $208,414. For nine months ended September 30, 2007, travel expense totaled $144,902. The increase of $63,512 was due to increased travel in 2008 related to acquisition and possible financing activity.

Auditing: For nine months ended September 30, 2008, audit and review fees totaled $143,633. For nine months ended September 30, 2007, these fees totaled $99,747. The increase of $43,886 resulted principally from increased auditor involvement in the first quarter ended March 31, 2008 (versus the first quarter ended March 31, 2007) as a result of the change to a public company through the Mergers in May 2007.

Three months ended September 30, 2008 versus three months ended September 30, 2007

For the three months ended September 30, 2008, total operating expenses before income taxes were $1,250,923. For the three months ended September 30, 2007, the comparable amount was $588,735. The increase in expenses reflects increased effort in identifying potential oil and gas opportunities, seeking related financing, and increased administrative costs. The major components of the expense differences are as follows:

Salaries: For three months ended September 30, 2008, salaries totaled $339,950 versus $184,247 for three months ended September 30, 2007. The increase of $155,703 is principally due to current period expense for additional personnel in the 2008 period and the change in status of an officer of the Company from a consultant to an employee in 2008.

Consulting fees: For three months ended September 30, 2008, consulting fees payable in cash totaled $61,334 versus $56,840 for the three months ended September 30, 2007. Consulting fees recorded as vested equity compensation were $23,500 for three months ended September 30, 2008, versus none for three months ended September 30, 2007. The increase in cash consulting fees of $4,494 was principally due to increased consulting for Sarbanes-Oxley compliance work, partially offset by a decrease for the change in status of an officer of the Company and reclassification of other personnel from consultants to employees in 2008.

Stock-based compensation: For three months ended September 30, 2008, expense was $362,515 for stock options and restricted stock compensation, versus $25,527 for three months ended September 30, 2007. The increase of $336,988 was due to option and restricted stock awards existing during 2008 that were not present in the 2007 period.

·	Legal and professional fees: For three months ended September 30, 2008, these fees totaled $101,667 versus $109,791 for three months ended September 30, 2007, a decrease of $8,124.

·	Travel: For three months ended September 30, 2008, travel expense totaled $93,664 versus $44,748 for three months ended September 30, 2007. The increase of $48,916 was due to increased travel activity in 2008 related to acquisition and possible financing activity.

·	Auditing: For three months ended September 30, 2008, auditing expense totaled $27,150 versus $29,169 for three months ended September 30, 2007, a decrease of $2,019.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Inflation

It is the opinion of the Company that inflation has not had a material effect on its operations.

Tabular Disclosure of Contractual Obligations

Refer to Part II, Item 7 of the Company’s year 2007 Annual Report on Form 10-K for a table summarizing the

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Company’s significant contractual obligations. There have been no material changes outside the ordinary course of the Company’s business during the nine months ended September 30, 2008 with respect to any of such contractual obligations.

On September 15, 2008, Pacific Asia Petroleum, Inc. (the “Company”) received from Station Plaza Associates the fully-executed First Amendment to Lease (the “Lease Amendment”), between Station Plaza Associates and the Company, which amends that certain Lease Agreement (the “Lease”), dated December 1, 2006, entered into between the parties with respect to the Company’s office space located at 250 East Hartsdale Avenue, Hartsdale, New York.

Pursuant to the Lease Amendment, effective September 10, 2008, the term of the Lease is extended until November 30, 2010, and the rentable square footage is increased from 1,378 square feet to 1,978 square feet to better accommodate existing Company employees and to provide for potential additional future staffing needs. The estimated total additional operating lease commitment under the Lease Amendment is approximately $123,000 through lease expiration on November 30, 2010, excluding management fees and operating expenses, and depending upon the completion date of certain renovations required to be completed by Station Plaza Associates under the Lease Amendment.

Recently Issued Accounting Standards Not Yet Adopted

Information on accounting standards not yet adopted is contained in Note 4 to the condensed consolidated financial statements in this Form 10-Q.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information about market risks relative to foreign currency denominated financial instruments owned for the nine months ended September 30, 2008 is not materially different from that provided in Item 7A of the Company’s 2007 Annual Report on Form 10-K.

Early in 2008, the Company sold virtually all of its variable interest rate short-term corporate bond investments and replaced them with variable interest rate short-term U.S. Treasury securities. The Company’s exposure to a decrease in income if interest rates decline was essentially unchanged as a result of these sales and purchases, as compared to December 31, 2007.

Item 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Report.

Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There was no change in the Company’s internal controls over financial reporting during the nine months ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our 2007 Annual Report on Form 10-K, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes from the risk factors previously disclosed in our year 2007 Annual Report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On August 1, 2008, the Company issued 3,797 shares of Common Stock to William C. Frasco & Gina Frasco, JTWROS ("Frasco") upon the partial cashless "net" exercise by Frasco of 4,500 shares of Company Common Stock under a placement agent warrant exercisable for an aggregate of 19,500 shares of the Company's Common Stock at a price of $1.25 per share. The aggregate number of shares of Common Stock issued upon exercise of the warrant was reduced from 4,500 to 3,797 shares of Common Stock to effect the cashless "net" exercise of the warrant in accordance with its terms, assuming a deemed fair market value of $8.00 per share as calculated under the warrant as the mean price per share between the representative bid and asked prices on the close of business on July 31, 2008, the business day immediately prior to the date of exercise in the domestic over-the-counter market as reported by Pink Sheets LLC. The warrant was originally issued to Frasco in his role as a placement agent for the Company on May 7, 2007.

As disclosed in our Form 8-K filed with the Securities and Exchange Commission on July 8, 2008, and in Note 4 – Navitas Acquisition in the Notes to Condensed Consolidated Financial Statements, the Company completed a merger with Navitas Corporation on July 2, 2008. Navitas’ assets primarily consisted of 480,000 shares of the Company’s Common Stock. The Company issued 450,005 shares of its Common Stock as consideration in the merger.

No underwriters were involved in either of the transactions described above. All of the securities issued in the foregoing transactions were issued by us in reliance upon the exemption from registration available under Section 4(2) of the Securities Act, including Regulation D promulgated thereunder, in that the transactions involved the issuance and sale of our securities to financially sophisticated individuals or entities that were aware of our activities and business and financial condition and took the securities for investment purposes and understood the ramifications of their actions. We did not engage in any form of general solicitation or general advertising in connection with any of such transactions. Certain of the purchasers also represented that they were “accredited investors” as defined in Regulation D and, as described above, all investors that were not accredited investors were provided with information regarding the Company a reasonable time prior to their purchase of our securities. All of the above investors represented to us that they were acquiring such securities for their own account and not for distribution. All certificates representing the securities issued have a legend imprinted on them stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or an exemption applies.

On August 19, 2008, the Company entered into an Advisor Agreement with Somerley Limited, pursuant to which the Company was obligated to issue on such date 10,000 shares of Company Common Stock to Somerley Limited (the “Somerley Shares”) as partial consideration for the Company’s engagement of Somerley Limited for certain advisory services. The issuance of the Somerley Shares was approved by the Company’s Board of Directors by unanimous written consent on August 27, 2008 at a price of $2.35 per share, which was the fair market value per

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share of the Somerley Shares as determined by the Board of Directors as of August 19, 2008, the date the Company was obligated to issue such shares pursuant to the Advisor Agreement.

No underwriters were involved in the transaction with Somerley Limited described above. All of the securities issued in the this transaction were issued by us in reliance upon the exemption from registration available under Regulation S of the Securities Act, in that the transaction involved the issuance and sale of our securities outside the United States in an offshore transaction that did not involve directed selling efforts within the United States. All certificates representing the securities issued have a legend imprinted on them stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or an exemption applies.

Stock Repurchases

Except for 480,000 shares of the Company’s Common Stock acquired in the acquisition of Navitas Corporation as described above, the Company did not repurchase any shares of its Common Stock during the nine months ended September 30, 2008.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

On July 22, 2008, the Company held the annual meeting of its stockholders. At the meeting, the holders of the Company’s outstanding Common Stock acted on the following matters:

A. Total shares voted…………………………………………………22,578,661

(1) The stockholders voted for four directors, each to serve for a term of one year and until his/her successor is elected. Each nominee received the following votes:

Name	For	Against	Withheld
Frank C. Ingriselli	22,576,337	-	2,324
Laird Q. Cagan	22,576,337	-	2,324
Elizabeth P. Smith	22,577,469	-	1,192
Robert C. Stempel	22,577,469	-	1,192

Exhibit Number	Description
31.1	Certification of the Registrant’s Principal Executive Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Registrant’s Principal Financial Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Registrant’s Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Registrant’s Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Dated: November 3, 2008	Pacific Asia Petroleum, Inc.
	By:	/s/ Frank C. Ingriselli Frank C. Ingriselli President and Chief Executive Officer