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, 2011
 
¨ 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.)
 
1717 Dr. Martin Luther King Jr. St. N, St Petersburg, FL 33704
 (Address of principal executive offices) (Zip Code)

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

 
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, 2011 was 203,880,636.


,
 
1
 


US NATURAL GAS CORP
INDEX
 

PART I: FINANCIAL INFORMATION    
  
ITEM 1:
FINANCIAL STATEMENTS
  
 
Report of Independent Registered Certified Public Accounting Firm
F-2
 
Consolidated Balance Sheets as of  March 31, 2011 (unaudited) and December 31, 2010
F-3
 
Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010, and from Inception (March 28, 2008) through March 31, 2011 (unaudited)
F-4
 
Consolidated Statement of Stockholders' Equity from Inception (March 28, 2008) through March 31, 2011 (unaudited)
F-5
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010, and from Inception (March 28, 2008) though March 31, 2011 (unaudited)
F-6 - F-7
 
Notes to the Consolidated Financial Statements
F-8 - F-27
     
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
10
ITEM 1A :
RISK FACTORS
10
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
10
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
14



 
2
 



PART I - FINANCIAL INFORMATION

INDEX TO FINANCIAL STATEMENTS
 

 
Financial Statements
  
Page
     
Report of Independent Registered Certified Public Accounting Firm
  
F-2
     
Consolidated Balance Sheets as of  March 31, 2011 (unaudited) and December 31, 2010
  
F-3
     
Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010, and from Inception (March 28, 2008) through March 31, 2011 (unaudited)
  
F-4
     
Consolidated Statement of Stockholders' Equity from Inception (March 28, 2008) through March 31, 2011 (unaudited)
  
F-5
        
    
Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010, and from Inception (March 28, 2008) though March 31, 2011 (unaudited)
  
F-6 - F-7
     
Notes to the Consolidated Financial Statements
  
F-8 - F-27
     
 

 
 
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, 2011, and the related consolidated statements of operations and cash flows for the three months ended March 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows from inception (March 28, 2008) through March 31, 2011.  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 information 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 as of March 31, 2011, and for the three months ended March 31, 2011 and 2010 and from inception (March 28, 2008) through March 31, 2011 in order for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We audited the accompanying consolidated balance sheet as of December 31, 2010, and we expressed an unqualified opinion on it in our report dated April 7, 2011.  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, 2011 and 2010, and from inception  (March 22, 2008) through March 31, 2011.  In addition, although US NATURAL GAS CORP has commenced planned principal business operations there are insignificant revenues from oil and natural gas production and its current liabilities substantially exceed its current assets.

These factors, among others, 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 disclosed  in the notes to the consolidated financial statements and elsewhere in this Form 10-Q.  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.



/s/ Louis Gutberlet, CPA 

 
on behalf of LGG & Associates, PC
LGG & Associates, PC
Certified Public Accountants
 and Management Consultants

Monday, May 23, 2011
Lawrenceville, Georgia

 
 
 
F-2
 
 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
    
   
March
31, 2011
    
December 31, 2010
  
 ASSETS
            
CURRENT ASSETS
            
      Cash and cash equivalents
  
$
2,821
    
$
1
  
      Accounts receivable:
                
             Joint interest billing
    
264,267
      
227,036
  
             Other
    
22,084
      
17,432
  
      Marketable equity securities
    
9,956
      
6,793
  
      Prepaid expenses
    
28,691
      
33,008
  
      Notes receivable, current
    
15,500
      
115,474
  
      Notes receivable, stockholder
    
139,855
      
110,597
  
                 
      Total current assets
    
483,174
      
510,341
  
                 
PROPERTY AND EQUIPMENT
                
      Oil and gas properties and equipment, net
    
4,578,192
      
4,557,661
  
                 
OTHER ASSETS
                
      Notes receivable, net of current portion
    
557,228
      
557,726
  
      Debenture escrow
    
99,190
      
99,190
  
      Miscellaneous
    
131,257
      
150,910
  
                 
 TOTAL ASSETS
  
$
5,849,041
    
$
5,875,828
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
CURRENT LIABILITIES
                
       Accounts payable and accrued expenses
  
$
1,005,408
     $
1,030,505
  
       Accounts payable, revenue distribution
    
12,744
      
7,924
  
       Notes payable, current
    
1,175,622
      
1,224,870
  
       Loans payable, other
    
-
      
5,986
  
       Convertible debentures payable
    
195,000
      
280,000
  
                 
       Total current liabilities
    
2,388,774
      
2,549,285
  
                 
LONG-TERM LIABILITIES
                
        Notes payable, net of current portion
    
550,000
      
550,000
  
                 
STOCKHOLDERS' EQUITY
                
       Preferred stock:
                
             Series A
    
1,000
      
1,000
  
             Series B
    
300
      
300
  
       Common Stock
    
193,220
      
148,947
  
       Additional paid in capital
    
5,613,093
      
5,356,187
  
       Deficit accumulated during the development stage
    
(2,897,346
)
    
(2,729,891
)
                 
      Total stockholders' equity
   
2,910,267
      
2,776,543
  
                 
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
5,849,041
    
$
5,875,828
  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
F-3
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2011 and 2010 and from Inception (March 28, 2008) through March 31, 2011
     

               
Inception
  
               
through
  
   
2011
    
2010
    
March 31, 2011
  
Revenue earned
  
 
    
 
        
     Oil and gas production sales
   $ 13,577     $ -     $ 63,668  
     Net gain on sale of oil and gas properties and equipment
     -       -       488,781  
     Well management Fees
     20,859       -       51,226  
     Other
     19,821       -       39,611  
 
                        
               Total revenue earned
     54,257       -       643,286  
 
                        
Cost of oil and gas operations
     19,874       15,947       211,021  
 
                        
Gross profit (loss)
     34,383       (15,947 )     432,265  
 
                        
Operating Expenses
                        
     Selling, general and administrative
     150,883       243,766       1,153,097  
     Stock issued for legal services
     -       79,680       699,031  
     Stock issued for consulting and other services
     34,632       54,000       1,619,883  
     Depreciation, depletion and amortization
     58,592       22,530       224,510  
 
                        
Total operating expenses
     244,107       399,976       3,696,521  
 
                        
Loss from operations
     (209,724 )     (415,923 )     (3,264,256 )
 
                        
Other Income (expenses)
                        
      Net gain (loss) from sale of marketable equity securities and investments
     48,939       169,227       276,939  
      Forgiveness of debt
     -       -       375,868  
      Interest income
     5,390       -       19,795  
      Interest expense
     (12,060 )     (25,000 )     (305,692 )
                         
Loss before provision for income taxes
     (167,455 )     (271,696 )     (2,897,346 )
                         
Provision for income taxes
    -       -       -  
                         
                     Net loss
   $ (167,455 )   $ (271,696 )   $ (2,897,346 )
 
                        
Basic loss per common share
   $ (0.00 )   $ (0.01 )        
Diluted loss per common share
   $ (0.00 )   $ (0.01 )        
 
                        
Weighted average common shares outstanding - basic
     172,502,360       23,941,525          
Weighted average common shares outstanding - diluted (see Note A)
     -       -          
                         


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



 
F-4
 



US NATURAL GAS CORP
 (A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
From Inception (March 28, 2008) through March 31, 2011
    

   
Preferred stock
    
Common Stock
    
Additional
Paid in
    
Deficit Accumulated
During
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Development
    
Total
  
                                           
Issuance of common stock for cash on March 28, 2008 at $.001 per share
        
$
-
      
10,000,000
    
$
10,000
    
$
-
    
$
-
    
$
10,000
  
                                                       
Issuance of common stock for consulting and other services at $.25 to $.35 per share
                  
854,236
      
854
      
290,445
              
291,299
  
                                                       
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 $.25 to $.35 per share
                  
135,715
      
136
      
43,364
              
43,500
  
                                                       
Net loss for the period March 28, 2008 to December  31, 2008
                                          
(749,550
)
    
(749,550
)
                                                       
Balance at December 31, 2008, Restated-Note S
    
-
      
-
      
12,239,951
      
12,240
      
770,059
      
(749,550
)
    
32,749
  
                                                         
Issuance of Series A and B shares at par value
    
1,300,000
      
1,300
                      
299,700
              
301,000
  
                                                         
Issuance of common stock for consulting and other services at $.07 thru $.66 per share
                    
9,565,959
      
9,566
      
1,428,209
              
1,437,775
  
                                                         
Issuance of common stock for legal services at $.11 and $.35 per share
                    
380,000
      
380
      
125,471
              
125,851
  
 
Net loss for the year ended December 31, 2009
                                   (1,638,715 )     (1,638,715 )
                                               
Balances at December 31, 2009
     1,300,000       1,300       22,185,910       22,186       2,623,439       (2,388,265 )     258,660  
                                                         
Issuance of common stock for consulting and other services at $.01 thru $.09 per share
                     5,450,000       5,450       150,100               155,550  
                                                         
Issuance of common stock for cash at $.01 thru $.25 per share
                     7,882,096       7,882       148,274               156,156  
                                                         
Issuance of common stock for debt reduction at $.01 thru $.10 per share
                     63,234,114       63,234       661,610               724,844  
                                                         
Issuance of common stock and warrants for acquisition of Wilon Resources, Inc. at $.035 per share
                     48,207,973       48,208       1,639,071               1,687,279  
                                                         
Issuance of common stock for legal services at $.05 thru $.10 per share
                     1,987,285       1,987       133,693               135,680  
                                                         
Net loss for the year ended December 31, 2010
                                             (341,626 )     (341,626 )
                                                         
Balances at December 31, 2010
     1,300,000       1,300       148,947,378       148,947       5,356,187       (2,729,891 )     2,776,543  
                                                         
Issuance of common stock for consulting and other services at $.01 per share
                     3,371,788       3,372       32,190               35,562  
                                                         
Issuance of common stock for cash at $.015 per share
                     1,000,000       1,000       14,000               15,000  
                                                         
Issuance of common stock for debt reduction at $.01 per share
                     39,901,052       39,901       210,716               250,617  
                                                         
Net loss for the three months ending March 31, 2011
                                             (167,455 )     (167,455 )
                                                         
Balances at March 31, 2011
     1,300,000     $ 1,300       193,220,218     $ 193,220     $ 5,613,093     $ (2,897,346 )   $ 2,910,267  

 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-5
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2011 and 2010 and from Inception (March 28, 2008) through March 31, 2011

      
               
Inception
  
               
through
  
   
2011
    
2010
    
March 31, 2011
  
                   
OPERATING ACTIVITIES:
  
 
    
 
    
 
  
Net loss
   $ (167,455 )   $ (271,696 )   $ (2,897,346 )
   Adjustments to reconcile net loss to net cash provided by operating activities:
                        
       Depreciation, depletion and amortization
     58,592       22,530       224,510  
       Forgiveness of debt
     -       -       (375,868 )
       Net (gain) loss from sale of marketable equity securities and investments
     (48,939 )     (169,227 )     (276,939 )
       Net gain from sale of oil and gas properties and equipment
     -       -       (488,781 )
       Issuance of common stock for services, leases, and reimbursements
     35,562       133,680       2,190,260  
   Changes in operating assets and liabilities:
                        
       Accounts receivable, joint interest billing
     (39,855 )     (120,675 )     (80,516 )
       Accounts receivable, other
     (4,652 )     76,311       34,071  
       Prepaid expenses
     4,317       5,628       10096  
       Other assets
     (1,501 )     (60,700 )     (84,275 )
       Accounts payable and accrued expenses
     (14,771 )     42,856       767,566  
       Accounts payable, revenue distribution
     4,820       -       12,744  
                    Net cash flows from operating activities
     (173,882 )     (341,293 )     (964,478 )
 
                        
 
                        
INVESTING ACTIVITIES:
                        
      Purchase of investments
     -       (3,000 )     (296,240 )
      Proceeds from sale of investments
     -       21,000       60,230  
      Purchases of  marketable equity securities
     (23,411 )     (1,990,563 )     (2,352,264 )
      Proceeds from sale of marketable equity securities
     69,187       2,121,423       2,765,516  
      Collections on notes receivable
     100,472       62,255       202,227  
      Lending on notes receivable, stockholder
     (29,257 )     (1,400 )     (139,854 )
      Purchase of oil and gas properties and equipment
     (55,289 )     (305,138 )     (759,215 )
      Proceeds from sale of oil and gas properties and equipment
     -       -       454,550  
             Net cash flows from investing activities
     61,702       (95,423 )     (65,050 )
 
                        
 
                        
FINANCING  ACTIVITIES:
                        
      Issuance of common stock and warrants for cash
     15,000       12,500       242,156  
      Borrowings from notes payable
     20,000       510,300       162,068  
      Payments on notes payable
     -       (24,000 )     (30,000 )
      Net borrowings from loans payable - stockholders
     -       (33,369 )     119,506  
      Net borrowings from loans payable - other
     -       -       59,229  
      Borrowing from related entity, net
     -       -       94,390  
      Borrowings from convertible debentures
     80,000       -       385,000  
             Net cash flows from financing activities
     115,000       465,431       1,032,349  
 
                        
 
                        
NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     2,820       28,715       2,821  
 
                        
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
     1       26,488       -  
 
                        
CASH AND CASH EQUIVALENTS,  END OF PERIOD
   $ 2,821     $ 55,203     $ 2,821  
 
                        




The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
F-6
 
 
 
 US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2011 and 2010 and from Inception (March 28, 2008) through March 31, 2011
      
               
Inception
  
               
through
  
 
  
2011
    
2010
    
March 31, 2011
  
Supplemental Disclosures of Cash Flow Information:
  
 
    
 
    
 
  
      Taxes paid
     -       -       -  
      Interest paid
     -       -       -  
      Issuance of common stock for reduction of convertible debenture
   $ 165,000       -     $ 190,000  
      Issuance of common stock for purchase of equipment
     -       -     $ 5,585  
      Issuance of common stock for acquisition of SLMI Options, LLC
     -       -     $ 99,600  
      Issuance of preferred stock for acquisition of SLMI Options, LLC
     -       -     $ 1,300  
      Issuance of common stock for funding of debenture escrow
     -       -     $ 99,190  
      Issuance of common stock for funding of prepaid expenses
     -       -     $ 39,000  
      Issuance of common stock for funding of other assets
     -       -     $ 169,683  
      Issuance of common stock for reduction of accounts payable and accrued expenses
   $ 10,383       -     $ 100,483  
      Issuance of common stock for reduction of loans payable, shareholder
     -       -     $ 88,370  
      Issuance of common stock for reduction of loans payable, other
     -       -     $ 31,300  
      Issuance of common stock for reduction of notes payable
   $ 75,233       -     $ 565,307  
      Issuance of common stock for acquisition of Wilon Resources, Inc.
     -       -     $ 1,687,279  
      Financing the sale of oil and gas properties with a note receivable
     -       -     $ 300,000  
     Note receivable for Series B convertible preferred stock
   $ -     $ -     $ 300,000  


The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
F-7
 
 


US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)
 
NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Operations
 
US Natural Gas Corp (the “Company”) (formerly “Adventure Energy, Inc.”) was incorporated in the state of Florida on March 28, 2008. The Company is an independent oil and natural gas operator engaged in exploration, development and production activities in the Appalachian Basin, particularly in Kentucky and West Virginia. The Company's business strategy focuses primarily on the drilling and acquisition of proven developed and undeveloped properties and on the enhancement and development of those properties.
 
On July 20, 2009, the Company formed E 2 Investments, LLC ("E 2") to actively make equity investments in private and publically owned companies and to acquire energy related holdings.
 
On August 25, 2009, the Company formed Wilon Resources, Inc. in the state of Tennessee.  On February 9, 2010, Wilon Resources, Inc. ("Wilon") merged with and into Wilon Resources of Tennessee, Inc. ("WRT"), a publically owned Tennessee Corporation.  All of the stock of Wilon owned by the Company was acquired by WRT for consideration equal to 1,000 shares of WRT for every one share of Wilon held by the Company.  Subsequent to the merger, Wilon approved the use of the name Wilon Resources, Inc. by WRT.
 
On September 4, 2009, the Company entered into a lender acquisition agreement with SLMI Holdings, LLC, a Nevada Limited Liability Company.  Through this agreement, the Company acquired SLMI Options, LLC.  The sole purpose of this acquisition of SLMI Options, LLC is to hold three commercial notes issued by Wilon Resources, Inc., (formerly "Wilon Resources of Tennessee, Inc.') in the years 2005 through 2007.
 
On February 1, 2010, the Company formed US Natural Gas Corp in the state of Florida.  Subsequently, on March 22, 2010 the Company changed the name to US Natural Gas Corp KY.  With this name change, all assets held in the state of Kentucky were transferred from US Natural Gas Corp to US Natural Gas Corp KY.
 
On February 2, 2010, the Company formed E 3 Petroleum Corp ("E 3") in the state of Florida. E 3 acts as the operator and bonding entity for the Company’s wells in the states of Kentucky and West Virginia. 
 
On March 19, 2010, the shareholders of Adventure Energy, Inc. (now US Natural Gas Corp) approved an amendment to its Articles of Incorporation changing the name of the Company to US Natural Gas Corp, and an amendment deleting Article 8 thereof to eliminate reference to a non-existent Shareholders' Restrictive Agreement. Wilon simultaneously completed a name change to US Natural Gas Corp WV. On April 13, 2010, the Company received approval from FINRA recognizing the name change and approving a corresponding change of the Company's trading symbol from "ADVE" to "UNGS".   

On March 19, 2010, the Company's shareholders approved with 16,611,138 votes "for" and zero votes "against" to an exchange of shares between the Company and Wilon Resources, Inc. ("Wilon"), whereby the Company acquired all of the outstanding shares of Wilon.  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. Wilon's shareholders approved the share exchange with 27,843,109 votes "for" and zero votes "against".  
 
On June 3, 2010, the Financial Industry Regulatory Authority (FINRA) made the final approval of the share exchange.  The Company accounted for the acquisition of Wilon using the purchase method on June 3, 2010.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of US Natural Gas Corp, and all of its wholly owned subsidiaries, US Natural Gas Corp WV, US Natural Gas Corp KY, SLMI Options, LLC, E2 Investments, LLC and E3 Petroleum Corp.  All  intercompany accounts and transactions have been eliminated in consolidation.
 
 
 
F-8
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)


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

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, in all material respects, the Company's consolidated financial position as of March 31, 2011, and the results of its operations for the three months ended March 31, 2011 and 2010 and from inception (March 18, 2008) through March 31, 2011, and cash flows for the three months ended March 31, 2011 and 2010 and from inception (March 18, 2008) through March 31, 2011. These results have been determined on the basis of accounting principles generally accepted in the United States of America and have been applied consistently as those used in the preparation of the Company's 2010 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.

Marketable Equity Securities
 
Marketable equity securities are stated at lower of cost or market value with unrealized gains and losses included in operations.  The Company has classified its marketable equity securities as trading securities.
 
Recently Enacted Accounting Standards

In July 2010, the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (“Wall Street Reform Act”) was signed into law. The Wall Street Reform Act permanently exempts small public companies with less than $75 million in market capitalization (nonaccelerated filers) from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes-Oxley Act of 2002. Section 404(b) requires a registrant to provide an attestation report on management’s assessment of internal controls over financial reporting by the registrant’s external auditor. Disclosure of management’s attestation on internal controls over financial reporting under existing Section 404(a) is still required for nonaccelerated filers.

In February, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09, effective immediately, which amended ASC Topic 855, Subsequent Events. The amendment was made to address concerns about conflicts with SEC guidance and other practice issues. Among the provisions of the amendment, the FASB defined a new type of entity, termed an “SEC filer,” which is an entity required to file with or furnish its financial statements to the SEC. Entities other than registrants whose financial statements are included in SEC filings (e.g., businesses or real estate operations acquired or to be acquired, equity method investees, and entities whose securities collateralize registered securities) are not SEC filers. While an SEC filer is still required by U.S. GAAP to evaluate subsequent events through the date its financial statements are issued, it is no longer required to disclose in the financial statements that it has done so or the date through which subsequent events have been evaluated. The Company does not believe the changes have a material impact on its results of operations or financial position.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”. This update requires more robust disclosures about valuation techniques and inputs to fair value measurements. The update is effective for interim and annual reporting periods beginning after December 15, 2009. This update had no material effect on the Company’s consolidated financial statements.

In July 2009, the FASB issued ASC 855-10-50, “Subsequent Events”, which requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the preparation of the financial statements. The final rules were effective for interim and annual reports issued after June 15, 2009. The Company has adopted the policy effective September, 2009. There was no material effect on the Company’s consolidated financial statements as a result of adoption.




 
F-9
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)


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

In June 2009, the FASB issued ASC 105, Codification which establishes FASB Codification as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The final rule was effective for interim and annual reports issued after September 15, 2009. The Company has adopted the policy effective September 30, 2009. There was no material effect on the presentation of the Company’s consolidated financial statements as a result of the adoption of ASC 105.

On December 31, 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements (“Modernization of Oil and Gas Reporting”). In January 2010, the FASB released ASU 2010-03, Extractive Activities - Oil and Gas (“Topic 932”); Oil and Gas Reserve Estimation and Disclosures, aligning U.S. GAAP standards with the SEC’s new rules. Many of the revisions were 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: (a) 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; (b) the ability to include nontraditional resources in reserves; (c) the use of new technology for determining reserves; and (d) permitting disclosure of probable and possible reserves. The SEC requires 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. ASU 2010-03 is effective for annual periods ending on or after December 31, 2009. Adoption of Topic 932 did not have a material impact on the Company’s results of operations or financial position. In April 2010, the FASB issued ASU 2010-14, Accounting for Extractive Activities-Oil & Gas: Amendments to Paragraph 932-10-S99-1. This ASU amends terminology as defined in Topic 932-10-S99-1.

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 B - Acquisition of Wilon Resources, Inc.)
 
Concentration of Credit Risk

Financial  instruments which potentially subject the Company to a concentration of credit risk consists primarily of trade accounts receivable from a variety of local,  national, and international oil and natural gas companies.  Such credit risk is considered by management to be limited due to the financial resources of those 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.
 
 
 
 
F-10
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)


 NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Oil and Gas Properties

The Company has adopted the successful efforts method of accounting for gas producing activities.  Under the successful efforts method, costs to acquire mineral interests 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, if any, and a loss is recognized at the time of impairment by providing an impairment allowance.  Other unproven 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, if any, of 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 carry forwards.  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.

Net Income (Loss) per Common Share

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

Diluted net income (loss) per common share is computed based on 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 and are excluded from the calculation.

At March 31, 2011, diluted weighted average common shares outstanding exclude 61,113,415 shares issuable on exercise of the 61,113,415 warrants outstanding at March 31, 2011.
 
 
 
F-11
 
 
 
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)
 

NOTE B - ACQUISITION OF WILON RESOURCES, INC.

On May 28, 2010, the Company received notification from the appropriate state agencies that the acquisition of Wilon Resources by the Company was effective.  On June 3, 2010, final approval was given by FINRA for the share exchange between the Company and Wilon Resources.  The Company issued one share of common stock for each share of Wilon stock outstanding (49,207,973 shares) plus one warrant to purchase an additional share exercisable for a period of 5 years from the issue date.  In July 2010, the Company canceled 1,000,000 shares of common stock relating to the Wilon acquisition.  These shares were owned by the Company.  The Company's common stock at June 3, 2010 had a value of $.035 per share making the acquisition price $1,687,279.

The Company accounted for the business combination using the purchase method.  The estimated fair market value of Wilon's net assets (assets less liabilities) was recorded at the value of the acquisition price of $1,687,279.  Management reduced its original estimate of the fair market value.  This reduction in the estimate had no effect on the recorded amount of the transaction as the excess fair market value over the acquisition price reduced the recorded value of oil and gas properties and equipment.  The oil and gas properties consist of 115 natural gas wells, 12,000 acres of mineral rights leases and the gathering system interconnecting the wells.  The Company intends to retain a third party to complete a Reserve Report covering the 12,000 acres located in Wayne County, West Virginia substantiating proven and unproven wells.  The estimates used by the Company in recording the acquisition could change significantly pending the valuation results of the third party.

NOTE C—RELATED PARTY TRANSACTIONS

Notes receivable, shareholder totals $139,855 and $110,597 at March 31, 2011 and December 31, 2010, respectively.  Interest receivable on the note is $4,084 and $2,832 at March 31, 2011 and December 31, 2010, respectively.  The notes are due on demand with a 4% interest rate.

Included within accounts payable and accrued expenses are wages due officers and shareholders of $295,316 and $260,000 as of March 31, 2011 and December 31, 2010, respectively.

NOTE D - GOING CONCERN

The Company is a development stage enterprise and although it has commenced planned principal business operations, there are insignificant revenues there from.  The Company has incurred losses of $2,897,346 for the period March 28, 2008 (inception) through March 31, 2011 and has negative working capital balance aggregating $1,905,600.  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 therefore would 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 affect 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 as 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.
 
 
 
F-12
 
 


US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)


NOTE D - GOING CONCERN (continued)

The accompanying financial statements do not include any adjustments related to the recoverability or 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 E - MARKETABLE EQUITY SECURITIES

At March 31, 2011 and December 31, 2010, marketable equity securities consisted of equity securities held with a cost and fair market value of $9,956 and $6,793, respectively.  From inception (March 28, 2008) to March 31, 2011, the net gain from the sale of marketable equity securities was $392,939.

NOTE F – PROPERTY AND EQUIPMENT

Property and equipment consists of the following at:
 
                                                                                                          
  
3/31/2011
    
12/31/2010
  
Land and mineral rights
  
$
186,972
    
$
180,602
  
Computer Software
    
33,000
      
13,000
  
Field Equipment
    
22,660
      
22,660
  
Transportation Equipment 
    
111,290
      
111,290
  
Oil and Gas Properties
    
4,321,201
      
4,289,658
  
Accumulated depreciation and depletion
    
(96,931
)
    
(59,549
)
                 
Net property and equipment
  
$
4,578,192
    
$
4,557,661
  

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 twenty years.  The Company uses the straight-line method of depletion for oil and gas properties with an estimated useful life ranging from seven to twenty-five years. Included in the March 31, 2011 balances are the estimated fair market values of property and equipment acquired from Wilon Resources during the year.  These estimates could change significantly pending a valuation by third parties.  (See Note B - Acquisition of Wilon Resources, Inc.)

NOTE G - NOTES RECEIVABLE
 
Notes receivable consist of the following at:
                                                                                                                              
  
3/31/2011
    
12/31/2010
  
Note receivable, interest at 1%, ,
                
   balance to be deducted from gas revenue distributions
  
$
200,000
    
$
300,000
  
Note receivable, interest at 3%, due September 2014, collateralized
                
   by Series B preferred stock
    
300,000
      
300,000
  
Non-interest bearing note due on demand
  
$
13,500
    
$
13,500
  
Note receivable, interest at 9%, $605 due monthly through December 2025
    
59,228
      
59,700
  
Less current portion                                                                                         
    
(15,500
)
    
(115,474
)
                 
Notes receivable long-term
  
$
557,228
    
$
557,726
  
                 

Current maturities of notes receivable at March 31, 2011 are $15,500 in 2011, $2,160 in 2012, $2,360 in 2013, $302,580 in 2014, $2,825 in 2015, and $247,303 thereafter.
 
 
 
F-13
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)


NOTE H - OTHER ASSETS
 
Miscellaneous assets consist of the following at:
  
  
3/31/2011
    
12/31/2010
  
Loan commitment fee
  
$
169,683
    
$
169,683
  
Accumulated amortization
    
(127,263
)
    
( 106,052
)
Operating bonds
    
88,837
      
87,279
  
                 
Total Other Assets
  
$
131,257
      
150,910
  
  
Loan commitment fee is amortized over the life of the agreement using a straight line method.

NOTE I - NOTES PAYABLE

Notes payable consist of the following at: 
  
  
3/31/2011
    
12/31/2010
  
Note payable, interest at 1% per annum, due in 2011
  
$
100,000
    
$
100,000
  
Note payable, interest at 3% per annum, due in annual installments of $250,000
                
through September 2013
    
980,000
      
980,000
  
Notes payable, non-interest bearing, due in January 2011
    
10,000 
      
  10,000
  
Notes payable, interest at 100% through maturity date, interest at maximum rate
                
    allowable by law thereafter, due July 2010
    
400,000
      
400,000
  
Note payable, interest at 3%, due on demand
    
187,678
      
262,926
  
Note payable, interest at 4%, due on demand
    
21,944
      
21,944
  
Note payable, interest at 4%, effective May 2011 payable in monthly installments
                
    based upon 1.5% of gas revenues received
    
26,000
      
-
  
 
                
Less current portion
    
(1,175,622
)
    
 (1,224,870
)
Notes payable long term
  
$
550,000
    
 $
550,000
  

Current maturities of long-term debt at March 31, 2011 are $1,175,622 in 2011, $300,000 in 2012, $250,000 in 2013.
 
 
 
 
F-14
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE J - 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.  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, 2011 and December 31, 2010.

The provision (benefit) for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities.  The provision (benefit) for income taxes consists of the following at:
                                                                                                                             
  
3/31/2011
    
12/31/2010
  
Federal income taxes:
                
    Current
  
$
(32,459
)
  
$
(511,745
)
    Deferred
    
32,459
      
511,745
  
     
-
      
-
  
State income taxes:
                
    Current
  
$
(12,984
)
  
$
(204,698
)
    Deferred
    
12,984
      
204,698
  
     
-
      
-
  
Total
  
$
-
    
$
-
  


Significant components of the Company's deferred tax assets and liabilities calculated at an estimated effective tax rate of 21% are as follows:
  
  
3/31/2011
    
12/31/2010
  
                 
Noncurrent deferred tax assets (liabilities):
                
                 
Accrued wages deducted for financial purposes not deducted for tax purposes
  
$
54,600
    
$
54,600
  
                 
Capital losses deducted for financial purposes carried over to future years for
                
   tax purposes (expiring in years through 2014)
    
29,139
      
39,416
  
                 
Well costs deducted for financial purposes capitalized for tax purposes
    
2,520
      
2,520
  
                 
Excess depletion on oil and gas properties taken for tax purposes over
                
   financial purposes
    
(4,342
)
    
(4,342
)
                 
Excess loss on sale of investments taken for tax purposes over financial purposes
    
(86,960
)
    
(86,960
)
                 
NOL from the acquisition of Wilon Resources (subject to potential I.R.C.
                
   Section 382 limitations)
    
588,000
      
588,000
  
                 
NOL remaining not attributable to timing differences (expiring in years through 2020)
    
282,650
      
237,208
  
                 
Deferred noncurrent tax asset, net
    
865,607
      
830,442
  
Valuation allowance
    
(865,607
)
    
(830,442
)
   
$
-
    
$
-
  

 
 
 
 
F-15
 

 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS

During the past three years, the Company had the following unregistered sale of its securities:
 
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 affected 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 $.55 as per the executed employment agreement.

In April 2009, the Company issued warrants to Jim Anderson to purchase 625,000 at an average price of $.55 as 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-16
 
 

 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS (continued)

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 on behalf of Atlas Capital Holdings 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 on behalf of Atlas Capital Holdings 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 350,000 shares of common stock at $.10 per share to Chris Davies on behalf of Atlas Capital Holdings in exchange for legal services.


 
 
F-17
 
 
 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS (continued)
 
In April 2010, the Company issued 175,000 shares of common stock at $.05 per share to Ron Ferlisi in exchange for satisfaction of notes payable.

In April 2010, the Company issued 825,000 shares of common stock at $.05 per share to BuzzBahn in exchange for satisfaction of notes payable.
 
In April 2010, the Company issued 250,000 shares of common stock at $.05 per share to BuzzBahn in exchange for investor relation services.

In April 2010, the Company issued 120,000 shares of common stock at $.05 per share to Jody Samuels in exchange for legal services.

In April 2010, the Company issued 98,766 shares of common stock at $.069 per share to Tangiers Investors LP for equity funding.

In April 2010, the Company issued 100,000 shares of common stock at $.04 per share to KYTX, LLC in exchange for an extension on a note payment.

In May 2010, the Company issued 300,926 shares of common stock at $.04 per share and 169,263 shares of common stock at $.033 per share to Tangiers Investors LP for equity funding.

In May 2010, the Company issued 300,000 shares of common stock at $.04 per share to SLMI Holdings, LLC in exchange for an extension on a note payment.

In May 2010, the Company issued 412,698 shares of common stock at $.04 per share to Cassel Family Trust as per the stock purchase agreement.

In May 2010, the Company issued 100,000 shares of common stock at $.04 per share to White Oak Land and Minerals Development, LLC for consulting services.
 
In May 2010, the Company issued 800,000 shares of common stock at $.01 per share to Ron Ferlisi in exchange for satisfaction of notes payable.

In May 2010, the Company issued 500,000 shares of common stock at $.01 per share to Rui Figueiredo in exchange for satisfaction of notes payable.

In May 2010, the Company issued 500,000 shares of common stock at $.01 per share to Maria Rothman in exchange for satisfaction of notes payable.

In May 2010, the Company issued 200,000 shares of common stock at $.01 per share to Jody Samuels in exchange for satisfaction of notes payable.

In May 2010, the Company issued 500,000 shares of common stock at $.01 per share to Faith Capital NY LLC in exchange for satisfaction of notes payable.

In May 2010, the Company issued 1,000,000 shares of common stock at $.01 per share to Jeff Schwartz in exchange for satisfaction of notes payable.

In May 2010, the Company issued 500,000 shares of common stock at $.01 per share to Steven Reiss in exchange for satisfaction of notes payable.
 
In May 2010, the Company issued 333,333 shares of common stock at $.03 per share to Charles and Mary Crum as per the stock purchase agreement.

 
 
 
F-18
 

 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS (continued)

In June 2010, the Company issued 150,000 shares of common stock at $.05 per share to Jeff Parker in exchange for consulting services.

In June 2010, the Company issued 500,000 shares of common stock at $.05 per share to Jim Anderson as a reduction of debt for expenses paid on behalf of the company.
 
In June 2010, the Company issued 348,189 shares of common stock at $.03 per share to Tangiers Investors LP for equity funding.

In June 2010, the Company issued 833,333 shares of common stock at $.03 per share to Wayne Anderson as payment towards accrued wages.

In June 2010, the Company issued 666,667 shares of common stock at $.03 per share to Cassel Family Trust as per the stock purchase agreement.

In July 2010, the Company issued 25,000 shares of common stock at $.03 per share to James Crum for a lease bonus payment.

In July 2010, the Company issued 25,000 shares of common stock at $.03 per share to Charles and Mary Crum for a lease bonus payment.

In July 2010, the Company issued 500,000 shares of common stock at $.03 per share to Del Mar Corporate Consulting, LLC for consulting and marketing services.

In July 2010, the Company issued 625,000 shares of common stock at $.04 per share to Wayne Anderson as payment towards accrued wages.

In July 2010, the Company issued 476,191 shares of common stock at $.02 per share to Tangiers Investors LP as payment towards a convertible debenture.

In July 2010, the Company issued 714,285 shares of common stock at $.07 per share to Chris Davies on behalf of Atlas Capital Holdings for legal services.

In July 2010, the Company issued 710,901 shares of common stock at $.02 per share to Tangiers Investors LP as payment towards a convertible debenture.

In July 2010, the Company issued 170,940 shares of common stock at $.06 per share to Tangiers Investors LP for equity funding.

In July 2010, the Company issued 130,000 shares of common stock at $.09 per share to White Oak Land and Minerals Development, LLC for consulting services.

In July 2010, the Company issued 1,000,000 shares of common stock at $.001 per share to Bull In Advantage.  The shares were returned to the Company and retired due to failure of the shareholder to satisfy the terms of the debt transaction.

In August 2010, the Company issued 395,061 shares of common stock at $.04 per share to Tangiers Investors LP for equity funding.

In August 2010, the Company issued 2,423,311 shares of common stock at $.015 per share to ARRG Corp as payment towards a note.

In August 2010, the Company issued 2,423,311 shares of common stock at $.015 per share to Caesar Capital Group, LLC as payment towards a note.

In August 2010, the Company issued 2,300,000 shares of common stock at $.01 per share to Mazuma Funding Corp as payment towards a note.

 
 
 
F-19
 

 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS (continued)

In August 2010, the Company issued 1,225 shares of common stock at $.25 per share to Horace Womack as per the Common Stock Purchase Warrant subscription agreement.
 
In September 2010, the Company issued 4,500,000 shares of common stock at $.01 per share to Caesar Capital Group, LLC as payment towards a note.

In September 2010, the Company issued 100,000 shares of common stock at $.02 per share to Ron Ferlisi as per the stock purchase agreement.

In September 2010, the Company issued 800,000 shares of common stock at $.01 per share to Doug Miglino as payment towards a note.

In September 2010, the Company issued 200,000 shares of common stock at $.025 per share to Brian Feingold for financing services.

In September 2010, the Company issued 380,518 shares of common stock at $.02 per share to Tangiers Investors LP for equity funding.

In September 2010, the Company issued 765,000 shares of common stock at $.01 per share to Ron Ferlisi as payment towards a note.

In September 2010, the Company issued 765,000 shares of common stock at $.01 per share to Vincent Bardong as payment towards a note.

In September 2010, the Company issued 300,000 shares of common stock at $.01 per share to SLMI Holdings LLC for extending a note due date.

In September 2010, the Company issued 1,500,000 shares of common stock at $.015 per share to Rui Figueiredo as payment towards a note.

In September 2010, the Company issued 1,500,000 shares of common stock at $.015 per share to First Barrington Group as payment towards a note.
 
In October 2010, the Company issued 380,518 shares of common stock at $.02 per share to Tangiers Investors LP for equity funding.

In October 2010, the Company issued 1,100,000 shares of common stock at $.0135 per share to John R. Rogers as per the stock purchase agreement.

In October 2010, the Company issued 1,100,000 shares of common stock at $.0135 per share to John R. Rogers as per the stock purchase agreement.

In October 2010, the Company issued 750,000 shares of common stock at $.01 per share to First Barrington Group as payment towards a note.

In October 2010, the Company issued 750,000 shares of common stock at $.01 per share to Rui Figueiredo as payment towards a note.

In November 2010, the Company issued 1,190,476 shares of common stock at $.02 per share to Tangiers Investors LP for equity funding.

In November 2010, the Company issued 4,325,000 shares of common stock at $.01 per share to Mazuma Funding Corp as payment towards a note.

In November 2010, the Company issued 2,500 shares of common stock at $.02 per share to Matthew Holden for participation in drilling/re-work program.
 
 
 
 
F-20
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS (continued)

In November 2010, the Company issued 2,500 shares of common stock at $.02 per share to Adam Holden for participation in drilling/re-work program.

In November 2010, the Company issued 50,000 shares of common stock at $.02 per share to Brian Warshaw as per the terms of a promissory note dated January 2010.
 
In November 2010, the Company issued 50,000 shares of common stock at $.02 per share to Jim Gallucio as per the terms of a promissory note dated January 2010.

In November 2010, the Company issued 2,500,000 shares of common stock at $.01 per share to Rui Figueiredo as payment towards a note.

In November 2010, the Company issued 2,500,000 shares of common stock at $.01 per share to Dave Miller as payment towards a note.

In November 2010, the Company issued 600,000 shares of common stock at $.02 per share to Dave Matheny as per the Common Stock Purchase Warrant subscription agreement.

In November 2010, the Company issued 4,000,000 shares of common stock at $.01 per share to Dave Matheny as payment towards a note.

In November 2010, the Company issued 1,000,000 shares of common stock at $.01 per share to Howard Matheny as payment towards a note.

In November 2010, the Company issued 5,340,909 shares of common stock at $.015 per share to Caesar Capital Group, LLC as payment towards a note.

In November 2010, the Company issued 300,000 shares of common stock at $.01 per share to SLMI Holdings LLC for extending a note due date.
 
In November 2010, the Company issued 1,169,590 shares of common stock at $.02 per share to Tangiers Investors LP for equity funding.

In December 2010, the Company issued 35,000 shares of common stock at $.01 per share to Wayne Anderson as compensation as a Director.

In December 2010, the Company issued 35,000 shares of common stock at $.01 per share to Jim Anderson as compensation as a Director.

In December 2010, the Company issued 6,500,000 shares of common stock at $.01 per share to Mazuma Funding Corp as payment towards a note.

In December 2010, the Company issued 7,041,158 shares of common stock at $.01 per share to Jim Anderson as a reduction of debt for expenses paid on behalf of the company.

In December 2010, the Company issued 2,000,000 shares of common stock at $.01 per share to White Oak Land and Minerals Development, LLC for consulting services.

In January 2011, the Company issued 892,891 shares of common stock at $.009 per share to Wayne Anderson for compensation.
 
In January 2011, the Company issued 2,400,000 shares of common stock at $.005 per share to Asher Enterprises, Inc. for a partial reduction of a convertible debenture.
 
In January 2011, the Company issued 1,971,608 shares of common stock at $.006 per share to Tangiers Investors, LP for a partial reduction of a convertible debenture.
 
 
 
 
F-21
 
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS (continued)

 
In January 2011, the Company issued 2,222,222 shares of common stock at $.005 per share to Asher Enterprises, Inc. for a partial reduction of a convertible debenture.
 
In January 2011, the Company issued 1,000,000 shares of common stock at $.015 per share to Blair Scanlon as per the stock purchase agreement.
 
In January 2011, the Company issued 1,764,706 shares of common stock at $.007 per share to Asher Enterprises, Inc. for a partial reduction of a convertible debenture.
 
In January 2011, the Company issued 1,500,000 shares of common stock at $.01 per share to Rui Figueiredo for consulting services.
 
In January 2011, the Company issued 2,500,000 shares of common stock at $.006 per share to Asher Enterprises, Inc. for a final reduction of a convertible debenture plus accrued interest.
 
In January 2011, the Company issued 845,897 shares of common stock at $.01 per share to Wayne Anderson for compensation.
 
In February 2011, the Company issued 58,000 shares of common stock at $.01 per share to Deborah Crum for an extension on a lease.
 
In February 2011, the Company issued 25,000 shares of common stock at $.01 per share to James Crum for an extension on a lease.
 
In February 2011, the Company issued 50,000 shares of common stock at $.01 per share to Marshall Garland for an extension on a note agreement.
 
In February 2011, the Company issued 1,818,182 shares of common stock at $.006 per share to Asher Enterprises, Inc. for a partial reduction of a convertible debenture.
 
In February 2011, the Company issued 4,426,940 shares of common stock at $.006 per share to Caesar Capital Group, LLC for a full reduction of a convertible debenture and accrued interest.
 
In February 2011, the Company issued 4,426,940 shares of common stock at $.006 per share to ARRG Corp for a full reduction of a convertible debenture and accrued interest.
 
In February 2011, the Company issued 2,448,980 shares of common stock at $.005 per share to Asher Enterprises, Inc. for a partial reduction of a convertible debenture.
 
In February 2011, the Company issued 2,790,698 shares of common stock at $.004 per share to Asher Enterprises, Inc. for a partial reduction of a convertible debenture.
 
In March 2011, the Company issued 1,853,659 shares of common stock at $.004 per share to Asher Enterprises, Inc. for a final reduction of a convertible debenture and accrued interest.
 
In March 2011, the Company issued 3,000,000 shares of common stock @ $.008 per share to David Matheny as payment towards a note.
 
In March 2011, the Company issued 2,261,655 shares of common stock @ $.01 per share to J. Paxton Barnett as payment towards a note.
 
In March 2011, the Company issued 2,261,655 shares of common stock @ $.01 per share to Charlotte Van Ness Trust as payment towards a note.
 
 
 
 
F-22
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE K - COMMON STOCK ISSUANCES/WARRANTS (continued)

In March 2011, the Company issued 3,753,807 shares of common stock at $.004 per share to Tangiers Investors, LP for a final reduction of a convertible debenture and accrued interest.
 
Warrants outstanding at March 31, 2011 and December 31, 2010 are 61,113,415.  Each warrant enables the holder to acquire one share of the Company's common stock at a specified exercise price for a term of three to five years.  Warrants outstanding at March 31, 2011 have vesting dates through May 2012 and expiration dates through May 2017.
 
There were no warrants issued or canceled for the three months ending March 31, 2011.

On June 3, 2010 in consideration for the acquisition of Wilon Resources, Inc. (see Note B) each Wilon shareholder received 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 per share to be exercisable for a period of 5 years from the date of issue.  The total shares of common stock and warrants issued for the acquisition were 49,207,973 each.  In July 2010, the Company canceled 1,000,000 shares of common stock and 1,000,000 warrants it obtained through the Wilon acquisition.  The cancelation of common stock was accounted for as a reduction in the acquisition price for Wilon.

NOTE L – LOANS PAYABLE-OTHER
 
Loans payable with no interest to potential investors aggregated $5,985 at December 31, 2010.

NOTE M – CONVERTIBLE DEBENTURE PAYABLE

Convertible debentures payable consist of the following at:
                                                                                                                             
  
3/31/2011
    
12/31/2010
  
Caesar Capital
  
$
75,000
    
$
100,000
  
ARRG
    
-
      
25,000
  
Asher
    
120,000
      
130,000
  
Tangiers
    
-
      
25,000
  
                 
Total convertible debenture payable
  
$
195,000
    
$
280,000
  

On February 3, 2011, the Company entered into a Convertible Promissory Note ("Promissory Note") with Asher Enterprises, Inc. ("Asher") in the amount of Forty Thousand Dollars ($40,000) and a Securities Purchase Agreement. The Promissory Note was fully funded on February 11, 2011. The Promissory Note is convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at the Variable Conversion Price which shall mean 58% of the Market Price. The Market Price is defined as the average of the three (3) lowest Trading Prices for the common stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent. The Promissory Note has a term of nine (9) months and accrues interest at a rate equal to eight percent (8%) per year. The balance owed at March 31, 2011 is $40,000.
 
On January 19, 2011, the Company entered into a Convertible Promissory Note ("Promissory Note") with Asher Enterprises, Inc. ("Asher") in the amount of Forty Thousand Dollars ($40,000) and a Securities Purchase Agreement. The Promissory Note was fully funded on January 21, 2011 The Promissory Note is convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at the Variable Conversion Price which shall mean 58% of the Market Price. The Market Price is defined as the average of the three (3) lowest Trading Prices for the common stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent. The Promissory Note has a term of nine (9) months and accrues interest at a rate equal to eight percent (8%) per year. The balance owed at March 31, 2011 is $40,000.

 
 
 
 
 
F-23
 

 

US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

 
NOTE M – CONVERTIBLE DEBENTURE PAYABLE (continued)

On November 16, 2010, the Company entered into a Convertible Promissory Note ("Promissory Note") with Caesar Capital Group, LLC, ("Caesar Capital") in the amount of Twenty Five Thousand Dollars ($25,000) and a Securities Purchase Agreement.  The Promissory Note was fully funded on November 19, 2010.  The Promissory Note is convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at a per share price equal to Sixty Percent (60%) of the average of the last Five (5) trading days closing volume weighted average price.  The Promissory Note has a term of six (6) months and accrues interest at a rate equal to twelve percent (12%) per year.  The balance owed at March 31, 2011 and December 31, 2010 is $25,000.

On October 8, 2010, the Company entered into a Convertible Promissory Note ("Promissory Note") with Asher Enterprises, ("Asher") in the amount of Forty Thousand Dollars ($40,000) and a Securities Purchase Agreement.  The Promissory Note was fully funded on October 14, 2010.  The Promissory Note is convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at the Variable Conversion Price which shall mean 58% of the Market Price.  The Market Price is defined as the average of the three (3) lowest Trading Prices for the common stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent.  The Promissory Note has a term of nine (9) months and accrues interest at a rate equal to eight percent (8%) per year.  The balance owed at March 31, 2011 and December 31, 2010 is $40,000.

On September 7, 2010, the Company entered into a Convertible Promissory Note ("Promissory Note") with Caesar Capital Group, LLC, ("Caesar Capital") in the amount of Fifty Thousand Dollars ($50,000) and a Securities Purchase Agreement.  The Promissory Note was fully funded on September 10, 2010.  The Promissory Note is convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at a per share price equal to Sixty Percent (60%) of the average of the last Five (5) trading days closing volume weighted average price.  The Promissory Note has a term of six (6) months and accrues interest at a rate equal to twelve percent (12%) per year.  The balance owed at March 31, 2011 and December 31, 2010 is $50,000.

On August 6, 2010, the Company entered into a Convertible Promissory Note (“Promissory Note”) with Caesar Capital Group, LLC, (“Caesar”) in the amount of Twenty Five Thousand Dollars ($25,000).  The Promissory Note was fully funded on August 10, 2010.  The Promissory Note is convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at a price per share equal to Sixty Percent (60%) of the average of the last Five (5) trading days closing volume weighted average price ("VWAP").  The Promissory Note has a term of six (6) months and accrues interest at a rate equal to twelve percent (12%) per year.  In addition, the Company issued to Caesar a Common Stock Purchase Warrant Agreement granting the holder the right to purchase up to 500,000 shares of the Company's common stock at an Exercise price of Five cents ($0.05).  The warrant is exercisable at anytime commencing six months after the date of issuance until February 6, 2014.  In February 2011, the convertible debenture was paid in full through the issuance of common stock of the Company. The balance owed at December 31, 2010 was $25,000.
 
On August 6, 2010, the Company entered into a Convertible Promissory Note (“Promissory Note”) with ARRG Corp, (“ARRG”) in the amount of Twenty Five Thousand Dollars ($25,000).  The Promissory Note was fully funded on August 10, 2010.  The Promissory Note is convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at a price per share equal to Sixty Percent (60%) of the average of the last Five (5) trading days closing volume weighted average price ("VWAP").  The Promissory Note has a term of six (6) months and accrues interest at a rate equal to twelve percent (12%) per year.  In addition, the Company issued to ARRG a Common Stock Purchase Warrant Agreement granting the holder the right to purchase up to 500,000 shares of the Company's common stock at an Exercise price of Five cents ($0.05).  The warrant is exercisable at anytime commencing six months after the date of issuance until February 6, 2014.  In February 2011, the convertible debenture was paid in full through the issuance of common stock of the Company. The balance owed at December 31, 2010 was $25,000.
 
On July 30, 2010, the Company entered into a Convertible Promissory Note ("Promissory Note") with Asher Enterprises, ("Asher") in the amount of Forty Thousand Dollars ($40,000) and a Securities Purchase Agreement.  The Promissory Note was fully funded on August 6, 2010.  The Promissory Note is convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at the Variable Conversion Price which shall mean 58% of the Market Price.  The Market Price is defined as the average of the three (3) lowest Trading Prices for the common stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent.  The Promissory Note has a term of nine (9) months and accrues interest at a rate equal to eight percent (8%) per year.  In March 2011, the convertible debenture was paid in full through the issuance of common stock of the Company. The balance owed at December 31, 2010 was $40,000.
 
 
 
 
 
F-24
 

 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)
 
NOTE M – CONVERTIBLE DEBENTURE PAYABLE (continued)

On June 18, 2010, the Company entered into a Convertible Promissory Note (“Promissory Note”) with Asher Enterprises, (“Asher”) in the amount of Fifty Thousand Dollars ($50,000) and a Securities Purchase Agreement.  The Promissory Note was fully funded on June 18, 2010.  The Promissory Note is convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at the Variable Conversion Price, which shall mean 58% of the Market Price.  The Market Price is defined as the average of the three (3) lowest Trading Prices for the common stock during the 10 (ten) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent.  The Promissory Note has a term of nine (9) months and accrues interest at a rate equal to eight percent (8%) per year.  In January 2011, the convertible debenture was paid in full through the issuance of common stock of the Company. The balance owed at December 31, 2010 was $50,000.
 
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, piggyback registration rights and accrue 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.  In July 2010, Tangiers Investors, LP acquired the debenture from Atlas and received 1,187,092 shares of common stock, at $.021 per share, as partial payment towards the debenture.  In March 2011, the convertible debenture was paid in full through the issuance of common stock of the Company. The balance owed at December 31, 2010 was $25,000.

NOTE N – COMMITMENTS AND CONTINGENCIES

The Company has an operating lease for office premises in St. Petersburg.  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 $1,353 monthly.  The Company renewed the lease through November 2011. Effective December 1, 2010 the monthly rent increased to $1,404.
  
On March 1, 2011, the Company entered into an operating lease for office space. The lease term is for two years with monthly rent totaling $888 in year one and $963 in year two.

Rent expense on all operating leases for the period of March 28, 2008 (inception) to March 31, 2011 was $56,210.  Future minimum rental obligations at March 31, 2011 are $19,224 in 2011, $11,331 in 2012, and $2,889 in 2013.
 
On July 15, 2010 the Company entered into an employment agreement with Mr. Chuck Kretchman to serve as the Company’s Chief Financial Officer upon the terms and provisions and, subject to the conditions set forth in the Agreement, for a term, commencing on July 15, 2010, and terminating on December 31, 2011 unless earlier terminated as provided in the Agreement.  The Agreement included options to the Chief Financial Officer to purchase 600,000 shares of common stock at an average price of $.15 per share. The Executive agrees to accept compensation of $90,000 from January 1, to December 31, 2011. The Agreement contains a six month non-solicitation  clause and a confidentiality clause.
 
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 September 30, 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-25
 

 
 US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011 (Unaudited)

NOTE O- LENDER ACQUISITION AGREEMENT

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 SLMI and subsequent holders of the loans pursuant to that Acknowledgment by Borrowers delivered Jan. 5, 2009.  At December 31, 2009 the notes receivable balance was $925,000.  At December 31, 2010 the notes receivable balance was eliminated through consolidation (See Note G).

$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 $250,000 more.  By December 31, 2012, US Natural Gas Corp shall have paid at least $250,000 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 Natural Gas Corp on the Secured Note until it is paid in full.  Additional Security and Collateral for the Secured Note and the covenants hereunder:  At March 31, 2011 and December 31, 2010 the notes payable balances were $980,000 (See Note I).

NOTE P- STOCKHOLDERS' EQUITY
 
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.  At March 31, 2011 and December 31, 2010, there are 1,000,000 shares issued and outstanding.
 
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 Two Million (2,000,000) shares.  At March 31, 2011 and December 31, 2010, there are 300,000 shares issued and outstanding.

The number of common shares authorized with a stated value of $0.001 per share is Two Hundred Million (200,000,000).  At March 31, 2011 and December 31, 2010, there are 193,220,218 and 148,947,378 shares of common stock issued and outstanding, respectively.
 
 
 
F-26
 
 
 
US NATURAL GAS CORP
(Formerly Adventure Energy, Inc.)
 (A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
From Inception (March 28, 2008) through March 31, 2011


NOTE Q – SUBSEQUENT EVENTS

On May 3, 2011, the Company received a Letter of Intent (“LOI”) from Northwest Florida Operations, Inc. (“Buyer”) for the purchase of certain assets and assumption of certain liabilities under control by US Natural Gas Corp WV. Under the terms of the LOI, the Company is to receive consideration in the amount of Two Million Dollars ($2,000,000) with Six Hundred Thousand Dollars ($600,000) to be paid at closing and the balance over a five year period and the Buyer is to assume approximately Two Million Dollars ($2,000,000) in liabilities. The transaction is scheduled to close on or before June 15, 2011. There are no guarantees that the transaction will close.

On May 3, 2011, the Company entered into a Convertible Promissory Note ("Promissory Note") with Tangiers Investors, LP ("Tangiers") in the amount of Fifty Two Thousand Five Hundred Dollars ($52,500) and a Security Agreement. The Promissory Note was fully funded on May 3, 2011. The Promissory Note is convertible, in whole or in part, at any time from time to time before maturity at the option of the holder at the Variable Conversion Price which shall mean 60% of the Market Price. The Market Price is defined as the lowest Trading Price for the common stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent. The Promissory Note has a term of one (1) year and accrues interest at a rate equal to nine percent (9%) per year.

On April 14, 2011, the Board of Directors authorized and shareholders holding a majority of our outstanding voting capital stock (the “Majority Shareholders”) of US Natural Gas Corp (the “Company”) have approved an amendment to the Articles of Incorporation (the “Amendment”) with the Secretary of State of Florida. Pursuant to the Amendment, the Company increased its authorized capital to authorize the issuance of 300,000,000 shares of common stock, par value $0.001 and 5,000,000 shares of preferred stock, par value $0.001, of which 3,000,000 shares remained designated as Series A Preferred Stock, 300,000 remained designated as Series B Preferred Stock, and 1,000,000 shares were newly designated as Series C Preferred Stock.
 
On March 16, 2011, US Natural Gas Corp KY, a wholly owned subsidiary of the Company, executed a term sheet for the acquisition of certain assets of Madison Brothers Investments, LLC located in Edmonson County, Kentucky. Under the terms, the Company is to receive, via deed, assignment, and transfer, approximately 182 acres of mineral rights, twenty five equipped oil wells, two water injection wells, and five oil and gas leases. The purchase price for the transaction is Two Hundred Thousand Dollars ($200,000.00) of which the Company has paid Ten Thousand Dollars ($10,000.00) to the Seller upon execution of the term sheet. The transaction is scheduled to close on or before May 16, 2011 or on a date shortly thereafter.

 
 
F-27
 
 
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
 
US Natural Gas Corp (“US Natural Gas”, the “Company”, “we”, “us”, or “our”) was organized as a Florida Corporation on March 28, 2008 under the name of Adventure Energy, Inc.

On March 22, 2010, the Company amended the Articles of Incorporation to effectively change its name to US Natural Gas Corp from Adventure Energy, Inc.  On April 14, 2010, the name change became effective along with a change in the Company's trading symbol from "ADVE" to "UNGS".

US Natural Gas is in the oil and natural gas industry and is engaged in exploration, development and production activities in the Appalachian Basin, particularly in the states of Kentucky and West Virginia. Our business activities focus primarily on the drilling and acquisition of proven developed and underdeveloped proprieties and on the enhancement and development of these properties

We maintain leaseholds on mineral rights covering approximately 5,100 acres in addition to rights of way in Kentucky and 12,000 acres in West Virginia through US Natural Gas Corp WV (formerly Wilon Resources, Inc.).  We also own, through a wholly owned subsidiary, approximately 300 acres of mineral rights in Wayne County, West Virginia.  In addition, we own 199 acres of surface in Wayne County, West Virginia which houses our operational facilities. Our first revenue from production was generated in July 2009.  

US Natural Gas Corp KY, a wholly owned subsidiary, concentrates on oil producing activities mainly in the counties of Green, Hart, Adair, Russell, and Monroe in Kentucky.  E 3 Petroleum acts as the bonding and operating entity for all wells in Kentucky in 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 31 wells under bond of which 17 are currently producing commercially viable crude with minimal revenue.  KY continues to re-enter, treat, complete, and operate the wells acquired in the November 2009 asset acquisition with KYTX Oil & Gas, LLC.  It is KY's intentions to continue to drill new wells on the current leasehold base as well as acquire previously drilled wells for re-entering and placing into production.
 
US Natural Gas Corp WV’s, a wholly owned subsidiary, operations are based in Wayne County, West Virginia and are solely dedicated to the production of commercially viable natural gas.  The wells operated and owned by WV are held under the bond of E 3 Petroleum.  Through E 3 Petroleum, WV operates 122 natural gas wells that were previously shut-in from June 2005 to April 2010 due to a delivery constraint.  WV has entered into an agreement with a third party to allow for the purchase of its natural gas production on a firm capacity basis which management believes will remedy the prior transmission constraint.


 
3
 
 


WELLS AND MINERAL RIGHTS

   
Acres
Total Wells
Producing
Not in Production
West Virginia - Wayne County (c)
12,280 (a,b)
122
61
61
a)
12,000 acres of mineral rights under lease
        
b)
280 acres of mineral rights owned by subsidiary, E 2 Investments, LLC
        
c)
Most wells located in West Virginia were originally operated by B.T.U. Pipeline, Inc. ("BTU"), a wholly owned subsidiary acquired in the Wilon Resources, Inc. acquisition.  
        
d)
On May 5, 2010, the Company entered into an agreed order with the West Virginia Department of Environmental Protection to settle all prior violations with a set fine and the transfer of all wells from BTU to
E 3 Petroleum Corp ("E 3"), a wholly owned subsidiary of the Company.
        
Kentucky - multiple counties (e)
5,100
31
17
14
e)
Counties:  Hart, Adair, Russell, Allen Monroe, Green
        

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 amongst two wholly owned subsidiaries, US Natural Gas Corp KY (“KY”) and US Natural Gas Corp WV (“WV”) (formerly Wilon Resources, Inc.).

We continue to seek to identify oil and natural gas leaseholds and 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.
 
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 16, 2011, US Natural Gas Corp KY, a wholly owned subsidiary of the Company, executed a term sheet for the acquisition of certain assets of Madison Brothers Investments, LLC located in Edmonson County, Kentucky. Under the terms, the Company is to receive, via deed, assignment, and transfer, approximately 182 acres of mineral rights, twenty five equipped oil wells, two water injection wells, and five oil and gas leases. The purchase price for the transaction is Two Hundred Thousand Dollars ($200,000.00) of which the Company has paid Ten Thousand Dollars ($10,000.00) to the Seller upon execution of the term sheet. The transaction was originally scheduled to close on or before April 30, 2011, but the Closing date has been rescheduled for May 16, 2011 on a mutually agreeable date shortly thereafter.

On February 23, 2011, the Company’s stock quotation platform changed from the OTC Bulletin Board (“OTCBB”) and OTCQB to solely the OTCQB. The change in stock quotation to strictly the OTCQB was caused by the dynamic changes within the OTCBB itself and the market makers who elect to quote on this platform. The change will in no way affect, nor is it a reflection upon, the Company's operations, financials, or business plan. The OTCQB is one of three tiers established by OTC Markets Group, Inc., which operates one of the world's largest electronic interdealer quotation systems for broker-dealers to trade securities not listed on a national exchange. The OTCQB designation is meant to identify companies that are reporting with the SEC or a U.S. banking regulator, making it easy for investors to identify companies that are current in their reporting obligations. Quotes and company information can be viewed at www.otcmarkets.com.

On February 3, 2011, the Company entered into a Convertible Promissory Note (“Promissory Note”) with Asher Enterprises, (“Asher”) in the amount of Forty Thousand Dollars ($40,000) and a Securities Purchase Agreement. The Promissory Note was fully funded on February 11, 2011. The Promissory Note is convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at the Variable Conversion Price, which shall mean 58% of the Market Price. The Market Price is defined as the average of the three (3) lowest Trading Prices for the common stock during the 10 (ten) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent. The Promissory Note has a term of nine (9) months and accrues interest at a rate equal to eight percent (8%) per year.



 
4
 


On January 24, 2011, E 2 Investments, LLC ("E 2"), a wholly owned subsidiary of the Company, entered into an agreement with FITT Highway Products, Inc., whereby E 2 would provide consulting services related to joint ventures, acquisitions, and financing. Pursuant to the Agreement, unless terminated by written notice from either party, the E 2 will receive Four Hundred Thousand free trading shares of the Company’s common stock from a third party non-affiliate and Three Hundred Thousand shares of the Company’s common stock issued by the Company currently valued at $35,000.00. The agreement has a term of eight weeks.

On January 19, 2011, the Company entered into a Convertible Promissory Note (“Promissory Note”) with Asher Enterprises, (“Asher”) in the amount of Forty Thousand Dollars ($40,000) and a Securities Purchase Agreement. The Promissory Note was fully funded on January 12, 2011. The Promissory Note is convertible, in whole or in part, at any time and from time to time before maturity at the option of the holder at the Variable Conversion Price, which shall mean 58% of the Market Price. The Market Price is defined as the average of the three (3) lowest Trading Prices for the common stock during the 10 (ten) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent. The Promissory Note has a term of nine (9) months and accrues interest at a rate equal to eight percent (8%) per year.

On January 11, 2011, the Company’s Board of Directors adopted a stock repurchase program permitting the Company to repurchase up to $250,000 in shares of its outstanding common stock, par value $.001 per share, over the next 12 months. The shares of common stock may be repurchased from time to time in open market transactions or privately negotiated transactions at the Company’s discretion. An 8-K was filed with the Securities and Exchange Commission on January 12, 2011.

On January 11, 2011, the Board of Directors of B.T.U. Pipeline, Inc. ("BTU"), a wholly owned subsidiary of the Company, elected to dissolve the corporation. BTU was organized under the state of Tennessee and was acquired in the Wilon Resources, Inc. acquisition in 2010. BTU's sole purpose of existence was to serve as the bonding company and operator of the Company's West Virginia natural gas wells. Any remaining assets of BTU were assigned to US Natural Gas Corp WV on January 11, 2011 and appropriate documentation filed with the County Clerk of Wayne County, West Virginia. The Articles of Dissolution and Articles of Termination were filed with the State of Tennessee Department of State on March 4, 2011 after the Company's Certificate of Tax Clearance was received from the Tennessee Department of Revenue. The corporation was effectively terminated and dissolved on March 15, 2011 with the Tennessee Secretary of State.

On August 31, 2010, the Company filed an S-1 Registration to register the common shares and shares to be issued upon exercise of the warrants as per the Plan of Share Exchange between the Company and Wilon. On September 13, 2010, the S-1 Registration was deemed effective by the Securities and Exchange Commission.
 
On July 15, 2010, the Company entered into an employment agreement with Mr. Chuck Kretchman to serve as the Company’s Chief Financial Officer upon the terms and provisions and, subject to the conditions set forth in the Agreement, for a term, commencing on July 15, 2010, and terminating on December 31, 2011 unless earlier terminated as provided in the Agreement.  The Agreement included options to the Chief Financial Officer to purchase 600,000 shares of common stock at an average price of $.15 per share. The Executive agrees to accept $50,000 until September 30, 2010, then $65,000 from September 30, 2010, then $90,000 from January 1, to December 31, 2011. The Agreement contains a six month non-solicitation  clause and a confidentiality clause.
 
On May 28, 2010, the Company received notification from the appropriate state agencies that the acquisition of Wilon Resources, Inc. was effective.  Subsequently on June 3, 2010, the Company received notification from FINRA that Wilon Resources, Inc. shall no longer trade as a standalone entity.  Since this date, the Company has worked with DTCC (the Depository Trust & Clearing Corporation) to help facilitate a smooth transition in the exchange of shares and issuance of warrants as per a share exchange agreement between the two companies.  
 
On May 5, 2010, E 3 Petroleum Corp, a wholly owned subsidiary, entered into an Agreed Consent Order with the West Virginia Department of Environmental Protection Office of Oil & Gas, whereby E 3 provided to the Office of Oil & Gas a schedule to abate all current violations and bring non-producing wells into production.  In addition, E 3 agreed to pay a civil administrative penalty in the amount of Twenty Five Thousand Dollars ($25,000) prior to April 1, 2011.

On March 25, 2010, Wilon Resources, Inc filed an amendment to its Articles of Incorporation to change its 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, to change the name of US Natural Gas Corp 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, now US Natural Gar Corp WV), a Tennessee corporation wherein 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 the share exchange with 27,843,109 votes "for" and zero votes "against".
 
 
 
 
5
 

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

On February 28, 2010, the Company and Wilon executed a plan of share exchange between the two companies that was placed before the shareholders for a vote on March 19, 2010.

The Company 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.
 
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2011 AND 2010

This discussion should be read in conjunction with our financial statements included elsewhere in this report.
 
Revenues  for the three months ended March 31, 2011 and 2010 were $54,257 and $  -  , respectively.  The Company had revenues of $643,286 for the period March 28, 2008 (inception) through March 31, 2011.  Over the next twelve months the Company anticipates an increase in revenues as it reworks, reopens and drills new wells through its wholly owned subsidiaries US Natural Gas Corp WV and US Natural Gas Corp KY.

Operating Expenses for the three months ended March 31, 2011 and 2010 were $244,107 and $399,976, respectively.  The decrease of $155,869 in operating expenses was primarily from the decrease in legal, consulting and other professional services provided to the Company in early 2010.  Operating expenses for the period from March 28, 2008 (inception) through March 31, 2011 were $3,696,521.  The Company anticipates that its operating expenses will increase over the next twelve months as it brings additional wells into production.

Net Loss for the three months ended March 31, 2011 and 2010 was $167,455 and $271,696, respectively.  Net loss for the period from March 28, 2008 (inception)through March 31, 2011 was $2,897,346.

LIQUIDITY AND CAPITAL RESOURCES
 
At March 31, 2011 and December 31, 2010 cash and cash equivalents were $2,821 and $ 1, respectively.

For the three months ended March 31, 2011 and 2010 net cash used by operating activities was $173,822 and $341,293, respectively.  For the period from March 28, 2008 (inception) through March 31, 2011 net cash used by operating activities was $964,478.

For the three months ended March 31, 2011 net cash provided by investing activities was $61,702.  For the three months ended March 31, 2010 net cash used by investing activities was $95,423.  The increase in net cash provided by investing activities was primarily due to a decrease in the purchase of oil and gas properties and equipment for the three months ended March 31, 2011.  For the period March 28, 2008 (inception) through March 31, 2011 net cash used from investing activities was $65,050.

For the three months ended March 31, 2011 and 2010 net cash provided by financing activities was $115,000 and $465,431, respectively.   The decrease in net cash provided by financing activities was primarily due to a decrease in proceeds received from notes payable for the three months ended March 31, 2011. For the period from March 28, 2008 (inception) through March 31, 2011 net cash provided by financing activities was $1,032,349.
 
 
 
 
 
6
 
 
 
PLAN OF OPERATION AND FINANCING NEEDS

We intend to focus on our wells under operation in the states of West Virginia and Kentucky.  In West Virginia, our plan is to place each well capable of delivering commercially viable natural gas back into production after each well is inspected, flow lines are replaced or repaired, completion components are replaced including but not limited to check valves, regulators, well heads, Barton recorders, and the wells are swabbed to remove water from the well bores and producing formations.  At the Company’s election and with successful financing arrangements, we may elect to stimulate via acid or nitrogen frac certain wells or deepen wells to new producing formations after e-logs are completed.  The Company anticipates that the majority of the previously producing wells will be placed back into production during this period.

In Kentucky, our plan is to continue to address and place into production the wells acquired from  KYTX Oil & Gas, LLC in the November 2009 asset acquisition transaction.   We will continue to develop and place into production those wells located on the Detweiler and Thompson leases in Hart County, Kentucky. With the addition of our newly acquired work-over rig, we believe we can more economically address each well to allow us to operate our wells  and increase our oil production.

We have elected to cease any development of our leasehold base in Morgan, Kentucky. With natural gas prices remaining constant below $5.00/mcf, we believe it is in the Company's best interest to concentrate our funds on oil producing properties located in South Central Kentucky.
 
In addition, the Company operates nine gas deep wells which were drilled from 2004-2007, but not completed. The Company has completed three of these wells and has placed them into production. The remaining six wells will be addressed during the course of the second half of 2011. 

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 additional mineral rights leaseholds in Kentucky and West Virginia to further expand our block of acreage for development. 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 re-entry into previously producing wells, new drilling, increasing recoverable reserves and reducing operating costs.  We have at our disposal the use of 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. To date, we have not attempted any horizontal drilling on new wells or on our re-entry projects.
 
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 may elect to do so in the near future.
 
In order to fund our current drilling and completion programs, 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.
 

 
7
 



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 rights, 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
 
For the three months ended March 31, 2011, the Company raised $15,000 in private financing from an accredited investor.  These funds were utilized for the daily operating activities of the company.  The investor purchased shares from the Company at a price of $.015 per share.
 
See Notes M - Convertible Debenture Payable and K- Common Stock Issuances/Warrants located in Part 1: Financial Information for a detailed listing of unregistered sales of equity securities and use of proceeds.
 
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 future 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.  Therefore, a change in conditions could affect these estimates.
 
Recently Issued Accounting Pronouncements

See Notes to the Consolidated Financial Statements, Note A – Basis of Presentation and Summary of Significant Accounting Policies for a list of recently enacted accounting standards.
 
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 4. 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 forms.

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.
 
 
 
 
9
 
 
 
PART II - OTHER INFORMATION

  
ITEM 1. LEGAL PROCEEDINGS
 
There are no current 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/A filed on May 19, 2010.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
See Note K - Common Stock Issuances/Warrants located in Part 1: Financial Information for a detailed listing of unregistered sales of equity securities and use of proceeds.

The above issuances were made pursuant to Rule 506 and Section 4(2) of the Securities Act of 1933, as amended.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
The Company’s 2011 Annual Meeting of Shareholders will be held on July 15, 2011 at 10:00 am ET at the Company's headquarters at 1717 Dr. Martin Luther King Jr St N, St. Petersburg, FL 33704. Shareholders will receive, via electronic or regular mail, a Proxy of the upcoming items to be submitted before shareholders for a vote approximately 30 days prior to the upcoming Shareholders meeting.
 
Previous items submitted before shareholders for vote:

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 zero votes "against". The shareholders for Wilon approved Proposal #1 with 27,843,109 votes "for" and zero votes "against".
 
ITEM 5. OTHER INFORMATION
 
On May 3, 2011, the Company received a Letter of Intent (“LOI”) from Northwest Florida Operations, Inc. (“Buyer”) for the purchase of certain assets and assumption of certain liabilities under control by US Natural Gas Corp WV. Under the terms of the LOI, the Company is to receive consideration in the amount of Two Million Dollars ($2,000,000) with Six Hundred Thousand Dollars ($600,000) to be paid at closing and the balance over a five year period. The Buyer is to assume approximately Two Million Dollars ($2,000,000) in liabilities. The transaction is scheduled to close on or before June 15, 2011. There are no guarantees that the transaction will close.
 
 
 
 
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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
  
By-Laws (filed with Form S-1/A (File No. 333-154799) on December 9, 2008 and incorporated by reference).
     
3.4
  
Amended and Restated Articles of Incorporation filed with the Florida Department of State Division of Corporations on October 21, 2009 (Previously filed on the Current Report on Form   8-K with the SEC on October 28, 2009).
     
3.5
  
Amended Articles of Incorporation filed with the Florida Department of State Division of Corporations on March 19, 2010 (Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
3.6
  
Articles of Merger filed with the Florida Department of State Division of Corporations on May 27, 2010 (Previously filed on the Annual Report on Form 10-K with the SEC on April 8, 2011).
     
3.7*
  
Amended Articles of Incorporation filed with the Florida Department of State Division of Corporations on April 18, 2011 (Previously filed on the Current Report on Form 8-K with the SEC on April 19, 2011).
     
10.10
  
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).
     
10.11
  
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).
     
10.12
  
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).
     
10.13
  
Securities Purchase Agreement between Tangiers Investors, LP and Adventure Energy, Inc. dated as of September 24, 2009 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 16, 2009).
     
10.14
  
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 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 16, 2009).
     
10.15
  
Debenture Securities Purchase Agreement between Atlas Capital Partners, LLC and Adventure Energy, Inc. (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 16, 2009).
   
 
10.16
  
Securities Purchase Agreement by and among, E 2 Investments, LLC and Harlis Trust dated as of November 10, 2009. (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 16, 2009).
     
10.17
  
Secured Convertible Debenture issued to Atlas Capital Partners, LLC (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 16, 2009).
     
10.18
  
Security Agreement between Adventure Energy, Inc. and Atlas Capital Partners, LLC (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 16, 2009).
     
10.19
  
Consent Order issued to E 3 Petroleum Corp by the West Virginia Department of Environmental Protection Office of Oil & Gas dated as of May 5, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
     
10.20
  
Convertible Promissory Note between Asher Enterprises, Inc. and US Natural Gas Corp dated as of June 18, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
 
 
 
 
11
 
 
 
10.21
  
Securities Purchase Agreement between Asher Enterprises, Inc. and US Natural Gas Corp dated as of June 18, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
     
10.22
  
Consulting Agreement between Del Mar Corporate Consulting, LLC and US Natural Gas Corp dated as of July 9, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
     
10.23
  
Employment Agreement between Chuck Kretchman and US Natural Gas Corp dated as of July 15, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
     
10.24
  
Convertible Promissory Note between Asher Enterprises, Inc. and US Natural Gas Corp dated as of July 30, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
   
 
10.25
  
Securities Purchase Agreement between Asher Enterprises, Inc. and US Natural Gas Corp dated as of July 30, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
     
10.26
  
Convertible Promissory Note between Caesar Capital Group, LLC and US Natural Gas Corp dated as of August 6, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
     
10.27
  
Amendment to Common Stock Purchase Warrant Agreement between Caesar Capital Group, LLC and US Natural Gas Corp dated as of August 6, 2010. (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 15, 2010).
   
 
10.28
  
Amendment to Common Stock Purchase Warrant Agreement between ARRG Corp and US Natural Gas Corp dated as of August 6, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 15, 2010).
     
10.29
  
Convertible Promissory Note between ARRG Corp and US Natural Gas Corp dated as of August 6, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
   
 
10.30
  
Common Stock Purchase Warrant Agreement between Caesar Capital Group, LLC and US Natural Gas Corp dated as of August 6, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
   
 
10.31
  
Common Stock Purchase Warrant Agreement between ARRG Corp and US Natural Gas Corp dated as of August 6, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on August 16, 2010).
   
 
10.32
  
Convertible Promissory Note between Caesar Capital Group, LLC and US Natural Gas Corp dated as of September 7, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 15, 2010).
   
 
10.33
  
Common Stock Purchase Warrant Agreement between Caesar Capital Group, LLC and US Natural Gas Corp dated as of September 7, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 15, 2010).
     
10.34
  
Convertible Promissory Note between Asher Enterprises, Inc. and US Natural Gas Corp dated as of October 8, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 15, 2010).
     
10.35
  
Securities Purchase Agreement between Asher Enterprises, Inc. and US Natural Gas Corp dated as of October 8, 2010 (Previously filed on the Quarterly Report on Form 10-Q with the SEC on November 15, 2010).
     
10.36
  
Amendment to Securities Purchase Agreement dated November 10, 2009 by and between E 2 Investments, LLC and Harlis Trust dated December 20, 2010 (Previously filed with Current Report on Form 8-K filed with the SEC on December 22, 2010).
 


 
12
 

 10.37
  
Convertible Promissory Note between Asher Enterprises, Inc. and US Natural Gas Corp dated as of January 19, 2011(Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
10.38
  
Securities Purchase Agreement between Asher Enterprises, Inc. and US Natural Gas Corp dated as of January 19, 2011(Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
10.39
  
Consulting Agreement between E 2 Investments, LLC and Fitt Highway Products, Inc. dated as of January 24, 2011(Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
10.40
  
Convertible Promissory Note between Asher Enterprises, Inc. and US Natural Gas Corp dated as of February 3, 2011(Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
10.41
  
Securities Purchase Agreement between Asher Enterprises, Inc. and US Natural Gas Corp dated as of February 3, 2011(Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
 10.42
  
Articles of Termination and Articles of Dissolution filed for B.T.U. Pipeline, Inc with the Tennessee Secretary of State dated March 4, 2011(Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
10.43
  
Term Sheet between Madison Brothers Investments, LLC and US Natural Gas Corp dated March 16, 2011(Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
10.44*
  
Convertible Promissory Note between Tangiers Investors, LP and US Natural Gas Corp dated as of May 3, 2011.
     
10.45*
  
Security Agreement between Tangiers Investors, LP and US Natural Gas Corp dated as of May 3, 2011.
     
10.46*
  
Common Stock Purchase Warrant Agreement between Tangiers Investors, LP and US Natural Gas Corp dated as of May 3, 2011.
     
10.47*
  
Common Stock Purchase Warrant Agreement between Tangiers Investors, LP and US Natural Gas Corp dated as of May 3, 2011.
     
21.1
  
List of Subsidiaries (Previously filed on the annual Report on Form 10-K with the SEC on April 8, 2011).
     
31.1*
  
Certification of Principal Executive Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002.
   
 
31.2*
  
Certification of Principal Financial Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002.
   
 
32.1*
  
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
 
32.2*
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
* Filed herewith
 
 
 
 
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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 23, 2011.


 
US Natural Gas Corp
       
Date: May 23, 2011
By:
/s/ Wayne Anderson
  
   
Wayne Anderson
  
   
President and Director
  
   
(Principal Executive Officer)
  
       
 
By:
/s/ Jim Anderson
  
   
Vice President and Director
  
       
 
By:
/s/ Chuck Kretchman
  
   
Chief Financial Officer
  
   
(Principal Financial Officer)
  
 
 
 
 


14